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Australia's heavy reliance on natural resources has brought riches to many, but risks worsening the country's structural economic flaws.
The ASX-SGX takeover, which would have created one of Asia’s largest stock exchanges, was seen as just the kind of welcome move that would have strengthened the financial services sector, already a top performing non-resource sector of the economy and one upon whose strength a more diverse economy could be hoisted.
Tony Naughton, head of economics at Melbourne's RMIT University, says the decision to block the merger was driven at least in part by the government’s sagging poll numbers, which have plunged to historic lows over their proposal to launch an emissions trading scheme as early as next year.
“The justification [to block the takeover] is on economic reasons but I suspect there’s a lot more to it than that… there appears to be a political dimension to it where the government of the day is putting across its image as a tough operator,” he said.
The decision could have the unintended consequence of scaring off foreign investors, he said, and must be seen as a missed opportunity for Australian markets.
“Here was an opportunity for greater integration in the financial system of Australia and Singapore, two major markets of course, which could have benefited all around, with very clear benefits in terms of ease of access of capital and transacting across borders, and it was knocked on the head. Whether it was political or just because it was Singapore is yet to be determined.”
Not everyone thinks the surging resource sphere is such a bad thing, however, provided it is managed correctly.
Australia has always relied on commodities exports to the exclusion of other sectors of the economy, said Adam Boyton, chief economist for Deutsche Bank AG. In reality, far from being a drag on the economy, it is an advantage that most developed economies wish they had. The best thing at this point is not to repeat the early mistakes made during the current boom such as returning the surpluses in the form of tax rebates.
“I think it’s a reality of our comparative advantage. And it has been a reality of our competitive advantage for a long time. I mean, jump back 10 years ago when Australia was old economy. People were making those same comments, you know ‘why would you invest in Australia? It’s old economy. It’s not high-tech. It doesn’t do this and it doesn’t do that,’ and as it turns out that was about the time that China started to emerge, and in very dramatic fashion.”
“It’s always been a country dependent on commodities: 150 years ago, putting the first gold rush to one side, it was largely agricultural commodities. Now it’s a different set of commodities. And that’s just the nature of Australia’s competitive advantage.”
Investors will just have to wait for the next drop in commodities prices to see if that proves true.