With other international institutions reiterating their forecasts of declining growth in the emerging economies, the latest Asian Development Bank Outlook Update has a more positive view, at least those in our region. Not only are they sustaining a 6%-plus growth rate, but trade integration continues apace.
Australia has not found much of a role for itself in this supply-chain revolution so far, but our strong services sector gives us potential opportunities.
Among the many reasons for Asia's superior economic performance has been the success of supply-chains (what the ADB calls global value chains), which divide the production process so that each stage is carried out in a country which has comparative advantage in that particular process. From 1995 to 2008, the share of Asia's value-chain trade in worldwide manufacturing exports almost doubled from 8.6% to 16.2%. The message from the IMF on emerging economies has been gloomy for the past few years, but those in Asia have sailed ahead at a pace around three times that of the advanced economies, and the ADB sees this continuing.
What made this possible was close integration and freedom of regional trade.
Following the implementation of the ASEAN Free Trade Area, over 70% of intra-ASEAN trade incurs no tariff, and less than 5% of that trade is subject to tariffs above 10%. Non-tariff trade facilitation – making it easier to ship things across borders – is the objective of the Asian Economic Community and the Regional Comprehensive Economic Partnership initiatives. The national single window (a one-stop shop to speed customs clearance within ASEAN) has gone live in Indonesia, Malaysia, the Philippines, Singapore, and Thailand, with full roll-out planned for all significant ports and airports by 2015.
Where does Australia fit into all this? Have we been left behind with these fast-expanding opportunities, just at the time when we need to find a substitute for commodities to drive our growth? What have we got to offer?
Japan played a key role in promoting supply-chains when it shifted its manufacturing to lower-income countries. Taiwan provided managerial support for the initial stage of China's manufacturing growth, with Foxconn as the prime example. South Korea's sophisticated electronics industry provided inputs for other countries' manufacturers. All of these countries had inherent advantages in finding a role in the supply-chains. Australia, as a net capital importer and commodity exporter with modest manufacturing capacity and few global manufacturing brands, has found it hard to find a role in the manufacturing boom in Asia.
Many of our best opportunities will be found in services. Our engineers are seen all over Asia, in mining and infrastructure. Australian accountants, lawyers and financiers are there too. But the supply-chains should provide new opportunities, especially as Asian manufacturing goes up-market and needs sophisticated design and better distribution know-how to gain greater access to Western markets.
Photo courtesy of Asian Development Outlook 2014 Update.