(As prepared for delivery – November 22, 2016)
Thank you for inviting me to address this esteemed forum.
I will open this afternoon’s session with President Barack Obama’s words at last June’s SelectUSA Investment Summit: “… [S]elect the USA – because nowhere in the world and never in history has there been a better place to grow your business;” and, I can add, invest your hard-earned capital.
I think that says it all, any questions?
Seriously though, the United States, the world’s largest economy, is stronger today than at any other time since the global financial crisis. GDP has been on the rise for seven straight years with the recent quarter up almost 3%. And, while we have a ways to go to catch up with Australia and its 25 straight years of economic growth, all indicators are positive. We have seen 80 straight months of private sector job growth, and unemployment is down to 5%. Exports grew 10% in the third quarter, the fastest pace in three years. Corporate profits are up 63%. Foreign direct investment in U.S. manufacturing tops $1 trillion U.S. dollars. Contrary to what you might expect, this is the largest and most dynamic sector of the U.S. economy.
When you look at the U.S.-Australia economic relationship, the outlook is even better. Since the passage of our free trade agreement 11 years ago, goods trade has nearly doubled and trade in services has increased by more than 122%. In just the last three years, two-way investment has increased nearly 50% – from $1 trillion to $1.5 trillion U.S. dollars. The United States is the largest foreign investor in Australia and the top destination for Australian investment abroad. Australian investment in the United States has grown by 40% since 2012, to almost $600 billion.
I know everyone has questions about the elephant in the room – President-elect Donald Trump. Obviously, it’s too early to speculate about the economic policies of the next administration. But, of course, this does not stop others from speculating or acting like they know, but the truth is we will just have to be patient. The U.S. stock markets, at present, seem happy with the election results, but markets go up and down for many reasons, especially during any transition period. And, as they inevitably do throughout any one presidency.
I do believe that America will continue to be Australia’s number one economic partner because of the trust, confidence, and optimism we have in the strength of each other’s economies. The fact is U.S. companies like Exxon Mobil, Boeing, Bechtel, and many others have been successfully investing and doing business in Australia for the past 100 years, if not longer. In that time, there have been Republican and Democratic Party presidents; there have been Labor and Liberal Party prime ministers. Regardless of who has sat in the White House or the Lodge, there has been a significant amount of trade and investment between our two nations, driven by our companies, small businesses, and entrepreneurs. I expect this to continue to be the case over the next year and for the next 100 years.
If I haven’t already convinced you to invest in the United States, here are some more reasons.
First, you’ll make money. The United States is the world’s largest market, with a population over 300 million and an economy worth $18 trillion U.S. dollars. The 20 free trade agreements that link the United States with other top economies, including Australia, provide enhanced access to hundreds of millions of additional customers worldwide.
Second, the U.S. business environment is transparent, rules-based, and predictable. Former Australian Ambassador to the United States Kim Beazley has urged the growing number of Australian small- and medium-sized businesses to set up shop in the United States because that is where, in his words, they get “fair treatment.” Citing the U.S. Supreme Court decision in Australia’s favor in an intellectual property suit, Mr. Beazley praised the United States as one of the few places where a foreign entity can win over a national one in the legal system. He said: “If you have a good idea, you can go to the United States and be fully protected.”
Third, the U.S. workforce is diverse, skilled, innovative, and mobile, and among the most productive in the world. Our workforce is the product of a world class higher education system. American universities comprise 16 of the top 20 universities globally – these institutions draw the best students and talent from across the world.
Fourth, there is a critical need for infrastructure investment in the United States. Our recent Presidential election saw commitments from all sides of the political spectrum to improve and overhaul airports, roads, and rail networks. In his victory speech, President-elect Trump referenced $1 trillion U.S. dollars for infrastructure investment as one of his first priorities. Private financing is key to his plan; these infrastructure projects are long term endeavors that require patient capital. Pension funds, unlike venture capital and private equity, can invest with a longer time horizon, and reap the rewards. IFM’s recent U.S. investments – including road and energy projects – top $10 billion U.S. dollars. Greater opportunity awaits.
Fifth and final, the most important reason to invest in the United States is that we are innovation leaders.
One of America’s founding fathers, Benjamin Franklin, a noted innovator and inventor of his day, once said “When you’re finished changing, you’re finished.” Americans take this seriously and are continually seeking out the new and different to improve the tried and true.
The United States issues more patents per year than any other country on earth. In 2015 alone, we issued over 300,000; six times as many as Japan, which is the second largest issuer of patents; and 30 times as many as China.
Over the last eight years, President Obama has made 21st century innovation a centerpiece of his administration. He directed the largest single investment in basic research in our history, jumpstarted a clean energy revolution, unleashed the potential of precision medicine, and invested in science, technology, engineering, and math – otherwise known as STEM – education.
