THE high dollar is ravaging the competitiveness of Australian business. Global consulting firm KPMG reports that Australia has become the second most expensive place to do business among the major economies, behind Japan.
In its survey of global business costs, Competitive Alternatives, KPMG finds that since 2010, costs have risen more in Australia than in any other country. Most of that is due to the sharp rise of the Australian dollar against the US dollar, which has pushed up costs in every area.
Of the 113 cities surveyed, Melbourne is now the ninth most expensive place to do business, across areas ranging from manufacturing to back office services and research and development.
Sydney is now the fifth most expensive place to do business, more expensive than New York. Among the 54 big cities in the survey, only Tokyo and Osaka put more strain on corporate profitability.
In the most extraordinary finding, Australia's electricity prices have become the most expensive of any major economy, by a long way. Electricity charges to firms surveyed were more than double those in the US and Canada, and more than 40 per cent higher than in Japan.
The Bureau of Statistics reports that in the five years to December, electricity prices shot up 79 per cent in Sydney and 74 per cent in Melbourne.
The original KPMG survey in 2010 found Australia was the third cheapest location for business of the nine Western economies surveyed.
''The Australian dollar's strength is the key driver behind the changed index results,'' KPMG Australia said. ''Australia is experiencing a once-in-a-generation resources boom that ? has boosted national income and turned around the balance of trade. A corollary has been the strong appreciation of the $A that has affected local firms' competitiveness.''
The report's authors note that ''if the currency were to decline to [the level] in the previous report [March 2010], the rankings for Australia would improve by at least 50 per cent''.
The report surveyed the US, Japan, Germany, Britain, France, Italy, Canada, Australia and the Netherlands, along with China, India, Russia, Brazil and Mexico.
Overall, China was the cheapest location for global manufacturing, and India the cheapest for global service industries. Of Western countries, Britain is now the cheapest location for manufacturing and services, and Manchester the cheapest city. Canada was the best for IT and the Netherlands the best for research and development.
In virtually every sector surveyed, Australia was the the most expensive location outside Japan. The only exceptions were in manufacturing green energy products, in which Australia was the most expensive, and digital entertainment, in which it was the fourth most expensive.
In the car industry, the higher dollar has made Australia's wages the third highest behind Japan and Germany.
One limitation of the report is that it assumes that raw materials cost the same the world over. For example, it also ranks Australia the second worst location for food processing, due to the same mix of high wages, transport and utility costs. In the real world, access to cheap farm-gate produce offsets that.
Against comparable US cities, Sydney was uncompetitive as a location in every sector surveyed. Sydney was the most expensive of any of the 113 cities for biomedical research and development, clinical trials and software design.
Australia had many strengths, including the top rating for ''overall wellbeing'', and high ratings for government, transparency and the rule of law. But often the strengths were not turned to our advantage. For example, Australia ranked second for access to university, but 11th in local graduates. It had the fourth highest public research and development spending, but ranked 10th for commercial innovation.
All four Australian cities surveyed were in the world's 10 most expensive locations. Adelaide (10th) came in marginally cheaper than Melbourne (9) and Brisbane (8), with Sydney (5) bringing up the rear. Chengdu in south-western China was the cheapest location, followed by Chennai, Shanghai and Mumbai.
