Australia’s success in the 21st Century will inextricably be linked to the continued rise of Asia as an economic super power.
The Federal government has outlined an ambitious plan to ensure Australia takes advantage of opportunities in Asia, with the release of ‘Australia in the Asian Century’ white paper by Prime Minister Julia Gillard on Sunday.
Businesses have suggested that the government needs to accelerate economic reform to meet the goals laid out in the paper, while media commentators are ruing the lack of detail.
The paper acknowledges that Asia is set to become the economic engine for global growth in the years ahead, with Asia set to overtake Europe and North America combined to become the world’s largest economic power. China and India’s combined GDP is expected to exceed that of the whole of Group of Seven (United States, UK, France, Germany, Italy, Japan and Canada). By 2025, four of the ten largest economies in the world are expected to be in the Asian region.
Asia’s middle class is expected to increase by more than 2.5 billion people by 2030, which means countries in Asia will demand a diverse range of goods and services, such as health and aged care, education, household goods, tourism and high-quality foods.
The increase in demand for health and aged care provides opportunities for Australian companies like CSL Limited (ASX: CSL), Cochlear Limited (ASX: COH) and Sirtex Medical Limited (ASX: SRX). Household goods needs will drive demand for commodities such as copper, aluminium, and iron ore and coal (used in steel production), while better diets will lead to a demand increase for high-quality foods, and fertiliser products – such as potash.
But its not all beer and skittles.
Productivity levels need to increase, through skills and education, innovation, infrastructure and tax and regulatory reforms. An example cited by the Australian Financial Review was that the Therapeutic Goods Administration (TGA) took 14 months longer to approve one of Cochlear’s products that it took authorities in Europe.
Another issue is the current level of high wages in the resources and energy sectors can’t continue. WorleyParsons Limited (ASX: WOR) chief John Grill has told the ABC’s Inside Business program that wages in Australia were 50% higher than elsewhere in the world, and was putting at risk $200 billion of mining and energy projects. We’ve already seen mining majors put several mega-projects on hold, citing business costs as one of the factors.
The Foolish bottom line
While there are clearly opportunities in many sectors for Australian companies to take advantage of Asia’s growth, That’s going to take business and government working hand-in-hand to make the most of it, and other countries aren’t going to be standing around waiting for Australia to skim the cream off the top either.
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Motley Fool writer/analyst Mike King owns shares in Cochlear and CSL. The Motley Fool’s purpose is to help the world invest, better. Take Stock is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it’s still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.