Welcome to The Conversation’s series on megatrends. What are the compelling economic, social, environmental, political and technological changes Australia must grapple with over the coming decades?
In this series, Stefan Hajkowicz explores in more detail some of these issues as part of the CSIRO’s new report, Our Future World 2012.
Today, he discusses the role of Asia in Australia’s fortunes – and whether we are smart enough to become the Switzerland of the region.
One of the things that has fascinated the CSIRO Futures team is a paper published in the journal “Global Policy” by Professor Danny Quah of the Economics Department of the London School of Economics and Political Science.
This paper contains a world map showing the centre-of-gravity of world economy activity each year since 1980 and projected out to the year 2030. The centre of gravity is based spatial extrapolation of GDP at almost 700 locations.
In 1980, the hot spot is in the Atlantic Ocean in between the economic powerhouses of the United States and Europe. By 2010 it’s over Saudi Arabia. And by 2030 it’s firmly between India and China.
The world economy is shifting from west to east and, to a much lesser extent, from north to south. The five year five year outlook by the International Monetary Fund (2012) still has year-on-year economic growth at 8% for the “developing Asia” region compared to economic growth in advanced economies of around 2% to 3%. Sub-Saharan Africa, Northern Africa, the Middle East, Latin America and the Caribbean all have growth rates in the vicinity of 4% to 6%.
The new world economy is being built with BRICs. Data from the OECD show that China and India have contributed 20% of global GDP over the past decade. Staff at Goldman Sachs observe that when China and India are added to Russia and Brazil, the economic output from these countries will exceed the United States by the year 2018. By 2030 the bulk of global GDP will be generated from non-OECD countries.
All this has big implications for Australia. We’re potentially well-positioned to take advantage of the new world economy. But we face some challenges too. On the upside is the potential for increased investment flows and tourist flows out of Asia into Australia.
According to overseas arrival and departure data from the Australian Bureau of Statistics China is the third most common country of residence of short term visitor arrivals into Australia, after New Zealand and the United Kingdom.
Based on current trends, Chinese residents will be the most common visitor to Australia by 2016. There has also been a significant increase in the number of Indian residents visiting Australia over the last decade. In 2000, 41,500 Indian residents visited Australia. By 2010 this grew to 138,700 representing an increase of 235% over a ten year period.
In addition to tourists is the flow of investment money. Over the six year period from 2005 to 2010, foreign direct investment outflows from China to the rest of the world increased from US$12.3 billion to US$68 billion or average growth of 76% per annum.
These data are published in the recent “World Investment Report” by the United Nations. This report also lists Australia as 15th out of 200 countries for its direct foreign investment potential in the future. There are strong prospects that Australian assets will be under increasing demand from overseas investors.
But there are challenges too. As Asia develops, it acquires more sophisticated manufacturing plants, more engineers, lawyers and accountants and more highly advanced science, research and technology capabilities. This means much tougher competition. Things previously made, or services provided, in Australia can increasingly be delivered in developing countries faster, cheaper and to the same quality standard.
Australia will be challenged with finding its niche in a new, competitive and rapidly evolving business landscape. In future decades, we may not always be able to rely on strong minerals commodity prices. We may need new industries.
At the end of this megatrend we ask the cryptic question: Can Australia be the Switzerland of Asia? Switzerland, like Australia, is a small, stable and wealthy economy with a small population within a much larger region. It does not have commodity exports. It has successfully developed niche industries such as financial services, pharmaceuticals, tourism, watches and chocolates. Is there a possibility that Australia might be able to identify and develop new niche industries that feed into Asian markets?
We think it’s a good question to ask. But there are many other valid questions we need to ask. And we’ll need to find answers soon. Australia needs to think quickly and cleverly about its role in the new world economy. Our children and grandchildren need current generations to position Australia well. This will help ensure they enjoy the same, or hopefully better, prosperity than we’ve enjoyed in our lifetimes.
More in the megatrends series:
Biodiversity – going, going.. gone?
Do we really need more from less?
What the future megatrends all Australians need to know about?
