Remarks to Asialink Business Engagement
Liverpool, Sydney – 13 September
I would like to begin by acknowledging the traditional owners and custodians of the land here – and pay my respects to Elders past and present.
Today’s strategic context – the importance of ASEAN
The world is facing rapid change, leading to increased uncertainty and complexity in the decisions Australia needs to make to pursue its interests.
In our region, the Indo-Pacific, we are witnessing unprecedented economic growth.
Accompanying this economic transformation is a historic shift in power, which is re-shaping the strategic landscape
- this is testing the rules based order and the principles that underpin these like never before.
ASEAN sits at the centre of the Indo Pacific, geographically, diplomatically, strategically, and economically.
Its ten member states include Indonesia, Singapore, Malaysia, Brunei, Thailand, Vietnam, The Philippines, Myanmar, Laos and Cambodia.
Its proximity to Australia and location at the junction of the Indian and Pacific Oceans means that Australia’s stability and prosperity is linked inextricably to that of Southeast Asia.
Since its formation over 50 years, ASEANs habits of dialogue and consultation and progress on regional integration has helped transform the region from poverty and conflict to peace and prosperity.
Australia has directly benefitted from this transformation and the stability dividend ASEAN has provided.
At this time of heightened geo-strategic and economic tensions and rivalry ASEAN has a continuing important role to play in the region
· in promoting and protecting the principles of open markets,
· in resisting protectionism, and supporting multilateral institutions like the WTO.
In 2019, Australia celebrates 45 years of diplomatic relations with ASEAN.
We are one of ASEAN’s most active, engaged, and reliable partners
· with a high standing, frequent leader level and Ministerial engagement, and extensive whole of government engagement.
· The 2018 ASEAN-Australia Special Summit elevated new era in relations.
The ASEAN Growth Story
It is important to understand what ASEAN is and isn’t.
It is not a customs union, although it has ambitions for a single market that supports a freer flower of goods, capital and people.
It is embarking on a process to integrate its economies even further, but it’s slow, and each member state is very diverse.
It is important to keep our eyes on the overall trends and trajectory, but its still a collective of largely individual market economies.
With these caveats in mind, there’s a lot to be excited about when looking at ASEAN’s growth trajectory.
In 2000, ASEAN’s combined GDP was US$636 billion: by 2018 this had quadrupled to over US$2.9 trillion.
If considered as a bloc, ASEAN is equivalent to world’s 5th largest economy.
ASEAN is an important trading and investment partner for Australia,
· accounting for 14 per cent of total trade and
· over $121 billion in two –way trade
· In 2018, the level of two-way investment between ASEAN and Australia was valued at $225 billion.
Notwithstanding pressures in the external environment, economic growth in 2019 across ASEAN is around 5%, making it one of the top three hubs of global growth.
· Growth varies across markets – at the top end it’s between 6-7 per cent in Vietnam and the Philippines: Indonesia is in the middle around 5 percent, followed by Malaysia: then Thailand; and the more advanced economy of Singapore is between 0-1 per cent. CLM strong at over 6% but from a much smaller base.
Several drivers of this growth – megatrends include rapid urbanisation, population growth, digital disruption, young working age population.
And the change is happening at a fast pace:
· Myanmar’s State Councillor Aung Sung Suu Kyi told the World Economic Forum on ASEAN in Hanoi last year that in Myanmar, technological changes were taking place in quantum leaps. 5 years ago a SIM card cost 1500 USD. It now costs around 1.5 USD.
· Cell phone access has transformed the business environment. There was no banking culture previously. This transformation has make the unbankable, bankable.
Growing FDI flows
ASEAN is an increasing destination for global FDI
· since 2013, it has attracted more FDI than China
· FDI flows to ASEAN rose from $123 billion in 2016 to $137 billion in 2017.
Intra-ASEAN investments were the biggest contributor to FDI amounting to 19 per cent of total inflows.
· Singapore the largest investor across the region, followed by Japan.
Australia is about the 11th largest investor in ASEAN. Some 60 % of the 100 largest Australian companies have an investment presence in ASEAN, which is testament to the importance of the region. The list is dominated by extractive companies, banking and finance. (Bluescope at 26, top being CBA).
Economic fundamentals
ASEAN economies learned from their experiences in the Asian Financial Crisis. Difficult reforms, such as monetary policy independence and inflation targeting, flexible exchange rates, financial regulation and financial market deepening and building up reserve buffers now pay dividends. Current account balances are within manageable levels. Inflation is within or below central bank’s limits.
The World Bank’s Ease of Doing business rankings have been used by governments to gain support for reforms – in 2019, Singapore (2) was joined by Malaysia (15) in top 20.
US-China trade war dynamics
Early days, but we are seeing some signs of supply chain implications/ trade diversions as a result of US-China tensions that have benefited some ASEANs in the short term– Vietnam, Thailand and Malaysia are a few examples (electronics, garment industry, autos). However, this is a double edged sword, as it has led to a further trade surplus with the US, which comes with risks and unwanted attention.
ASEAN-Australia-New Zealand FTA (AANZFTA)
Our economic relationship is strong and is underpinned by ASEAN’s highest quality +1 FTA – the ASEAN-Australia-New Zealand FTA (AANZFTA)
· which celebrates its 10th anniversary this year.
