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Five industries to soar and five to fall in 2012

Wednesday, 4 January 2012 | By Oliver Milman
The idea of Australia having a “two speed” economy has become so entrenched that it’s easy to overlook the less visible, but yet significant, factors at play among the nation’s start-ups.

 

Overall, the picture looks relatively bright when compared to overseas economies. While retailers have bemoaned a quiet pre-Christmas period and aren’t overly confident about the start to 2012, the overall economy grew by 2.5% last year.

 

The high Australian dollar, driven by the runaway mining sector, softening productivity levels and skills shortages have hindered Australian businesses to varying degrees, depending on sector, location and export readiness.

 

But there’s nothing to suggest that good old-fashioned innovation and hard work aren’t still the most important factors when choosing which type of business to launch.

 

“There are lots of different circumstances at play in the Australian economy at the moment,” says Craig Shulman, senior analyst at IBISWorld.

 

“If you see a gap in the market, the sectors doing well at the moment may provide more opportunities for start-ups, but if you can come up with a new way of doing things, you can still turn things around in a declining industry.”

 

“If you jump upon a booming industry and don’t position your product properly, you won’t last long.”

 

With this major caveat out of the way, it’s time to look at IBISWorld’s annual ‘Industries to fly and fall’ report for 2012. Last year, organic farming, video games and electricity distribution took out the top honours.

 

Here are the sectors tipped to sink and swim this time around.

 


 

Hot in 2012

 

1. Diamond and Gemstone Mining

 

IBISWorld says that global economic conditions are vital for this sector, with more than 90% of Australian diamonds exported.

 

Five years of lower production levels, poor prices and a strong Australian dollar, the analyst group expects things to improve for the sector, with revenue rising 36.7% to $599.9 million in 2012.

 

IBISWorld’s general manager (Australia), Karen Dobie, says: “The revenue rebound will be driven by stabilising prices and higher production levels, which are forecast to increase by 39.5%.”

 

2. Motor Vehicle Manufacturing

 

According to IBISWorld, the ailing motor vehicle manufacturing industry will grow by 14.3% to reach over $11.9 billion in the coming year. This growth represents a partial recovery following the global financial crisis.

 

“However, revenue is still expected to fall $5 billion shy of pre-financial crisis levels,” Dobie says.

 

The provision of a more diverse range of products and more environmentally friendly vehicles will be key factors assisting domestic growth.

 

More environmentally friendly vehicles and an improvement in the export market is tipped to spur the upturn.

 

3. Online Education

 

The National Broadband Network is expected to benefit several industries, not least Australia’s online education industry, which is due for a revenue increase of 10.6% in 2012, to be worth just under $4.9 billion.

 

“The growing trend towards re-skilling for working adults and lifelong learning for retirees is expected to support continued growth in flexible methods of study, including online education,” Dobie says.

 

Shulman adds: “There’s a greater acceptance of online education now, as well as better overall access to the internet.”

 

“More areas, such as nursing, are now moving online. Entrants to this industry have to closely consider content and delivery. Content of any kind is expensive to produce, while you will also have to compete with offline alternatives.”

 

4. Biotechnology

 

The biotech sector tends to move in investment cycles and 2012 is expected to be the profitable end of the process, with revenue growing by 10.3% over the coming year to reach over $2.4 billion.

 

“We are seeing the research and development phase coming to an end and biotech start-ups are becoming commercial viable,” says Shulman.

 

“The major industry players are quite risk adverse due to the global economy, so they will be looking for new products to buy where they don’t need to do the R&D and replace items where the patent has expired.”

 

There is a downside for anyone thinking of jumping into the biotech space this year, however.

 

“If you’re in the early stages, you may find it difficult to get funding,” says Shulman. “The GFC is still having an effect when it comes to the long-term funding of start-ups.”

 

5. Online Shopping

 

The traditional bricks and mortar retailers may not like it, but when even the likes of Harvey Norman are setting up an online products portal, it’s clear that ecommerce is a trend that refuses to temper its growth.

 

Christmas may have been disappointing for many retailers, but online shopping has gone from strength to strength. IBISWorld expects growth of 10.2% to reach revenue of $10.4 billion – representing about 5% of the total retail sector.

 

“People are becoming more comfortable with shopping online and the convenience is a big factor,” says Shulman.

 

“Computer and electronics do well in this space as it’s easy to compare the plethora of stats on products. Books do well too. It’s an area that has scope to grow further still, with the use of tablets and smartphones.”

 

Industries to fall

 

1. Iron and Steel Manufacturing

 

Unsurprisingly, the manufacturing industry has two representatives in the ‘falling’ category, with the iron and steel sub-sector set to suffer a 45% drop in exports in the coming year.

 

IBISWorld expects revenue for iron and steel manufacturers to fall by 14.9% in 2012.

 

“Domestic demand is simply not strong enough to compensate for the rapid declines in international exports – leading industry players to reduce production levels,” Dobie says.

 

“BlueScope’s decision to exit the export market and the closure of two blast furnaces at its Port Kemble steelworks facility is indicative of the challenges facing the industry.”

 

2. Institutional Building Construction

 

The petering out of the federal government’s stimulus package for public builds is tipped to hurt the construction industry. In 2012, industry revenue is expected to fall by 9% to $10.3 billion.

 

“The majority of work in the institutional building market is undertaken by private contractors and funded by the public sector. When funding falls away, so too does revenue,” Dobie says.

 

3. Cotton Ginning

 

A 7.7% decline in revenue for cotton ginners is set to follow a boom 2011.

 

“While the wet weather in 2011 played havoc with most agricultural industries, it was just what the cotton industry needed – with lint production reaching 1,144 kilotonnes and revenue reaching $2.7 billion,” Dobie says.

 

“Although down on last year, 2012 will still be a good year overall for cotton ginners, with production expected to reach 1,109.5 kilotonnes, and industry revenue forecast to be $2.5 billion.”

 

4. Cut Flower Growing

 

Increased pressure from convenience stores and the continued consumer reluctance to splash out on luxury items means that industry revenue is forecast to drop by 4.3% to a level half the size it was 10 years ago.

 

Dobie says: “The industry has experienced a restructuring of its customer base with an increasing percentage of production being sold through supermarkets and convenience stores rather than florists. Cut flowers are also a highly discretionary item and conservative spending is expected to keep demand weak through 2012.”

 

5. Pulp, Paper and Paperboard Manufacturing

 

Another manufacturing struggler, businesses in the pulp, paper and paperboard area are set to pay the price for Australians’ increasing use of iPads and eReaders for their reading material. Revenue is tipped to drop by 3.7% over the coming year.

 

“The price of woodchips is expected to continue to remain high in 2012 – resulting in continuing high prices for printed materials. This will be an additional reason for consumers to go electronic,” Dobie says.

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