I am Leon Gettler. My job is to review and monitor the week’s news in business, finance, and economics. I bring it all to you, every week.
This is episode number thirty-nine in our series for 2019 and today’s date is Friday October 25.
First I talk to Tommy Huppert, CEO of Cannatrek which has just got permission from Greater Shepparton City Council to build a $160 million medicinal cannabis production facility near Shepparton, Victoria. When completed, it will be one of the world’s largest medicinal cannabis facilities, creating more than 400 jobs a year for the Greater Shepparton area and beyond. The facility will include a 160,000m2 growing area under a giant high-technology glasshouse. When operating at full production, the Company aims to produce 160 tonnes of medicinal cannabis per year.
And I’ll be talking to Rabobank economist Michael Every, analysing the latest attempt by the US and China to come up with a trade deal.
But first, let’s talk to Tommy Huppert.
President Donald Trump said China has indicated that negotiations over an initial trade deal are advancing, raising expectations the nations’ leaders could sign an agreement at a meeting next month in Chile. “They have started the buying,” Trump said Monday during a Cabinet meeting at the White House, referring to Chinese purchases of U.S. agriculture products that the president has pushed for as part of a deal. “I want more,” he added. Earlier Monday, Commerce Secretary Wilbur Ross said that it was more important to get details of the agreement right than it was for Trump to sign it at an expected meeting with Chinese President Xi Jinping next month in Chile.
More than half of the world’s banks are too weak to survive a downturn, according to a survey from consultancy McKinsey & Co. A majority of banks globally may not be economically viable because their returns on equity aren’t keeping pace with costs, McKinsey said in its annual review of the industry released Monday.
It urged firms to take steps such as developing technology, farming out operations and bulking up through mergers ahead of a potential economic slowdown. In its report, the firm said banks risk “becoming footnotes to history” as new entrants change consumer behavior. Most recent attempts by banks to boost efficiency have been “business-as-usual,” it said. Banks allocate just 35% of their information-technology budgets to innovation, while fintechs spend more than 70%, McKinsey said.
Combined with regulatory factors lowering the barrier to entry — like open banking and looser requirements for startups — the environment is increasingly conducive for newer firms to take share from banks. The report points to Amazon.com Inc. in the U.S. and Ping An in China as examples of technology firms that are capturing financial-services customers. To make matters worse for the old guard, the new players tend to go after the business areas that create the highest returns at banks — credit cards, for example.
ANZ-Roy Morgan Australian Consumer Confidence made a partial recovery last week, rising 0.6% after the prior week’s 1.2% drop. Current finances dropped 2.4%, however. This component is now down nearly 10% from its August high. Future finances gained 0.4%, taking it back above its long term average. Current economic conditions gained 0.3%, while future economic conditions declined by 1.1%. Both the subindices are below their long-term average.
Falling house prices and the weaker Australian dollar caused the number of millionaires in the country to tumble, with Australia losing 124,000 millionaires who fell below the global mark in US dollar terms. Wealth per adult slid from $US411,060 ($A599,000) to $US386,060 ($A563,000), meaning the average Aussie lost $36,000 over the year, according to Credit Suisse’s 2019 global wealth report. No country in the world lost as much as Australia, which fell from being second in the global ranking in 2018 to fourth in 2019. Up until the May federal election, the national housing market had lost billions of dollars in value over an 18-month period, which Credit Suisse attributed to the declining wealth of average Aussies. Three rate cuts from the Reserve Bank of Australia also weighed on the currency, which has steadily depreciated over the year
Shaky confidence in the capital city apartment market is hitting off-the-plan buyers hard, with a significant rise in the number of newly constructed units now worthless at completion than the price they were originally purchased for. According to CoreLogic data for August, more than half of newly constructed off-the-plan apartments in Sydney and Melbourne were worth less than the owners bought them for Nearly a third of off-the-plan apartments in Sydney were worth at least 10% less. The data shows that 60% of off-the-plan apartments in Sydney, and 52.9% in Melbourne, were valued lower than their contract price at the time of settlement.
The latest figures from property data provider CoreLogic for the month of August shows that nearly a third of off-the-plan buyers in Sydney were moving into new apartments worth at least 10% less than the price they purchased them for Just two years ago, less than 16% of newly constructed NSW units were valued below contract price after they were completed.
