Cables from post: from Australia's diplomatic network

14 October 2016

From Jakarta: Opportunity still exists for Australian sugar as demand grows

Indonesia has renewed a push to achieve self-sufficiency in sugar production by 2020.  In the meantime, the Indonesian Government will continue to import raw sugar, with the aim of lowering the price to IDR 12,500 (AUD1.25) per kilogram by the end of 2016 – well below current global sugar prices.  According to Indonesian statistics, Indonesia consumed 5.7 million tonnes of sugar in 2015, of which 3.5 million tonnes was imported.  The Australian Government continues to advocate for a reduction in Indonesia’s tariff on Australian sugar imports, to allow Australian sugar to compete on a level playing field with Thai sugar producers. Such a reduction would help to lower the price of sugar for Indonesia’s food and beverage manufacturing sector and increase the sector’s competitiveness against imported processed foods and beverages, as well as benefit Indonesian consumers.  In the short-term, an opportunity exists for Australian exporters, given Thailand’s current inability to fully meet Indonesian demand for raw sugar.

From China:  Streamlining investment regulation in China’s free trade zones

China has released a draft Market Access Negative List covering domestic and international investment inside its four pilot free trade zones: Shanghai, Tianjin, Fujian and Guangdong. Under a negative list approach, any sectors which are not listed are considered to be open to foreign and domestic investment. The Market Access Negative List covers 328 items (business, sectors and industries), prohibiting market access in 96 items and restricting access in a further 232 items. It will be implemented on a pilot basis until 31 December 2017, before being extended nationwide from 2018.  The list will run in parallel to an existing negative list covering foreign investment in the free trade zones, the Special Management Measures for Foreign Investment Access. Both lists are elements of a national policy to further open the Chinese market to foreign investment.  While the new Market Access Negative List does not in itself offer improvements in market access for foreign investors in China, it streamlines regulation compliance by consolidating existing regulations into a single document, which hopefully over time will be revised and reduced.  The Australian Government continues to pursue outcomes for Australian investors in China, including through the Regional Comprehensive Economic Partnership.

From Bangkok: On the move in the Mekong

Countries in the Greater Mekong subregion will work together to decongest key transport border points in mainland South-East Asia and China, in a move that should benefit regional and international transport operators.  Under the Cross Border Transport Facilitation Agreement, Thailand, Cambodia, China, Lao PDR, Myanmar and Vietnam will each issue an initial 500 vehicle permits to allow commercial transport and passenger vehicles to operate along major economic road corridors in the region.  The Agreement will eliminate the need to offload at border points and switch to locally-registered vehicles, a major contributing factor to the current long clearance times and congestion. With the support of the Australian Government’s Greater Mekong Subregion Transport and Trade Facilitation Program, implementation of the Agreement is expected to commence in January 2017. Implementation in Myanmar will be deferred until January 2019 to allow its comparatively smaller transport sector to develop. Work is also underway to ensure the Agreement is compatible with new ASEAN transport systems and international best practice.

From Santiago de Chile: Local lithium sector powers up

Home to over 30 per cent of the world’s known lithium reserves, Chile joins Australia, Argentina and China in supplying almost all of the current global market. And it’s a market that is growing rapidly: the mass production of electric vehicles and electricity storage batteries is expected to drive a sharp increase in demand for lithium over the next 5-10 years.  So far, global production has not kept pace with demand, leading to a doubling in the price of lithium over the past decade.  Despite low production costs and high-quality deposits, Chile’s lithium industry has been slow to take off.  The Chilean Government has designated lithium a ‘strategic resource’, resulting in regulatory complexity that, until now, has hindered new project development.  Nevertheless, in light of Australia’s experience as a major lithium producer, Chile offers opportunities for Australian companies to tap into booming global demand.  Looking to capitalise on this potential, Australian lithium explorer and developer Lithium Power International recently announced a joint venture with Chilean company Minera Salar Blanco to develop a USD360 million lithium extraction project in the Maricunga Salar, a salt flat in the north of Chile.  The joint venture is expected to be finalised by late 2016, subject to approvals.

