Australia must come to the South-East Asia investment table
Australia has chided the US for its security-first view of South-East Asia. But this country suffers from the same syndrome of under doing investment relationships. Originally published in the Australian Financial Review.
Before Kevin Rudd bound himself to the rules governing his utterances as Australia’s ambassador to Washington, or, as he reportedly put it privately, to “shut the f--- up”, he offered a sharp critique of America’s Asia policy.
In Rudd’s words in an interview on Bloomberg TV, Washington had focused too much on security in the Indo-Pacific at the expense of economic engagement, and in doing so, had thrown some allies “under the bus”.
Rudd’s language may have been edgy, but his larger point was in line with that of successive Australian governments, which have all worried the US has hobbled itself in a contest with China for regional economic influence.
The irony of such criticism, as well-founded as it may be, is that it mirrors the complaints south-east Asian nations make in different ways about Australia, that we are heavy on security but underdone on economics.
Australia has a longstanding, active, deeply embedded and, by and large, respected diplomatic and defence presence in South-East Asia. Unlike the US, which has opted out of regional trade agreements, Australia has either helped negotiate or has signed on to all the big regional trade deals in recent years.
In concert with Japan, it was Australia which helped save the (now re-named) Trans-Pacific Partnership in early 2018 when the Trump administration dropped out of an agreement the US had originally pioneered.
But while Australia has an exemplary record in regional bodies, it is a serial laggard in investment in the region, something that is noted almost everywhere in the region.
Australia’s stock of investment in Vietnam is less than that of Lego, the Danish toy and games company.
As South-East Asian nations – most notably our neighbour and regional giant, Indonesia – are focusing their diplomatic energies on recharging economic growth, Australia’s regional standing could drift, just as America’s has.
In Indonesia, Australia made up 1.7 per cent of cumulative capital investment into the country between 2012 and 2021, according to the Lowy Institute’s Asia Power Index. In the Philippines, it is about the same. In Malaysia, it is slightly higher.
In Vietnam, it is 0.52 per cent or, as Huong Le Thu from the Perth USAsia Centre points out, Australia’s stock of investment is less than that of Lego, the Danish toy and games company, in the country.
Beijing is gaining ground rapidly. It already surpasses the US in new investment flows in most regional nations, with the obvious exceptions of Japan and Taiwan, where its faces political barriers.
China is also increasing its lead over Japan – the once dominant economic force in Asia. Since 2018, China’s average share of investment in countries in the Asia Power Index has risen from 16 per cent to 22 per cent. Japan’s has dropped from roughly 12 per cent to 10 per cent.
Australia has a bigger investment share in Pacific Island nations, but many companies, such as Westpac, aren’t debating whether to put more money in, but whether to pull out, because the small returns are increasingly overwhelmed by regulatory complexities. (Westpac is also pulling back, for different reasons, from Asia.)
Telstra did buy the Pacific’s dominant regional mobile provider, Digicel, last year, but that was only after a big nudge, and an even bigger offer of cheap capital, from the then-Morrison government.
Of course, it is fanciful that Australia can ever match China, let alone Japan and the US in the region. Nonetheless, Australia is seen as falling behind, even relative to its size.
With some exceptions, Australians do business with South-East Asia, not so much in South-East Asia. The same applies in China, with which we enjoy huge two-way trade flows but where we invest very little.
Our businesses have long preferred to look to the US, the UK and Europe to put their money, even if their destinations are a day’s flight and many time zones away.
One result of this longstanding pattern is that Indonesia increasingly sees it as leaving Australia behind economically over coming decades, as it goes for growth to vault itself into one of the top 10 economies in the world.
President Joko Widodo is totally focused on the development of his country, something which plays to China’s strengths. There is no sign that Jokowi’s successor will be any different.
Canberra may quietly complain that such a focus comes at the expense of Jakarta’s regional geopolitical clout, and its willingness to push back against Beijing’s incursions into its territorial waters. But it is a fact of life whatever Australia may think.
The federal government is acutely aware of the perception problem. Late last year, it appointed Nicholas Moore, the former Macquarie Group chief executive, to act as its special envoy to South-East Asia as part of its regional strategy.
Moore, in turn, according to a report in this paper, has established his own kitchen cabinet of business leaders to draw on their expertise to deepen Australia’s enmeshment with south-east Asian economies.
Greg Combet, a former Labor minister who now chairs IFM Investors, led a delegation of super fund managers and financiers to assess investment opportunities in Indonesia late last year, another possible avenue of engagement.
Australian governments don’t have command economy powers, so the likes of Moore and Combet will have to make a business case for investment in countries such as Indonesia and elsewhere in South-East Asia.
But as Australia looks for external options to manage the rise of China, we need a guns-and-butter approach. One of them won’t work on its own.
