As door to world economy reopens, it’s on Australia to walk through

The opportunity is enticing. Australia’s proximity to some of the world’s fastest-growing economies, warming relationships with Asian trading partners, increasing technological sophistication and burgeoning capital firepower position this $2.33 trillion engine to make a major outward push. The biggest risk for Australia Inc. is indecision.

For decades, many Australian companies could get by ignoring opportunities in the emerging markets next door. A long-running commodity export boom trickled steadily down into the rest of the economy, while a robust local housing market buoyed domestic consumer confidence, underpinned by decades of low interest rates.

That status quo is changing. HSBC research shows Australia has become a net exporter of capital since 2019, and diplomatic relations have warmed, particularly with China. Official data shows Australian investments in Asia have risen in tandem, totalling $438bn in 2022 – more than double where they were a decade ago.

This positions Australian companies with the opportunity to seek out opportunities in their own backyard. By 2040, Southeast Asia as a bloc is likely to be the world’s fourth-largest economy, and HSBC research has found more than two-thirds of Australian companies are looking to take advantage of the free-trade agreements Canberra has signed in the region.

A surge into emerging Asia could also right some imbalances. The bulk of our outbound capital still flows to developed Western countries. In Asia, much of Australia’s trade and investment has been concentrated in the northeastern quadrant: China, Japan and South Korea. Australia is not presently ranked among the top 10 sources of FDI in the ASEAN block. Export relationships with markets like India – the world’s fastest-growing major economy – are dominated by a few categories like coal and education services.

Over the last two decades, Australian net outbound direct investment flows (“direct” meaning taking controlling stakes in companies or creating offshore subsidiaries) have equated to roughly 1 per cent of our annual GDP on average, per World Bank data. That is lower than most high-income countries, lower than the east Asia-Pacific average, and below ratios in other commodity-rich economies like Canada. This may be due in part to Australia’s relative distance from its trade and investment partners compared to Canada’s integration with US supply chains. But it suggests there is room to grow.

It should not be too difficult to do so. Three out of 10 Australians were born in other countries – many of them in developing Asia – so the connections and local knowledge are there for business to tap. Developing new markets overseas could help Australia’s tech sector, which is already punching above its weight but facing stiff competition from the likes of Singapore and India, and there is an opportunity to build demand for related Australian services. Nor should agricultural commodities be neglected. As we’ve seen with north Asia, rising wealth means rising demand for premium farm products.

It would be a lost opportunity for Australian firms to overlook exciting growth stories so close to their own shores. Foreign capital is pouring into Indonesia’s nickel mines and electric vehicle industry; there is a gold rush under way in Southeast Asia’s digital economy; nearly every country with a manufacturing sector stands to benefit from supply chain diversification. Nor should the rest of Asia be neglected. China, the world’s second-largest economy, hosts the core of many Asian supply chains and will be a necessary partner in many trade transactions.

To take advantage, both the government and the private sector need to work in tandem. Canberra has already rolled out a $95.4m package to support trade with Southeast Asia. That is a start, but the next step is to clear away policies that inhibit outward investment and competitiveness: taxation, for one, and a workforce that could be much better prepared to compete in overseas markets.

In terms of economic diplomacy, we should encourage more Asian integration, in particular the lowering of trade and data barriers and eased migration and travel. For commercial enterprises, they must act deliberately but with urgency.

When it comes to the region, Australia Inc. is in a sweet spot. Its biggest risk is that companies only admire the garden and forget to sow the seeds of their own growth.

This article first appeared in The Australian on 5 February 2024.