In a decade shaken up by the pandemic, Asia offers exciting growth opportunities with its young, adaptable population, burgeoning middle class and a new free-trade agreement in play.
BY GERARD BURG, ASSOCIATE DIRECTOR OF ECONOMICS, NAB GROUP ECONOMICS
AUSTRALIANS OF ASIAN descent rang in the Year of the Tiger with some of the biggest celebrations in the world outside of Asia. Of course, this year’s festivities had to contend with an ongoing pandemic, and dragon dances and dinners were cancelled in many locations. Even so, the Year of the Tiger offers hope – particularly for Australians looking to do business or invest in Asia- with good reason to believe the region will move onwards and upwards, benefiting well-placed businesses and investors alike.
A world beyond Covid-19
Although Asia hasn’t been immune from the more challenging aspects of Covid-19 – some particularly hard-hit countries include those reliant on tourism, such as Thailand and the Philippines, and those confined to low-value added exports, such as Indonesia – the region’s underlying features put it in good stead in the medium- to long-term.
Take population, for instance. South-East Asia is young compared to the rest of the world, with a median age of just over 30 years in 2020, making it the second youngest population after Africa. This potentially gives Asia a much more adaptable workforce. Its people are more likely to be open to training, helping them move up the value chain, away from very low-value production into high-end value goods and services that offer significant growth opportunities.
Supply-chain shifts
With shortages of critical goods and temporary trade restrictions, the pandemic has exposed the fragility of many supply chains. It’s not surprising, therefore, that companies and governments around the world are keen to diversify their supply chains, breaking their reliance on China – often to the benefit of other Asian countries. Vietnam, for instance, is well-placed, having spent the past several years stepping up to become a potentially major manufacturing centre. Indonesia could also use its huge, young population to its advantage (as could many other countries in the region). Such opportunities will likely kickstart a long-term shift in the way supplies move around the world.
THE REGIONAL COMPREHENSIVE ECONOMIC PARTNERSHIP WILL REPRESENT THE WORLD’S LARGEST FREE TRADE ZONE, COVERING 2.2 BILLION PEOPLE, WITH THE AIM TO REMOVE 90% OF TARIFFS.
Trade barriers fall
One exciting new development in the Asia Pacific region is the Regional Comprehensive Economic Partnership, a trade agreement between 15 countries, including Australia, that came into effect on January 1. Once fully in effect, it will represent the world’s largest free-trade zone, covering some 2.2 billion people and encompassing trade in goods and services, investment, and economic and technical cooperation. It will create new rules for e-commerce, intellectual property, government procurement, competition and small- and medium-sized enterprises. While many of its benefits still aren’t quantifiable, the aim is to remove 90% of tariffs in the block, freeing up trade flows considerably.
Demand for quality
All of these changes will support a growing Asian middle class, and this will in turn create a strong growth in consumption- most noticeably among lower-income countries that will move from a subsistence diet to a more varied, animal protein rich diet. This is a well-trodden path that we have seen globally as countries develop. Inevitably there will be greater demand for premium-quality foods, as well as other high-end goods and services, once these initial needs are met.
Clearly this presents opportunities for Australian businesses, not only in primary produce but also in tourism, education and health. In fact, Australian healthcare providers are already making inroads in several Asian countries. Financial and business services are also likely to be in demand as the growth of companies results in more complex needs that require professional advice from experts such as accountants and lawyers.
That said, these fields will be competitive, as has always been the case in China. To succeed, Australian businesses need to present themselves as the premium option, and much of that comes down to “brand Australia” and whether Asia’s growing middle class equates it with quality. It’s something New Zealand does exceptionally well. In Asia, New Zealand is seen as very pure, high-quality and clean. Australia isn’t quite there yet; currently, only certain products or services, not the entire nation, are synonymous with quality.
Investing in positive growth
There are many opportunities for Australian high-net-worth investors to buy into the growth story, typically through managed or exchange traded funds. One area of particular interest is the region’s booming renewables market, driven by its huge and growing energy needs. In fact, Asia’s energy consumption is expected to more than double by 2040, according to the International Renewable Energy Agency. Meanwhile, 99 of the world’s 100 most environmentally vulnerable cities are in Asia, meaning they are more prone to hazards such as pollution, water supply issues, natural disasters and the effects of climate change. It’s little wonder, then, that renewables projects are rapidly gaining ground in Asia, presenting opportunities for both businesses and investors.
For these reasons and more, Australians would be well served taking a closer look at Asia’s roaring economies in this Year of the Tiger.
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