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5611.0 - Finance, Australia, 1999-00  
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2000 Special Article - Information Technology and Telecommunications in Australia
This article was published in the 1999-2000 issue of Finance, Australia (ABS Catalogue No. 5611.0)


The Australian finance industry is under increasing pressure to provide more effective financial products and services to meet the needs of businesses and other consumers. New ways of conducting business are emerging as Australian business and household customers become more receptive to and more actively demand the provision of financial services via non-traditional means. Access to state of the art information technology and telecommunications (IT&T) is critical to the finance industry, both to enable the development of new financial products and services and to facilitate penetration of the markets for these services - if the customers do not have high quality IT&T infrastructure available to them they cannot access the new services.

The introduction of electronic services (e-commerce), Internet banking and on-line share trading has seen a growing interest in the export potential of financial services with the breaking down of geographical barriers and the adoption of a 'one-stop', flexible approach to accessing these type of services.

In mid-2000 Axiss Australia, established by the Australian Government in 1999, released a publication titled Information Technology and Communications Infrastructure in Australia. That publication provides a range of statistics and analysis on the IT&T market in Australia, and details the infrastructure in place to support business. Readers are referred to that infrastructure analysis, covering the communications and IT networks available in Australia and connecting Australia to the world, and the business name involved, and it is not repeated in this article.

This article looks at the IT&T market in Australia, its significance globally, its use by the finance industry and households. It also looks at some international developments.

The IT&T Market in Australia

One way of considering, in a total sense, the scale of the IT&T market is to look at an economy's total spending on IT&T. The size of the IT&T market in Australia is quoted on this basis, in Digital Planet 2000 published by the World Information Technology and Services Alliance, at just under US$36 billion in 1999. Australia is placed fifth in the world in terms of the share of GDP that this scale of IT&T spend represents. IT&T spend in that publication is defined as all of the IT&T purchases undertaken in the economy together with the internal IT salaries and other expenditures, and equipment depreciation by businesses that are not producing IT&T goods and services for the market. The measure appears to exclude retail margins. The data sources for the Digital Planet 2000 analysis included vendor supply analysis from interviews and surveys as well as data from a range of other sources.

Using the latest official statistics, Australia's IT&T spend may be significantly higher than calculated in Digital Planet. In Information Technology, Australia, Preliminary, 1998-99 (Cat no. 8143.0) the IT&T sales by IT&T specialists and other businesses totalled $56.8 billion (with 99% of those sales from IT&T specialists), see table S3.1 below. This amount alone equates to about US$35.6 billion in 1998-99, the measure reported in Digital Planet 2000. In this comparison, it is assumed that the exports component of the IT&T sales (about $4.9 billion in 1998-99) is roughly equal to the direct import of IT&T goods and services by users that are not IT&T specialist providers. That is, of the $13.2 billion of IT&T imports in 1998-99, about $4.2 billion is assumed to be imports by businesses other than IT&T specialists. Imports include specialist software design (say for a financial institution in Australia) imported directly from abroad, licence fees to use software, hardware maintenance services, computer consultancy services etc. Together these services imports totalled about $1.0 billion in 1998-99. See table 12 in Balance of Payments and International Investment Position, Australia, 1998-99 (Cat no. 5363.0) for details. Imports also includes all of the hardware imports of IT&T goods. See table 3 in 8143.0 for details.

However, in addition to the sales of IT&T by businesses, the IT&T spend in the economy includes in-house software development as well as in-house use of IT&T specialists to support internal IT&T usage. In-house software development by government in 1997-98 was about $0.9 billion, a little higher than the $0.8 billion spent on in-house IT&T salaries (see table 5.1 in Government Use of Information Technology, Australia, 1997-98 (Cat no. 8119.0). This in-house software development expenditure rises to about $1.2 billion in 1998-99, and to $1.5 billion in 1999-2000. In-house support for the operation of IT&T equipment would most likely increase this level of spend significantly for 1998-99 but the information is not available. Business expenditure on in-house IT&T salaries for all those industries not producing IT&T goods and services for the market was at least $2 billion in 1997-98 (see table 5.1 in Business Use of Information Technology, Australia, 1997-98 (Cat no. 8129.0) and is likely to have risen in line with government spending in this area to be $2.6 billion in 1998-99 and over $3 billion by 1999-2000. This amount includes both in-house software development and internal user support. Businesses' in-house software expenditure has also grown by over 50% in that period and is probably about half of the in-house business. If government in-house software expenditure is also half of its in-house IT&T expenditure, then this would imply that government in-house internal user support was about $1.2 billion in 1998-99.

