In early October 2014 I was invited by the South Australian Small Business Commissioner – John Chapman, to present to South Australian small and medium sized business leaders on the export opportunities in South East Asia. The speech was well received by the more than 80 business leaders present on the day. I have provided a copy of the speech below for those who are interested.
The Asian Century is often discussed within Australia in terms of China and India. However, we often fail to realise there are strong, established and emerging opportunities in other South East Asian markets where we’ve traded successfully for more than a century. The focus upon China and India in recent years, has unfortunately seen South Australia’s exports to South East Asia fall by some $400 Million annually in the past 24 months. While comparative export performance against our interstate counterparts has deteriorated to only 4.3% of Australia’s total exports, well below our population share of 7.2%. This is a damning reflection of South Australia’s disengagement with South East Asia over much of the past decade. Its worth acknowledging while the South Australian business community has broadly looked to other markets much further afield, the rest of the world, and rest of Australia has been refocusing upon our closest Asian neighbors. And they have been reaping the economic, and trade rewards. Its now time for the South Australian business community to stand up to this challenge and look for how they can re-take the advantage available in South East Asia.
In June the Victorian Government undertook its second successive super trade mission to South East Asia, encompassing key growth markets of Singapore, Malaysia, Indonesia, Vietnam and Myanmar. A year earlier in 2013 the super trade mission brought together 600 Victorian business delegates across multiple industry sectors including; automotive, aviation, agribusiness, health and aged care, education and vocational training. As a consequence of the success of this mission, the Victorian government recently opened a new Victorian government business office in Indonesia to work alongside the Business Office in Malaysia. This renewed interest in South East Asia has been matched by the Western Australian and Queensland Governments who have both opened trade offices in the region to develop targeted business opportunities, while Northern Territory and NSW governments are actively developing independent in-market representation.
The South Australian Government recently announced a directions paper seeking to develop a trade and engagement strategy between South Australia and South East Asia. This is certainly a positive step for South Australian business, and will help build upon the competitive advantages that currently support our economy. The Association of South East Asian Nations, or ASEAN, is a major economic and political grouping of 10 nations in south East Asia; Indonesia, Singapore, Malaysia, Brunei, Thailand, Myanmar, Cambodia, Laos, Vietnam, Philippines, with the addition of Timor Leste as an observer. Many of these countries have historical business, government and development links with South Australia through State Government trade offices formerly located in Jakarta and Bandung, Kuala Lumpur, Singapore, and Ho Chi Minh City, Sister City Relationships such as between Adelaide and Georgetown in Malaysia, and Sister State Agreements such as between South Australia and West Java in Indonesia. Beyond the formal government links, South Australian business has developed substantial commercial trade links, with the 600 million strong population of ASEAN representing South Australia’s 2nd largest export destination in 2012/13. ASEAN provides the perfect opportunity for South Australia to leverage trade with India and China, through the logistics hub of South East Asia linking SA with South Asia, East Asia. In addition, the majority of SA’s seaborne freight transits through South East Asia to Europe, the Middle East and North America. The ASEAN region is therefore the logical location for a trade engagement strategy.
South East Asia has undergone a remarkable transformation over the past 15 years since the East Asian Financial Crisis crippled many of the economies in the region in 1997/98. Economic growth has been sustainable, strong, and consistently high for most of the economies experiencing GDP growth of around 5% annually for much of the post EAFC period. South East Asia is home to more than 600 million people, and most of the economies are longstanding members of the WTO and earlier global trading agreements of yesteryear. Many cities in South East Asia have historical relationships with many Australian cities through sister city agreements (Adelaide and Georgetown, Malaysia is a good example). And yet Australian business and governments (commonwealth and state) have largely overlooked this region in the past decade in favour of the mega markets of China and India. The extraordinary economic growth experienced in these two mega markets can hardly be ignored, however, at what cost to our own economic, and social prosperity. The Association of South East Asian Nations (ASEAN) celebrates it’s 40th anniversary this year, with much of the economic gains since the EAFC a result of increased trade and investment throughout the region.
