Australian Mission to ASEAN

Why ASEAN and Why Now?

Why ASEAN and Why Now?

Business Seminar

Mr Simon Merrifield

Australian Ambassador to ASEAN

Melbourne Town Hall, 11 September 2015


ASEAN has, for 41 years, been an important partner for Australia’s regional engagement.  As an enduring grouping of key countries to our north, it has contributed greatly to the prosperity and stability of Southeast Asia and through that, delivered very significant economic and security benefits to Australia and our Indo-Pacific neighbourhood.  As ASEAN has prospered, its relevance has grown, as has its importance to our interests.    Because of the breadth and depth of ASEAN-Australia engagement, we became Strategic Partners last year, taking our relations to a new level. 

This year, 2015, is a signature year for ASEAN as it declares itself the ASEAN Community, which includes the ASEAN Economic Community.   

That will cap a remarkable journey, from its humble beginnings as a loose 5-member association in 1967, to today’s dynamic and outward looking community of 625 million people in ten member states, with a $2.57 trillion economy and impressive growth prospects. 

When we became ASEAN’s first dialogue partner in 1974, the economic relationship barely registered and there was no sense that relations would grow to the point that ASEAN would become our second largest trading partner, which is exactly what it has become, with two-way trade now exceeding $100 million per annum. 

But ASEAN’s journey from a poor and turbulent region to a booming centre of growth and prosperity has been extraordinary. 

Over the last decade and a half, member economies have trebled their per capita GDPs.  In 2013, ASEAN was 3.3 per cent of the world’s economy. And there’s tremendous growth potential over the medium term, because of its youthful population, increasing urbanisation, pretty low debt, abundant natural resources and its location between neighbouring giants China and India.

ASEAN’s diversity presents opportunities for Australian business, from Singapore’s sophisticated economy, to emerging markets in Lao PDR, Myanmar and Cambodia, and significant consumer centres such as Indonesia and the Philippines. For these reasons, Australian exporters and investors who are not in the ASEAN should think seriously about making that move.   

ASEAN accounts for close to seven per cent of world trade and for 15 per cent of Australia’s total trade.  It takes close to 50 per cent of Australia’s food exports such as grains, live animals, dairy and seafood. Education-related travel services account for more than one-fifth of all Australian exports in the region, and it’s our largest source of tourists. 

As ASEAN grows wealthier, its population becomes more urbanised – more than 400 million live in its cities and that figure will be over half a billion by the end of next decade.  ASEAN urbanites are becoming discerning consumers and Australian exporters should expect substantial growth in opportunities  across a range of sectors, not least food and beverage, healthcare and education.

ASEAN’s labour force is currently the third largest in the world behind only China and India. Indonesia, Vietnam, Malaysia and the Philippines are predicted to record double-digit labour force growth over the next decade or so and ASEAN’s working age population is projected to reach 500 million in 2020. There is work to be done on building up productivity, and this means huge prospects for skills and training providers.

In our report released last month by Trade and Investment Minister Andrew Robb, we have identified five key drivers that will enhance opportunities for Australian business over the next decade. 

The first is the framework arrangements, or the architecture, that ASEAN is putting in place to advance its economic integration and in turn to integrate itself with the global economy.  The centrepiece of this is the ASEAN Economic Community, the AEC. 

The AEC aims to be a single market and production base characterised by free flow of goods, services, investments and skilled labour, and freer flow of capital.  This is not a bid to emulate the EU, or to create a currency union or a customs union. 

Rather, it is framework to simplify and standardise trade and business environments in ASEAN member states to enhance the region’s competitiveness, narrow the wealth gap across member states, and integrate the region more fully and effectively into the global economy. It aims to guide member economies through a process of structural reform that includes harmonising regulations and improving institutional cooperation.

These arrangements will be iterative.  There will be not dramatic shift to new arrangements and 2016 in ASEAN will be very similar to 2015 for businesses, residents and visitors.  But over time, business within the ASEAN Community will be significantly easier to carry out. 

ASEAN’s ambition for better integration of economic activity extends beyond its borders with its FTAs like our own AANZFTA and mega-FTAs such as RCEP. These agreements allow Australian businesses to improve market access for goods and develop commercial links across ASEAN. The agreements also further liberalise services and markets and increase Australia’s attractiveness to investors.

The second driver for growth is that ASEAN has become a magnet for foreign direct investment, these days attracting eight per cent shares of global FDI, which is the same as China.  Japan, the EU, the US, China and ASEAN countries themselves are the leading sources of FDI.  Australian investment has been rising, but only off a low base and we are not a top-10 FDI source.  ASEAN accounts for about six per cent of the stock of Australian FDI abroad.

The third driver is the expansion of the services sector. As the region develops, services become much more part of the picture, yet outside Singapore, services account for less than 50 per cent of ASEAN’s economic activity, compared with 80 per cent for Australia.   As ASEAN’s appetite for education, healthcare, financial services, logistics and ICT grow in the years ahead, Australian providers of these services should think about delivering on that demand.    

The fourth driver of growth that will play to Australian strengths is the demand for training and skills development.  Given ASEAN’s trajectory and large, young population (65 per cent of ASEAN’s almost 626 million < 35 = 407 m) the prospects are huge.  But in-country delivery will be key. Australian providers will require sustainable transnational education business models that can provide training that is: targeted to the needs of the employer; can be delivered in volume; and recognises market price-sensitivity.

The fifth driver I wanted to mention was the emergence of regional value chains. 

ASEAN’s export success has increasingly been built on a network of regional value chains within and between companies in different ASEAN markets. These RVCs spur economic growth and are a key contributor to the ASEAN connectivity agenda. The “Why ASEAN and Why Now?” paper profiles six large ASEAN transnational corporations that are building RVCs and helping drive economic integration across the region.

Australian companies should make it a priority to develop relationships with transnational companies with regional and global supply chains as there will be opportunities to access these supply chains across multiple markets as they become more integrated. Many of these established and emerging regional business leaders also have FDI interests in Australia. These linkages are worth pursuing for Australian companies keen to expand into and diversify their markets in ASEAN.

Efficient services, of course, are a critical enabler of global and regional value chains, so the growth in value chains will also drive growth in the services sector. 

At present, ASEAN accounts for 15 per cent of Australia’s trade (and 22 per cent of its education exports), but only 6 per cent of two-way investment. These bald numbers get to the nub of a major opportunity for Australia in the region: extending its investment footprint to capture the growing elements of demand that require an on-the-ground presence to compete.

The emergence of ASEAN as a leading economic player is good news for Australia. The advent of the AEC can only make this better, with improvements over time to regulatory regimes and the broader enabling environment.  ASEAN’s diverse markets, urbanised population, growing services sector and dynamic growth trajectory make a compelling case. There is a strong fit between the region’s primary growth drivers and Australia’s capability to meet them, and a demand for skills as economies look to move up the value chain.  This all adds up to considerable opportunities for Australian companies.