LONGREAD: good vibes and a fresh focus at ASEAN

Now, looking forward about the same distance into the future, four of those original countries (Indonesia, Thailand, Malaysia and the Philippines) plus Vietnam are each forecast to be larger than Australia. The combined, now ten-member, Association of Southeast Asian Nations (ASEAN) group could be close to ten times larger.

"Perhaps, unlike some other summits, there is a bit more [at ASEAN] than just diplomacy and money.”

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If demography is destiny, this forecast turnaround in Australia’s economic stature in its own region would be enough alone to explain the upcoming summit in Sydney of leaders from across Southeast Asia, one of the few times they have had such a meeting outside their region.

As is the way of diplomatic summit there are plenty of more-immediate issues on the formal and informal agendas: how to talk about a rising China; what to do about returning Middle East Islamic terrorists; how to keep open trade alive in the Trump era; why don’t Australian companies invest more in this fast growing region; and how to better manage two way education flows, just to name a few.

Perhaps, unlike some other summits, there is a bit more than just diplomacy and money: like the soccer match between a young Matildas team and women from Thailand or a gathering of teachers from the innovative BRIDGE program which allows Australian schoolkids to chat with peers in all ten Southeast Asian countries. 

This is a taste of Australia’s new soft diplomacy focus in Asia trying to offset its traditional image as a big rich quarry or a farm to prepare for a very different future.

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Simple measure

For a simple measure of how much Australia’s world is going to change due to the growth and modernisation in Southeast Asia it is hard to go past the long-term economic growth forecasts. PwC has forecast, using the purchasing power parity (PPP) measure, the five largest ASEAN economies will produce about at $US23 trillion in 2050 compared with $US2.5 trillion for Australia.

Even the more reliable shorter term five year forecast (again PPP) from the International Monetary Fund may surprise some. It suggests Australia’s gross domestic product will be $US1.6 trillion in 2022 and ASEAN’s will be $US11 trillion.

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The standout country at this week’s summit is Vietnam, with which Australian Prime Minister Malcolm Turnbull will sign a new Strategic Partnership, elevating it to a select group of about a dozen to which Australia has given this stature.

It is a standout because its economic size is not even recorded in the World Bank database for 1974 when Australia established its formal dialogue with ASEAN - it was still embroiled in the war Australia had just abandoned.

In 2050 Vietnam is forecast to be about 20 per cent larger than the Australian economy, but it has already in some ways leapt to the front ranks of Australia’s most-reliable partners in the ten-member ASEAN group.

This flows from an increasingly common strategic outlook about the more-assertive regional approach taken by China, growing complementarity between the two economies and a sort of coming of age in Australia’s erstwhile Vietnamese refugee population with many second-generation members returning to their homeland with skills acquired in Australia.

As Australia’s consul general in Ho Chi Minh City Karen Lanyon explains the new diplomatic bromance, Australia has “a very good brand in Vietnam, very trusted”.

“We’re particularly known for innovative products,” she says.

Goods exports from Australia to Vietnam have grown 125 per cent since 2013 sucked in by the latter’s 6-per-cent-plus annual growth and without the sensitivity which has occurred in countries such Indonesia over meat exports.

Australia is understood to now test out ideas for new regional diplomatic initiatives with Vietnamese officials, much as it has traditionally done with countries such as Japan or Singapore.

The negotiation of the Trans-Pacific Partnership trade deal - signed without the participation of the US - and which Vietnam readily embraced has marked its coming out on the regional stage more confident about trade liberalisation than some of its neighbours. It’s quite a remarkable shift from the days when Australia first opened up relations with ASEAN.

Example

Vietnam’s sudden emergence as a regional partner is a good example of the challenges and opportunities which face both governments and business in coming to grips with such a politically and culturally diverse group of countries right on Australia’s doorstep.

A couple of years ago the Philippines was in a similar sweet spot: several years of good economic management had made it the region’s fastest growing economy and a new go to partner for Australia to discuss China and terrorism.

Then along came the volatile President Rodrigo Duterte who, despite receiving valuable Australian military assistance to fight terrorism, has now pulled out of the summit in a blow to the discussions on countering terrorism.

In contrast Vietnam Chamber of Commerce and Industry policy adviser Thao Griffiths says there is a “very good vibe in the (Vietnam) PM’s office towards Australia.”

This recent baton change in engagement between two such-diverse countries in the ASEAN group only shows how government policymakers and business people need to be nimble and strategic in dealing with the individual countries as well as ASEAN organisation itself amid the pursuit of a common market – the ASEAN Economic Community.

