Treasury cautions private sector about the need for infrastructure investment and trade liberalisation


    In a recent address to the APEC Business Advisory Council, Treasury Secretary John Fraser cautioned the private sector to be wary of slowing growth in the Asia-Pacific region, while encouraging it to play a “pivotal role” in infrastructure investment, trade liberalisation and policy reform.

    "While growth in Australia may be stronger relative to that of many other advanced economies, it remains below its long run average”, said Mr Fraser.

    Mr Fraser referred to global growth being “subdued”, but noted that the US labour market is strengthening and the crisis in Greece is beginning to stabilise.

    Slowing growth in the Asia-Pacific region

    Mr Fraser highlighted the need for Australia to “keep close watch on prospects of the Asia-Pacific region”, despite stating that it “will remain the fastest-growing [region] in the immediate-term”.

    “Growth has started to slow in some of the major economies in this region”, said Mr Fraser. “We can’t put all of our eggs in the ‘Asia-Pacific basket’”. He noted that “crucial reforms to address slowing growth” and “improve the investment environment” are needed in the region and that “Australia is no exception”.

    Mr Fraser highlighted the following countries as examples of where growth in the Asia-Pacific region may be slowing:


  1. China: Mr Fraser noted the volatility seen in China since it liberalised its capital accounts. This echoes earlier comments he made about the transition risk to investors posed by its financial sector reform. Other commentators, such as the Brookings Institute, have also noted that corporate governance reform in China is essential to promoting long-term stability of its markets and investor confidence.
  2. Indonesia: Mr Fraser said low global commodity prices, poor infrastructure, regulation, import restrictions, and delays in the infrastructure investment pipeline will weigh on growth and constrain Bank Indonesia’s ability to support growth through monetary policy reform.
  3. South Korea: Mr Fraser suggested that South Korea’s ageing demographics, including the working-age population (expected to peak in 2016), will slow growth.
  4. Singapore: Mr Fraser said ageing demographics and physical resource constraints may have an effect on growth in Singapore.
  5. Malaysia: Mr Fraser said lower commodity prices, a difficult export environment and recent GST reform is likely to affect short term growth in Malaysia.
  6. Thailand: Mr Fraser noted the falling export growth rates over the last 6 months in Thailand with no clear reform plan to drive growth over the medium term.
  7. Japan: Mr Fraser noted strong growth in Japan in early 2015, but that a sustained pick-up in permanent wages is needed to overcome deflation concerns.

    As an exception, Mr Fraser said that India’s economy continues to have “favourable demographics” and is “on track to be the fastest growing major economy this year.” His comments mirror those in an earlier speech where he drew attention to policy reforms in India that are reducing investment barriers and creating new investment initiatives.

    The need for private sector investment in national infrastructure

    In terms of how Australia will meet its infrastructure needs over the long-term, Mr Fraser pointed to the private sector’s “pivotal” role in maintaining growth and promoting policy reform in Australia’s national interests.

    “There is no shortage of private sector financing available to be deployed in infrastructure projects”, said Mr Fraser. “An important area of private sector interest and involvement is getting the right policy setting around the planning, selection and provision of infrastructure projects…providing a strong, consistent pipeline of well-planned, quality projects available to potential investors is crucial to securing greater investment in infrastructure”.

    Mr Fraser said Infrastructure Australia’s 15 year infrastructure plan, evidence-based audits and $4.2 Billion Asset Recycling Program will help identify infrastructure gaps and give the private sector an opportunity to invest in existing assets that will free up State and Territory capital.

    Mr Fraser also said that the Northern Australia Infrastructure Facility will help support infrastructure upgrades and new construction through concessional loans to the private sector. These comments echo those made in an earlier speech to the ACCC/AER where he noted Northern Australia’s proximity to South East Asia, and well-established resource and agricultural industries, as competitive and strategic advantages that will allow it to increase its productive capacity and underutilised infrastructure capacity.

    Mr Fraser drew attention to Australia’s role in the Global Infrastructure Hub, which was set up by the G20 to increase global investment in infrastructure and build links between private sector investment and public infrastructure projects.

    Continued efforts to liberalise global trade in the Asia-Pacific region

    Mr Fraser drew attention to trade liberalisation efforts in the Asia-Pacific region, including recently signed free trade agreements with China, Japan and South Korea, and ongoing free trade negotiations with India, as well as negotiations around a Trans-Pacific Partnership Agreement.

    In particular, Mr Fraser highlighted APEC’s ‘Asia Region Funds Passport’ trade initiative, which is designed to provide investors with a wider choice of investment products in the Asian region to diversify their portfolios and reduce concentration risk. Mr Fraser is the Chair of the Asia Region Funds Passport Working Group and said that the Passport combined with Australia’s “sound, stable and well-regulated financial market” may see Australia become a regional financial centre for the Asia-Pacific region.

    What developments can we expect next in relation to the Asia-Pacific region?

    Several developments have occurred since Mr Fraser’s speech.

    G20 Finance Ministers and Central Bank Governors have now endorsed the Global Infrastructure Hub’s business plan. This is likely to increase global infrastructure capacity and begin matching potential investors with suitable infrastructure projects. Additionally, APEC finance ministers have recently signed the Asia Region Funds Passport Statement of Understanding and participating securities regulators are expected to enter into a Memorandum of Cooperation by the end of 2015.

    Treasurer Joe Hockey also recently gave a speech titled “The Silk Road” to business leaders from G20 countries, where he promoted regional economic integration and infrastructure development, and noted the sizeable demand from Asia’s growing middle class for Australian exports in education, tourism and manufacturing. He also stated that key Australian exports such as beef, wine and dairy will be duty free in China under the Australia-China Free Trade Agreement.

    Meanwhile, South-East Asian countries are preparing for the Association of South East Asian Nations (ASEAN) Economic Community coming into effect by the end of 2015. Some commentators have noted that Special Border Economic Zones may be created, which will reduce tax rates and provide regulatory incentives to stimulate the production and distribution of goods and services across the region.

    “We must all undertake reforms to help lift global growth and build a solid foundation for future growth”, said Mr Fraser. “The private sector will need to put itself at the centre of policy debates to ensure we do not rest on our laurels”.

    On this note, the AICD has recently been involved in the National Reform Summit, which has supported the prioritisation of and investment in national infrastructure projects to stimulate growth and productivity.

    “The recent Australian Institute of Company Directors’ Director Sentiment Index has shown that 90 per cent of directors believe investment in national infrastructure is too low”, said Rob Elliott, Executive Director of the AICD Governance Leadership Centre.

    “Addressing this infrastructure deficit is a key priority for company directors as well as the governance of the nation.”

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