Address to In the Zone Conference
Our region the Indo-Pacific, our zone has presented some particular challenges this week. The devastating earthquake in Nepal and Australia is providing timely humanitarian relief as well as looking out for the some 1400 Australians who found themselves in Nepal at this time. And of course we have the circumstances surrounding the death sentence for two Australian citizens where our diplomacy, our relationships have been put to the test.
In terms of our foreign policy priorities however there is no doubt that this is where our focus lies. Our priorities, our focus, are unambiguously on our neighbourhood that we describe as the Indo-Pacific, the Indian Ocean Asia-Pacific, one of the most vibrant regions in the world and very certainly there are challenges. So today I will address one of the more significant challenges but also the opportunities that it presents.
In the 20th Century, the extraordinary force of industrial development transformed the Indo-Pacific and drove some of the most dynamic economic and social development the world has seen. Decades-long peace allowed nations in our region to lift themselves one by one out of poverty into the modern, industrial age. First Japan, then Korea, then the Asian tigers of Singapore, Malaysia and Thailand went through economic miracle after miracle. China has seen economic growth on an unprecedented scale.
The Indo-Pacific is a region of rapidly shifting demographics. In the 21st Century it will be demographic change, more so than industrial development, that will have the transformative effect on countries in our region and will play the major role in shaping our future development.
"Demography is destiny ", as they say, and while catchy, this statement is too vague to allow us to tease out the deeper, real trends that are happening underneath the surface. In the 21st century, population change will reshape and redraw the nations and that lives that we live in our zone. However it is not an inexorable decline - what we do with the demographic cards we are dealt is every bit as important, and exciting, as the cards themselves.
While demography is important in understanding future challenges and identifying opportunities – there's nothing predetermined or written in the stars about our region's future. Demographic changes will be a powerful force in shaping our region in the 21st century, but it is our region's leadership that will determine how much, and in what ways, it does so.
It is leadership that will determine our destiny - leadership which takes a positive approach to our changing circumstances, which prepares for future challenges while at the same time seeking out opportunities, and which builds the relationships with valued partners in the region – to ensure a brighter future for us all.
So let me point to some of the major demographic trends of our time – the period through to around 2050. The United Nations Population Division projects the global population in 2050 will grow from around 7.3 billion this year to almost 9.6 billion.
The population of the world's largest country today – China – will peak and then start to fall. India will have taken the mantle as the world's most populous country with a mid-century figure around 1.65 billion. Indonesia will still be growing – from around 250 million today to close to 325 million. The Philippines will grow strongly, from around 100 million to 160 million.
Others are looking at sharp declines. Japan's population is expected to drop almost 20 million over that time. Thailand, too, will shrink after 2030, as will Korea. Vietnam will top out at around 105 million in 2040.
Outside of absolute population numbers, the most remarked upon change we foresee is the ageing of Asia's population. Globally, the population of the elderly will more than double by 2050 – from around 10 per cent today to over 22 per cent.
Staggeringly, in Australia life expectancy in 2050 will be around 95 years for men and 96 for women. The percentage of those 65 and over in our region is expected to rise sharply.
In around 2050, over 65's in China will account for 24 per cent of the population, in Korea 35 per cent and in Japan 37 per cent. Those 80 and over – a population we currently associate as high-cost, high-dependency – will account for 4.5 per cent of the population in Australia and a sizable 6.5 per cent in China. In Singapore and Thailand those over 80 will make up 11 or 12 per cent of the entire population. Dramatically older populations – with proportionately smaller working age groups.
On the flip-side, countries like India and Indonesia where, even though there will also be greater proportions of older populations, we will see millions of younger people helping to offset demographic declines. India's median age, for example, will rise from 27 to 37 which still gives us a very solid, healthy, economically-vital working-age population. Likewise in Indonesia the medium age will rise from 28 to 38.
