Tuesday, 27 September 2016

ASEAN's Growth Opportunities

Investment

Call us

1300 300 437

Open Monday to Friday 9am-5pm (AEST)

By Tony Cripps

CEO, HSBC Bank Australia

With new infrastructure, and healthy rates of economic and population growth, ASEAN has been overlooked by Australian exporters for too long.

ASEAN is Asia's forgotten middle child. It is one of the world's fastest developing economic regions but too often its growth prospects are overshadowed by China and India.

ASEAN's 10 member states together have a population exceeding 600 million, with a collective GDP of USD2.5 trillion. Australia's two-way goods trade with ASEAN is larger than that with the United States or the European Union. And its two-way services trade with ASEAN is second only to that with the EU.

It's clear that ASEAN is more than pulling its own weight. If it were a single entity, the region would be the sixth-largest economy in the world. So why is it overlooked in conversations about Australia's future?

There are several other reasons aside from China and India's emergence. One is that the establishment of ASEAN was primarily politically driven.

ASEAN came into being 49 years, in the polarized atmosphere of the Cold War. The aim was to promote political stability in the region.

The second reason is that there has never been much concern about economic growth in Asia.

There was the rebuilding of Japan's economy after World War II. Then there were the four Asian Tigers of Hong Kong, Singapore, South Korea and Taiwan, which began to take off in the 1950s and 1960s.

With high-flyers all around, it's easy to overlook that Indonesia, Malaysia and Thailand all achieved annual GDP expansion of at least 7 per cent for 25 years or longer.

If we look at Australia's trade with ASEAN, we can see that it has grown - but not at a pace that truly reflects the size of the ASEAN opportunity.

Between 2011 and 2014, Australia-ASEAN trade grew by around AUD12 billion. Over the same period, Australia-China grew by about AUD30 billion.

Attitudes are slowly changing. ASEAN has gained global interest as concerns about the economic slowdown in China spurs companies and investors alike to consider diversifying to take advantage of ASEAN's impressive economic prospects.

Broadly speaking, there are three major opportunities in ASEAN that Australia can better exploit. The first can be found in the production base.

China has long been the "factory floor of the world", but its economy is moving towards higher value-added, higher-tech manufacturing and services. Also, wages are rising in China.

So the traditional, labour-intensive manufacturing that was once the staple in China's economic rise is moving southeast to ASEAN.

The second major opportunity in ASEAN can be found in the single market. ASEAN's population will have broken the 700-million mark by 2030. And the goal is to increase GDP per capita to more than USD9,000 by 2030 - triple the level in 2010.

This increased spending power is turning ASEAN into a key market for everything from cars to airplane tickets to shampoo and mobile phones.

The third major opportunity lies with the increased regional connectivity flowing from the newly-established ASEAN Economic Community (AEC). Meanwhile, the Regional Comprehensive Economic Partnership (RCEP) and the Trans-Pacific Partnership (TPP) are "mega-regional" trade agreements aimed at lowering trade barriers and opening up new business opportunities.

Then there's China's Belt and Road Initiative. "Belt and Road" is an ambitious plan aimed at boosting the region's flow of trade, capital and services - primarily by ploughing billions of dollars into railways, highways, air routes, telecommunications, oil and natural gas pipelines, and ports.

It will build new and improve existing transportation links to further strengthen collaboration and build international economic co-operation corridors, including in ASEAN.

The huge spending involved in "Belt and Road" will boost economic activity. In the first seven months of the year, China's non-financial ODI into 51 Belt and Road countries reached USD7.9 billion. The investment mainly went to Singapore, Indonesia, Malaysia and India.

So how can Australia tap into the ASEAN opportunity? The opportunities will be similar to those for China: tourism, education, agriculture, infrastructure, and also in advanced manufacturing and business process outsourcing.

Rising infrastructure investment across ASEAN will help support demand for Australia's hard commodity exports, including recent infrastructure announcements in Vietnam and the Philippines.

The proximity, experience and soft ties that Australia enjoys with ASEAN cannot be easily matched by its competitors from North America or Europe. If it plays its cards right, Australia can only benefit from ASEAN's rapid economic development.

Tony Cripps is Chief Executive Officer of HSBC Australia

If we look at Australia's trade with ASEAN, we can see that it has grown - but not at a pace that truly reflects the size of the ASEAN opportunity.

This article first appeared in The Australian Financial Review on Thursday 22 September 2016.

Issued by HSBC Bank Australia Limited ABN 48 006 434 162 AFSL 232595.

You are leaving the HSBC CMB website.

Please be aware that the external site policies will differ from our website terms and conditions and privacy policy. The next site will open in a new browser window or tab.

You are leaving the HSBC CMB website.

Please be aware that the external site policies will differ from our website terms and conditions and privacy policy. The next site will open in a new browser window or tab.