2.1
Submissions confirmed the value of the Export Market Development Grants (EMDG) scheme which the Australian Tourism Export Council (ATEC) noted as a program which has 'provided support and certainty for business planning, fostered exports market delivery and generated significant export earnings for Australia'.
2.2
The Australian Industry Group (Ai Group) noted the popularity of the program with exporters adding that 'the improvements being considered are practical responses to the current limitations of the program'.
2.3
This chapter covers key issues raised with the committee which include: the level of consultation; the framework which focuses on the detail for the scheme being provided in the Rules and administrative guidance. Submitters also commented on the need for the detail of the scheme to be flexible and take into consideration the effects of COVID-19 and expressed support for streamlining administrative processes.
Consultation
2.4
Some submissions questioned the level of consultation undertaken by the Review of Financial Assistance to SME Exporters (the Review). ATEC, however, recognised that the Review 'was conducted with strong industry consultation…'.
2.5
The Review detailed the consultation undertaken in its report, noting face to face meetings with individuals, businesses and peak and industry bodies around Australia; online submissions using a hybrid survey/consultation model; written submissions from peak bodies and individuals; a collaborative project between Austrade and BizLab that applied a user-centred design methodology to focus on identifying the core needs of users; exporter personas and journey maps developed by Austrade in 2019 through user research with 93 businesses in Australia and overseas markets; research commissioned from Swinburne University of Technology; an extensive literature review; in depth interrogation of data from the EMDG administrative database; and a workshop with exporters and experts to generate tangible ideas to improve the effectiveness and efficiency of financial assistance for Australian exporters.
2.6
Austrade also highlighted the consultation on the EMDG reforms, providing further detail:
The Review undertook broad consultations to seek the views of exporters – consultations were promoted to over 5,000 interested parties, including past and current EMDG recipients, EMDG consultants and peak bodies.
Consultation involved a number of different avenues to ensure all interested parties had different opportunities to provide input. These included online consultation with 158 submissions received, face-to-face consultations, and general consultation sessions with SMEs during October and November 2019, meeting with peak bodies, and meetings with EMDG consultants via videoconference.
Finally, to help refine the Reviewer’s thinking, a workshop was held on 13 December 2019 with SMEs who were new to exporting, more experienced SME exporters, and representatives from peak bodies. The Review report contains further detail on the data and evidence, including from these consultation processes, which was used to inform the Reviewer’s recommendations.
Framework
2.7
The new Act will contain the policy principles with program operation rules made through legislative instrument and administration managed through guidelines. While some submitters had concerns with this approach, Export Council Australia (ECA) noted the new framework and observed that it 'is consistent with other similar programs and best practice arrangements'. It added that '[t]his will allow time for [an] appropriate level of input when developing eligibility rules and other requirements, and will provide better flexibility and fine-tuning later down the track, if necessary'.
2.8
The EMDG program will now be structured as a more traditional entitlement-based grants program. The approach to the framework in the bill was recommended by the Review. The EM clarifies that the Rules are a disallowable legislative instrument, explaining that this approach is consistent with the Office of Parliamentary Counsel's Drafting Direction on subordinate legislation and outlining a number of advantages with this approach.
Details to be in the Rules and administrative guidance
2.9
The committee received submissions concerned to see further detail in relation to the scheme. This detail will be contained in the forthcoming Rules and administrative guidance which will seek to clarify the issues outlined below.
Eligibility
2.10
Some submitters were concerned about whether they would still be eligible. In relation to eligibility, the ECA acknowledged the need for 'robust criteria in order to establish legitimacy of applications, so that funds are used to good effect, and risks of dishonesty are minimised'. ECA suggested:
For new exporters, a clear definition of 'export ready' will be necessary, which might include having a basic export plan, evidence of prior investments and/or operations, R&D outcomes, active websites and social media presence. Some distinction may have to be made between the criteria applying to exporters of goods and services, as the latter may not have perceptible operations or investments prior to exporting.
2.11
ECA also submitted that in relation to eligible activities, there is a need for some widening of the scope of 'marketing and promotion'.
Flexibility to reflect the export journey of SME exporters
2.12
While there were some concerns raised about the flexibility of the scheme to reflect the export journey for SME exporters, the Review did recognise the changing needs of SME exporters, adding:
There are stages in an SME’s export journey where financial assistance is most likely to encourage additional export promotion activity. At other times, SMEs benefit more from information and education or tailored support, equity funding or export loans. As noted previously, for some SMEs considering export for the first time, a stronger understanding of what it takes to be export ready can help to position them for export success.