Equipment depreciation has been ignored in this article because it is difficult to assess the amounts involved and to generate an unduplicated measure when the IT&T sales measure already includes equipment sales.

Bringing all of these elements of Australia's IT&T spend together, and assuming that any overstatement in direct imports of IT&T goods by end users is likely to be offset by understatement in the measurement of in-house support for IT users, in 1998-99 the total for Australia was probably about $62 billion (or US$39 billion). This level of IT&T spend represents over 10% of Australia's GDP and would move Australia well ahead of Sweden, New Zealand, United Kingdom and Columbia to rank first in the world in the Digital Planet 2000 analysis. Even if none of the Australian imports are direct to end users (which is known to be incorrect) Australia would still rank first in the world table of IT&T spenders as a proportion of GDP. It is not known to what extent the rankings for other countries in the Digital Planet 2000 analysis are also affected by measurement difficulty, including the addition of depreciation into the IT&T spends of other countries to boost their spending aggregates. However, it is reasonable to conclude that Australia's IT&T spend in relation to the size of its economy is very high in world terms, probably in the top few nations, and certainly only marginally behind any economy that might be ranked further ahead.

Table S3.1 also shows the scale of the IT&T activity in Australia in terms of the number of people employed in IT&T businesses. The 18,469 IT&T specialist businesses employed over 195,000 people at 30 June 1999. Interestingly, employment in the manufacturing, wholesale and telecommunications IT&T specialists has fallen nearly 20% overall from June 1996, with the largest fall in manufacturing (down 42%). The fall in manufacturing employment was in line with the fall in manufacturing IT&T sales. The fall in telecommunications employment (down 18%) was despite a 41% increase in IT&T sales during a time of falling prices, indicating very strong productivity improvement.

In contrast to the declining employment for the other broad industries, the computer services industries recorded a 37% growth in employment in the three years to June 1999, in line with a 33% increase in IT&T sales. Computer consultancy recorded the strongest growth in sales (up 77%), with an average business employment size of less than 5 employees. There were 13, 018 computer services businesses (88% of the total) employing less than 5 people, and accounting for 32% of total employment in the industry, whereas the 56 largest firms employing 100 or more people accounted for 39% of the industry's total employment. See Computing Services Industry, Australia, 1998-99 (Cat no. 8669.0) for more details on this industry's structure and performance.


S3.1 INFORMATION TECHNOLOGY AND TELECOMMUNICATIONS ACTIVITY, EMPLOYMENT, INCOME AND EXPENSES
Businesses at end June

no.
Employment at end June

no.
IT&T
income

$m
Total
income

$m
Wages and salaries

$m
IT&T income per person employed

$’000

IT&T SPECIALISTS
Manufacturing
Computer and business machines
119
2 211
1 044.2
1 044.5
81.4
472.2
Telecommunication, broadcasting and
transceiving equipment
51
4 457
1 074.9
1 362.1
253.8
241.2
Electronic equipment n.e.c.
73
2 540
471.7
499.7
85.4
185.7
Electronic cable and wire
24
806
245.5
272.0
38.4
304.6
Total
268
10 014
2 836.3
3 178.4
459.0
283.2
Wholesale trade
Computers
1 398
24 316
12 501.3
13 241.7
1 297.5
514.1
Business machines and electrical and
electronic equipment n.e.c.
561
10 865
*5315.3
6 193.8
643.6
489.2
Total
1 960
35 180
17 816.6
19 435.4
1 941.2
506.2
Telecommunication services
931
74 910
25 137.5
26 159.5
3 701.0
335.6
Computer services
Data processing
261
7 118
n.p.
n.p.
n.p.
n.p.
Information storage and retrieval
*112
929
91.1
97.3
31.7
98.0
Computer maintenance
392
2 975
n.p.
n.p.
n.p.
n.p.
Computer consultancy
14 546
64 453
8 569.8
8 792.2
3 193.9
133.0
Total
15 310
75 476
10 398.5
10 647.9
3 739.3
137.8
Total
18 469
195 580
56 188.9
59 421.2
9 840.5
287.3

