Carmen Lawrence Business Luncheon, Fremantle,

12 June 1995

In the Past

The Indian Ocean region has not been until now a strong focus for Australia's international outlook: rather we have looked north and east, not surprisingly given the economic, political and strategic importance of these regions to Australia. Western Australians would probably point to the fact as well that the bulk of our population (and foreign and trade policy establishments) are located on the east coast...

We haven't of course completely neglected the region over the years: Commonwealth connections; a passion for certain Imperial sports; the Colombo Plan; our mediation role through Sir Owen Dixon in Kashmir; our involvement in the protracted discussions about the Indian Ocean Zone of Peace; our intense preoccupation with apartheid in South Africa - have all given us a presence.

But it certainly hasn't amounted to much economically. Although things have started to happen in a number of areas, Australia's total trade in 1993 with the biggest single potential market, India, was just $1.3 billion and with South Asia as a whole just $2 billion - a mere 1.6 per cent of our total trade with the world.

Our exports to the Indian Ocean region as a whole were a more respectable looking 18 per cent, but that compares with 75 per cent of our exports going to the Asia Pacific (and if you take out the four ASEAN countries who get double counted as a part of the Indian Ocean region, the Indian Ocean figure falls to less than 6 per cent). There have also been difficulties in getting any sense of regional cohesion going in the Indian Ocean region, of a kind which would attract the attention and imagination of business in the way that the concept of "East Asia", or an emerging "Asia Pacific economic community", has done. The ties of commerce and culture that bound many of the Indian Ocean countries together in the more ancient past were loosened by nearly 500 years of European colonialism, and in more recent decades division and suspicion were reinforced by the Cold War.

The region, if you define it as embracing the 29 countries with their feet in the Indian Ocean or its extensions that we have invited to Perth this week, spreads over seven sub-regions (Southern Africa. Eastern Africa and the Horn, the Gulf littoral and Arabian Peninsula, South Asia, South East Asia, Australia and the Indian Ocean islands) and has incredible ethnic, religious and cultural diversity.

It contains sovereign states ranging in size from India with over 900 million people to Seychelles with less than 80,000; economies ranging in size from over (US) $250 billion for Australia and India, to less than $400 million for Maldives and Comoros; and income levels ranging from $15,000 per capita in Australia and the UAE to less than $250 in Mozambique, Tanzania, Madagascar and Bangladesh.

It also has to be acknowledged that economically, the Indian Ocean region overall simply doesn't compare with the Asia Pacific. The latter, containing as it does the world's two largest economies, and accounting for half the world's production and 40 per cent of its exports, had in 1993 a collective GDP of $13.5 trillion; the total for the Indian Ocean region by contrast (leaving in again the double counting for countries which overlap) was just $1.48 trillion

• another way of emphasising the distance the Indian Ocean region has to travel and develop in the sense of real economic cohesion is to make the point that the level of intra-regional trade in the Asia Pacific is 66 per cent now but in the Indian Ocean only 20 per cent (although this has been growing, being less than 15 per cent in 1970).

Opportunities for the Future

But what we have to look at in all of this is not so much the undeveloped opportunities of the past, but the potential for the future. In population terms, the Indian Ocean region (with 1.7 billion people) is very close to the size of the Asia Pacific (with 2.1 billion), and a number of things are starting to happen

Three factors in particular have been of crucial importance in creating a whole new climate of opportunity both for regional cooperation, and for Australian business

• the end of the Cold War, and with it the elimination of superpower rivalries and suspicion, and the opening up of many new avenues for both economic and non-economic cooperation
• India's move since 1991 to reform and open its economy to outside participation; and
• South Africa's re-emergence into the company of states with which once can talk and do business.

There is no doubt that for both the region as a whole, and for Australia, India and South Africa in particular are real powerhouses of potential growth, and ones we just can't afford to ignore.

• The commitment of South Asian countries to economic liberalisation, openness to imports, an export orientation and openness to foreign investment - all especially evident in India - together with the potential size of the South Asian domestic market, has begun to attract large flows of direct foreign investment and technology, and large volumes of imports. Over the period 1989-93, Australian exports to India grew at a trend rate of 15 per cent, but at $A873 million in 1994, there is much more we can and ought to be doing in a market of 900 million people.
• The major political changes in South Africa have regained it a place in the international order and will have major long term benefits for the contribution of Southern and Eastern Africa to increased IOR trade and investment links. Over the period 1989-93, Australia's exports to South Africa grew at a trend rate of 31 per cent, with the bulk of this growth occurring in the latter two years of that period, as the political changes started to come about. Again, at $A430 million in 1994, there is much more we can and ought to be doing in a sophisticated market where the level of technology and commercial development is about where Australia was 10 years ago. As you would expect with such a diverse, economically disparate region, the sectors of opportunity for Australian business people in the Indian ocean region are varied, given the comprehensive platform of goods and services we have to offer.

The Indian Ocean region contains different layers of need and opportunity, comprising

• basic economic nation-building needs (especially in infrastructure, but also public housing, and basic medical and education services, essentially all the building blocks of a society in many cases where national development has been arrested for one reason or another);
• industrialisation needs (especially in capital machinery, technology-based goods and services more generally and, of course, resources to feed into growing manufacturing industries); and
• consumption needs (where middle class development has reached the right point, needs grow beyond basic food produce and other survival needs into more sophisticated goods and services: computers, multi-media software, more advanced health services, more advanced education services).

