The world is undergoing a great period of reflection on the role for, and value of, the globalisation of trade and its current trading agreements and patterns.It is a period of significant political, economic and social disruption and is challenging the premise of international trade and investment as we have known it since the post second world war international trade and monetary institutions were established.
Rapid technology developments associated with the new information age are occurring at the same time.
The result is a heightened sense of uncertainty in all global economies led by the intentions and demands of new international events such as Chinas One Belt and Road Initiative, European anti-immigration policies, the America First positioning tax and subsequent ‘trade war’ positioning with China and the recently agreed NAFTA replacement - USMCA - and the impact of Brexit on the UK as well as the European Union.
New Country to Country partnerships are forming
One consequence of this change is that most countries that have historically relied heavily on trade and investment direction from the US are now looking for new global leadership - and or new alliances - to fill the gap and this represents a significant opportunity for Australian interests and capability. The accelerated recent completion of an FTA between Japan and EU is an example of that.
We are yet to see what path China takes in its trade ‘war’ with the US and what will unfold as intended or unintended consequences towards each countries economies or other markets – including Australia. But one thing is for sure it wont be a zero impact!
But this may also lead to a ‘co-opetition’ effect from traditional ‘friendly’ partners such as ASEAN, Canada, UK and Japan as they seek to protect their own interests and opportunities in international markets first and foremost and we need to be aware of that.
There are two markets in the world they say. China and not China. The China market is as we know and understand it. The not China market is all those markets that are concerned that China demand will take all of the staple food, commodities, goods and services they need in order to survive. The UAE for example imports 90 per cent of its food and is highly susceptible to price shocks and reliability of supply. A ‘not China’ market then wanting to have a trade relationship with Australia really is more a partnership that will weather variability over the long term and not jump in and out of Chinas ongoing demands at their expense.
Traditional Economy versus the Information Age
Australia also needs to appreciate that the economic and social disruption which has been building over several decades is inexorably linked to the new ‘game changing’ technologies and applications emerging from the global digital economy which are being targeted to meet the requirements of the information age and are being generated at ‘hyper speed’. One example of this is the rapid emergence of Bit Coin and Blockchain secure distributed ledger technology which will disrupt multiple institutions where ‘trust in transactions’ is a key requirement – such as banking, real estate, food safety, or copyright.
As we transition into the information age Australia must be able to manage both our ‘traditional economy’ trade and investment opportunities in goods and services – revolving around the resources and energy, agriculture, financial services and Education sectors - while at the same time we must understand, source and manage the new types of ‘digital economy’ opportunities around ecommerce, medicine and health, education and training and agriculture.
Good examples of where these trends converge is in Australian energy developments like the Lithium Valley concept in WA and CSIRO and Curtin Universities breakthroughs in hydrogen fuels.
Regardless of any current discussions about the size of Australia’s population - whether it is 25 million or 50 million at any time soon - we will never achieve the critical mass of population that China, India and the countries of Africa will achieve over the same period. Size will therefore never be our ‘friend’ in terms of global market domination – except in resources and energy, the financial services sectors and some aspects of agriculture - and therefore we need to be smarter about the way we utilise our populations ‘capability’ to be relevant global economy participants and competitively so.
Australia needs to take advantage of digital connectivity, levels of education and research, our way of living and thinking, and our cultural characteristics to find our place as a participant in the delivery of global products and services. Australian industry and businesses must move their psyche from simply servicing the Australian market to servicing the Australian domestic market as a leverage to participation in the global market ie the ‘born global’ concept is not just for tech entrepreneurs but for every business.
Australians businesses are not very good at exporting?
According to an 2016 AIBS survey there are roughly only 10 000 regular exporters of the 48,000 that do export. Less than 500 of these exporters make up 80% of the revenue. 60% of exporters export only to one market and most are micro exporters and inconsistent exporters. Our largest export markets remain New Zealand and the US followed by China
This is clearly not very effective in growing and sustaining Australia’s economic prosperity. Greater diversification in markets and sectors is required with the Indo Pacific requiring greater focus.
(The latest 2018 AIBS survey can be found here).
Australian exporters not only need educating – they need skilling. We also need to reach beyond our commodities providers and begin to support and skill technology entrepreneurs, service providers and regional SME’s more effectively.
The world is not waiting for Australia
China represents an ‘economic and innovation tsunami’ based on 700 million new smart phones users and online economy and the American trade ‘war’ strategy will only serve to accelerate its dominance in new fields of Defence, AI and cross border ecommerce to name a few.
President Xi spoke at the annual conference held by the Chinese Academy of Sciences where he said,“Ever since the start of the 21st century, a new generation of industrial revolution is substantially reshaping the global economic structure…with artificial intelligence, internet of things, and blockchain constantly making application breakthroughs.”
