Strong, active economic corridor with Southeast Asia 'an economic imperative' for Australia

Australia sits just 500 km from Southeast Asia that will become the world’s fourth-largest economy by the end of this decade. Amongst which, the Australia-Vietnam corridor is considered to be one of the key partnerships in the region, write Antony Shaw, CEO of HSBC Australia and New Zealand, and Tim Evans, CEO of HSBC Vietnam.

In late August, government and business leaders from across Australia and Southeast Asia met to discuss the opportunities between Australia and one of the fastest growing regions in the world

That the Australia ASEAN Business Forum so closely followed the historic ASEAN-Australia Special Summit in March tells us the Australian government’s ambition for their role in Southeast Asia is matched by the business community’s willingness to engage with the region.

For Australia, a strong and active economic corridor with Southeast Asia is an economic imperative. Historically, Australia has been isolated from the world’s major economic hubs, relying on its relatively small population to drive its economy.

Now, the situation has changed. Australia sits just 500 km from the region that will become the world’s fourth-largest economy by the end of this decade, thanks to a booming, youthful population which will drive consumption to $4 trillion by 2030 and embrace digital technologies and other new economy sectors. Amongst which, the Australia-Vietnam corridor is considered to be one of the key partnerships in the region.

Earlier this year Australia and Vietnam - which is expected to become the fastest growing economy in ASEAN this year, according to HSBC Global Research - announced an upgrade of their relations, becoming Comprehensive Strategic Partners. Designed to tighten economic and strategic cooperation between the two nations, the new partnership should help drive more business opportunities in coming years.

Southeast Asia has already become an innovation powerhouse brimming with technology and new economy companies. Its digital economy is set to reach $600 billion over the next six years.

Meanwhile, Vietnam’s digital economy has been the fastest growing in the region for the past two consecutive years, and is forecast to enjoy an 11-fold growth to reach $220 billion in value, which will represent more than a third of the whole region. Thanks to its young and tech-savvy population, Vietnam is forecast to maintain this position next year too.

In parallel to its rising consumer power, Southeast Asia is benefiting from long-term geopolitical trends which are re-organizing global supply chains.

In recent years, Australian business community has undergone a shift in perspective, and now more than ever before understands the critical role its neighbouring countries’ rising global prominence will play in their growth ambitions.

While the road map for business growth is clear, it’s time for action. Australia’s connectivity with the business communities of Indonesia, Malaysia, The Philippines, Singapore, Thailand and Vietnam will not manifest in and of itself.

For Australian business, the question is no longer whether to enter the region but how. There are several levers the nation’s business and investor community must, and can, pull.

First, it pays to go deeper than Southeast Asia’s statistics by examining the opportunities on a country-by-country basis.

One factor to consider is the sheer number of free trade agreements (FTAs) that Vietnam has signed. Vietnam currently has 16 active FTAs with a wide variety of different economies and blocs across the world, with another three still under negotiation.

In a recent meeting between Vietnam’s PM Pham Minh Chinh and Australian Senate President Sue Lines, both nations aimed to strengthen the economic partnership with a focus on reaching $20 billion in bilateral trade turnover over the next three years. Currently, Vietnam is Australia’s 14th largest two-way trading partner..

Australian business must be alive to and tap into these opportunities.

Second, Australia’s business community needs to adopt the playbook for successful commercial penetration; nothing can supplant simply having boots on the ground to understand the Vietnamese market and show intent to potential in-market peers.

Beyond trade, foreign direct investment will be a critical lever in gaining commercial traction. According to Vietnam’ Ministry of Planning and Investment, Australia has so far invested about $2 billion into Vietnam with over 600 projects. Vietnam also had $584 million worth of investments into Australia. Both countries have agreed to double bilateral investment over the next three years. This is certainly an area where Australia can add unique value.

As their populations swell, ASEAN member states will need to spend a lot of money to build the critical infrastructure which will support their people.

Currently, there is a $3 trillion gap in the region’s infrastructure investment funding; between now and 2040, bridging this gap will require an average annual spend of $210 billion. Of this, Vietnam requires at least $25-30 billion per year to invest in its infrastructure over the next 10 years, meaning approximately $600 billion in total by 2040.

In addition, over $200 billion is needed for a well-organized transportation system and public transport upgrade in major cities by 2030, as shared by Vietnam’s Ministry of Transport.

Deploying capital into greenfield projects in the region is complex for Australia’s super funds, with several regulatory, construction, land and customer demand risks afoot.

If executed well, the commercial multipliers will be significant.

Australian companies in a range of industries, including professional services, engineering and logistics, will gain the confidence to enter the region and build supply chains around targeted multibillion-dollar and multi-generational asset investments.

This is not just an idea; Australia already has a playbook from their past investments in the U.S, Britain and Canada, which have spurred wider business investment in these markets.