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Tim Harcourt
Chief Economist
Australian Trade Commission
Sydney
Email: tim.harcourt@austrade.gov.au
30 November 2006
This week Prime Minister John Howard will be in Kuala Lumpur for talks with his Malaysian counterparts. In recent years, Australian has had great success in signing free trade agreements in South East Asia. First of all, there’s the Singapore-Australia Free Trade Agreement (SAFTA), which is has been great news for professional services. Secondly, there’s the Thailand-Australia Free Trade Agreement (TAFTA), which will enabled more than three-quarters of Australian exports to Thailand to be tariff-free. SAFTA and TAFTA have been a forerunner to closer links between Australia and South East Asia with the Association of South East Asian Nations (ASEAN) recently inviting Australia and New Zealand to explore closer economic links. Now Malaysia is the next cab of the rank for bilateral talks with Canberra.
So what are the gains that Australia could accrue to Australia and Malaysian through a signing of a Malaysian-Australia Free Trade Agreement (MAFTA)?
According to Australia's Senior Trade Commissioner in Kuala Lumpur, Peter Kane, there are keen gains to be made in agribusiness, resources and professional services. "Australia is the number one supplier of international education in Malaysia and the number two supplier of food, so we could make further progress in these sectors," he said in Kuala Lumpur today.
Whilst Malaysia suffered the Asian Financial Crisis of 1997-99, it bounced back quickly and Australian exports recovered along with it. Kane is confident of Malaysia's immediate future too: "Malaysia has great infrastructure, IT (through the multimedia super corridor) and increasing levels of tertiary education. Accordingly, Australian exporters are likely to do well in the Malaysian market," he said.
Malaysia's IT sector is still strongly focussed on the US (which was caused some slowing locally after the dot.com crash), but according to Arlina Ariff, a senior economist at Bank Negara Malaysia (Malaysia's Central Bank), "intra-Asian trade has grown so strongly that this is less of a concern now". Furthermore, Ariff explained, Malaysia is investing new sectors. “We are moving further up the value chain, particularly as the interior regions of China are playing a larger role in low cost manufacturing. Areas like agribusiness, professional services, technical education and (Gulf States related) financial services are now becoming more important in shaping Malaysia’s economic future," she said.
According to Ariff, Malaysia's economic fundamentals are in good shape. GDP grew at around 5.8 per cent last quarter, headline inflation is 3.1 per cent, and unemployment 3 per cent. "Our growth rate is in the right range for a 'mature' developing economy, but we have to constantly adapt to the new challenges thrown up by globalisation," she said. In many ways, Malaysia has a lot to be admired for. As well as bouncing back from the Asian financial crisis and the dot.com crash, it must be remembered that it still quite a small country (of only 26 million – just a shade over Australia’s population). Economically speaking, it's around the size of Queensland but it still has managed to become the USA's 10th largest trading partner. No doubt this makes Malaysia a good trading partner in terms of the South East Asian region but also for strong links – particularly in Islamic finance – with the Middle East as well.
Some key facts:
- Australian goods exports to Malaysia: A$2,450 million (key sectors: copper, aluminium, milk and cream, coal), 2005-06
- Australian services exports to Malaysia: $1,050 million (key sectors: education, tourism)
- Australian-Malaysian two-way trade: A$9,292 million, 2005-06
- Key growth sectors: agribusiness, education, resources, professional services
- Number of Australian businesses exporting goods to Malaysia: 3285 exporters (behind Singapore on 5612 but ahead of Indonesia on 2511 and Thailand on 2219)
Source: DFAT, ABS, Austrade |