Western Europe is driving the next generation of industrialization – ‘Industry 4.0’ – and this is being closely matched in India, China and Japan. Australia should leverage its new Defence contracts, as a minimum, to engage in this era of advanced manufacturing using 3D printing, robotics, machine learning and big data. Further some markets like Estonia for example have become ‘category killers’ in innovations such as e-government and bio-pharma and have reached out to Australia as a common spirit in this endeavour.
Africa’s population of 4 billion by 2100 with an average age less that 23 will flood the world’s talent pool and if African markets are not engaged by Australian capability they will become the greatest long-term threat to Australia’s global competitiveness. Already China and UK (using its Commonwealth ties) are moving quickly to get prime mover advantages around telecommunications, infrastructure, agriculture and resources.As China moves it manufacturing to Africa, they will continue the pattern the government is forming and encouraging, using technology to remove friction points in existing systems.
Blockchain technology is part of that solution and it will be tested in supply chain management. The previous Century of Asian Engagement is the right strategy for our region but must include specific market strategies for Indonesia, Singapore, Malaysia, Vietnam, Japan, Korea and China.
Latin America ‘has everything that Australia has except ( as expressed by a recent Latin leaders mission) trusted institutions’. There is an opportunity to partner with these countries as ‘equals’ to provide new capabilities – and shared market diversity opportunities – to the world. Brazil in agriculture, Chile in mining and Mexico in advanced manufacturing are good examples.
All these strategies will create a diversity of new opportunities – for both China and the ‘not China’ markets – where trust, safety and reliability of supply is equally important to our own producers as it is to all of our partners. Trust is key. That is why daigous in Australia are now becoming a valid route to market for Chinese ecommerce portals. The world has changed. No one can solely rely on one market for its opportunities. We need to engage much more in ASEAN but we also need diversity strength into other world markets beyond New Zealand and the US – India, GCC, Western Europe and UK, North East Asia, Latin America, East Africa.
Information Age Services are now Globally Delivered
The greatest threat to Australian global services market participation is the establishment of service behemoths like Uber, AirBnb, Amazon and Google. Just as in China with Ten Cent and Alibaba these services and capabilities will be owned, developed and managed in the originating market with transaction fees ( and all the associated data intelligence) going back to that market – and not staying in Australia. In the gig economy then it means that the terms and conditions – and the opportunities for work or engagement through application development – offered by these critical mass service providers will not be decided or influenced by any local Governments, institutions such as business associations or trade unions.
This is the future of services ‘exports’ and Australia must create policies that support Australian innovation and entrepreneurship to participate in global markets from the outset and develop its own market dominant global service delivery organisations.
Drones, Internet of Things, 5G, Artificial Intelligence, Blockchain are all regulatory minefields and we must be early influencers of standards to ensure we are prime movers and not just competitive users are other markets innovations.
There is an opportunity for Governments to create:
· An Australian trade and investment strategy stretching beyond FTA’s and non tariff barriers that guides and direct Australian capability and capacity to where international trends and drivers are creating the market opportunities that they should participate in
· An education program focused on training non traditional exporters in cities and in regions that understand this national strategy and how they go about participating in it
· Trade and investment policies and programs that focus on the information age digital economy – cyber security, fintech, agritech, medtech and eLearning .
· Policies and programs that promote Australian Industry 4.0 manufacturing capabilities in the commercial and defence sectors and their role in global value chains
· Policies and programs that promote the linking of global innovation systems to encourage research investment and commercialisation of Australian developed capability with other countries
· Policies and programs that encourage greater Australian SME and regional participation in cross border ecommerce opportunities with China, the US and India
· Policies that describe and encourage Australian Government, regulation and Research capability (PRETSS) as a defined value add in relations in markets where such knowledge is valued – South Pacific, Latin America, Africa and across Asia.
Closing
Political drivers are causing uncertainty in the world economy. Rapid change may be imminent. This is compounded by rapid changes in technology brought on as we move from the internet age to the information age.
Global population growth and climate change will reinforce the demand for Australian energy, water and food security solutions for international markets. We must continue to capitalize on this.
But at the same time the information age is delivering a new global digital economy that is emerging at hyper speed and our industry and innovation must engage with it forcefully. Prime movers not adopters of other markets innovation is the objective.
In either case – commodities production or information age technology - we must understand that our Australian population size alone will work against us in the long term. It’s the quality of our governance, people and assets that a trade and investment strategy must build on. We must do more – globally – with fewer people but with advanced tools, research and knowledge and we must develop ourselves and to be important actors in the next level of the global digital economy.
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