Australia-Asean trade ties set for turning point: 'now, there's a different appetite'

Australia's economic ties with Southeast Asia have been mixed due to challenges in expanding business there, but observers say the relationship could be headed for a turning point as Canberra intensifies its interests in the region amid softer relations with China.

"Australian institutions - big and small - are increasingly convinced that Asean is on its way to the first world. Primarily, Asean is opening up to the world," said Australia's former trade minister Andrew Robb, among those who have pushed for more engagement with Southeast Asia.

Robb raised the importance of Australians doing business with Southeast Asia when he was in office between 2013 and 2016.

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While events such as the Asian financial crisis had contributed to the risks of investing in the region, Robb said the culmination of businesses rushing to find alternative manufacturing hubs outside China and the maturing of economies in the Association of Southeast Asian Nations could now change Australian appetites.

"Once they had a swag of tariffs on trade, they had a bureaucracy that was impossible to get through, governments that were suspicious. Businesspeople ... had alternatives. China turned up," he said. "Back in 2015, 2016, we were laying the foundations ... now, there's a different appetite."

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Last year, Australia's direct investments in Asean came to about A$28 billion (US$18.7 billion) while investments from New Zealand - a country of 5 million people, or less than 1 per cent of Asean's population - were more than double at A$75 billion.

Despite Indonesia having a US$1.2 trillion economy, making it the largest Asean member state, it appeared to have attracted no direct investments from Australia between 2018 and 2022.

There was no data for publication, according to the investment report for 2022 released by the Australian Bureau of Statistics last month.

Undertaking direct investments - which are often riskier - reflects investors' willingness for long-term stakes in a country, so low levels of Australian direct investments in Asean convey a weak financial commitment to the region.

While direct investments could take a while to increase as businesses learned to divert capital away from "blue chip" countries, Asean and Australia had over the course of the last two decades negotiated a swathe of free-trade deals that could serve as a bedrock for more trade in the interim, Robb said.

Two-way trade between Australia and Asean reached A$150 billion in 2021-22, exceeding that of the European Union at A$97 billion and the United States at A$77 billion.

A new economic strategy to be launched later this year could also help Australian businesses make further inroads into Southeast Asia.

The "Southeast Asia Economic Strategy to 2040", part of Canberra's efforts to boost ties with the region, aims to map trade and investment opportunities across key Southeast Asian sectors to Australian capabilities. It will also propose ways to boost mutual trade and how Australian businesses can support and contribute to the region's energy transition.

Businesses were keen to seize on the strategy's potential commercial benefits but less interested in using it as a political tool to "win friends" in Asean, said Francis Wong, chair of the Australia-Asean Business Forum, which begins on Monday.

The architect of the strategy, Australia's new Special Envoy for Southeast Asia Nicholas Moore, is set to speak at the forum alongside Asean heads of missions and business leaders.

In 2014, a report by advisory firm PwC said Australian businesses were missing out on the growth of Southeast Asia and wider Asia due to a culture of being unwilling to deal with change or to operate in an Asian environment.

"Putting it bluntly, Australian business has operated in a relatively sheltered, comfortable competitive environment. And we have become complacent," the report said.

PwC Asia Practice director Sung Lee said there had since been improvements.

"Over the last decade, Australian businesses have become less evangelistic about economic opportunities in Asia. Instead, we have in general become more strategic and smarter in our pursuit of economic opportunities in Asia," Lee said.

Results of business chamber Austcham-Asean's annual survey last year showed more Australian firms had operated in Asean markets compared with the previous years, and many said they intended to expand. There was a 15 per cent increase in international operations across the region.

Businesses told Austcham-Asean that "Asean integration was crucial for enhancing the region's economic environment" despite facing challenges including corruption.

However, just talking up Southeast Asia domestically would not accelerate Australian expansions in the region, said Dale Schilling, who founded "insurtech" start-up Hillridge Technology.

Schilling found his drive for Asia through living there. He had spent five years in Japan while on a scholarship from the Japanese government to study the language.

"If we are going to pivot our country to Southeast Asia ... I would like to see far more exchanges with students and also business matching," he said.

Earlier this month, Hillridge launched a new agricultural insurance product that protects farmers in Vietnam from the risks of drought, with assistance from various levels of Australian governments.

Government support, however, was only one part of the puzzle, Schilling said. Aside from living in Asia, he also attributed his success to the right working environment, such as his co-working office at Haymarket HQ in Sydney. Haymarket HQ specialises in expansions into Asia.

"I felt that if I'd gone to one of the other co-working spaces, it would have just felt very focused on Australia and then if you're going to export, of course you go to America and then next, it's Europe," Schilling said.

For Jacques Markgraaff, who is leading Australian clean energy firm Lavo's expansion into Asia in his role as chief operating officer, business networks have opened doors faster into Brunei as a potential hub for his company to expand its customer base, for instance, even as Australian governments have been supportive.

Markgraaff said "there remains work to be done at the intergovernmental level to help accelerate cross-boarder collaboration" for places like Brunei, which has a comparative advantage of having a deep capital pool and strong relationships with other countries such as China, the rest of Southeast Asia and Australia.

Research eventually helped him have "good conversations" with the Brunei and Singapore high commissions, he added.

"I'm not sure why things are not moving fast enough across the Southeast Asian region from a political standpoint but they should be, especially given the economic [and] environmental implications at stake and I believe we will start to see more positive momentum happening soon," Markgraaff said.

This article originally appeared on the South China Morning Post (SCMP).

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