Prime Minister John Howard’s record fourth election victory demonstrates that the world’s most successful sporting nation (in Olympic medals per capita) prefers to play it very safe when it comes to politics. Against an inexperienced new Labour party leader, Mark Latham, who ran a spirited campaign, the 65-year-old veteran Liberal-National party coalition leader maintained his tough stance on Iraq and relied on his sound management of the economy to produce a resounding election win. Australians were not prepared to take the risk with an untested newcomer and Mr Howard was able to secure a 2% electoral swing, increase his majority in the House and unexpectedly gain control in the Senate.
Solid growth
A strong economy and a rosy outlook are seen as significant factors behind Mr Howard’s win. Australians are the richest they have ever been, with a net wealth of A$250,000 ($183,550) for every man, woman and child, thanks to the booming stock-market and soaring house prices. The latest estimates from the Treasury show wealth rose by 18% in the June quarter to reach A$5000bn for the first time. While the Treasurer, Peter Costello, tried to play down some of the economic optimism in post- election comments, the Treasury forecasts that Australia will have a growth rate of 3.5% for each of the next four years while accumulating A$25.2bn in budget surpluses over that period.
Although Mr Howard’s support for US President George W Bush’s position on Iraq met stiff opposition and Mr Latham promised to bring Australian troops home by Christmas, if elected, Iraq was not seen as a key issue. The strong economy, low interest rates, high employment levels and the failure of the opposition to convince the population of the need for change all contributed to the decisive outcome.
Australia rarely changes national governments, despite going to the polls every three years. Since World War II the government has only changed five times and, given the magnitude of the latest win, it is likely that the coalition will be returned at the next election.
Mr Howard’s new mandate provides a much greater platform for change than was expected. The full sale of the remaining 50.9% of telecommunications giant Telstra, which was blocked twice in the Senate, is now clear, and this third tranche is set to bring in an estimated A$29bn, the largest sale in Australia’s corporate history. A major shake-up of media laws is now expected, along with the deregulation of the labour laws and a further overhaul of the tax system.
Steady approach
Despite having been in power for over eight years and now about to overtake Labour’s Bob Hawke as the country’s second longest serving prime minister, Mr Howard remains a cautious politician, keen to maintain the status quo, and he is unlikely to opt for radical reforms.
In a recent interview, Mr Howard said he favoured the “rotting strut in the pier theory of change”. He explained: “You pull away one of the weaker struts and the sea washes against it and it collapses. That’s how you bring about change.”
While some may clamour for a more rapid and radical approach to reform, Mr Howard continues to stick to his characteristic solid and steady style and, if the election result is any indicator, Australians prefer it that way.
Big four play safe
The country’s inherent conservatism is also seen in the strategies of the big four banks – National Australia Bank (NAB), Commonwealth Bank Group, Westpac and ANZ Banking Group – especially in relation to their operations outside Australia. While China and east Asian states are fast becoming Australia’s largest trading partners, the banks have a limited presence in these areas and have withdrawn from many parts of Asia in the past decade.
Although the large Australian banks are highly profitable by global standards, all with returns on average capital of more than 28% in fiscal 2003, they appear to have concentrated on domestic issues and given longer-term considerations in Asia a wide berth. Despite its significant role in the Pacific islands, Westpac basically retrenched out of Asia back to Australia in the late 1990s, focusing on local acquisitions such as Challenge Bank and Bank of Melbourne. ANZ, which had purchased the Grindlays network in the Middle East, Pakistan and India in 1984, thought that this region did not adequately complement the banking group’s focus on east Asia or Australia’s trade flows, and in 1998, the Grindlays franchise was sold to Standard Chartered.
ANZ chairman Charles Goode tells The Banker: “We thought our trade with the Middle East, India and Pakistan was not great and we had nothing to offer there, but in east Asia, Australians were willing to go there and the bank had plenty of products and services to offer.” ANZ is now slowly building a presence in east Asia. “We are putting tarmac on the ground in a number of places,” says Mr Goode.
Key to ANZ’s strategy in China, which it first entered in 1986, is the purchase of a stake in the Shanghai Rural Credit Cooperative Union, which plans to become a bank next year. ANZ is negotiating to purchase up to 25% of the Shanghai Cooperative, which is expected to cost more than A$200m and be a major part of its drive into east Asia. Unlike HSBC and Citigroup, which are buying into bigger Chinese banks, ANZ is looking for similar-sized institutions in the area.
Mr Goode says that ANZ is increasing its footprint in the region with a 29% stake in Indonesia’s Panin Bank, where it hopes to expand in consumer banking. It was the first western bank into Vietnam and may open in Cambodia, he says. But, while it has just entered a joint venture with the Philippines’ Metrobank and has been operating in Korea since 1993, its activities in east Asia pale into insignificance compared with its A$4.9bn acquisition of National Bank of New Zealand last year.
Although Commonwealth Bank Group is reported to be negotiating the purchase of an 11% stake in China’s relatively small Jinan Bank, ANZ is virtually alone among the four Australian banks in developing a significant Asian presence. However, its operations in Asia are still relatively limited and highly risk averse.
With the possible exception of infrastructure and trading specialist Macquarie Bank, which has developed various product niches in Asia, the Australian banks are small players in the region. Nevertheless, they could expand much more and develop their Asian links significantly. Although Australian banks do have a size constraint compared with their global competitors, there also appears to be a fundamental lack of appetite for Asian risk, something they may regret in the longer term.
Meanwhile, NAB, Australia’s largest bank, is contemplating the sale of its two Irish banks, Belfast-based Northern Bank and Dublin-based National Irish Bank – investment bank Lazards is seeking expressions of interest. Following A$360m in foreign exchange losses earlier in the year, NAB’s new chief executive, John Stewart, may use the possible A$2.4bn from the sales to help strengthen the bank’s capital. He stresses, however, that NAB’s two UK banks, the Yorkshire and the Clydesdale, which account for 80% of its A$920m in profits from its European subsidiaries, are not likely to be sold.
Financial centre
The major banks may be conservative in their operations abroad, but Australia is gaining increasing attention as a financial centre in its own right. In September, US-based finance giant GE announced plans for Melbourne to become a regional centre for its operations throughout Asia. The A$98m investment by GE, creating at least 1500 new jobs, follows a series of financial services investments, including 1200 new jobs in Computershare’s new global operations centre in Melbourne.
With strong language and good educational skills, Australia is also attracting interest as a call centre location serving Asia. Recent reports by research companies Datamonitor and Gartner suggest that Australia has definite quality and cost advantages in the call centre market and, according to some observers, can be more cost effective than competitors in India. Datamonitor notes: “Australia has the largest call centre market in the Asia-Pacific region with a total of 121,000 agent positions and 2138 call centres. We believe that this will grow at a moderate 9.9% from 2003 to 2008.”