The ASEAN grouping has matured as a political and economic grouping, embracing many of the successful economic integration policies of Europe, without sacrificing political stability and autonomy. In 2009 ASEAN commenced a process to harmonise the regulatory environment across the region, and to encourage and facilitate freer movement of capital, labour, business, and trade in goods and services. This process of economic and regulatory integration will ultimately lead to a regional economic community with much in common with the European Economic Community (EEC) of the early 1990’s. Crucially there is no appetite for a political or monetary union and the myriad problems that might arise trying to accommodate the vastly different religious, ethnic, governmental and cultural backgrounds of Asia.ASEAN and it’s member states have quietly gone about modernising their economies and encouraging sustainable trade and investment in key industry sectors such as finance and banking, agribusiness, manufacturing, education, and mining and energy.
Regional free trade agreements have been ratified with neighbouring countries to ASEAN; including China, Japan, South Korea, India, Australia and New Zealand. These agreements have sought to consolidate South East Asia’s position as the nexus between South and East Asia, and formally integrating Australia into Asia. The ASEAN – Australia New Zealand Free Trade Agreement (AANZFTA), provides preferential trade access for Australian companies into South East Asia, building upon the bi-lateral trade agreements Australia has with Singapore, Thailand and Malaysia. This preferential access is unique for advanced western economies, and provides an effective competitive advantage for Australian companies in Asia over European and North American competitors.
South Australia has been undergoing substantial economic transformation, epitomised by the announced closure of Holden and through extension the automotive industry. Our economic transformation will lead us towards advanced manufacturing and service delivery, and South East Asia is a prime location in which our competitive industries can foster this transformation. South Australia’s strategic plan identifies our collective industry strengths as including; education, agribusiness, advanced manufacturing, and mining. South East Asia has demands for all of these strengths, and provides more alignments for South Australia to develop sustainable value chains into Asia for re-export beyond into South Asia, East Asia, Europe and North America. South East Asia is now a region which has once more returned to prominence, due in no small part to the rapidly emerging consumer class across much of South East Asia.
Malaysia has developed into an upper-middle income economy, driven through development of tourism, advanced manufacturing, new technologies and Fortune 500 company Petronas, who has invested not just in the exploiting oil and gas reserves, but into education and training of the next generation of engineers and geosciences. The Petronas towers are a symbol of Malaysia’s modernity and economic success, however, a visit to the Norman Foster designed University Technology Petronas (UTP), and Institute of Technology Petronas (INSTEP) showcase how far Malaysia has come in the past decade. Petronas have invested heavily into geosciences, engineering and sustainability research and training, garnering collaboration and support from some of the worlds largest energy companies (Shell, Haliburton, and ExxonMobil), and recently built a full scale oil and gas offshore platform, and onshore processing facility model to train graduate engineers and scientists. Investments in facilities like this are becoming the norm, encouraging international collaboration and improving productivity.
South Australia’s mining, oil and gas explorers, and mining service providers are already partnering with companies from South East Asia to develop projects. Petronas the Malaysian based Fortune 500 oil company, has a joint venture with SANTOS in Queensland for the export of LNG, while a number of SA based Oil and Gas and Mining explorers such as Beach Energy, Cooper Energy, Hillgrove Resources have active tenements throughout Indonesia, and further into the ASEAN region. The growth in the mining sector across ASEAN provides a great opportunity for SA to leverage our mining services capabilities in a way that helps ASEAN markets increase efficiency and productivity. In this way SA can partner with Asia and grow our mutual prosperity through trade and investment.
South East Asia have a demand for capacity development in a range of industry sectors, and with our advanced manufacturing and mature further education capabilities in South Australia, we can help these economies realise these objectives. SA needs to think about more effective methods of partnering with Asia, not solely to sell to Asia. The recently completed full size working model of a oil and gas processing plant for education purposes, worth more than A$200 million provides an opportunity for the South Australian government, in combination with SANTOS, Beach Energy and the education sector to develop partnerships with Petonas and build upon the newly announced unconventional oil and gas centre at Tonsley Park. World class facilities and world leading organisations in South Australia should be actively seeking to partner with similar organisations in South East Asia, as these opportunities rapidly emerge.
