Innovate, adapt and invest – critical actions for a positive future

As 2015 gathers pace, business internationally is dealing with an unprecedented cocktail of uncertainty. The low oil price is posing a considerable challenge to major oil exporting nations. More frequent spikes in volatility are occurring in markets, especially foreign exchange. Companies and households appear to be holding off on investment and consumption because of uncertainty about the future.

The United States is the best performing economy in the world at the moment. It has a number of factors working for it: availability of flexible labour, availability of cheap reliable energy, relatively low labour costs, availability of capital and importantly, an entrepreneurial spirit.

While acknowledging that growth here is softer, Australia is still a very positive place to be. What are these positives?

To begin, while weaker Chinese growth is undermining commodity prices, other factors that shape corporate earnings are mostly offsetting this effect: they include a lower Australian dollar (which benefits sectors such as tourism, education and agribusiness), and rising business credit growth. This suggests moderate earnings growth is achievable and we are certainly seeing growth returning to KPMG this year.

With record-low interest rates likely to be reduced again this year, funding will remain readily available, at a very low cost. Increased strength in capital spending in non-resource sectors should occur and indeed, is much needed to help counter the decline in mining investment activity.

Corporate balance sheets are, broadly, in good health with low leverage and cash holdings accumulating solidly over the past few years. There are strong indications that large corporates will have more appetite for mergers and acquisitions this year, motivated by an increased capacity to fund deals – although identifying credible opportunities could remain a challenge.

The fundamental forces are in place to support an acceleration in investment and sustained business growth. Many businesses are in a position to make a material contribution to the economy’s growth dynamic. It is imperative that corporate Australia capitalises on conditions and responds with actual commitments to invest, spend and hire, as well as to seek out breakthrough innovations that can spur greater productivity, which in turn leads to higher living standards.

Investing in new technologies and training is vital, as is developing necessary competencies, better processes, new lines of business and a plan for sustained and balanced growth. There has been ample discussion about such activity but there must be real implementation. To help inject further momentum into these efforts, there must be a national commitment to industrial and tax reform, deregulation, addressing opportunities in Asia swiftly and fostering entrepreneurship.

The private sector has long been vaunted for the attributes that drive economic dynamism and growth: fast-moving, innovative, nimble, pioneering and importantly, the willingness to take a risk. Those attributes remain, though perhaps stronger leadership and motivation are required to encourage the lift of spirit that will heighten action and performance.

There will be no shortage of challenges this year but that is not new and I am confident that businesses have the capacity and the capabilities to grow profitably. There is no shortage of opportunity if we turn our minds to thinking and acting differently, through determined efforts to innovate, adapt, invest, and perhaps most importantly for private sector growth, take risks.

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