DEPARTMENT OF FOREIGN AFFAIRS AND TRADE NOVEMBER | 2015
Business Envoy

IN THIS ISSUE

Indonesia: An emerging market for Australian business

Tapping Into the ASEAN market:
Opportunities for Australian business

With the declaration of the ASEAN Economic Community in 2015, ASEAN countries make another step towards a single market and production base. Although ASEAN represents Australia’s second largest trading partner, further opportunities exist for business to expand trade in goods and services and two-way investment with the region. This edition of Business Envoy examines economic and market trends in Southeast Asia and what it means for Australian business. For more information contact us at business@dfat.gov.au


Global perspectives
from Australia's diplomatic network

From Jakarta: Fashion diplomacy spinning interest in Australian wool

Indonesian fashion designers and garment manufacturers have shown a keen interest in Australian wool following a series of Woolmark events that the Australian Embassy in Jakarta helped to stage. In August, Woolmark, Australia’s wool industry association, and Femina Group held the ‘Inspiring Wool Conference’. Over 100 Indonesian textile industry representatives attended the conference and the ‘Wool 101’ consultations, which gave participants the chance to speak one-on-one with Australian wool experts. Woolmark’s chief marketing officer, Rob Langtry, was delighted by the level of inquiry into the unique features of merino wool and how to better utilise the fabric in their product lines. As an emerging market for Australian wool, Indonesian businesses will now be eligible for the Woolmark Prize. Winners of the prize receive a small cash incentive and their designs are placed in the world’s top department stores. This type of innovative collaboration highlights the potential for Australia–Indonesia partnerships to promote exports to markets around the world. Trade and Investment Minister Andrew Robb will lead over 300 Australian business representatives to the inaugural Indonesia Australia Business Week on 17–20 November 2015 to help build these new partnerships.

From London: Visa reforms may impact Australian business

The UK’s efforts to curtail immigration may affect the already limited pathways for skilled non-EU migrants. The UK government aims to restrict net migration to the UK to “tens of thousands” from a current record level of 330,000. One target for reform is the employer-sponsored Tier 2 skilled-migrant visa and intra-company transfer process. Although Tier 2 visas account for a relatively small number of migrants overall, they are a common route for Australians to live and work in the UK. For British businesses and Australian companies with a UK presence, these visas are a pathway to access skilled Australian workers. The Australian High Commission in London is urging the UK government to take into account the effect these changes might have on Australian businesses and individuals and on the British economy. To support the Australian High Commission’s advocacy efforts, affected businesses and individuals can complete a short survey on the impact of the proposed changes by 20 November. You can access the survey here: www.surveymonkey.com/r/UKvisarules.

From Abu Dhabi: More diverse than you think

The United Arab Emirates (UAE) is faring better than some of its oil-exporting neighbours in the face of low oil prices. While still the world’s third largest oil exporter, the UAE has benefited from greater economic diversification, low external debt and an accumulation of large foreign assets. The IMF estimates the UAE’s GDP growth will slow to 3.2 per cent and non-oil growth to 3.4 per cent in 2015. The UAE government’s continued commitment to diversification and economic reform includes positioning the UAE as a services, business, logistics and tourism hub for the Middle East, which will be showcased in ‘Expo 2020 Dubai’. For Australian business, considerable opportunities exist in the supply of high-quality goods and services, particularly in food, hospitality, education, infrastructure, medical services and medical equipment. Current efforts to reform investment regulations in the UAE may open the economy to greater foreign investment by removing the 49 per cent cap on foreign ownership in some sectors.

From Kuala Lumpur: Prioritising liberalisation of the services sector

Services sector liberalisation has been a key priority of the Malaysian government. Since 2009, 45 services sub-sectors have been opened to 100 per cent foreign ownership. The liberalisation of engineering, architecture and quantity surveying services is ongoing, albeit slowly. As a result of the recently concluded Trans-Pacific Partnership agreement, Malaysia has agreed to remove all foreign equity caps. In addition, Australian insurance providers will be able to offer product liability and directors’ and officers’ liability insurance to Malaysians on a cross-border basis. In 2014, the services sector was the largest economic sector in Malaysia, contributing 47 per cent to GDP. The sector has been resilient to softer consumer sentiment and the volatile economic environment. In the first half of 2015, the services sector accounted for over half of total approved investment. Professional services and sectors that support the oil and gas industry have shown promise, particularly in the green technology sub-sector, and Malaysia’s commitment to becoming a hub for Islamic financing and logistics also presents opportunities.

