Three big-picture themes shaping Australia’s global trade agenda in 2020

From the Australian bushfires to the global spread of the novel coronavirus, 2020 has indeed had a difficult start.
 
Notwithstanding the humanitarian impacts, the broad-ranging economic consequences of these occurences are still evolving. While it is too early to predict the fallout on Australia’s GDP, commentators are suggesting the domestic economy could shrink by 0.1 per cent in quarter one alone. [1]
 
This heightened uncertainty makes it even more pressing for Australian corporates to identify and activate new sources of growth. Emerging Asia should be at the forefront of this growth.
 
Unpacking Australia’s trade profile and economic complexity  
It is true that seven out of Australia’s top ten two-way trading partners are in Asia.[2] However, a closer analysis of this trade profile reveals a stark lack of complexity.
 
I’ve previously written on this blog about the impact of this lack of economic complexity on Australia’s overall global competitiveness, and the lessons we can learn from leaders in the region such as Singapore.[3] It is an issue that has been pushed into the spotlight recently, with Phase One of the US-China trade deal impacting on major exporting countries including Brazil, Russia, Canada and Australia, which is the biggest supplier of coal and LNG, and a key competitor of the US in other commodities including cereal and cotton.[5]
 
It’s a similar story with investment. Asia accounts for only four of our top  ten foreign direct investment destinations – we invest more in New Zealand than we do in China.[6]
 
So, how can we diversify Australia’s trade and investment links with Asia and achieve real growth? In my recent presentation to CEDA’s Economic and Political Outlook, I highlighted three key actions Australia can take in 2020 to generate this growth.
 
Activating Asia for small and medium enterprises
First, we need to activate opportunities in Asia for Australian small and medium business (SMEs).
 
2019 research by Asialink Business revealed that while Asia was “on the radar” for the majority of surveyed Australian SMEs, most were still failing to generate significant revenues from Asian markets. More than half of businesses (55 per cent) surveyed generated less than five per cent of their annual revenues from Asia.[7]
 
For those that had optimised their operations for Asian markets, however, the revenue gains were significant. By having Asia as a core part of their business strategy, surveyed SMEs realised between three and four times the revenue gains from Asian markets, compared to those businesses that did not have an Asia strategy.[8]
 
Clear economic strategies for our Asia engagement
This strategic shift to activating SMEs needs to be part of a macro strategy for engaging with Asia.
 
Australia’s India Economic Strategy to 2035 (the IES) is a landmark initiative that articulates key sectors and key states for Australian companies to target in India. It also outlines an ambitious outbound investment target at ten times the current level of Australian investment in India (aiming to grow it from $10b to $100b). This is a key shift from how Australia has historically viewed economic engagement, usually through an export or inbound investment lens, and it will need new skills, expertise and mindset to implement.
 
The deep, sector-specific approach in the IES can also serve as a model for diversifying Australia’s economic engagement with Indonesia. The IA-CEPA has some significant benefits – but it is not the same as a strategy. A comprehensive Indonesia Economic Strategy, with well-defined opportunities and long-term targets, will enable us to measure the success and growth of our trade and investment with Indonesia.
 
Business model innovation
 
Finally, a shift in thinking about business models will be crucial to the success of Australia’s global trade outlook.
 
For example, low cost does not necessarily equal low quality. Take India’s healthcare sector, for example, where local frugal innovation has lowered the cost of a heart bypass to $2,000 (98 per cent less than the U.S average) with lower mortality rates.
 
Such developments are being closely studied internationally across sectors and are spurring business model innovation beyond healthcare, including in fast moving consumer goods, fashion, the automotive sector, and even the space industry.
 
It is this creativity and innovation that Australia can harness. In uncertain times, we should mobilise our SMEs and large corporates as part of a broader series of economic strategies to not only diversify our current trade portfolio but grow it.