From Honiara: Unpacking local investment opportunities

Over 100 Australian and Solomon Islands businesses and officials gathered in July for the 8th Australia-Solomon Islands Business Forum, where they explored trade and investment opportunities and networked with potential partners. The Forum received high level attendance by Solomon Islands’ Prime Minister, Hon. Manasseh Sogavare, and Australia’s Minister for International Development and the Pacific, Senator the Hon Concetta Fierravanti-Wells.  Industry and expert panellists provided insights into the Solomon Islands’ economy and business environment, including in investment, taxation and regulation.  Opportunities in key sectors such as tourism, infrastructure, agriculture and resources were discussed, with the country’s growing construction sector also singled out for potential Australian investment. The Solomon Islands has been commended as one of the top economic reformers in the region, with the Asian Development Bank estimating that reforms to business registration, finance and state-owned enterprise performance have added three per cent to GDP since 2004.  ANZ Solomon Islands CEO Geoff Buchanan told attendees that ANZ’s confidence in the future development of Solomon Islands had never been stronger. The Australian High Commission in Honiara used the Forum to launch its new initiative on women’s economic empowerment, which will provide tools and resources for Solomon Islands companies to implement gender inclusive policies in the workplace. The program, a partnership between the Australian Government and the International Finance Corporation, aims to address some of the key issues constraining productivity and participation in the local workforce.  

From Brussels: Further support package announced for EU dairy sector

In response to a continued market downturn, the European Commission has announced a package of support measures for the EU dairy sector, valued at 500 million euros.  The package comes in addition to an earlier September 2015 package, which was also valued at 500 million euros. The current measures aim to stabilise EU dairy production and, indirectly, dairy commodity prices, as well as provide liquidity to farmers to ease short term cash flow problems. While the package includes an EU-wide scheme to incentivise a reduction in milk production, some Members of the European Parliament have been critical of the fact that it avoids imposing any compulsory reduction measures. The European Commission has promised to ‘put pressure’ on EU producing nations it considers to be contributing to the current over-production of milk, including Ireland, the Netherlands, Germany and Denmark.

From India: Bright spot, long tail 

India is the fastest growing major economy. The World Bank calls it the ‘bright spot’ of the global economy. India's GDP, already the seventh largest in the world and third largest in purchasing power parity terms, is growing at 7.6 per cent – more than double the global average. And it is private consumption that is driving growth. Government expenditure, investment and a declining current account deficit are helping, but it is domestic demand leading the way. Historic changes are unfolding in India – the median age of its 1.2 billion people is 27. India will soon have the largest and youngest workforce ever.

Indian consumption is not just about the sheer numbers joining the labour force. The country is in the midst of a massive wave of urbanisation. Each year, about 10 million people move from rural areas to towns and cities. The Modi Government recognises the challenges this presents. Skills, jobs and infrastructure need to be created on a vast scale to meet the needs of a burgeoning middle class and to bring disadvantaged groups into the mainstream. Only innovation, and working with reliable partners, can deliver what is required at this important juncture. How India develops its cities, environment and people will shape the country for years to come.  For Australia, this increases the potential of our commercial relationship with India even further. In 2015, two-way trade was a solid $20 billion and two-way investment was $22 billion.  But this is only about a ninth of what we do with China. We can do better.

India’s rapidly growing needs match some of Australia’s core strengths, including in innovative technologies and expertise and in primary resources.  For example, India has ambitious infrastructure development initiatives, especially in transport. India’s Smart Cities Mission seeks to redevelop 100 cities by 2020. This means opportunities for Australian urban planning, green building technologies and expertise in integrated transport systems. It also means Indian steel and cement industries will continue to present strong markets. India also needs to educate and train its quickly growing workforce. Prime Minister Modi’s Skill India agenda aims to train 400 million people by 2022.

Australia’s skills system and industry standards can help India meet this target. We already have a significant education relationship – India is our second largest source of overseas students and there is increasing collaboration between our universities. The potential for Australian providers to invest in training Indian students in India is enormous.

Another area of opportunity is India’s voracious appetite for energy, to support its dramatic growth. Around 300 million people in India have no access to electricity. The government is seeking modern, reliable and innovative solutions, including an eye-catching target of 100,000MW of solar capacity. This means opportunities for discerning Australian investment and for exporters of Australian energy resources and technology. Similar opportunities exist across a wide range of sectors, including water, aged care, healthcare, agriculture, pharmaceuticals and IT. 

India, huge and diverse in every respect, is the scene of impressive economic growth. Its youthful demographics point to enduring prospects. Australian businesses willing to go to India can play an important part in such a story. 

Last Updated: 14 October 2016