From Vientiane: A major hub for hydropower construction

Laos, among the poorest and smallest ASEAN members, has plans to expand its hydropower generation capacity to service its neighbours’ electricity needs and become the ‘battery of Southeast Asia’. With 27 dams now generating 3,000 megawatts, Laos plans to build another 68 dams by 2030. Laos, as part of the Greater Mekong Subregion, is exploring how this additional electricity can be sold via a power exchange with its neighbours: Vietnam, Thailand, Cambodia and the Yunnan province in southern China. There is also a pilot project, under ASEAN auspices, to develop a transmission line from Laos to Singapore, through Thailand and Malaysia. Both initiatives will potentially unlock major new export markets. Much of this new hydropower capacity is being underwritten by foreign direct investment. Australian investment and capabilities in technical support services, grid infrastructure, construction and project finance can help Laos realise its vision of an economy powered on hydro-electricity.

From Lima: A growing thirst for wine is no sour grape for a pisco market

Peru’s increasing interest in wine, coupled with the recently finalised Trans-Pacific Partnership agreement, signals opportunities for Australian winemakers and wine suppliers. In recent years, Peru’s growing middle class has started to consume more wine in a market where, for centuries, the favoured alcoholic beverage has been a strong grape-based brandy called pisco. It is not that the taste for pisco has soured, indeed, consumption is higher than ever. However, the burgeoning middle class and Peru’s world-class gastronomic boom are fuelling a growing thirst for good-quality imported wine. Local supermarket chains are seeking to offer a greater array of international brands. With only a handful of wine importers in Peru offering about ten Australian labels, now could be the time for Australian wine distributors to think about Peru. Once it enters into force, the Trans-Pacific Partnership agreement will further open Peru’s wine market to Australian exporters by immediately removing Peru’s nine per cent tariff on wine for table wines and within five years for others. Peruvians are starting to produce wine themselves and could also be receptive to foreign investment and expertise to help service maturing local palates and the rest of South America. Interested Australian firms should be cognisant of the competition from regional wine producers in Argentina and Chile and consider engaging a local agent to maximise success.

From Taipei: A growing senior living market

From 15 September 2015, Australian producers of fresh poultry eggs and egg products can sell directly into Taiwan. This comes after Taiwan’s Bureau of Animal and Plant Health Inspection and Quarantine (BAPHIQ) and Australia’s Department of Agriculture and Water Resources formally agreed on health certification requirements that would enable the trade to commence. More information can be found on the Manual of Importing Country Requirements website or for more information contact exports@agriculture.gov.au.

From Hanoi: Growing agricultural ties with Australia

Trade between Australia and Vietnam has grown significantly in agriculture. Australia has seen an exponential increase in live cattle trade with Vietnam, reaching three times the volume to that of a year ago. In June, the long-awaited receipt of the first consignment of Vietnamese lychees arrived in Australia. Market access is set to further expand following the conclusion of the Trans-Pacific Partnership negotiations and the commitments to remove 98 per cent of tariffs in the region. On entry into force, Vietnam has agreed to eliminate in-quota tariffs on its WTO sugar quotas and eliminate all seafood tariffs. Australian cotton producers will also benefit from the creation of new regional supply chains into the US and Japanese consumer markets. Clothing produced in Vietnam with Australian cotton will benefit from the elimination of US tariffs on cotton products over 10 to 15 years. Speaking at an Australian–Vietnamese Grow Asia Forum, Australian Ambassador to Vietnam, Hugh Borrowman, was confident Australia and Vietnam could work together to expand two-way agricultural trade.

From Manila: Step-by-step improvements for doing business

The Philippine government seeks to make it easier for foreign professionals and firms to work and operate in ASEAN’s second-fastest growing economy. On 29 May 2015, the Philippines reduced the industries on its foreign investment negative list and those that are not open to foreigners. This move will make it easier for, among other professions, Australian accountants, architects, engineers and dentists to work in the Philippines. Individuals must have a relevant Philippine association accredition and recognise their credentials. In another move that should improve the environment for doing business in the Philippines, the government introduced the long-awaited Competition Act. The government has yet to write the regulations to implement the Act.

