Ai Group’s latest CEO survey shows Australian business leaders are cautiously optimistic for 2023 and are investing to address skills and supply chain challenges.
While skills and labour shortages, geopolitical factors and inflation continue to cause stress, 49 per cent of businesses say conditions will be better this year than last.
At a webinar last week, Ai Group Chief Executive Innes Willox said the survey, which includes feedback from 280 businesses that, together, employ more than 102,000 people and have a combined turnover of about $50 billion, shows businesses were cautiously optimistic for the year ahead.
“The resilience of the Australian economy and Australian businesses shines through, loud and clear,” Mr Willox said.
“Having come through Covid and all that that entailed and now facing domestic and international uncertainties, business remains strongly focused on growth and on taking up opportunities, new markets, new products and new ways of working.”
Now in its tenth year, Ai Group’s Australian CEO Expectations for 2023 report reveals how business leaders plan to tackle the opportunities and challenges facing the Australian economy.
Business leaders’ expectations for this year are remarkably similar to 2022, Jeffrey Wilson, Ai Group’s Director of Research and Economics, told webinar guests.
“They anticipate robust market conditions to continue, and they expect supply side issues to continue, but this time they have formulated strong investment plans to tackle those supply chain, staff and inflation problems head on,” Dr Wilson said.
“Business conditions, turnover, employment and investment are expected to be robust — either matching last year's strong performance, or, in a few cases, doing slightly better.
“Very few businesses are expecting a downtown for this year, which is great, but they also see supply side issues continuing.
“Eighty per cent think energy prices will keep rising, 73 per cent think other input prices — labour or materials — will keep going up and unfortunately, only 61 per cent think they can raise their sales prices to make those costs back.
“There is clear recognition that these supply side problems are not A problem, but THE problem holding back business growth in Australia.”
Inflation is top of the list, closely followed by workforce problems: skills and labour shortages.
Other inhibitors include:
But business leaders are taking charge, Ai Group’s Senior Research Analyst, Colleen Dowling, said.
“We’re seeing a bumper investment pipeline in the works,” she added.
“We track four investment indicators in our CEO survey: training, R&D, CAPEX and technology, and all four are strongly positive for 2023 — at even higher levels than what we saw in 2022.
“Australian businesses are about to deploy some serious investment firepower.”
The types of investments under way defy convention, with workforce-focused investments topping the list.
For the first time in the history of Ai Group’s annual CEO survey, staff training is the top investment priority.
“This is an obvious response to the tight labour market,” Dr Wilson said.
“Unable to recruit for skilled roles, businesses often have no choice but to grow their own talent by investing in the workforce they've got instead.
“In contrast, more conventional types of investment such as physical CAPEX — buildings and equipment — or research and development ranked very lowly for 2023.
“Interestingly, this illustrates one of the hidden costs of the skills crisis in Australia today. As businesses are redirecting their investment plans to workforce, there's not much left over for growing industry or doing R&D.
“Given Australia ranks fairly poorly on international league tables for R&D, this doesn't bode well for our future competitiveness in five to ten years’ time.”
Despite the end of the pandemic, supply chain disruptions remain a vexing problem, with global lockdowns and logistics issues continuing.
In response, business leaders have elevated supply chain resilience to be a top priority and nearly 90 per cent of CEOs plan to make a supply chain investment this year.
Their top strategies include focusing on internal improvements such as increasing inventory, factoring in longer order lead times and reconfiguring operational processes.
Just under 20 per cent of businesses say they plan to find new suppliers while a quarter of businesses say their only strategy is to increase their prices to recoup supply chain costs — effectively passing them on to customers.
“A quarter of businesses sounds like a lot, but it is actually a worryingly low number,” Dr Wilson said.
“Given 79 per cent of businesses say they're currently affected by supply chain problems, it tells us that most businesses don't expect they can recover those additional costs from high pricing.
“The balance sheet is going to have to wear the difference.”
Australia’s economy is in a better position than most, Austrade's Chief Economist, Heather Cotching, said at the webinar.
“I think we will be talking about recessions this year, but not within Australia,” she said.
“There might be a recession in some of our trading partners: the UK is the most likely, with their acute energy challenges and recent political instability, and the US is a possibility.
“We have difficult challenges, but they're better challenges than some that our trading partners are facing.”
While agriculture, manufacturing and construction are sectors that might be more susceptible to economic vulnerability, it’s more important to look at business type, Ms Cotching said.
“What I am most worried about is small businesses and cash flow,” she said.
“If you were a small business with some major clients very slow on their payment terms, that could squeeze you out of action.
“Cash flow is going to be the killer this year — making sure that businesses can keep the cash flow there to pay their employees when you've got supply chain issues and problems with selling product if it’s backlogged offshore.
“That's my No.1 concern.”
Australian business leaders say 2023 is going to look a lot like 2022: continued upside for market and demand, continued downside for supply.
“But the difference in 2023 is that businesses are ready for it and are fighting back with clear, developed investment programs to stanch off staff shortages, supply chain disruptions and surging prices,” Dr Wilson said.
“Time will tell whether these strategies are going to be enough.”
Click here for the full report.
Wendy Larter is Communications Manager at the Australian Industry Group. She has more than 20 years’ experience as a reporter, features writer, contributor and sub-editor for newspapers and magazines including The Courier-Mail in Brisbane and Metro, the News of the World, The Times and Elle in the UK.