Sean Lamb
Science Denier
Our path is clear, we should hope they all start invading each other and encourage them to put all their specie in our banks with the promise that it will be completely untraceable.
Chris Aitchison
logged in via Twitter
"At the end of this megatrend we ask the cryptic question: Can Australia be the Switzerland of Asia? "
Would a better analogy be 'Can Australia be the Singapore of Asia?'. Small country in a bigger region with few exports and specialising in industries such as financial services, etc.
Unfortunately, Singapore is the Singapore (and Switzerland) of Asia. They are light-years ahead of us in that respect...
Jonathan Maddox
Software Engineer
We are, however, the France of Asia : we do cheese and wine passably well.
Dale Bloom
Analyst
Much of this depends on the value of the Australian dollar, and where it is likely to be in future years. Companies that import much are going to find it difficult if the Australian dollar sinks down and stays down as predicted. Companies that export more and import little will find it easier to compete with a lower dollar value.
The mega trends for Australia’s environment all seem to be heading on a downward slope, and quite frankly I don’t think Australia can increase its tourist numbers (or foreign student numbers) and maintain its high immigration rate.
One or both have to decrease, or there will be nothing left in many areas except concrete footpaths and concrete buildings.
Mal Adapted
Primate
Although foreign students may return to their home countries, leaving more room for more immigrants.
will mitchell
researcher
Singapore is best known (not for a ban on chewing gum) but the worlds best practice when it comes to an efficient Port. They load and unload ships better than anyone. We are at the other end of the scale. Something needs to be done about that. Its a ridiculous monopoly bordering on organised crime.
We've never been big on R&D so no surprise we are 23rd on the Global Innovation Index. We have a well documented brain drain.
Chinese tourists rank 3rd here in Australia, with the predicted increase in the Chinese middle class and possible downward pressure on Aussie dollar we are well placed to increase tourism.
Education and Agriculture and Mining should continue to do well. However, we havent been very good at adding value, thats still a problem.
Philip Dowling
IT teacher
Can Australia be the Switzerland of Asia?
The short answer is "NO".
The long answer is ROFLOL.
Australia's approach is spend money on an optioned-up V8 and then forget to fund enough money for tyres, but has enough money for lawyers and more lawyers and QC's to oppose any practical steps that Australia might take to emulate Switzerland.
Australia even spends money trying to preserve an endangered species living in a man made habitat.
Doctors' wives waste more taxpayers' money than their husbands make, I have heard it claimed on espousing dubious environmental issues.
Perhaps a doctor's wife might care to comment after she has parked the Mercedes 350 CLK after tennis one day.
Tim Mazzarol
Winthrop Professor, Entrepreneurship, Innovation, Marketing and Strategy at University of Western Australia
The Global Innovation Index (GII) of 2012 ranks Switzerland, Sweden and Singapore as the top three most innovative nations. Australia is ranked 23rd overall. By comparison New Zealand ranked 13th, Canada 12th, the USA 10th and the UK 5th.
It seems we have a way to go before we can be the Switzerland of Asia.
That position is already held by Singapore.
marianne doczi
logged in via Twitter
For a futures study, the question seems pretty 20th century. Privileging Switzerland as an example without placing it in its geo-political, historical context is not helpful. What other countries want from us is what we need for our own people; nutritional food; environmentally sustainable production; livable cities; inquiry-based education; health and well-being support services. Why don't we try being a country where its citizens can become 'the best they can be' and use that brand as a way to be a 21st century country, with exports value-added accordingly.
Ngoc Luan Ho Trieu
logged in via Facebook
Not Switzerland nor Singapore, just go with our technological and environmental comparative advantages: developing industries based on bio-and medical technologies (I think more Australian scientists will win Nobel prizes in these fields; and green-technologies (more solar energy, more plantations making use of the vast Australian wasted land to supply feedstocks for biofuels industry). On infrastructure: More canals connecting the oceans to inland and more exploitation of underground water resources. On human resource: more investments in science and engineering education, better salaries for science and engineering graduates.