From Tokyo: Second phase of Abenomics far from certain

Prime Minister Abe announced a second stage of Abenomics with “three new arrows” (in addition to the first three): a stronger economy, more support for families raising children and better social security. So far Abe has announced goals rather than measures. The headline target is to increase GDP to ¥600 trillion (A$7 trillion) which would require over 2 per cent annual growth for the next five years. Abe also aims to raise the birth rate to maintain a population over 100 million. It is projected to fall from its current size of 127 million to 87 million by 2060. However, in addition to long-term structural and demographic challenges, Abe faces weak inflation and consumption, and the consumption tax is legislated to increase from eight to ten per cent in 2017. Nevertheless, Japan remains an enormous market with affluent consumers, and Australia’s second-largest two-way trading partner.

Iran looks to revitalise global economic ties in anticipation of sanctions relief

With the prospect of sanctions relief, Iranian businesses and consumers are looking to revitalise economic ties with a range of countries globally. All eyes are now focussed on Iranian government efforts to implement all measures agreed with the P5+1 under the Joint Comprehensive Plan of Action. This will require verification by the International Atomic Energy Agency. Many hope that this process will be completed in the first half of 2016.

As previously reported in Business Envoy (September 2015), French, German and other European companies are positioning themselves for future business opportunities in Iran. In sectors where Australia maintains a comparative advantage, Australian businesses are well placed to access these emerging opportunities.

Looking ahead, Austrade assesses there may be enhanced commercial prospects for Australian business in a range of sectors including water, oil and gas, mining, agriculture, education and skills, science and health. The Iranian government’s primary focus is to diversify sources of foreign investment and attract investment in industries that will create exports. Under the proposed new Foreign Investment Protection Agreement, the government will guarantee investments and guarantee against nationalisation. But, as with the nuclear deal, implementation will be key.

Entering the Iranian market is not without its challenges. Over 60 per cent of the economy is centrally planned and the transition towards greater private sector participation is likely to be gradual and piecemeal. Some economists forecast a recession in 2015-16 and have concerns with exposure of the finance sector to unsecured loans. The sustained imposition of economic sanctions has also had an impact on business capabilities, experience and skills. Businesses looking to enter the market will need to undertake due diligence to manage risks and identify business partners.

All Australian and UN Security Council sanctions on Iran currently remain in place. Businesses conducting transactions of more than $20,000 with Iran must apply for financial transaction authorisation permits through the Online Sanctions Administration System. See www.dfat.gov.au/sanctions or email sanctions@dfat.gov.au for more information.

Business Envoy will report on developments in future editions.

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Tradecraft

The Trans-Pacific Partnership: An Asia-Pacific agreement for the 21st century

By Elizabeth Ward, Australian Chief Negotiator Trans-Pacific Partnership Agreement

Of the array of benefits which the 12-party TPP will deliver to the fast growing Asia-Pacific region, some of the most exciting are those delivered through innovation-enhancing, 21st century standards with all the important flow-on benefits this brings Australia.

An innovative, modern economy relies on its ability to easily move finance, data and skilled professionals across borders, as well as maintain liberal, transparent and efficient settings to move goods and services. The TPP’s modern economy-wide rules remove these barriers to mobility, reduce transaction costs and complexity, and provide that most important ingredient for our business community: certainty.

Driving innovation, competition and productivity in the 21st century means understanding, valuing and encouraging investment flows. The rules of the TPP do just that. They are contemporary and robust, and they will put us in a better position than ever to encourage foreign investment, and remove red tape in non-sensitive sectors.

Just as stimulating investment is an important lever to incentivise innovation, so is maintaining a robust intellectual property (IP) rights regime. Knowing that IP rights can be protected and enforced in TPP markets provides an important incentive for Australia’s businesses and investors to expand their activities in the region. TPP settings also provide a catalyst for the expansion of our creative and innovative industries at home.

Australia’s education sector is an essential conduit for innovation and the TPP affords new opportunities for our education providers to continue to grow and develop. The TPP provides a strong platform to expand Australian education and training services exports to TPP countries, including priority markets in Southeast Asia and Latin America. This covers courses delivered online by Australian institutions, Australian education professionals working overseas, foreign students studying at an Australian educational institution or a combination of these methods.

