Momentum Shifts to Our Region

May 13, 2019

Momentum and change always provide new opportunities for the business sector. Over the past couple of years momentum has been building in our region and in the Australia-Japan relationship in both trade and investment. What I mean by our region is South East Asia, which is becoming more important for both countries and will provide opportunities for Japanese companies in Australia.

Firstly, the latest report on Japanese M&A activity into Australia 2017-19 by Herbert Smith Freehills (found here) shows 68 announced or completed M&As, 53 of which were acquisitions. The report also shows these investments are in a very diverse range of sectors and that they are bringing their own capabilities and know-how into Australian companies. One important aspect of this recent M&A activity is the investment into Australian companies for the purpose of growth into the Asian region.

Complementing these developments are the recent Free Trade Agreements Australia has signed with Indonesia and Hong Kong. These are additional to the TPP11 which came into effect on December 30, 2018. The probability of Indonesia, Thailand and The Philippines joining the TPP will promote further trade and investment into our region.

For the past five years Australia’s exports of goods and services to ASEAN grew at a slightly faster rate than Australia’s total exports and were worth 4$7 billion in 2017. Australian foreign direct investment also grew from $28 billion in 2013 to $40 billion in 2017. With the announcements of the new trade and investment agreements, these trends will accelerate in the next few years.

Japanese FDI into ASEAN is much larger than Australia’s and has seen a tremendous surge in recent years. For the past two years Japanese FDI into ASEAN has been 2-3 times larger than Japanese FDI into China. Similarly, FDI into ASEAN from all countries has overtaken FDI into China in 2018, as Chinese wages are much higher than ASEAN countries and the Chinese economy is showing clear signs of slowing and struggling. In addition, in 2016 and 2017 export volumes have grown faster in ASEAN than in China, the first time it has happened for several decades.

Countries in the ASEAN region have gained from long term success and are building strong consumer demand and wage growth, both important ingredients to support growth in trade and investment. Over the next couple of years, the ASEAN countries will be growing faster than the Chinese economy (some of them even faster than the official Chinese growth rate). This is a virtuous circle of economic prosperity, adding a new source of demand for both Australian and Japanese companies in Australia.

Author: Manuel Panagiotopoulos

Managing Director, Australian and Japanese Economic Intelligence