Back to the future: Opportunities are a plenty?

Back to the future: Opportunities are a plenty?

How trade will continue to be critical for the future prosperity of Australia.

Globalisation, technology and policy are key factors in future growth rate of international trade. By 2025, China is expected to overtake Australia as the top export destination for New Zealand while Australian service exports will grow by an average 5.8% per annum to 2026, reaching nearly a quarter of total exports within next five years.

International trade is essential to our modern economy. It gives us access to a wider range of goods and services, stimulates competition and allows us to focus on areas of comparative advantage. In Australia and New Zealand, exports account for 20% and 28% of GDP respectively.

Between 1985 and 2007, international trade grew, on average, twice as fast as world GDP. This was spurred by rapid growth in industrialising Asian economies, which increased demand as well as introducing new global producers.

Reductions in the costs of trade, transport and communication, greased the wheels. It enabled new businesses to shift into global supply chains. After the Global Financial Crisis, however, international trade slowed, keeping pace with global GDP growth.

The tide is turning

2016 saw improvements in container volumes, rising orders for manufacturing globally and an increase in the number of businesses going global. All these are good early indicators for trade. The key factors in determining the future rate of growth in international trade will be:

  • globalisation
  • technology
  • policy

Expectations of better days??

China’s push for One Belt– to run from China through Eastern and Western Europe to Venice, while the road – a maritime route – would see goods shipped from Venice around eastern Africa to China.

CCI Chief Economist Rick Newnham says completion of the massive project may be decades away but WA businesses should plan now for the opportunities it will bring.

“What China plans to do is link Europe in the same way the Silk Road trading route of Eurasia used to be connected,” he says.

“Even though the maritime route won’t touch our borders, it presents vast supply chain opportunities for business.”

Even though it’s early days, Newnham says it’s clear the Chinese Government is making One Belt, One Road a high priority and has established funding and loans for countries to build infrastructure. Many countries are in discussions with China about the initiative. The Kathmandu-based Nepal China CCI said this week it would open opportunities for Nepal in trade, infrastructure, tourism and investment.

Newnham says WA businesses should know what’s on the horizon, so they can gear up their workforces and strategies. “If a business knows they are going to have an opportunity to start exporting those goods more cheaply, they can reconfigure their business plan to be hitting that target in a few years’ time,” he says.

“The opportunities initially will be in infrastructure, but once that supply chain is built up, the cost of getting WA products into those countries will be much less and that’s the whole point, that you get this really smooth supply chain.

“The time to move goods, a shipping container from Beijing to Europe for example, will be one quarter or less than the time it now takes.”