Since entry into force, AANZFTA has delivered tangible benefits to our businesses and consumers
· increasing use of AANZFTA is seen in the growing number of export shipments from Australia issued with AANZFTA certificates of origin
o an increase of 14.8 per cent in 2018.
AANZFTA has contributed to growth in the region through:
· extensive reduction or elimination of tariffs and establishing regional rules of origin providing opportunities to tap into regional supply chains
· incorporating rules and commitments to provide greater certainty for service suppliers and investors
· the economic cooperation program, which assists in the implementation of AANZFTA, has helped ASEAN countries to:
o enact and implement better competition laws and policies;
o improve the mutual recognition of qualifications within ASEAN;
o improve patent examination processes; and
o create better market access for agricultural products.
Over the coming years, AANZFTA will be upgraded, to ensure it continues to benefit businesses and consumers across the region.
· The first formal round of negotiations to upgrade AANZFTA will be held in mid-2020, with intersessional work to occur in the interim.
Regional Comprehensive Economic Partnership
The Regional Comprehensive Economic Partnership (RCEP) is an ASEAN-centred regional trade agreement that will build on and expand Australia’s existing FTA with ASEAN and New Zealand (AANZFTA)
· bringing together all of ASEAN’s FTA partners into one agreement
· includes China, India, Japan, ROK, NZ, Australia.
RCEP will further integrate Australia into the world’s fastest growing region, which encompasses almost half the world’s population
· Its economies account for more than 32 per cent of the world’s GDP.
· It includes ten of Australia’s top 15 trading partners, accounting for 61 per cent of Australia’s trade ($522 billion in 2018) and 71 per cent of Australia’s exports ($311 billion in 2018).
Australia is committed to the conclusion of a high quality and mutually beneficial RCEP in 2019
· with commercially meaningful AANZFTA-plus market access for goods, services and investment
· modern rules that address contemporary business priorities, such as facilitating participation in regional supply chains and the use of e-commerce, and
· ongoing cooperation mechanisms to support implementation and contribute to economic reform in the region.
As Minister Birmingham has said “RCEP has the potential to deliver significant opportunities for Australian businesses as well as further integrate regional markets, lower trade barriers, and boost export opportunities in our region” .
ASEAN is giving top priority to substantial conclusion this year – particularly in the context of the US-China trade dynamics and pressure on the multilateral trading system.
One academic recently wrote:
“The stakes for RCEP are greater than most participants imagine.
… RCEP is likely to become a critically important part of the new world order. It is the only readily available platform for managing trade and economic issues in Asia”.
Its conclusion will be an historical step towards regional economic integration.
Australian value add to ASEAN
Australia also has a lot to offer ASEAN.
We are well suited to meeting the drivers of ASEAN’s growth.
We are trusted partners with a strong reputation.
Our ASEAN partners value our economic and strategic strengths.
In addition, we should never underestimate the strength of our people to people connections.
As our economic and strategic integration increases in the region, so too must our cooperative ambition.
Australian business engagement in the region is crucial to these efforts.
Business engagement
A recent AustCham survey shows Australian business is increasingly interested in ASEAN,
· with 80 per cent of businesses surveyed planning to increase their trade and investment in ASEAN over the next five years,
· almost one third of Australian business now use the ASEAN region as their global headquarters
· Australian companies that have made the move to the region are thriving and bullish about their growth prospects.
These businesses can see the benefits of servicing the region’s growing consumer class, ASEAN’s focus on economic integration, and region-wide advances in infrastructure
· Within ASEAN, the Philippines is now the most prominent destination of future investment, with Vietnam, Thailand, and Indonesia also seen as attractive markets.
· Australia’s presence in the region is dominated largely by services firms,
o hospitality and entertainment, education and training,
o but there are also others involved in manufacturing.
Austrade has identified specific sector opportunities that include:
- Agribusiness and food
- Services – education, including vocational education and training
- Digital technology
- Defence and advanced manufacturing
- Health
- Infrastructure and cities
- Resources and energy
Of course, there remain challenges to doing business in ASEAN countries. The survey identifies lack of access to skilled labour, corruption, and restrictions on ownership as being a few of these.
In addition, ASEAN faces the challenge of finding sustainable solutions to deal with its future resource, skills, productivity, and infrastructure demands to ensure it continues to grow, prosper, and satisfy the needs of its people.
ASEAN will need to improve its competitiveness - which is impacted by restrictions on investment, labour market rigidities and the pervasive role of the state in the economy.
Advice on doing business in ASEAN:
- Be patient, work with reputable partners, clients and customers and establish relationships over time.
- Do your due diligence to find the right partner.
- It’s a long game. Rewards over time.
Conclusion
Australia is doing more than ever before with ASEAN – this reflects the importance of ASEAN to Australia’s prosperity and the stability of the Indo-Pacific region.
But we are not finished yet, as we strive to increase and expand our cooperation, we will be looking more than ever to engage with the private sector to help enhance economic opportunities and integration in the region.
Encourage Australian businesses to look to ASEAN to diversify its market base – incredible opportunities abound.