Australia’s international ranking in economic complexity has fallen again, with the country now sat at 93 out of 133 countries in an index produced by Harvard University researchers.
This is despite the country’s economic complexity index score marginally improving from -0.56 to -0.55 over the same period.
Australia has now fallen 38 places from the economic complexity index ranking for 1995. In the last decade alone, the economy has become “less complex, worsening 12 positions”.
The Atlas notes that “Australia’s worsening complexity has been driven by a lack of diversification of exports” and its economy is “less complex than would be expected for its income level”, given it had the ninth highest GDP per capita in 2021.
Australia ranks just below Uganda and just above Pakistan in terms of economic complexity despite having a GDP per capita that is 68 times and 40 times larger, respectively.
The Atlas also notes that the Australian economy has “not yet started the traditional process of structural transformation”, in which resources are reallocated from low productivity sectors towards high productivity sectors like electronics and machinery manufacturing.
Between 2006 and 2021, Australia began exporting rare earth metals, the only new export from the country over that period. The total value of rare earth metals exports over that period is $80.9 million.
The value of Australia’s net exports is mainly driven by minerals, fossil fuel resources, and agriculture. Iron ores and concentrates make up nearly 38 per cent of the value of Australian net exports, with coal and petroleum gas accounting for the next largest proportion at 15.5 and 12.1 per cent, respectively.
However, the value of Australian exports has grown at an annual average of 9.5 per cent over the five years to 2021, with the destination receiving the largest proportion being China, at 41.1 per cent. Japan receives the second largest proportion at 11.8 per cent, while South Korea receives just under 8 per cent.
The Atlas highlights that the existing diversifying knowhow in Australia is insufficient to grow the economy and it is relatively difficult to diversify Australia’s exports by building on existing export products.
To boost economic complexity, the Atlas suggests Australia adopt a ‘strategic bets’ approach. This entails a need for “coordinated long jumps into strategic areas with future diversification potential”.
The Albanese government is hoping to revitalise Australian manufacturing with its $15 billion National Reconstruction Fund, which it plans to use to scale the production of goods in several sectors, including value-adding in resources, renewable energy and clean technologies, and medical science.
The Productivity Commission has been critical of the government’s planned support for domestic manufacturing. In its latest Trade and Assistance Review, the commission questioned whether “an economically efficient battery industry” could be stood up through government support.
In the context of large industry development packages being deployed in other jurisdictions, the PC also noted that “the additional diversification benefits of building an Australian domestic production capacity in [critical technologies] is likely to be marginal”, which local battery industry firms rejected.
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