The dynamic setting of our business is influenced not only by the economic aspirations of Australia’s current and emerging Indigenous population, but also by changing economic, social and political circumstances.
The rate of population growth of Indigenous Australians is exceeding that of the non- Indigenous population, with a considerable increase in the youth demographic. It is estimated that Indigenous groups now own or have rights to around 40 per cent of Australia’s land mass, under various forms of title and legislation: for example, Native Title Determinations and Indigenous Land Use Agreements.
Our customers continue to face more adversity than non-Indigenous Australians do on a range of socioeconomic, health and education measures. Members of regional and remote communities may lack the financial literacy needed to make the most of their resources and environments.
In the broad economic environment, movements in lead indicators—such as interest rates, unemployment, the consumer price index, gross domestic product, and house prices—have a strong influence on housing affordability, the viability of businesses, and returns on investments. IBA monitors movements in these indicators to inform our risk management and planning processes.
The outlook for the global economy is looking more positive, in terms of both growth and inflation. The Reserve Bank of Australia (RBA) expects economic growth to be around 3 per cent over the next couple of years, with not much change in the current rate of unemployment yet a gradual increase in inflation. Wage growth remains subdued but is not expected to decline further, and spare capacity is likely to remain in the economy for some time yet. The subdued growth in household income is likely to continue to constrain consumption growth in the near term.
The labour market and wage growth have been weak to low over recent years, and the market is taking time to adjust. The RBA estimates that the impact of the decline of mining investment back to normal levels is around 90 per cent complete.
Of the 209,000 Indigenous households recorded in the most recent available census data (2011 Census), 37 per cent owned their homes, as compared to 70 per cent of non-Indigenous Australians. IBA faces the challenge of helping to close this gap while being mindful of the risks and challenges that potential customers face in entering the housing market.
Significant differences in the housing market are apparent across the country. Major cities, especially Sydney and Melbourne, continue to see housing prices increase, yet Perth shows a continued decline. A flow of new apartments to the market over the next year or so will soften rents, primarily in the eastern capital cities.
The risks to customers getting into home ownership include possible future declines in property prices and increases in interest rates and unemployment. Our policy of adjusting eligibility requirements to ensure that housing repayments do not give rise to financial stress (typically by limiting repayments at around 30 per cent of gross income) is an appropriate response to escalated property prices and the risk of interest rate increases. On the other hand, extending assistance to those who are more sensitive to economic change invites unacceptable risk. A rationale of responsible lending drives our customer management.
Of the 140,000 employed Indigenous Australians recorded in the 2011 Census data, only 6 per cent were operating businesses of their own, as compared to 15 per cent for non-Indigenous Australians. The end of the mining boom may disproportionately affect Indigenous businesses, particularly in rural and remote areas. The viability of the local business environment, including at the macro level, will impact on the viability of the small and medium enterprise (SME) sector, including the Indigenous SME market.
In response to the Commonwealth Indigenous Procurement Policy launched in July 2015, IBA restructured its business development model to deliver more holistic, regionally based training and support services. We will continue to respond to the needs of Indigenous businesses to position them to leverage the policy’s opportunities.
Our objective is to continually meet our customers’ needs and innovate accordingly. Start-ups are a key area of focus of our work to build our customers’ capability and capacity. We offset the risk inherent in lending to our customers by ensuring that business proposals are commercially viable or have the potential to become viable, and by providing appropriate planning and guidance in developing customers’ ideas and increasing their capabilities before they enter into business.
IBA’s investment portfolio comprises three main segments: direct investments, asset and funds management, and capability development. Across these segments, IBA co-invests in a range of sectors and geographic locations, seeking to provide strong financial returns as well as employment, training and supply chain outcomes for Indigenous Australians.
Interest rates are at record lows, creating a high level of demand for investments with attractive returns and creating intense competition for assets. This is making it more difficult for IBA and its co-investors to acquire investments at attractive levels. It also means that the yields available in traditional asset classes are relatively low, particularly in key sectors such as commercial property. As a result, IBA is exploring new sectors for investment opportunities, such as renewable energy.
The continued demand from Indigenous communities for intergenerational investment means that many organisations are looking to build more diversified investment portfolios, with a willingness to invest ‘off country’ across various sectors. This has a direct impact on IBA’s asset and funds business as well as organisations’ interest in partnering with IBA to pursue direct investment opportunities.
Another significant trend is the private sector’s increased interest and participation in Indigenous economic development. IBA is responding to this trend by proactively engaging with Indigenous investors and private sector investors, often creating new opportunities for our customers and brokering strategic partnerships.
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