Whenever the top executives of North American and European financial institutions visit Les Hosking to discuss establishing or expanding their Sydney operations, the first thing he does is walk them over to the window. The former head of the Sydney Futures Exchange, Hosking was appointed chief executive of Axiss Australiathe federal government's financial-center task forcein January. With the job came offices high above the Central Business District, overlooking one of the world's most spectacular vistas: the gleaming roof shells of the Opera House, the iconic Harbour Bridge, and the sparkling harbor, studded with ferries and colorful sailing skiffs. When Hosking meets with northern-hemisphere corporate decision makers on their home turf, they invariably mention Australia's wonderful lifestyle, he says. And "what they see out that window epitomizes our lifestyle."
It also accounted for the traditional belief of visitors that Sydney was a good place for a holiday rather than somewhere to make moneyan activity better fitted to Singapore and Hong Kong. But "that viewpoint is now outdated," says New South Wales Premier Bob Carr. Like his conservative federal-government counterparts, Carr wants to reposition Sydney as a strategic center for global financial services by taking advantage of international finance restructuring and the recent Asian economic crisis. Becoming a regional hub for megabanks, funds managers and insurance groups would attract other high-end services (telecommunications providers, law firms, chartered accountants), create jobs, stimulate construction and, it is hoped, make Sydney Australia's first international city. "We want to become the Wall Street of East Asia," says federal Finance Services Minister Joe Hockey, whose portfolio was set up last year to pursue that goal.
Australia traditionally made a living by using its buried treasures rather than its brains. The drive to make Sydney a financial center is part of the country's shift from resources to knowledge-intensive services. And the politicians are basing their promotional pitch on the sweeping policy reforms that have turned Australia from one of the world's most insular and protected economies into one that is open and entrepreneurial. But despite recent tax changes that Hockey calls "the most significant undertaken in our history," some senior industry figures say Sydney may not have all it takes to outdo the attractions of Australia's regional rivals. "We are a relatively small country a long way away from the major population centers and hence the customers that drive activity," Reserve Bank of Australia assistant governor Ric Battelino told a recent Senate hearing on financial services. The politicians disagree: communications technology, they insist, is making Australia's location irrelevant. And when the largest crowd of ceos ever to attend an Olympic Games descends on the city in September, they'll discover, says Carr, that "Sydney is simply the place to be."
The promotional push is also a defensive move. Institutions are consolidating their international operations into a handful of strategic centers, says John Masters, PriceWaterhouseCoopers Asia financial services practice leader: "To get scale and survive global trends like deregulation and industry convergence, a firm with six branches in a time zone might close five." Says Australian Stock Exchange chairman Maurice Newman: "We don't want to be one of the markets that are squeezed out of the loop." But the 1997-98 Asian meltdown has helped Australia, according to Access Economics director David Chessell: "It's reinforced our reputation as a regulated, familiar system for conducting financial services." The politicians are keen to capitalize on that image. "Australia offers stable financial waters in a region known for its volatility," Hockey told a gathering in New York City in March.
His and Premier Carr's efforts in pitching Sydney as a low-risk, highly skilled, cost-effective gateway to the region appear to be paying off. Since October 1998, 13 financial institutions, including Citigroup and Merrill Lynch, have set up regional or global operations centers in the city. Deutsche Bank now runs its Asia-Pacific financial futures group and asset management business from Sydney and has chosen it (with London) as one of its global foreign-exchange processing centers. Says Ken Borda, chief executive for Australia and New Zealand: "Sydney has world-class infrastructure and a big pool of enthusiastic, talented people that we draw on for our other international operations." The Royal Bank of Canada bases its regional foreign-exchange and fixed-income activities in Sydney. "Australia has a strategic time zone that allows us to link into Canadian, U.S. and European markets," says global banking managing director John Secker. "And the government is very open to us expanding our presence here."
That enthusiasm doesn't extend to Australia's tax regime. Foreign firms have welcomed cuts to the company tax (down from 36% to 30% by 2001-02) and capital gains tax (halved to a maximum of 25.24%). But personal tax rates continue to irk foreign executives. "They are insane: 47% [for $35,000-plus incomes] compared to 15% in Hong Kong," says one expatriate. Few Australians would support highly paid executives getting special tax breaks, says PWC's Masters, "but many locational decisions are influenced by the idiosyncratic reasoning of executives."
Tax inconsistencies could stymie Sydney's ambitions. Australia's compulsory superannuation system is causing an "avalanche of funds to be accumulated in the city," says Access Economics' Chessell. That's attracting what Axiss' Hosking calls "the prize people we want. Pension fund money is what drives capital markets these days," he says. But the unequal treatment of foreign investment fundswhich don't receive the same exemptions as Australian-registered oneshas led Europe's second-largest funds manager, Skandia, to hesitate in picking Sydney as the location for a "very significant" regional investment, according to Australian manager Ross Laidlaw: "If Australia can't get this right, it makes it very difficult to say it is a global financial center."
Hockey says the federal government will correct inconsistencies, but he's not interested in matching the generous financial incentives offered by Sydney's regional competitors. He believes "in getting the economic fundamentals right, not in offering baubles and trinkets to attract business," he says. "We're not a caravan park."
One thing policy makers can't do is move the city closer to the rest of the region. Says International Banking and Services Association director Robert Webster: "Our geography will always be a disadvantage. It's at least an eight-hour flight to anywhere in Asia." But that won't stop it becoming a financial services hub, says the ASX's Newman: "There are services at the high value-added end, like foreign exchange and asset management, where it doesn't really matter where you are [based] and where we have all the ingredients to succeed."
Sydney's financial ambitions have already made city life more enjoyable, says Carr: "It's a smarter, more stylish, more internationalized city." It's also relaxed. "You can't beat the lifestyle," says Skadden Arps corporate finance lawyer Howard Edelman, who transferred to Sydney from New York City in 1995 and plans to become an Australian citizen. "You get to do the same quality and type of work without having to spend 100 hours a week in the office." Giving executives time to take in the viewand enjoy the outdoorsmay yet turn out to be one of Sydney's biggest business advantages.