Opportunities also exist in Indonesia, where more than half the 250 million population of Indonesia is under the age of 30, and conservative economic forecasts predict the country will rise to become the 7th largest economy in the world by 2030. If this is to occur, Indonesia will have a middle class population of between 130-190 million. There are many industries expanding across the country at the moment, however the growth in the automotive manufacturing sector is one of the best examples of the rapid expansion of opportunities in the Indonesian economy. Greater Jakarta is now home to Suzuki, Nissan, BMW, Mercedes, GM, and two Toyota manufacturing plants, while other global car companies are building strategies for entering the market in the years ahead. It could be said that the loss of the Australian automotive manufacturing industry is Indonesia’s gain. Yet there are still good opportunities for Australian component manufacturers and manufacturing services companies to build partnerships and actively assist Indonesian companies to improve productivity and quality. Indonesia is regularly SA’s largest agricultural export partner primarily for wheat exports. Indonesia has some of the largest food processors in Asia, who re-export food products such as noodles (made with SA wheat) to other Asian markets. This is a win-win for South Australian farmers, as our exports have risen inline with Indonesian exports of value added, but crucially low cost food items throughout Asia.
There is a similar experience in Thailand, and Vietnam with other SA agricultural commodities, and we need to work with our partners in ASEAN to ensure we can grow market share, and develop sustainable business models seeking to utilise our competitive advantage in producing high quality bulk agricultural commodities not readily available in Asia. Similarly there are outstanding opportunities for premium food exporters to these markets, where the rapidly growing middle class is seeking diversified, high protein, and high quality food products. A trip to any supermarket in South East Asia (Carrefour or local markets), will provide a good examples with San Remo Pasta, Bickfords, cordials and Beerenberg Jams amongst some of the SA premium food products on the shelves of the supermarkets. Over the past decade I have spent a considerable amount of time working and travelling throughout Asia for a range of government, industry association, and private clients, in most cases helping to facilitate export and investment deals. Throughout this period of time South East Asia has undergone an unprecedented level of development, and in many of these countries the level of development, wealth, and in some case populations of cities exceed that of Australia. I am often amazed by the luxury and wealth on display in many of the largest cities in South East Asia, best demonstrated by the number of official Luis Vuitton Stores (5 x Singapore, 4 x Indonesia, 3 x Malaysia, 3 x Thailand, 2 x Vietnam, 1 x Philippines), and the rows of parked Maserati, Ferraris, Lamborghinis and even Bentleys outside the luxury mega malls of South East Asia.
How often do we see this line up in Adelaide? How many Luis Vuitton stores are in SA?
The answer is none.
No longer is South East Asia a colonial backwater, but in many cases it is thriving, and looking for the latest and best products from around the world. Australians have often lamented the tyranny of distance to our key markets. With South East Asia we are the near neighbours, we hold a comparative logistics advantage, and we have centuries long trading histories. Its useful to think of markets not just in terms of total population size, but indeed more appropriately in terms of the population size with the capacity to pay for your product or service. Its useful to consider that if you have high value products your customer might fit within the middle class, but measuring the middle class is problematic – it could be classed as earning $4-6 a day, upwards to $10 a day. This is a wide net, and would still keep people well and truly on the wrong side of the poverty line in Australia.
Another way we can look at market size is to look at wealth – that is income + assets, and if we look at these measures we can see for example that the largest market in Asia with adult wealth between $100k-$1m is actually Japan with around 53 million people in this category, nearly twice as large as the market size in China of 24 million, and a long way short of India at 2.3 million. Population measures of the $10k – 100K wealth shows the largest market is China with 390 million, followed by India with 39 million. Interestingly ASEAN has a population in this category of 51 million, with most living in Indonesia, Singapore, Malaysia and Thailand. The countries of South East Asia continue to provide a great opportunity for South Australian companies from large corporates through to SME’s, and Australia competitive advantage in this region.
It’s time for South Australian CEO’s to get into the market and explore the real and tangible opportunities on offer. South East Asia provides the synergistic opportunities in Asia linking India to China and beyond, and South Australian future prosperity will depend upon our successful engagement with this region – our region in Asia.
Dr Nathan Gray is National Vice President of the Australia Indonesia Business Council and Managing Partner of AsiaAustralis, an Australia based Asian Market Advisory firm.