Not surprisingly, all of these layers of need and market opportunity are to be found in the region. I'll focus on a few for the remainder of my remarks.

Infrastructure: One specific sector can serve as an example of the opportunities before us. Based on some reliable World Ban estimates, the IOR's requirement for infrastructure spending will be about $US250 billion between 1995 and 2000, heavily slanted towards the areas of water and sanitation ($US50 billion), irrigation ($US68 billion); power ($US57 billion); roads and railways ($US68 billion) and telecommunications ($US7 billion). Australia's skills in these areas, in terms of technology transfer, project management and actual construction and development are world-class, and we should aim to capture at least our fair share of the market. Initiatives such as IFIOR and the economic cooperation streams that will flow out of IFIOR will enhance our prospects for capturing these kinds of opportunities.

Mining Equipment and Services: Australia - and Western Australia particularly - has world-class mining equipment, technology and expertise (a WA "key sector").

Oil and Gas Services: particularly at the extractive phase, but also in processing. (A WA "key sector")

Agriculture: both processed food (grains, livestock, seafood and horticulture products) and food technologies (a WA "key sector").

Fisheries: particularly technologies related to sustainable fisheries development.

Environmental Management, Technology and Services: particularly in water management and arid zone management and coastal management (a WA "key sector").

Shipbuilding and Marine Industries: (a WA "key sector").

Education and Training: (a WA "key sector").

Defence and Aerospace: particularly in fields of electronics, communications, IT software (a WA "key sector").

Health and Medical Services: particularly at the higher consumption levels to be found amongst middle and upper middle classes in the region, for example, diagnostic and surgical procedures, training and support for developing primary and ancillary health and medical services (a WA "key sector").

Information Technology and Telecommunications: Australia has one of the most mature information technology and telecommunications markets in the world and has recognised world class exports, particularly of software products and services (a WA key sector).

Professional Services: which includes legal, financial, accounting and business services of all kinds, are becoming increasingly important as more Indian Ocean region economies begin to move up the industrialisation scale and begin to develop mature services needs.

Making the Most of the Opportunities: the International Forum on the Indian Ocean Region

As Bob McMullan and I foreshadowed in a major joint statement ("Australia looks West") here in Perth last August, the Australian Government - in close working cooperation with the Western Australian Government - has been working hard to give a new momentum both to the Indian Ocean region, and to Australia's place in it, in a number of different policy areas, but particularly those of trade, investment and economic cooperation.

We have been entirely comfortable working with the State Government, because Western Australia, both under Carmen Lawrence's premiership and now Mr Richard Court's, has been at the forefront of making sure that our National Trade Strategy, and our trade promotion and export efforts more generally, have had a significant Indian Ocean dimension : I recognise in this regard the WA Government's "Indian Ocean Trade Strategy", refined recently, and built on its earlier input to the National Trade Strategy.

The first major fruit of this effort is the International Forum on the Indian Ocean Region which opened here in Perth last night, bringing together for three days of intense discussion over 120 participants from twenty-three of the twenty-nine countries around the Indian Ocean rim.

The conference has been deliberately designed as a "second track" idea generating occasion, rather than a "first track" formal intergovernmental forum. This is entirely appropriate at this early stage of the process of evolving Indian Ocean regional cooperation - it means that participants don't sit behind government nameplates but participate in their personal capacity (whether they are there as government officials or as business representatives or as members of research institutes and think tanks) which encourages everybody to barnstorm more freely.

The agenda for the Perth meeting is focused primarily on economic issues, but will also range over other areas of possible regional cooperation - including maritime issues, education and culture, law and justice problems, population movements, and security. To the extent that ideas are generated by the conference which need intergovernmental agreement for their implementation, they will be picked up and fed into the intergovernmental process which already has commenced with an inaugural meeting in Mauritius by seven governments last March: that process is still in its infancy, but it is possible to see in it the beginnings of the kind of cooperative outcomes which we have achieved in the Asia Pacific region with the establishment of the Asia Pacific Economic Cooperation (APEC) process since 1989.

So far as more immediate outcomes are concerned, it may be that we will see the formation of two new institutional arrangements that have been the subject of some discussion over the last few weeks

• an Indian Ocean Research Network, to draw regional research institutions together to create a real capacity for carrying forward "second track" policy development; and
• of more immediate interest to business, an Indian Ocean Rim Business Forum which will bring together key business organisations and leading companies in the region to network and develop further momentum for trade and investment liberalisation and more broad-based economic cooperation.

It may also be that there will be interest in formalising as an on-going structure, something akin to this Perth forum itself, but focus on economic issues - an "Indian Ocean Economic Cooperation Council" or "IOECC", to give it a working name.

This would keep the tripartite government/business/academic "second track" forum concept going, in a way which would follow the example fifteen years ago of the Pacific Economic Cooperation Council (PECC), which was an important forerunner of APEC.

Nobody should expect too much to happen immediately. In the case of the Asia Pacific, after all, it took literally decades of meetings and discussions of this kind before the momentum for positive institutions really developed in the late 1980s, and indeed before business opportunities really took off in a far-reaching and dynamic way all around that region.

But this is a part of the world where things can and should happen, and where it is difficult to believe that, if we exercise the necessary will, imagination and energy, we can't take some massive strides.

Australia, India and South Africa between us have the size and capacity to generate growth and activity throughout the region, and there are many other countries, not least in South East Asia and the Gulf, which can be major contributors to that process. It's an exciting prospect for the whole region, an exciting prospect for Australia, and a particularly exciting prospect for business here in Western Australia.

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