The TPP’s new rules regarding state-owned enterprises and government-designated monopolies will assist Australian businesses. There is an inherent link between innovation and competition. In a modern economy there’s no way to have one without the other. The new rules in the TPP will level the playing field for Australian exporters competing against state-owned enterprises and government designated monopolies in TPP economies. This fairer competitive environment gives Australian businesses the room, and the incentive, to innovate.

The TPP addresses a number of other barriers in a way which will help create the right environment for an innovative, modern economy. For example, in a first for a trade agreement, the TPP contains provisions combatting corruption and bribery of public officials, and other acts of corruption adversely affecting international trade and investment. These provisions will provide greater transparency and certainty to Australian individuals and businesses seeking to trade with, and invest in, TPP Parties.

Where to next?

The gains presented by the TPP have even greater potential with the accession of future aspirant economies in the Asia-Pacific, some of which have already expressed an interest in TPP membership.

Australia and the 11 other TPP countries will follow their own domestic treaty-making processes to implement the agreement. For Australia, once signed, the TPP text and National Interest Analysis will be tabled in Parliament for 20 joint-sitting days, as required under our treaty-making processes. A Joint Standing Committee on Treaties inquiry into the TPP will allow the public to make submissions before a Committee report is provided back to Parliament. This process of Parliamentary and public scrutiny will allow others to appreciate the immense benefits offered by the TPP for Australia.

The TPP is the most significant trade and investment liberalisation deal by a group of countries in 20 years, and it’s in all our interests to focus on how to maximise the benefits it can bring to our nation. I encourage Business Envoy readers to find out more about the TPP by visiting dfat.gov.au/tpp.

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Indonesia: An emerging market for Australian business

Ambassador to Indonesia: Mr Paul Grigson

AMBASSADOR'S CORNER
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Mr Paul Grigson
Australian Ambassador to Indonesia

Most Australian businesses know that Indonesia boasts a large population with substantial natural resources. But the level of understanding of how the Indonesian economy is developing and diversifying is surprisingly low.

Consumption expenditure continues to be the driver of economic growth in Indonesia. The expansion of Indonesia’s middle-income earners has fuelled a rising demand for consumer goods and services, particularly education, healthcare, financial services, ICT and tourism. The burgeoning middle-income sector is demanding more choice, including in food items, and more high-end products with new malls and supermarkets springing up.

Jakarta no longer monopolises Indonesian economic growth. Provincial capitals like Surabaya, Medan, Bandung, and Makassar have recorded higher growth rates than Jakarta in recent years.

Yet overall, despite Indonesia and Australia being the region’s largest economies, Indonesia is only our fourth largest trading partner in Southeast Asia and Australia’s 12th largest trading partner overall. Investment levels are relatively low. The bilateral business relationship between Australia and Indonesia is clearly yet to reach its full potential.

Agriculture and resources have formed the backbone of Australia and Indonesia’s trade relationship. But increasing opportunities exist for Australian service companies to partner with Indonesian companies and match high-quality Australian service provision with burgeoning Indonesian demand.

Take the education and health sectors, for example. Indonesians have often travelled to Australia to take advantage of our world-class education and health services. Yet there are also opportunities for Australian businesses to partner with Indonesian businesses by providing technical expertise in Indonesia and growing Indonesia’s own education and health capabilities.

As Indonesian incomes rise, spending on food and discretionary items will also increase, along with the demand for premium branded consumables. Australia already has a strong position as an agribusiness supplier to Indonesia and has leading market positions in the provision of grains and meat. Australia’s agricultural and food production sectors have the opportunity to partner with Indonesian and multinational organisations in the delivery of technical expertise across the supply chain. And Australian and Indonesian suppliers will increasingly have opportunities to supply to third markets.

Infrastructure is another sector where Indonesia’s growing demand aligns with Australian industry capabilities. After at least a decade of chronic underinvestment, Indonesia’s rapid rate of urbanisation is putting significant strain on its existing infrastructure. Construction activities in cities, ports, roads, airports and railways are a priority for the Indonesian government. This presents significant opportunities for Australian businesses as Indonesia looks for partners to deliver its pipeline of infrastructure projects.

Better infrastructure, combined with Indonesia’s expanding middle-income sector, is also set to drive car sales growth and, along with it, growth in the demand for aftermarket products such as replacement parts. Indonesia’s automotive market is already ASEAN’s second largest and is set to become the region’s largest within five years. Opportunities exist for Australian businesses in the aftermarket space both in exporting and through partnering with Indonesian automotive players.