To help develop next-generation STEM practitioners in the United States, we are building public-private partnerships, developing mentorship programs, and putting 100,000 more STEM teachers into classrooms over the next decade.
President Obama’s Strategy for American Innovation has much in common with Australia’s National Innovation and Science Agenda. So, it is no coincidence that innovation is part of parcel of unique, cutting-edge U.S.-Australia partnerships, such as our cooperation on space exploration and in biomedical research.
Innovation can also be seen in our approach to energy, which is a sector ripe for mutual investment. U.S. companies are already investing billions of U.S. dollars to help Australia to become the world’s largest exporter of liquefied natural gas; and doing it in a way that is cleaner and environmentally responsible. While at the same time, together, we are exploring clean energy alternatives – solar, wind, and wave energy, and biofuels.
U.S.-Australia innovation cooperation spans universities and government, think tanks and corporations. These partnerships help both our economies expand, develop, and compete in the world market. Creative people and creative companies are teaming up to figure out how to deal with a changing world, changing markets, and a changing climate. This innovation economy is fertile ground for both short- and long-term investment; here in Australia and in the United States.
The investment we need – in infrastructure, in innovation, in innovative infrastructure – is more than governments can do alone. And banks are still gun-shy and deleveraging from the global financial crisis. While many infrastructure experts say there is no lack of capital in search of projects for investment, what is needed is the right type of capital to suit a unique type of investment. Standard and Poor’s estimates a $500 billion per year gap between infrastructure need and available public funding and bank lending worldwide. This is where superannuation funds can make a difference.
Private equity, with its high levels of leverage and proclivity for early exits, is a poor match with infrastructure. As I mentioned earlier, pension funds and endowment funds are patient capital. Such long-term investors have found success with infrastructure projects that have long development times, reduced volatility, greater stability, better returns, and predictable income. Inflation is low today, but that may not always be the case. Better to hedge your bets, and your funds.
In the United States, university endowment funds have moved away from the traditional mix of solely stocks and bonds in their portfolios to “alternative assets,” including real estate, farmland, energy, private equity, and infrastructure. Yale University’s Endowment Fund, which has long been an industry leader in the United States, pioneered the concept of a portfolio that takes into consideration the long-term horizon. Its portfolio mix is about 67% alternative assets and 33% traditional assets. New Mexico’s State Investment Council, the State’s permanent endowment fund, recently invested $100 million in Macquarie Infrastructure and Real Assets Fund – money to be used for infrastructure projects in China, India, Korea, and Australia. In Canada, Canadian retirement, endowment, and foundation funds plan to increase their investments in infrastructure by 36% over the next three years.
Australian funds are already benefitting from U.S. infrastructure investment. Take, for instance, IFM’s involvement in the Indiana Toll Road. The more than $200 million U.S. dollar project is the largest improvement to the critical roadway since it was completed in 1965. It has been praised by local government officials and stakeholders, and has attracted additional investment from U.S.-based funds such as the California Public Employees’ Retirement System. There is no better sign of confidence.
These examples highlight the importance of innovation in investing and diversification – by geography and sector and type of assets.
To highlight my commitment to exploring these possibilities, I want to mention a trip I took to Darwin earlier this month with representatives from leading American companies – Bechtel, GE, KBR, Leidos, and several others– to look at infrastructure and business opportunities in the Northern Territory. Our delegation came away from the two-day trip with several possibilities for investment and projects in minerals, tourism, defense, and other sectors.
The trip to Darwin highlights one of the many unique aspects of the U.S.-Australia economic partnership: its mutuality. We want Americans to invest in Australia as much as we want Australians to invest in the United States.
And this two-way investment is symbolic of the leadership Australia and the United States are providing globally; we are leading by example, as allies, partners, and friends. One example of this joint leadership took place at June’s SelectUSA Investment Summit in Washington. We were honored that Industry Super Chair Peter Collins and IFM CEO Brett Himbury took the stage with our Secretary of Transportation and the Lt. Governor of New York to share their insights on what the United States can do to improve infrastructure investment opportunities. They joined 2,500 participants from 70 markets and 52 U.S. states and territories, including companies and business associations as well as economic development organizations representing U.S. locations. I hope we’ll see more of you at our next Summit in June 2017.
One sure sign of trust between friends is to entrust them with money. That trust is why we currently invest billions in each other’s economies.
The Australian superannuation industry is sitting on a couple of trillion dollars in assets that need to be invested. As should be clear from my remarks today, the U.S. government and the American business community want to bring some of this investment to the United States. The U.S. Commercial Service stands ready to make investment easier by connecting superannuation funds with state governments and companies in the United States that are seeking investment.
The existing trade and cultural ties between the United States and Australia argue for such investment. As does the strength of the U.S. market, a burgeoning infrastructure sector, and dynamic growth in innovative industries.
In sum, there’s never been a better time to invest in the United States.
Thank you. I am happy to take your questions.