E-Commerce cranks up Australian economy

The first study to feed electronic commerce into a computer model of the entire Australian economy has identified the winners and losers among states and occupation groups.

Commissioned by the National Office for the Information Economy, the ground-breaking exercise uses the Monash model, a computer simulation of the Australian economy. It predicts adoption of e-commerce will lift Australia's GDP (gross domestic product) by 2.7 per cent or $14 billion a year by 2007.

Productivity gains will translate into a 3.2 per cent rise in the consumption potential or $500 per capita per year by 2007. Real wages are predicted to rise 3.5 per cent and aggregate employment by 0.5 per cent.

The study, a first cut intended to trigger further analysis, was done in conjunction with 13 business spanning the financial, telco, legal, transport and technology sectors. It modelled the quantitative effects of widespread use of Internet transactions by consumers and business.

Unsurprisingly, the simulation identified the entertainment and media sector and hospitality as the main industry winners, followed by communication, and banking and finance. Losers will be the retail and wholesale sectors where e-commerce bypasses traditional channels.

The study pours cold water on overheated expectations that e-commerce will lead to a frictionless economy in which transaction costs disappear, barriers to market entry fall and geography becomes irrelevant. But the study does concede there is evidence emerging that e-commerce is stimulating price and cost cuts, and details some of them. It predicts these bypass effects in business-to-consumer channels could lower retail margins by up to 20 per cent over 10 years. In the book industry, those margins could fall by 30 per cent.

The changes will not be costless to consumers and business. The study estimated the cost of adopting e-commerce will rise to about $1.5 billion annually by 2007.

On a state-by-state basis the study found that the Australian Capital Territory will emerge a clear winner from the e-commerce revolution. Western Australia and Queensland will be losers because of their strong dependence on traditional industries like mining. Gains will slightly offset losses in Victoria and South Australia, while New South Wales will match the national picture.

The study also rates how different occupations will weather the expected changes e-commerce will ring in. Leading the list of winners are professions based in the hospitality and entertainment sectors. Occupying the lowest rungs are travel agents and retail sales managers.

But hard data about e-commerce is still thin on the ground and the report cautions that all modelling is a simplification of reality.

It also notes that the $1.3 billion Australian e-commerce is expected to generate in 2001 to 2002 is still a tiny fraction of an overall economy involving final expenditures of $550 billion annually.

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