Working in Indonesia is not without its challenges. Businesses often encounter significant infrastructure bottlenecks, skilled labour shortages and prolonged approval processes. Regulatory restrictions, an uncertain legal system and corruption issues also represent risks to investors. The World Bank Doing Business Report ranks Indonesia 114th in the world while Transparency International ranks it 107th in the global Corruption Perceptions Index. Australian businesses seeking to invest should ensure that they conduct due diligence and familiarise themselves carefully with the business environment on the ground.

Investing time and energy into finding the right local partner can be critical to success. A reputable local partner can help to navigate the logistical challenges that Indonesia, the world’s largest archipelago, can present. But Australian businesses need to be clear-sighted about the accompanying risks and challenges that partnership brings. Businesses may need to invest in training and education programs, for example, because sourcing people with the right skills can be difficult.

Investing in Indonesia remains a long-term proposition. However, spending the time to develop strong relationships through face-to-face meetings can pay great dividends.

Jakarta no longer monopolises Indonesian economic growth.

President Widodo’s government has recognised the need to reform Indonesia’s economy and attract more investment, particularly as economic growth has slowed to 4.7 per cent in the first half of 2015; its lowest level in six years. We continue to work closely with Indonesia to support global and regional trade liberalisation and economic growth. We are also working to show Indonesia the vast potential for both economies to benefit through better utilising global value chains.

Despite the challenges of working in Indonesia, Australian companies are doing well. Austrade estimates that more than 250 Australian companies have a presence in Indonesia, with many looking to expand.

To explore these opportunities, Trade and Investment Minister Andrew Robb will lead an Australian Government trade and investment mission to Indonesia on 17–20 November 2015. The mission will be the largest ever Australian business delegation to Indonesia, with over 300 Australian representatives participating. The aim is to enhance bilateral relationships through high-level political and commercial exchanges.

With Indonesia and Australia as the two largest economies in the region, there is considerable potential to take advantage of the size, proximity and complementarities of our economies to increase bilateral trade and investment.

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Tapping into the ASEAN market: Opportunities for Australian business

ASEAN Flags

The Association of Southeast Asian Nations (ASEAN) stands at the centre of the Indo-Pacific region and is a major success story. Its economy has quadrupled in size since 2000 to $2.5 trillion today. Australian businesses willing to invest and expand into these markets stand to gain long-term rewards in a region with rising prospects and growing strategic and global importance.

The anticipated declaration of the ASEAN Economic Community (AEC) during November’s ASEAN Summit offers further opportunities for Australian business. It is for this reason Minister for Trade and Investment Andrew Robb launched the publication Why ASEAN and Why Now? Insights for Australian Business in August.

Why ASEAN and Why Now? Insights for Australian Business is designed to encourage Australian business to consider the ASEAN region when looking to do business with Asia. Southeast Asia has never offered more opportunities for Australian business than it does today.

The importance of relationships

Developing relationships and partnerships are key to the success of doing business in the ASEAN region. Minister Robb has said that expansion into the region should be underpinned by sophisticated risk management and due diligence frameworks, but the risks can be well worth the rewards.

Australia has a natural advantage with longstanding cultural, political and business ties, enhanced by our geographic proximity and similar time zones. This helps foster trade and investment ties between Australia and the region in a range of industries from agriculture and manufacturing to technical services and tourism. Close relationships with local partners can provide useful market insights and can help navigate what might seem like opaque and difficult regulatory environments.

Australian business culture tends to be highly transactional in nature, with an emphasis on getting on with the deal. In most ASEAN countries, however, it is more important to spend time getting to know potential business partners and building trust before getting to the business. A slower approach also provides the opportunity to ensure potential partners are a good fit with business strategy and values.

What is ASEAN?

The Association of Southeast Asian Nations (ASEAN) is an international organisation which was formed in 1967. It now comprises 10 member states including Indonesia, Malaysia, Singapore, Thailand, the Philippines, Brunei Darussalam, Vietnam, Laos, Myanmar and Cambodia. ASEAN is envisaged as an outward looking concert of Southeast Asian states, promoting stability and prosperity. With its combined population of 620 million and a US$2.45 trillion economy, ASEAN secures far greater influence on international issues than its members could achieve individually.

