THE DISTILLERY: A productive Aussie dollar

The Reserve Bank delivers Australia, and the government, some good news on productivity, while jotters analyse the legacy of outgoing QBE boss Frank O'Halloran.

Now, it’s time to get back to the issues. Productivity has been a theme of the current Labor government, though the discussion has been overtaken by another ‘p’ word, personality, on a number of occasions. The Rudd-Gillard governments have talked extensively about resurrecting Australian productivity by building the new economy’s jobs in manufacturing, green energy and utilising the national broadband network, but as The Australian’s David Uren discovers, better productivity is just as likely to come simply from a higher valued currency. Meanwhile, many commentators conclude that outgoing QBE chief executive Frank O’Halloran is an unlucky legend, while Billabong International’s bold second rejection of TPG’s advances comes up for further discussion.

The Australian’s David Uren finds Reserve Bank of Australia Governor Glenn Stevens saying Australia is on the precipice of a new era in productivity growth after a disappointing decade of decline. What good news this could make for an embattled government that’s talked extensively about improving productivity – that is, when a serious revamp of Fair Work Australia is not the context.

"The government is talking about raising productivity. The rollout of broadband, the funding of skills training, support for green energy, and manufacturing investment are all part of what Julia Gillard describes as the ‘new economy,’ which will be ‘high-wage, high-skill, high-productivity, at the forefront of innovation and research’. However, Stevens last week referred to none of these. Rather, it was the high value of the Australian dollar that would force businesses exposed to international competition to either do more with less, or get out."

Meanwhile, the verdict on Frank O’Halloran’s planned departure as QBE chief executive is in. He was an amazing insurance boss that got unlucky. However, The Sydney Morning Herald’s Malcolm Maiden stands out from the pack by going back in time to when O’Halloran won the chief financial officer role at QBE way back in 1976. Maiden reveals that O’Halloran, at the beginning of a career at QBE he could hardly have predicted himself, splashed $52,000 on a house. Today, median house prices are 15 times the value of those seen in ’76.

"Much more value has been created at QBE over the same time by O'Halloran and his predecessor as chief executive, John Cloney, even taking into account the sharemarket thrashing the shares have received since the global financial crisis erupted in mid-2007. O'Halloran is one of the very few Australian business chiefs who has successfully expanded overseas. Only News Corp and BHP Billiton compare: QBE was booking premium income of $93 million when O'Halloran arrived. Last year it booked $US18.3 billion. But QBE is no longer priced like a growth company, and no longer able to easily make the earnings-accretive takeovers that punctuated O'Halloran's tenure.”

Meanwhile, The Sydney Morning Herald’s Elizabeth Knight suggests that a management and board overhaul at Billabong International is on the cards as major shareholder Gordon Merchant exerts influence over the company he founded.

"With a direct stake of 16 per cent and the support of like-minded shareholders, Merchant has his foot on around 20 per cent of the company. At this level the views of the rest of the board don't really matter. Merchant has taken on his own adviser, Greenhill Caliburn, which suggests he is not in lock step with most of the other Billabong directors. Insiders say he is deeply unhappy with Billabong's operational performance and he is set to re-inject himself into the game. They also confirm suggestions over the weekend that the management will be overhauled soon. After the management overhaul, the next cab off the rank will be the Billabong board, which will soon be the subject of an orderly succession. This includes the current chairman and former Foster's boss, Ted Kunkel.”

And fourthly, The Sydney Morning Herald’s Michael Pascoe says James Packer’s plea for a revitalised tourism industry makes much more sense now that his plans for Echo Entertainment – part of a potential Sydney casino monopoly designed to lure Asian high rollers – is known.

"One of the troubles with the casino business, something Packer understandably hopes to exploit, is our hypocrisy about how many of the naughty things a city can have before it becomes bad. While no-one can be "a little bit pregnant”, Australian states believe a single casino allows us to be naughty but nice. The joke is that Sydney has an army of casinos marching out through the heartland, we just chose to call them clubs. The difference between a roulette wheel spun by a dealer and computerised roulette operated by a button is only a matter of aesthetics and operating expense. We either decide people are allowed to gamble in casinos or they’re not. We’ve already gone with the affirmative, so it only suits those with existing rights to the scale and supposed glitz of the "casino” moniker to limit competition.”

Let’s get back to O’Halloran for the rest of this morning’s business commentaries. The Age’s Adele Ferguson says O’Halloran’s replacement at the top of QBE, John Neal, must have some guts to step into the chief executive’s role with his predecessor continuing to loom large on the company’s board. The Age’s Eric Johnston ponders how it went wrong for the outgoing QBE boss, who had an at times phenomenal grasp on how his company’s broad footprint was placed. The Australian Financial Review’s Chanticleer columnist Tony Boyd probes a little deeper into the use of the company’s capital raising and speculates that more could be needed, while The Australian’s John Durie and Richard Gluyas go for the ‘unlucky legend’ line.

On a side note of sorts, The Australian’s Criterion columnist Tim Boreham says QBE shares look like good value at the moment, but questions whether investors should expose themselves to a business that seasoned analysts sometimes struggle to get their heads around.

In other company news, The Australian’s Barry Fitzgerald says Atlas Iron executive chairman David Flanagan will have to wear his best sales jacket on the upcoming roadshow in March to promote the iron ore miner’s Fortescue-style growth aspirations if he’s to fend off unwanted takeover offers. In a separate piece, Fitzgerald looks at an expanding minerals hot spot in Botswana and Australia’s significant role in it. The Australian's Brian Frith says Goodman Fielder now appears to be in play, but Wilmar International has probably managed to snuff out any chance of an opportunistic private equity player from meddling.

In Asian affairs, The Age’s Peter Cai continues to issue cautious tones in regards to China, this time referencing a report from the World Bank that says Beijing must curtail its economic meddling, social inequality and improve its environmental record if China is to become a high income economy. Fairfax’s Insider columnist Ian McIlwraith examines an unconvincing set of Asian equity performance numbers considering the ‘dawn of an Asian century’ narrative.

The Sydney Morning Herald’s Ross Gittins delivers a typically astute explanation of the benefits of education investment; specifically, smart education investment.

And finally, The Australian’s Peter van Onselen says criticism of centre-left Australian governments by the business community need to be taken with a grain of salt due to the obvious underlying ideological clash.

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