OTHER BUSINESSES
Manufacturing
Computer and business machines
16
120
4.7
22.0
3.8
39.3
Telecommunication, broadcasting and
transceiving equipment
*6
n.p.
n.p.
n.p.
n.p.
6.5
Electronic equipment n.e.c.
134
5 079
n.p.
1 389.9
215.1
n.p.
Electric cable and wire
28
n.p.
n.p.
n.p.
n.p.
37.4
Total
184
7 956
125.6
2 350.1
357.2
15.8
Wholesale trade
Computers
-
-
-
-
-
-
Business machines and electrical and
electronic equipment n.e.c.
1 635
24 438
446.4
8 489.7
972.5
18.3
Total
1 635
24 438
446.4
8 489.7
972.5
18.3
Telecommunication services
-
-
-
-
-
-
Computer services
-
-
-
-
-
-
Total
1 819
32 394
572.0
10 839.8
1 329.7
17.7

ALL BUSINESSES
Manufacturing
Computer and business machines
135
2 331
1 048.9
1 066.6
85.2
450.0
Telecommunication, broadcasting and
transceiving equipment
57
n.p.
n.p.
n.p.
n.p.
239.7
Electronic equipment n.e.c.
207
7 619
n.p.
1 889.7
300.4
n.p.
Electric cable and wire
52
n.p.
n.p.
n.p.
n.p.
98.3
Total
451
17 970
2 961.9
5 528.5
816.2
164.8
Wholesale trade
Computers
1 398
24 316
12 501.3
13 241.7
1 297.5
514.1
Business machines and electrical and
electronic equipment n.e.c.
2 197
35 303
*5 761.8
14 683.5
1 616.2
163.2
Total
3 595
59 618
18 263.1
27 925.2
2 913.7
306.3
Telecommunication services
931
74 910
25 137.5
26 159.5
3 701.0
335.6
Computer services
15 310
75 476
10 398.5
10 647.9
3 739.3
137.8
Total
20 288
227 974
56 761.0
70 261.1
11 170.2
249.0

Source: Information Technology, Australia, Preliminary, 1998-99 (Cat. no. 8143.0).


Finance and Insurance Industry use of IT&T

Finance and insurance businesses can now be connected by international networks that facilitate the transfer of documents and funds using various forms of electronic commerce. Access to technology and the ability to implement technological advancement is critical to the performance of Australia's finance sector.

In 1997-98, the Australian finance and insurance industry's use of information technology exceeded the total Australian industry average. A total of 74% of Australian finance and insurance businesses had PCs, compared to 63% of total businesses. Internet usage was also well above the average with finance and insurance businesses accounting for 39%, Internet access, 37% email access, 34% web browser access and 12% web site/home page compared to 29%, 28%, 25% and 6% respectively for all businesses.

Of all the industries, the finance and insurance industry had the highest information technology and telecommunication (IT&T) expenses. In 1997-98, the finance and insurance industry spent $4.7 billion on new technology or 20% of total Australian IT&T expenditure, followed by the property and business services industry at $4.0 billion, manufacturing at $2.9 billion, communications at $2.8 billion, and wholesale trade at $2.7 billion.


S3.2 USE OF INFORMATION TECHNOLOGY - 1997-98

Finance and Insurance
Total
Australia
NO. (’000)
Businesses
18
603

USE OF INFORMATION TECHNOLOGY (%)

PCs
74
63
LAN/WAN
27
20
Internet access
39
29
Email access
37
28
Web browser access
34
25
Web site/home page
12
6

INFORMATION TECHNOLOGY AND TELECOMMUNICATION EXPENDITURE ($M)

Wages and salaries of in-house IT&T employees
957
3 942
Other IT&T expenses
3 752
19 638
Total IT&T expenses
4 709
23 580

Source: Business Use of Information Technology, Australia, 1997-98 (Cat. no. 8129.0).


The main benefits of Internet use identified by the finance and insurance industry were better access to information and services, ability to facilitate business across time zones and broader client exposure. Other benefits identified were improved customer satisfaction and reduced business costs.