The ASEAN Community, that is anticipated to be declared in the 2015 ASEAN Summit in November, is the realisation of the ASEAN Vision 2020 and the 1971 Kuala Lumpur declaration of a ‘Zone of Peace, Freedom and Neutrality’. It mirrors ASEAN’s three pillars:

ASEAN Infographic

Did you know that in 2013 11,500 Australian companies exported to ASEAN countries – double the number to China?

  • QBE started its operations in Singapore 127 years ago and now also has offices in Indonesia, Malaysia, the Philippines, Thailand and Vietnam.
  • Linfox has operated in the ASEAN region for 25 years and employs around 19,000 staff in Indonesia, Laos, Malaysia, Singapore, Thailand and Vietnam.
  • Telstra has substantial investments in technical centres and satellite facilities in almost every ASEAN country.
  • Blackmores has operated in Malaysia, Singapore and Thailand for close to 30 years and recently began distributing its products in Cambodia and Vietnam.
  • The Royal Melbourne Institute of Technology established Vietnam’s first international university campus in 1998. It now has 6,000 students and 600 full-time staff in two campuses in Vietnam.

ASEAN Infographic

Opportunities for Australian exporters

Many Australian businesses are already tapping into the wealth of opportunities available in ASEAN. But our exports to the region can and should grow more.

ASEAN Infographic

  • Last year Australia’s bilateral trade with ASEAN surpassed $100 billion.
  • Collectively, ASEAN’s 10 economies account for 15 per cent of Australia’s trade, more than our second largest bilateral trading partner Japan.
  • Buoyed by a lower dollar, Australia’s exports to the region grew 18 per cent between 2013 and 2014. This was driven by growth in gold, coal, petroleum, agriculture and services, including education, financial and business services.

ASEAN’s GDP growth is expected to outpace global growth in the short term. A key long-term driver of this growth is a rapidly growing middle class, expected to double in the next 15 years. Added to this are rapid urbanisation and a young, working population with growing consumer capability.

More than 65 per cent of ASEAN’s population is under the age of 35. This demographic structure represents an abundance of opportunities for Australian exporters now and for years to come.

Southeast Asia has never offered more opportunities

Increasing urbanisation is not only generating demand for infrastructure development, including roads, water and electricity supplies, housing and commercial real estate, but also increasing demand for consumer goods and services. These trends align well with Australian industry capabilities such as food, education, financial services, construction, healthcare, ICT and tourism. Almost a quarter of Australia’s food exports end up on plates in ASEAN countries.

Australia’s service exports to ASEAN were worth $10 billion last year. Australia’s tourism industry can also further benefit from ASEAN’s sophisticated consumers. A recent Austrade survey found that visitors from ASEAN saw Australia as a beautiful, safe and secure country with an appealing lifestyle. Over one million ASEAN tourists visited Australia last year to experience this for themselves, which was 11 per cent higher than 2013.

Regional free trade agreements: A key pathway to the ASEAN Economic Community

ASEAN governments recognise the importance of trade and investment to the region’s increasing prosperity. The AEC aims to lower barriers to trade and better integrate ASEAN into the global economy.

  • AANZFTA has been Australia’s largest FTA for the past five years in terms of volume of trade and was our first multilateral agreement.
  • 20,000 Australian export shipments to ASEAN countries used AANZFTA preferences in 2013 and 2014.
  • Imports from AANZFTA parties using our tariff commitments were $5.3 billion last year, up from $1.2 billion in 2010.
  • Further information, including the guide ‘Making use of AANZFTA to export or import’ is available at www.dfat.gov.au/trade/agreements/aanzfta/for-business/Pages/for-business.aspx.

Australia’s free trade agreements (FTAs) with ASEAN, along with bilateral agreements with Malaysia, Singapore and Thailand, provide pathways for Australian business to tap into the AEC. The Australian Government is continuing to make things easier for business by working to strengthen existing FTAs, such as the ASEAN–Australia–New Zealand Free Trade Agreement (AANZFTA) and finalising others that are under negotiation.

Last year Australia signed the First Protocol to Amend AANZFTA to enhance opportunities for businesses to use this agreement, and it came into force for Australia and the majority of ASEAN countries on 1 October. The Protocol improves AANZFTA’S administrative efficiency by simplifying rules of origin and certificates of origin.

