Chasing the Fast Boat to Asia

20 December 2011

The Age

By Tony Shepherd
President, Business Council of Australia

Many Australian businesses exporting to Asia and doing business within Asian markets are succeeding, but they face enormous challenges, not the least of which are highly competitive markets. At the same time, a report prepared for the Business Council of Australia highlights that, apart from global competition, the biggest challenge that Australia faces doing business with Asia is right here at home. Simply put, we cannot afford to be complacent about the need for domestic economic reform.

Lifting the competitiveness of the Australian economy is an essential task. It is essential to enable our industries to attract investment and to make the most of the opportunities to increase our engagement with the world’s growth hub of Asia. This is one of the key findings of the report Assessing Australia’s Trade and Investment with Asia. The report, which was prepared for the BCA by ITS Global and released over the weekend, is an initial contribution to the federal government’s Australia in the Asian Century white paper.

The report reinforces that Australia is well engaged with Asia. Asian economies last year purchased almost two-thirds of our exports, worth $175 billion. In fact, all the growth in our exports over the past five years has been due to growth in demand from Asia, led by China. Similarly, foreign direct investment coming to Australia from Asia has doubled over the past five years. Foreign investment is critical because it underpins our exporting industries, provides access to technology and know-how and makes a vital contribution to innovation.

There is no doubt we have come a long way, especially in the past 10 years. In addition to the resources and energy, agriculture and services sectors, many manufacturers are succeeding in Asia, although this is not widely recognised. From this strong foundation, there are certainly opportunities for us to continue to grow our economic partnerships.

The growth of the middle class in Asia is expected to underpin future growth in demand for a wide range of resources, energy, agricultural products (especially food) and services. Securing supplies of energy and food are priorities for Asian nations.

I am concerned, however, that Australia is not moving fast enough to lift our productivity and enable improvements in competitiveness of industries already deeply engaged with Asia.

By way of example, our report puts a spotlight on trade transaction costs for Australia compared to other APEC economies. These costs include the cost and efficiency of loading and unloading goods at our ports, customs clearances and other border approvals.

It is estimated that between 2006 and 2010 trade transaction costs in other APEC economies fell by an average of 5 per cent. In contrast, there was only a very marginal reduction in transaction costs in Australia for the period and, in fact, there was a small increase in trade transactions costs applicable to exports.

Not only do we need to make sure we are efficient at the border, we must invest in the efficiency and productivity of our key infrastructure and industries. We also need continuing reforms to improve tax and investment settings and to reduce the growing burden of regulation so we can build on our existing strengths and attract valuable investment we require.

As all our exporting businesses are aware, Australia is not alone in pursuing opportunities in Asia, with highly competitive emerging economies trying to gain an advantage and build new commercial relationships.

Added to this, the major economies of Asia are actively seeking alternative suppliers, as you would expect them to do. These developments reinforce the fact that when it comes to succeeding in Asia, there are no guarantees. In order to ensure we are prepared to meet these challenges, a new strategy for future engagement with Asia is essential.

For this reason, the BCA strongly endorses the Australia in the Asian Century white paper. The white paper should identify policy changes and supporting actions that include:

  • Domestic economic reforms focused on improving our competitiveness and attracting investment.
  • Working effectively with Asian governments to remove or reduce regulatory restrictions and other barriers to foreign businesses.
  • Lifting both the extent of engagement and the capabilities of both government and business.

It will be important that policies enable all sectors, including manufacturing, to attract new investment and to adapt to changing market conditions. We must not underestimate the importance of opportunities in services, such as financial services and logistics. In addition, education is not only a key export, but an invaluable way to strengthen our broader diplomatic and cultural links.

As a nation, we have to come to terms with the fact that Australia, in so many areas of commercial and wider engagement, is more connected to Asia than with other parts of the world. In light of this, constant comparisons about our competitiveness with Organisation for Economic Co-operation and Development countries, most of which are not in Asia, have become far less helpful.

We need to rethink how we compare ourselves internationally, and to compare our taxation levels, our business costs and regulatory benchmarks with countries in Asia. These comparisons are much more relevant to our competitive position and to where we need to focus our reform efforts.

In many respects, Australia is a high-cost country for doing business, reflecting our high standard of living, which we need to preserve. Given this, we cannot continue to be a high-cost and low-productivity economy in the Asian century. Lifting productivity and competitiveness will be the key to making the most of our opportunities within Asia.



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