Placed in this context, it is easy to focus solely on the challenges we will face. On the national and regional level, ageing populations represent a risk to stability and continued economic prosperity. China's 2010 census, for example, shows there are over 9 million unmarried men in their 30s, compared with 3.4 million unmarried women in their 30s. As it ages, China will need to make major reforms to its pension system and find new sources of funding to care for its ageing and unmarried population. Likewise, India's and Indonesia's growing young population will need help with both education and employment.
The Economist reported that close to a quarter of global youth are neither working or studying, that was about 290 million people aged 15 to 24, that's close to the entire United States population. The global youth unemployment figure of 13.1 per cent is more than double the global average for all working age people, around 6 per cent.
So for Australia there is an opportunity to embrace those who are willing to study. We are already a major beneficiary of this element of changing demography, as we are one of the major five countries supporting around a half of the global international students.
The challenge will be to find the resources, globally, to educate the millions of would-be international students from emerging Asia, almost a quarter currently coming from India and China alone. By 2020, four in ten university graduates aged 25 to 34 will come from China and India. China will have nearly 200 million college and university graduates within the next five years.
Low rates of fertility will further compound the challenges. Four of the five lowest fertility rates in the world are found in wealthy East Asian economies – Singapore, for example, has a fertility rate of 1.26, far below the natural replacement rate of 2.1.
So how can we boost those numbers, these are difficult challenges and they are questions for all our societies, Australia included, are going to have to face these issues in coming years.
Along with the headwinds of demography, recent policy debates has pointed to rising inequality, burgeoning public debt and lower productivity as constraints to economic growth. As former US Secretary of Treasury Larry Summers has suggested, are we heading into a period of "secular stagnation " with persistent low growth and declining levels of wealth. So the question is are demographic trends and the spillovers of current economic policy conspiring against future generations?
The truth is we should not be constrained by demography. Constraint comes, I suggest, from a lack of imagination and innovation in ideas and policy responses. Rather than rely on population growth, we need forward-looking government policies that promote reform, competition and trade liberalisation. We need greater international coordination of economic policies to stimulate growth, just as we promoted during Australia's hosting of the G20 in Brisbane last year.
Importantly, as outlined in the Government's recent Intergenerational Report, we need to look at the fundamental reforms necessary to implement and sustain future economic growth. This is not unique to Australia. It applies equally across the Indo-Pacific and I would suggest globally. There are countless opportunities for economic growth, particularly economic growth driven by innovation, reform, and creative policy.
I'm taking up the mantel and am embracing innovative thinking for our aid program in the Indo-Pacific. I recently set up a new Innovation Exchange, it is along the lines of Steve Job's Team Mac, in a separate building, in a separate location. We are there to challenge existing orthodoxy in the aid program and to find new ways promote economic development in our region.
I have seconded some of the best and brightest minds in the Department of Foreign Affairs and Trade, across the public sector. I have seconded the former Chief Innovation Officer from the World Bank in Washington, I have set up an international advisory group that includes such creative and challenging and diverse thinkers as Michael Bloomberg, Bjorn Lomborg, Sanjay Reddy from India, Andrew Moutu from Papua New Guinea, Ryan Stokes from Australia.
And we are going to come up with innovative ways to challenge some of the most intractable aid problems that exist in our region. And when we find what works we will scale it up and if it doesn't, we will stop it. That is a really novel approach in foreign aid!
Likewise, we need innovative approaches to aging policies. As the Indo-Pacific population ages, we will not just live longer but improvements in health will mean we are likely to remain active for longer.
The Intergenerational Report highlights the opportunities active ageing presents for older Australians to keep participating in the workforce and community and for being more active and engaged in their retirement years.
New emerging middle classes in India and Indonesia also provide growing opportunities for any number of services that we have to provide. Indonesia in 2012 was home to around 75 million middle class and affluent people but that number is expected to rise to over 141 million by 2020. That's 70 million new middle class consumers in Indonesia alone.
Australia has real strengths in a range of areas that will drive economic growth and we are seeing more of our businesses realise it. In healthcare and aged care service, companies like Cochlear and Living Well Communities Australia have set up operations with local partners in Indonesia to provide services in areas of growing need.
