25 June 2023

Australia must target Asia for sustainable economic growth

The global economy continues to face challenges, including continued interest rate hikes, energy insecurity and cost of living pressures. Against this background it is becoming apparent that the best way to future-proof Australia’s prosperity will be to double down on its international connections – across people, business and institutions. Fortunately, Australia’s report card in building international connectivity over the past year has been good and there appears to be a continuing desire to strengthen international connections.

This was evidenced by the recent Canberra press club address by Foreign Minister Penny Wong, who spoke of a vision of a multipolar and connected Asia that is trading together to further develop the region as the epicentre of global economic growth.

Australia’s sustainable growth will come from continuing to diversify its international connectivity, and Southeast Asia is clearly one of the obvious choices given its proximity, people and fast-evolving economic strength.

The region is one of the fastest-growing trade and digital blocs with its 600 million population, and it’s expected to become the fourth largest economy by 2030 with foreign direct investment flows that are on par with China.

The region’s global supply chains – spanning electronics, cars, textiles and garments – have become deeply interwoven with the global economy.

However, capturing more of these opportunities will require proactive engagement.

The appointment of Nicholas Moore as special envoy to Southeast Asia to drive Australia’s economic strategy with the region is a positive step.

Given the region’s complexity, continued evolution and dynamism, the development of any plan should be underpinned by three core pillars – ambition, awareness, and agility. First, Australia needs to strongly articulate its ambitions for stronger connectivity with Southeast Asia.

The commercial relationship between Australia and ASEAN is unique given the unrivalled number of free trade agreements in place within the corridor.

These will be strengthened further by the imminent upgrading of the Australia/ASEAN FTA, signed in late 2022.

The relationship has led to our two-way trade with the region being larger than Japan and the US, according to DFAT.

Australia should be looking to build off these foundations to do more with these frameworks.

The second pillar is to have a stronger awareness of the context, competition and complexity of Southeast Asia. For example, Australia is not the only country seeking closer commercial connectivity with the region – Britain, India and China are also actively pursuing economic ties.

Moreover, the region is not without risk: its geographic diversity, susceptibility to climate change, higher hurdles for new business entry, non-tariff trade barriers and different foreign investment laws can sometimes provide a challenge to entry.

Australia and Australian companies need to be clear-eyed to these realities.

The third pillar is for Australia to be agile as the region changes and understand and articulate where it can add value to specific markets like Indonesia, and sectors as they evolve and mature.

For example, Southeast Asia is the seventh largest automotive manufacturing hub worldwide and is looking to grow this further in the era of electric vehicles.

While Australia can obviously supply lithium and other rare earth metals to power EV batteries, it also offers unparalleled expertise in battery development and precision engineering.

Australia has ambitions to move up the supply chain, and tie-ups with key car manufacturers in Indonesia and Thailand could be an avenue that is mutually beneficial.

When it comes to renewables, Australia is a leader in managing the integration of renewables into the grid, which is proving to be the challenge of every ASEAN market. More broadly, Australia has a world-leading training regime for renewable science, engineering solutions and installation, which will be prized in ASEAN.

On the flip side, Australia’s development of renewable energy projects could be a smart investment destination for ASEAN’s growing wealth. For example, Singapore’s family offices for ultra-high net worth individuals has risen to 700 and the combined assets under management have doubled in five years. This wealth is increasingly seeking investment in sustainability projects that will meet both risk and return hurdles. Australia, with its stable and transparent institutions and business-friendly FDI provisions, should be more assertive in seeking this avenue of investment.

Australia’s future economic prosperity will be closely tied to its ability to seize international opportunities and diversify, and Southeast Asia should be high on the priority list.

Through proactive and strategic engagement, Australia can strengthen its commercial connectivity with Southeast Asia and secure a prosperous future; however, stronger ambition, awareness and articulation of the two-way opportunities is needed.

This article first appeared in The Australian on 25 June 2023.