Dramatic hikes in insurance premiums combined with tighter lending in response to climate risk could trigger a wider property market correction, according to data from the firm Climate Risk. Analysis from the firm shows the number of “uninsurable” addresses in Australia is projected to double by the turn of the century to nearly 720,000 – or one in 20 if nothing is done to address escalating risk from extreme weather and climate change. Thousands more will see their insurance premiums double or even triple within decades, the data reveals. Climate Risk’s clients include governments, banks, mortgage lenders, and other key players in the insurance and finance industry,
Treasurer Josh Frydenberg has left Washington upbeat about challenges facing the global and domestic economies, including a “more positive” outlook for a US-China trade fix, even as the IMF warned Australia must tackle tax reform and that next year’s budget may need to tap some of the surpluses to stimulate growth. Mr. Frydenberg said his message was “there’s no need to panic” and that the global economy “remains sound”, after three days of intense talks with counterparts from around the world, including US Treasury Secretary Steven Mnuchin, UK Chancellor of the Exchequer Sajid Javid and India’s Nirmala Sitharaman. Washington’s economic managers were “pretty upbeat about their economy”, he said, and “the language from the Americans and Chinese were more positive than I’ve heard previously; about their ability to resolve some of these differences”.The Treasurer’s optimism was echoed by one of the world’s most powerful Australian executives, Morgan Stanley chief executive James Gorman, who told a finance forum in Washington that US consumer balance sheets were “in very strong shape”.
The federal government will move ahead with an industrial relations change that will set the same wages and conditions for the construction lifetime of new major projects, a move it says will provide investor certainty and head off costly industrial action. Although Labor went to the election proposing to consider the policy if it won, both it and the union movement have cooled since, creating the potential for a clash with the government over industrial relations. A month after releasing a discussion paper canvassing lifetime workplace agreements for greenfield projects such as mines, gas fields and major infrastructure developments, Industrial Relations Minister Christian Porter said the response had been so positive the government would proceed with legislating the change. The government said the changes would prevent cases of agreements expiring mid-project and stop workers accessing protected industrial action to apply maximum pressure to employers for wages and conditions. The unions who stayed silent before the election are now hostile to the idea, while Labor is deeply skeptical.
The goods and services tax would be broadened, stamp duties scrapped and messy federal-state funding agreements abolished under a call for a major reform of the federation proposed by the NSW government. In a bid to make states less dependent on Canberra and take advantage of a one-in-60-year alignment of state and federal political cycles, NSW said it wanted “to drive a national vision for the federation that encourages innovation and competition”.
Declaring the federal financial architecture “fundamentally flawed”, NSW Treasurer Dominic Perrottet, who established a panel to review the state’s federal financial relations, said states, especially NSW and Victoria, needed to take the lead in advocating the benefits of reducing their financial dependence. Victoria and NSW plan on closely co-ordinating any reforms. The first of a series of reports by the Review of Federal Financial Relations, chaired by former Telstra chief executive David Thodey and including former New Zealand prime minister Bill English, singles out “highly inefficient” property stamp duty and the shrinking coverage of the GST. The report goes well beyond the agenda set by Josh Frydenberg at a meeting of state and federal treasurers earlier this month, which focused on measures “to boost the nation’s productivity and to develop actionable items in the areas of transport, health, skills, and environmental regulation”.
More than $40 million in unpaid wages was handed back to Australian workers in the past financial year. The Fair Work Ombudsman recovered the money for 17,718 workers in 2018/19, according to the organisation’s annual report. The workplace watchdog confirmed fast-food restaurants and cafes are a key priority, with a series of high-profile wage theft scandals plaguing the industry in recent years. Hospitality accounted for 36% of all reports, almost tripling the second-ranked sector, which was retail.
Australia is on track to produce its smallest winter grain crop for more a decade as tough times for farmers get even tougher, Rabobank says. The specialist rural lender predicts the winter crop will reach just 27.7 million tonnes as the harvest kicks into gear in some parts of the country as ongoing severe drought conditions continue to take their toll on many of the nation’s main cropping regions. The production shortages that have resulted in record premiums for grain for flour milling and to feed livestock are expected to put more pressure on food prices and further weaken Australia’s position in key export markets. Rabobank expects a 50% increase in grain imports after the federal government took the unusual step of allowing local flour millers to import some 360,000 tonnes of high-protein wheat from Canada this year. The Rabobank production update represents a 6-million-tonne downgrade on the official federal forecast from last month of a 33.9-million-tonne winter crop.
Australia’s junior mining ranks have shrunk to the lowest level in four years and accounting firm BDO believes insolvencies are likely to rise on the back of a two year high in the number of companies close to exhausting their cash reserves.