Royal District Nursing Services is sharing 130 years of community healthcare experience here with the Jiangsu provincial government in China and medical technology companies such as ResMed and Atcor Medical are making inroads in Japan to meet the demands of the ageing population.
In wealth management and finance, Australia has the largest pool of funds under management in Asia and the third largest in the world - a total of more than $2.3 trillion. So we have great opportunities as wealth managers.
Education and training – including private schooling and reskilling of mature workers – are also providing us with opportunities. In China, 123 Education Group is expanding its chain of bilingual kindergartens and branching into early childhood centres and international kindergartens as well – another great Australian success story.
And in tourism – a major industry for people with more disposable income than earlier generations – enterprising Australians have turned a declining regional area in Hokkaido province into a ski resort precinct which is now a magnet for Australian and foreign tourists. So huge opportunities for Australian tourist operators in our region but also Australia is still one of the hottest tourist destinations for international visitors from our region.
None of this is to underestimate the ongoing importance of our commodities, our minerals, our oil and gas and energy and our agricultural sectors. But many of the new and emerging sectors that will drive growth are in services or are services heavy.
In our globalised world, in a world of regional and global value chains, our capacity to grow incomes by working together in new ways is much more significant than the shifting numbers of demography.
Technological advances are continuing to disrupt markets and change the way we do things. Smartphones are revolutionising access to information and work practices. Companies such as Uber are ending long-standing monopolies and creating the concept of a "sharing economy ". Innovations in the energy industry, 3D printing and robotics are revolutionising global supply chains. Social networking is creating groups of "digital natives " where borders are meaningless. Existing services industries are being upended by technological revolutions, and new service industries are emerging almost each and every year as we look forward.
Australia must be open to these trends, ready to compete on the world stage and to nurture the individuals, the creative people, the groups and the organisations that will reinvent the way we do things. It will be openness to ideas, trade and investment, and technological change that will be the key to addressing the challenges of demography.
Because Australia believes in the opportunities of demography, we are deeply committed to working more closely with our partners across the region in the years ahead. We are placing Australia at the forefront of capturing the benefits of the rapid changes we are witnessing.
In just over the first year in office, the Government secured three landmark free trade agreements with crucial North Asian partners that will help us plug into the demographic shifts taking place. The services outcomes in the Free Trade Agreements we've secured with China, Japan and Korea as well as in goods are high quality, comprehensive and guarantee new levels of excess to our three largest export markets in Asia. Asia needs our world-class goods, our world-class services.
We're committed to ever deeper links with our vital regional partners. We are engaged in Trans-Pacific Partnership negotiations and the Regional Comprehensive Economic Partnership. We are working closely with India and Indonesia for closer trade ties. As well, we are in the process of negotiating a specific bilateral economic partnership with India and of course that country is one of the demographic powerhouses of our time.
Our trifecta of free trade agreements and the other negotiations in which we are currently taking part are part of what I call our 'economic diplomacy'. And I have asked each one of our 96 missions, embassies and posts overseas to prepare business plans and to implement these economic diplomacy strategies to support trade and investment and to build economic growth in each post country. And that might seem a natural thing to do but it's not been asked of them before. They have prepared and are implementing specific business plans, country-by-country. This is 'economic diplomacy' at work.
We are also further investing in our future through the New Colombo Plan and I know the University of Western Australia is a great supporter. Enabling young Australian students to study at universities in our region to gain the knowledge and build the relationships that will underpin stronger future economic and trade links with the Indo-Pacific. After two years by the end of 2016, over 4,500 young Australians would have lived and studied and gained work experience in 38 countries in the Indo-Pacific.
For me, a Western Australian used to looking at things from Perth as much as from Canberra, I think we are in for a particularly exciting time. Looking just as much to our west and north across the Indian Ocean as to the traditional Asia-Pacific means looking out on some of the most favourable demographics anywhere in our time.
In a world where demographics can work against you, we are in a truly exciting region. A powerful set of opportunities await an enterprising nation that is ready to engage in our region.
Ladies and Gentlemen, we are exquisitely placed and geography will be our destiny.