While AANZFTA adds ballast to our trade relations with ASEAN, investment lags. The Regional Comprehensive Economic Partnership (RCEP) currently under negotiation and the recently concluded Trans-Pacific Partnership agreement (TPP) can plug this investment gap and enhance our trade relations with ASEAN economies.

The investment frameworks being developed under the TPP and RCEP would support a more attractive and predictable investment environment and help drive economic integration in the region, offering further opportunities for Australian businesses to deepen investment and develop commercial links and markets in ASEAN and beyond.

ASEAN investment into Australia

As a result of these agreements, we would also see a once-in-a-generation shift towards investment in services.

ASEAN investors recognise investment opportunities in Australia, which is seen as a stable, safe investment destination. A lower Australian dollar will further improve the value proposition of investing in Australia.

Australia’s real estate, hotels and tourism, agriculture and resources sectors are benefiting from this investment, with interest too in our healthcare, information technology and advanced manufacturing. This investment will help expand production to meet increasing demand and support research to develop technologies.

More than 65 per cent of ASEAN’s population is under the age of 35.

  • ASEAN investment in Australia grew 15 per cent from 2013 to 2014 to $111 billion, including $42 billion in foreign direct investment.
  • Investment from Thailand rose from just $0.8 million in 2004 to $6.6 billion in 2014. Malaysian investment rose from $5.3 billion to $21.0 billion over that same period. Investment from Singapore is the stand-out development, rising from $20.3 billion in 2004 to $80.2 billion in 2014.

Why ASEAN and Why Now?

There is no better time to do business in ASEAN. Why ASEAN and Why Now? makes clear ASEAN’s opportunities and how Australian business can tap into these opportunities. Jointly prepared by DFAT and Austrade, Why ASEAN and Why Now? highlights the trade and investment opportunities for Australian business.

The publication draws on the experience of Australian companies that have succeeded in ASEAN and the people in Australia’s network of diplomatic and trade missions throughout ASEAN and in Australia. The publication includes a summary version for business leaders and a more detailed report for analysts. Both versions are available at http://dfat.gov.au/about-us/publications/Pages/why-asean-and-why-now.aspx

Why ASEAN book cover

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ASEAN and the Economic Community: Why does it matter for Australia?

Simon Merrifield

ECONOMIC ASSESSMENT
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Mr Simon Merrifield
Ambassador to the Association of Southeast Asian Nations (ASEAN)

Australia has long recognised the significance of ASEAN to our region’s security and prosperity. That’s why we became ASEAN’s first dialogue partner in 1974, why we secured the ASEAN-Australia-New Zealand Free Trade Agreement (AANZFTA) earlier this decade, and why we formed a Strategic Partnership in 2014. It’s also why we have used our economic diplomacy and aid-for-trade capabilities to support ASEAN’s economic integration project, with the declaration of the ASEAN Economic Community (AEC) in November.

The emergence of the AEC underscores the significance of Southeast Asia as the global rearrangement of economic and strategic weight works its way through our region. ASEAN’s focus, like Australia’s, is to maximise the economic opportunities of those shifts while minimising the risks.

The AEC matters to Australia. It’s an important milestone in ASEAN’s evolution towards a single market and production base. The combined ASEAN economies make the AEC our second largest trading partner. Its young population, growing middle class and strategic location underpin ASEAN’s prospects as a centre for continuing economic dynamism.

And ASEAN’s ongoing integration efforts will make intra-ASEAN business easier and position Southeast Asia as a host for regional and global value chains. These have already spurred growth and have been a key driver for integration. Australian businesses should find ways to tap into them, and use AANZFTA to do so.

The AEC aims to simplify and standardise business environments within and between ASEAN economies and guide them through a process of structural reform to harmonise regulations and improve institutional cooperation. It will also give an important boost to the reform agenda among ASEAN’s emerging economies.

These changes will play out over time. The declaration of the AEC this year does not mean a switchover to new arrangements. And the endpoint is not to replicate the European Union. The AEC won’t be administered by a supranational bureaucracy, nor will it be a customs union, a currency union or a single immigration zone. Rather, it will operate as ten sovereign states within a framework of enhanced collaboration.