The pain is extending to landlords, restaurants, and airlines, with analysis finding the junior resources sector spent about 22% less on “administration costs” in the first half of 2019 compared to the same period of 2018. The ASX requires explorers to file a quarterly cash-flow statement, better known as an “Appendix 5B”, and BDO said 666 companies lodged an Appendix 5B in the three months to June 30.
That was down from 680 in the first three months of the year, more than 700 a year ago, and was the lowest number since BDO started tracking Appendix 5B’s in 2015. While a range of factors played into the decline, BDO noted that tough times in the sector saw ten companies delisted and three suspended during the period. Two further junior resources companies were acquired by companies with no connection to the resources sector, and the change of business model means they will no longer need to publish an Appendix 5B every three months. The average cash balance held by Australian exploration companies declined from $5.62 million to $5.39 million in the three months to June 30. The number of companies with less than $1 million of cash on hand rose to the highest level since 2017, with 41% of companies in such dire straits. In June 2018 that proportion stood at 31 %. More than 16% of companies had less than $500,000 on hand on June 30.
The Australian Commission for Law Enforcement Integrity (ACLEI) will next week hold public hearings as it escalates its investigation into corruption claims surrounding Crown Resorts’ international high-roller program. Michael Griffin, the head of the Australian Commission for Law Enforcement Integrity (ACLEI), said the hearings are set to examine interactions between Crown and the Department of Home Affairs. These “raise issues of corruption”, he said. The Morrison government referred allegations to the ACLEI in July following revelations by The Age, Sydney Morning Herald and 60 Minutes that Crown Resorts had partnered with tour companies backed by organised crime syndicates implicated in drug running, money laundering and human trafficking, in order to attract wealthy Chinese gamblers.
The health sector is responsible for nearly one-in-five data breaches in Australia and finance is not far behind – and wrongly sent emails are mostly to blame, the privacy watchdog says. The nation’s finance and health sectors are ground zero for data breaches, Australia’s privacy watchdog has found. Private health service providers reported 19% of the total breaches reported between April and June under the Office of the Australian Information Commissioner’s (OAIC) National Data Breach scheme.
The finance sector was next, with 17% of data breaches for the period, the commission said in its latest report. This was followed by the legal, accounting and management services sector (10%), the private education sector (9%), and the retail sector (6%). The most common information revealed in the breaches was contact information, at 90%, financial details (42%), identity information (31%), health information (27%), tax file numbers (16%), and other sensitive information (9%). Human error was the leading cause of data breaches in the health sector, accounting for 55% of breaches, compared with an average of 35% for all other industries annually. Personal information sent to the wrong recipient was the most common human error breach in the health sector, whether by email, mail or other forms of communication. In the finance sector, human error accounted for 41% of data breaches (higher than the cross-sectoral average of 35%)
Australia’s two largest magazine publishing rivals will come together in a blockbuster $40 million deal. Bauer Media, owner of Kerry Packer’s former stable of titles has procured Pacific Magazines from the Kerry Stokes-controlled Seven West Media. The deal combines more than 50 gossip and lifestyle magazines and means that seminal titles such as the 86-year-old Australian Women’s Weekly and Woman’s Day, “will have to learn to co-exist” with arch-rivals like Pacific’s New Idea and Better Homes and Gardens. The deal remains subject to approval from the Australian Competition and Consumer Commission.
ASIO probed 275 foreign investment proposals last year, it’s second-highest vetting on record, reflecting the Australian Security Intelligence Organisation’s concern about personal data and critical infrastructure being acquired by Chinese and other foreign actors. The 12% annual rise in the number of foreign-backed buyouts reviewed by ASIO was also a big spike in activity on five years earlier when its annual report did not mention the words “foreign investment” or the Foreign Investment Review Board. ASIO’s latest 2018-19 annual report said its assessments of 275 proposed acquisitions provided advice to the government on the potential for a foreign power to conduct espionage, foreign interference or sabotage “through its involvement in specific investments.
The retail malaise seems to have bypassed online retailer Kogan which reported gross sales rising more than 16% in the September quarter and gross profits climbed more than 28 % as strong 35% in higher-margin private label or house brands offset a “material” decline in third party brands.
And that’s it for this week. And next week, I’ll be talking to Rod Horin, the managing director of Joseph Palmer & Sons talking about all the financial issues facing the aging population. And I’ll be talking to economist Nicholas Gruen about restoring trust.
And of course, I’ll be bringing you all the week’s news. In the meantime, you can find me on Twitter at talkingbizz, on Facebook and on LinkedIn. And if you want, leave a comment. Have a great week, take care, be good and looking forward to bringing you Talking Business next week.