2.13
The bill will target eligible, export-ready SMEs at three stages of the export journey. Some concern was expressed over the proposed tiered system. However, the Review also found that:
A tiered financial assistance program, tailored to meet the needs of the different stages in an SME’s export journey would allow the government to respond to the different needs of new and expanding exporters.
2.14
In addition, as part of the Review, there was an online survey conducted in 2019 which found that 'having access to multiple years of funding' was the design feature favoured by most respondents.
2.15
Austrade clarified that:
Like the current EMDG scheme, eligible exporters will be entitled to receive grants for a total of eight years. However, grants do not have to be concurrent. Eligible exporters may choose to dip in and out of the program, applying for grants when they will make the maximum impact. SMEs will be able to withdraw from a grant agreement without affecting the 8 years’ time period should their circumstances change.
2.16
Austrade also acknowledged the different circumstances of exporters, so showing ‘growth’ for Tier 2 and ‘a strategic shift’ for Tier 3 will be flexibly defined.
Need for consultation on the design of the Rules
2.17
The need for extensive and close consultation in the design of the Rules, particularly in the case of intellectual property exports, was underscored by Screen Producers Australia.
2.18
The Review recommended that 'consultations should inform the detailed program design (for example, on eligibility criteria and expenditure items)' ahead of commencement from 1 July 2021.
2.19
Austrade confirmed that the ‘Rules will be released in draft form for consultation before being finalised’.
Annual turnover
2.20
While there were concerns expressed by a small number of submissions about the re-targeting of the threshold towards exports with an annual turnover of less than $20 million, the ECA supported the proposed size of SMEs with an annual turnover of less than $20 million, noting ‘[t]he majority of SME exporters will fall within this bracket'.
2.21
Austrade highlighted the detailed findings of the Review:
The Review found that for exporters with a turnover of $20 million or over, an EMDG payment was equivalent to less than 0.15 per cent of total revenue and provided negligible effects. The Review concluded it was better value for public money to concentrate on SMEs with a turnover under $20 million. The vast majority of current EMDG recipients fall within this category: in 2017-18, 3,572 grant recipients had turnover of less than $20 million, with only 207 recipients with turnover between $20 million and $50 million. Exporters with a turnover of more than $20 million will be able to access the general or more bespoke assistance offered by Austrade.
Change to eligibility-based grants program
2.22
The ECA supported the change from a reimbursement scheme to an eligibility-based grants program because 'it would mean that exporters can access their EMDG funds more immediately'. It added:
This will be particularly helpful under current global trading conditions. SME exporters will not have to wait for as long as two years under present arrangements, especially for activities that go for multiple years. This will provide some element of certainty in SME exporters' planning in the future.
EMDG funding assistance remains an entitlement for eligible applicants. This means that if an applicant meets the eligibility criteria in the Bill, they are entitled to receive financial assistance under the EMDG program. It is not a competitive grants program.
Funding export-focused industry bodies or alliances
2.24
While noting the recommendation of the Review to fund industry bodies, the Australian Brahman Breeders' Association sought clarification on where the funding is to be directed.
2.25
The ECA supported 'the prospect of industry bodies being able to apply separately for EMDG funding to train new exporters, and to facilitate connections in overseas markets'.
The reoriented EMDG program will continue to provide funding to industry bodies and alliances, previously known as Approved Bodies, and enable their grant funding to extend training for members in marketing and promotion.
Assistance to industry bodies or alliances will be expanded to encompass both overseas promotion on behalf of their members and, now, to help members new to export become export ready through education and training should they decide to provide members with that service.
The need for flexibility including the impact of COVID-19
2.27
Submissions pointed to the need for flexibility not just in the wake of COVID-19 but also to recognise market opportunities which can arise from website enquiries and require a quick response. This is particularly relevant for the fast moving world of technology start-ups. Cross & Co highlighted the situation for 'born globals' submitting that '[n]ew markets is a very old concept that does not apply to the online world'.
2.28
In relation to ‘born globals’ Austrade clarified the intention for the parameters of an export-ready business to be applied flexibly, noting:
Establishing export-readiness will not preclude ‘born global’ businesses from being eligible for the EMDG program. Export-readiness does not mean that applicants will need to have established customers in Australia.
2.29
Submissions raised the impact that COVID-19 has had on some sectors such as tourism, calling for this to be taken into consideration in the development of the new scheme. ECAI emphasised that COVID-19 'has had a varying effect on SME export enterprises' but 'the stall on international trade remains for most at a standstill'.
2.30
Screen Producers Australia submitted that flexibility should be a feature of the new scheme:
particularly in light of the change in export marketing practices that have arisen as a result of COVID-19. For example, with international travel restrictions, exporters are more likely to engage the services of an international sales agent. Other adaptations are likely to evolve as the situation with COVID-19 and travel restrictions develop. The scheme should be responsive to these changes, to ensure that export activity can be maximised in the current international conditions.