Australia-ASEAN Council

Minister for Foreign Affairs Julie Bishop launched the Australia-ASEAN Council on 8 September. As a dynamic and exciting part of the Indo-Pacific region, people-to-people connections are growing. They provide a strong foundation for Australia’s ongoing friendship with the countries of Southeast Asia. The council is an integral part of the Australian Government’s broader public and economic diplomacy strategy. It will assist in projecting a positive image of contemporary Australia into Southeast Asia.

The board of the Council is chaired by Christine Holgate, CEO and Managing Director of Blackmores, and comprises eminent Australians from the business, finance, media, agriculture, arts and culture sectors. The Council’s activities will foster lasting partnerships across all tiers of society, from schools and local communities to leaders and opinion shapers. It will educate Australians and increase awareness of opportunities to connect with Southeast Asia.

The Australia-ASEAN Council website is www.dfat.gov.au/aac.

Our trade relations with ASEAN are in good shape and two-way investment is growing off a low base, but we could do better. We need to be mindful that investors from across the globe are moving quickly on ASEAN-based opportunities, with EU countries, Japan, the United States and China consistently on the top-ten investor list. Australian firms with an on-ground presence are wel placed to respond to opportunities as they arise. Those without such assets might consider ways to improve their positioning.

There are substantial amounts of capital in the region looking to invest in high-quality, safe investments. So there are significant opportunities to partner with ASEAN investors in Australian projects, in fields such as healthcare, tourism and advanced manufacturing. ASEAN investors are also particularly interested in northern Australia in what represents a ‘new frontier’ in investment, including in agriculture and infrastructure.

2015 is a landmark year for ASEAN as it becomes the ASEAN Community, of which the AEC is a part. Looking back over ASEAN’s 48-year history, Southeast Asia’s transformation from a poor and unstable region to economic dynamo has been a signature achievement, marking out ASEAN as one of the world’s most successful and enduring regional organisations. The Australian Government is proud of its role in that journey, and urges Australian businesses to explore opportunities in what has become an important driver of global prosperity.

Australian Ambassadors’ roadshow around Australia

On 7-8 and 11 September 2015, Australia’s Ambassador to ASEAN along with Australia’s Ambassadors to Myanmar, Philippines, Thailand and High Commissioners to Malaysia and Singapore conducted a roadshow to promote the Why ASEAN and Why Now? report. Australian ambassadors and high commissioners, accompanied by senior Austrade staff, travelled to Sydney and Melbourne to discuss regional markets and opportunities for Australian business. In Sydney, PwC hosted a roundtable and lunch with 140 invited guests. A Town Hall meeting hosted by the City of Melbourne attracted over 200 invited guests. The roadshow succeeded in its aim to enable a wide range of Australian stakeholders to speak directly with Australian ambassadors, high commissioners and trade commissioners about the potential opportunities of ASEAN economic integration.

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Economic highlights

The latest IMF assessment of the global economy is for weak growth in 2015 owing to high debt levels, low investment and low investor confidence. Global economic growth is expected to gradually strengthen in 2016. For advanced economies, growth is strengthening owing to accommodative monetary policy settings, and increasing consumer and business confidence. Growth in emerging market economies is weakening due to lower commodity prices, slowing growth in China and the associated impact on its economic partners. Australia’s economic growth remains below trend but is higher than most OECD economies.
  • According to the IMF, the downside risks for the global economy have increased and include: a sharper than expected slowdown in China; disruptive asset price shifts resulting from factors that take financial markets by surprise; low commodity prices; and geopolitical conflict.
  • The US Federal Reserve left its policy rate on hold near-zero at its 28 October meeting but is seeking a path to begin raising interest rates. This would be the first rate increase in almost nine years. Prospects of a possible rate rise in the US have led to a US dollar appreciation against other currencies.
  • The Chinese economy grew by 6.9 per cent through the year to the September quarter, and is the weakest quarterly growth rate since the global financial crisis. Although this result is close to the government’s target of around 7 per cent for 2015, authorities cut interest rates by 25 basis points, bringing lending rates to 4.35 per cent and deposit rates to 1.5 per cent. The cut was the sixth since November 2014. To ease liquidity pressures associated with capital outflows, the Chinese authorities eased bank reserve ratio requirements, and removed the ceiling at which banks can offer deposit rates above the official rate.

Key Statistics. Australian Economic Statistics including Top Export and Import Countries or Regions, Australia's Trade by Broad Sector, Tope Exports and Imporrts, and Australia's International Investment Position.


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