Spotlight on Australia - November 2024

Many people believe Australia is rich because it can sell endless amounts of coloured dirt like iron ore and coal. When it comes to trade, there is nothing too complex about what Australia exports. However, Australia is no mining backwater. It has the smarts where it counts, in technology and research.

Australia exports lots of raw minerals

As the chart below shows, Australia’s main exports are low in economic complexity and it makes Australia stand out from other G20 countries. Argentina, Canada, Russia, and Saudi Arabia have a similar percentage of commodity exports (the size of the circle) but Australia is far to the left in terms of the economic complexity of those commodity exports. 

Australia ranks a lowly 79th in terms of the economic complexity of its exports, sandwiched between Albania and Uzbekistan.

The reason for Australia’s low ranking is that its top exports are mostly raw materials. Just look at the amount of low complexity exports (dark orange) for Australia in the chart below versus Canada. Canada may also be heavily reliant on commodity exports, but it also exports large amounts of manufactured goods including cars and gas turbines.

Australia’s Export Complexity 2021

Source: Atlas of Economic Complexity, Harvard Growth Lab

Canada’s Export Complexity 2021

Source: Atlas of Economic Complexity, Harvard Growth Lab

Australia’s mining industry would argue that Australia has a comparative advantage in extraction. While they could capture more revenue by processing its raw minerals, this would require significant investment. Further, they likely would not be able to compete against other processing countries who have had decades to achieve expertise and scale.

Expertise and scale, however, has not stopped countries like Saudi Arabia moving down the supply chain from crude oil to the manufacture of ammonia, fertilisers, and plastics. Comparative advantages can be developed over time. 

Unlike mineral processing, Australia would find it hard to compete in manufacturing sectors with a high ratio of labour such as textiles and vehicles. Australia simply does not have enough labour, low-skilled or specialised, to reach the scale needed to compete. As soon as the Australian government removed support for the local car industry, the 60-year-old industry folded within a few years.

Distance is also a barrier to the Australian manufacturing sector. The reason that Canada can export cars is because it borders the US and like Mexico is integrated into the US vehicle supply chain.

But Australia is a leader in research and technology

While Australia ranks 79th in terms of its export complexity it ranks 4th in terms of its complexity in research and 13th in terms of technology (see chart below).

The Economic Complexity Indicators (ECIs) for research and technology are calculated using data on journal article rankings from the SCImago Journal and Country Rank portal and from patent applications from WIPO (World Intellectual Property Organization) respectively.

The ECI methodology goes beyond a simple ranking of the data, instead it takes into account the breadth and depth of activity. This is how Australia can be ranked 10th in the number of scientific journals published in 2022 but 3rd in terms of the economic complexity of its research.

How Australia punches above its weight in research and technology?

Given its small population, Australia cannot compete with the private and public research budgets of larger countries. But neither does it stand out in terms of its relative spend. Australia's total spending on R&D as a percentage of GDP in 2019 (1.8%) was less than the OECD average (2.7%), and far behind the leader Israel (5.2%).

However, what Australia lacks in quantity it makes up with the quality of its research institutions.

It has 4 universities in the QS top thirty for 2024: The University of Melbourne (13th), The University of Sydney (18th), The University of New South Wales (19th), and The Australian National University (30th).

In terms of individual subject areas, Monash University ranks 2nd in the world for pharmacy and pharmacology, The University of Queensland ranks 2nd in the world for sports and related activities, and The University of New South Wales ranks 3rd in the world for metals and mining engineering.

Australia’s publicly funded CSIRO (Commonwealth Science Investigation and Research Organisation) ranks in the 2nd percentile for research. Its most-famous achievement was the invention and patenting of WLANs (Wireless Local Area Networks) which much of the world uses everyday.

Why is Australia able to produce such high-quality institutions? Many would point to a long history of stability and political and economic freedom. Australia attracts students from around the world and also retains many of its top researchers. In 2024, Australia ranked last in the world for the economic impact of brain drain and human flight.

Australia also benefits from a culture of curiosity, excellence, and a love of challenging the status quo.

All this boosts our labour productivity

Going back to our first diagram, we can see that Australia’s labour productivity is higher than that of countries like the UK, Canada, South Korea, and Japan (also see chart below). While this has many determinants, excellence in research and technology are strong contributors.

Final thoughts

Australians aren’t just digging holes in the ground; they are among the world’s smartest and most productive workers.

Australia has world-class research and technology. The reason that this does not show up in the economic complexity of our exports is because of the sheer volume of raw minerals it exports to some of the world’s biggest economies.

Australia is a smart economy that also happens to be blessed with a huge mineral endowment that is needed by its Asian neighbours.