Austrade’s recent report on regional business opportunities ASEAN Now reinforces this point, saying the diversity of ASEAN markets, “both between and within countries, remains a challenge but also represents an opportunity for Australian business.”

Last year’s Foreign Policy White Paper committed Australia to enhanced engagement with the region due to its rising prosperity and because “it sits at the nexus of strategic competition in the Indo-Pacific.”

However, there was a hint of uncertainty about how much would be done with the collective ASEAN group - which is often seen to be held back by its slowest-moving members  - and how much would rely on active engagement with long-established partners such as Singapore or emerging ones such as Vietnam.  

It says while the power balance in the Indo-Pacific will obviously depend on the US, China, Japan and India “the responses of major Southeast Asian nations, such as Indonesia and Vietnam, will also be important.” 

The dilemma over how to best engage with the diverse region has been intensified recently by several key governments tuning more inward due to domestic political problems just as the ASEAN institution is trying to emphasise integration to make the region more globally competitive.

For example, the military government in Thailand, traditionally an ASEAN leader, is preoccupied with when and how to return to democracy, while the largest member Indonesia sometimes seems equivocal about whether it sees itself as an emerging world player rather than the driving force in ASEAN.

Gamut

While the Special ASEAN Summit activities run the gamut from better terrorism cooperation to appearances by Southeast Asian artists at Sydney’s Biennale, the biggest sideline activity will focus on deeper business engagement.

This includes a summit of chief executives from Australia and the region, a conference of small and medium enterprises and a joint meeting between the ASEAN Business Advisory Council and two new regionally focussed Australian business groups – the  Singapore-based AustCham ASEAN and the Brisbane-based Australia-ASEAN Business Council.

The business events will be grappling with some striking dichotomies in the Australia ASEAN relationship.  The bilateral trade relationship is quite substantial with $US100 billion in two-way trade which makes it the second largest trade relationship after China and just ahead of Europe.

This reflects growing complementarities as the ASEAN economies develop with education related travel now the largest single Australian export. But the five-year growth trend is only 1.4 per cent behind such partners as China, the US and New Zealand raising questions about how well Australia is really integrating with the third fastest growing part of the world after China and India.

When it comes to investment ASEAN countries have a larger stock of direct investment in Australia ($US44 billion) than Australians have in ASEAN ($US38 billion) raising further questions about whether Australian businesses are missing growth opportunities in Southeast Asia.

It is often noted the stock of Australian direct investment in New Zealand is close to twice as much as in ASEAN. But the ten-year growth rate of investment both ways (admitedly off a low base) is faster than for most parts of the world.

An analysis of the five-year average flow of two way trade and investment shows the ASEAN relationship is doing quite well and ranks only behind China.

In recent months two of the largest Australian companies with pan-ASEAN interests – IAG Group and QBE Insurance – have signalled they are reviewing these investments highlighting the difficulty some large companies have had tapping into the growth forecast in the PwC projections. But at the same time a new survey Australian companies on the ground in the region by AustCham ASEAN has shown an optimistic outlook about business opportunities.

Some 62 per cent of businesses say they have expanded over the past two years, while only 6 per cent have reduced their presence. Another big challenge for the business panels at this ASEAN summit is how much companies should focus on the gradual creation of common market under the ASEAN Economic Community or whether single countries still matter more.

Two large listed companies which have successfully tapped into the rising consumer market across ASEAN view it as a region, but still have a range of different country strategies. Blackmores has had its own distribution arrangements in Thailand and Malaysia for many years but has recently gone into Indonesia with a full joint venture due to the different structure of the health supplements industry there. 

Deputy managing director (international) Dean Garvey told Asialink’s State of the Nation series last week Australia’s future “is in ASEAN”.

“They are our neighbours,” he says. “Blackmores only succeeds where Brand Australia succeeds and Brand Australia works in these markets.”

Cochlear has drawn on Malaysia’s superior IT talent and time zone to base its company-wide help desk and repair center in Kuala Lumpur but is building a training and experience centre in Indonesia where the bigger long-term consumer demand will be.

The company’s Asia Pacific vice president (policy and market access) Georgina Sanderson says there is more movement towards a single market for medical devices in ASEAN compared with more regulated pharmaceuticals sector, although it may never be a perfect single market.

‘We’re just trying to get more similar products,” she says.

To read more insights into the ASEAN Special Summit click here.

Greg Earl is a member of the Australia ASEAN Council board and a former South-East Asia correspondent for The Australian Financial Review.