2.31
Mr Judd Tilyard also highlighted adaptations as a result of COVID-19 pointing out that ‘[m]arketing is fundamental to remaining competitive particularly at a global level and if anything Covid has accelerated that need as business operations move online and digital marketing get[s] more competitive and in turn more expensive…’
2.32
The Cairns Aquarium reported that in the current COVID-19 economic climate 'it is difficult to commit to a marketing plan or strategy 2 months out let alone the suggested 2-3 years'.
2.33
Austrade recognised the impact of COVID-19 on Australian exporters:
COVID-19 has fundamentally changed the global business operating environment and made life very challenging for Australian exporters of goods and services. The COVID-19 pandemic has continued to cause major economic disruption and uncertainty worldwide, which is likely to remain for some time.
Austrade will continue to support exporters through these disruptions. A modern, streamlined EMDG program providing upfront funding certainty, allowing businesses to plan with confidence, is key to assisting SME exporters to recover from the effects of COVID-19 – and grow the number of SME exporters.
2.34
Austrade also acknowledged the difficulty for businesses to plan marketing a couple of years in advance and the need to capitalise on emerging opportunities as they arise. Therefore:
It is proposed that will exporters will identify their broad plans. They will not be required [to] outline in detail upfront the activities they will undertake to implement those plans. Detail about those activities will be relevant for milestone payments rather than the initial grant application.
2.35
Further, Austrade clarified that ‘SMEs can continue to use EMDG consultants’ services, including to develop marketing and market expansion plans’.
Government response
2.36
Responding to COVID-19, on 1 April 2020, the government announced an increase in funding for the EMDG scheme. Funding for the scheme will increase by $49.8 million in the 2019-20 financial year which supplements the additional $60 million already committed by the government, bringing EMDG funding to its highest level in more than 20 years at $207.7 million for the 2019-20 financial year.
2.37
In addition to the increased program funding, the Minister waived the EMDG export performance requirement for 2020-21 to ensure businesses will not have their EMDG reimbursement reduced should their export income fall due to COVID-19. Also, to further assist exporters in 2020-21:
the minister has determined the Initial Payment Ceiling Amount (IPCA) to be $100,000. This is the highest IPCA since the scheme’s budget was capped in 1997–98, and a significant increase from the $40,000 IPCA set for the past five years.
2.38
The Export Consultants Association Inc (ECAI) supported the action taken by the government to announce COVID 19 concessions for the EMDG program.
Streamlining administrative processes
2.39
The Review recommended the program should simplify the way financial assistance is provided by removing complexity and streamlining.
2.40
The proposed changes were supported by the ECA which noted 'we expect the application process to be much simpler, more SME exporters will be able to access the program, and get much needed funds sooner'.
2.41
The ECA detailed that '[t]he effectiveness and efficiency of a grants approach…will depend on the application process. Application forms must be easy to complete, and must have clear descriptions of the information and supporting documentation required of the exporter. It must also be clear about what milestones or results exporters should be reporting on'. It added:
With few staff and resources, a simplified application process will encourage SME exporters to apply for EMDG assistance. However, the Government must still make an effort to increase awareness of EMDG, including holding information sessions on how to apply under the new arrangements.
Committee view
2.42
The committee acknowledges the support expressed by submitters for the EMDG scheme. Since 1975, it has supported over 50,000 SME exporters to enter and grow export markets.
2.43
The committee recognises the important role of SME exporters, particularly as the Australian economy recovers from the downturn as a result of COVID-19.
2.44
The committee notes actions already taken by government in relation to the scheme to respond to the pandemic by: increasing funding; waiving the EMDG export performance requirements for 2020-21; and determining the Initial Payment Ceiling Amount to be $100,000.
2.45
Given the ongoing effect of COVID-19 on these exporters, notably in the area of tourism, it will be important to recognise the need for flexibility as the detail of the scheme is developed through the Rules and administrative guidance. The committee acknowledges that business plans will be in a state of flux for the foreseeable future for some exporters and urges the government to build flexibility as well as streamlining into the scheme to assist SME exporters in these times.
2.46
Concerns raised centred around the detail of the scheme which is yet to be developed through the Rules, which are disallowable instruments, and administrative guidance. The committee agrees that it will be important for the government to work with stakeholders to ensure the efficiency, effectiveness and clarity of the Rules and administrative processes as well as ensuring awareness of the new arrangements, by means such as information sessions. The committee urges the government to make the draft Rules available and begin consultations with stakeholders as soon as possible.
2.47
The committee recommends that the bill be passed.
Senator the Hon Eric Abetz
Chair