First, China. Australians used to have a saying: " if the US catches a cold, then Australia gets the flu". The risk now is, how far will deleveraging in China go, and what will happen to Chinese imports of iron ore and coal, price and volume. No one really knows.
To add to the uncertainty, since 2007, the advent of the Rudd/Gillard/Green party Governments, Australian Federal debt issuance has risen from c. AUD 50 billion to c. AUD 300 billion. This excludes State sovereign debt of a similar amount. Most of this debt is held by foreign bond holders. Further, Federal debt is likely to continue to rise substantially.
Australia is at substantial risk of China induced musical chairs. Worse than US induced flu. Especially worse since policy options are limited by the vast expansion of sovereign debt.
What are the options?
Australia has substantive numbers of world class manufacturers and innovative engineering firms. I have listed examples in previous blogs. For instance, HMAS Perth, an ANZAC class guided missile frigate, is considered to be the "most advanced vessel of its class in the world". This is because of its phased array and combat management system which is able to defend the ship against supersonic sea skimming missiles. This technology was developed in Australia.
Cochlear, commencing with a small R&D grant in 1981 now employs 2,700 people with a AUD 3 billion market capitalisation.
There are plenty of other examples and there could be hundreds more.
If the Australian economy is to transition and lessen the China risk, it will need to capitalise on all of these opportunities.
This will not be possible without a vibrant venture capital industry. Australia does not have one at present. Just AUD 111 million was invested in 2012/13. Although the country is reported to have the 4th largest funds management sector in the world, it will be a brave trustee that allocates to venture capital.
A prominent venture capitalist, Mark Carnegie, stated that "The venture capital industry has been its own worst enemy in Australia over a long period of time" and "the industry has performed incredibly poorly". That is certainly true, and with limited exceptions, the investment history of venture capital has been very poor in Australia.
David Millhouse is an international entrepreneur with over 30 years in venture capital and private equity internationally. Based in Brisbane, Australia he is a specialist in venture financing and capitalisation, as well as the management of high growth companies, many of which proceed to IPO. He has conducted business in the UK, Germany, Switzerland, USA, Canada, Singapore, Hong Kong, Australia and New Zealand. A scientist by original profession, with an MBA and LLM from Bond University in Australia. He is a trustee of Bond University, Australia’s premier private University, and was formerly a trustee of the Queensland Art Gallery/Gallery of Modern Art. There are 30 years of publications and media on his professional activities and he has had a stellar career at CEO level since 1983.
For personalised solutions to the issues raised in the blog, please contact CORPbuilders TM at www.corpbuilders.com.au or call 0413 748 844