Households

Australians are continuing to embrace the Internet for their personal finance activities. In the 12 months to May 2000, 2.3 million Australian households (33% of total households) had access to the Internet within the home. Households with higher incomes were more likely to have Internet access at home, 51% compared to 18%. Households in metropolitan area were more likely to have the Internet connected at home, 37% of households compared to 26% outside metropolitan areas.

Australia's experience is similar to that of the United States and Singapore where use of home computers and access to the Internet are also increasing. In 1997, 81 million United States residents (30% of total population) had access to a computer within the home, of these 52% had Internet access. In the same period, 41% of Singaporean households had access to a home computer, increasing to 59% in June 1999. Access within the home to the Internet by Singaporean households increased dramatically, from 9% in 1996 to 42% in 1999.


S3.3 HOUSEHOLD ACCESS TO COMPUTERS OR THE INTERNET

Households with access to a computer at home
Households with access to the Internet at home
May 1998

%
May 1999

%
May 2000

%
May 1998

%
May 1999

%
May 2000

%

Household income
$0-$49,999
27
30
37
6
10
18
$50,000 or more
68
70
75
28
39
51
Region
Metropolitan areas
45
52
56
18
25
37
Other areas
37
39
51
8
17
26
Total
42
47
54
14
22
33

Source: Use of the Internet by Householders, Australia (Cat. no. 8147.0).


A total of 8% of Australian adults used the Internet to pay bills or transfer money in the three months to May 2000. While not significant when compared to other means of handling finances electronically, Internet usage is up four times from the rate of 12 months earlier. Security continues to be the main barrier for consumers in using the Internet for payment or transferring of funds.


S3.4 ADULTS MAKING SELECTED ELECTRONIC TRANSACTIONS

May 1998

%
May 1999

%
May 2000

%

Paid bills or transferred funds via the Internet
1
2
8
Paid bills or transferred funds via telephone
30
39
51
Paid bills or withdrew funds via EFTPOS
59
62
67
Transferred or withdrew funds via ATM
68
72
74

Source: Use of the Internet by Householders, Australia (Cat. no. 8147.0).


International Developments

The development of technology and, in particular, on-line services has resulted in the breakdown of geographical restrictions allowing consumers easy access to services provided abroad. Within the region, Australia's main competition is with Singapore, Hong Kong and the United States. Other economies such as Malaysia and Taiwan are also developing similar strategies to develop on-line financial services facilities.

During the 1990s, the Singapore Government implemented a strategy to attract financial services, other business service enterprises and relocation of regional headquarters of overseas multinationals by offering incentives such as low taxation, infrastructure, co-investment opportunities, transparent regulation and an educated, disciplined workforce. The Singapore Government intends to take Singapore's stake further to become Asia's prime financial hub. Singapore is building a digital infrastructure that will provide disciplined broadband Internet access. This initiative, referred to as 'Singapore One', aims to establish Singapore as an e-commerce hub for Asia, connecting the 3 million residents of the island to the Internet.

The Hong Kong Government released their information technology strategy in 1998 which set out the Government's plans and programmes to assist the development of information technology to assist economic growth. Key points of the strategy include the establishment of a HK$5 billion Innovation and Technology Fund to provide finance for projects which will contribute to the improved use of innovation and technology in the hope of positioning Hong Kong as an Internet hub for the Asia Pacific region to produce, distribute and market goods more effectively. Other aims include enhancing Hong Kong's role as an international financial services centre by strengthening regulatory systems and developing new products and to focus on service provision to small and medium enterprises.

Malaysia is developing plans to build a Multimedia Super Corridor, however, its domestic economic situation and financial situation as a result of the Asian financial crisis, has impacted on Malaysia's future plans.

In tune with developments abroad, Australia also has undertaken a number of initiatives, including the establishment of the Australian Centre for Global Finance (AXISS Australia), creation of the National Office for the Information Economy, whole-of-government approaches to on-line delivery, and initiatives such as the Building on IT Strengths programme. AXISS aims to make Australia a leading financial service centre in the Asia Pacific time zone. The Australian Stock Exchange (ASX) is also developing links with overseas exchanges to globalise the world's stock markets. This globalisation is likely to have a dramatic effect on Australia's domestic broking market, with the 24 hour share trading forcing greater competition within the market.

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