WHERE KNOWLEDGE IS POWER

Phil Ruthven AM, Chairman

Insight SeriesRACV Club

4 September 2014

Opportunity Asia

1. Global Perspective

2. Regional Perspective

3. Some Australian Perspective

4. International Investment

5. Australia the food bowl?

Topics

1. Global Perspective

The World’s Economic Regions In 2014Share of World GDP (ppp basis)

2014 World GDP, $US 92.5 trillion

C&SAmerica

6.3%

North America

21.9%

W&C Europe18.3%

EasternEurope

4.0%

Asia Pacific

33.0%Africa3.9%

ME5.3%

IndianS-C7.3%

IMF/IBISWorld 09/02/14

Importance of World Regions GDP (ppp terms) 2014

$US ppp 92.5 trillionIBISWorld: 28/02/14

Asia Pacific

33.0%

North America

21.9%

AfricaMiddle East %

WesternEurope

18.9%

Economy Population

7.2 billion

Africa11.5%

IndianS/C23.1%

Asia Pacific

33.6%

5.3% 4.0%

World Regions ImportanceChanging importance, % of World GDP (ppp terms)

Source: OECD 20/02/13

26.1%17.0% 16.3%

32.1% 36.0%4.2%

5.0%10.5%

2.7%3.6%

3.1%

4.5%

3.5%

5.0%7.6%

8.6%9.6%

4.5%

33.6%

35.5%27.3%

23.5%

14.5%

2.0%

3.5%

6.7%6.8%

7.0%

12.7%22.8%

30.5% 24.0% 18.0%

1870 1913 1950 1998 20251.1 2.7 5.3 33.7 190.0 GDP (trillion)

1870 1913 1950 1998 2025 Year

Nth America

C & S America

Western EuropeEastern EuropeMiddle EastAfricaIndian S-C

Asia Pacific

12.2%

7.6%

3.6%

2. Regional Perspective

Asia EconomyAsia Pacific + Indian S-C

2017 (F)

$US 44.9 trillion(40.8% of world GDP)

Source: Wikipedia/ IBISWorld 11/09/12

India16.9%

Other A-P0.3%

NZ0.4%

H/K 1.1%

Singapore 1.0%Vietnam 1.1%Philipp 1.3%Malaysia 1.5%.Thailand 2.0%

Greater China47.9%

45.3% China

11.9%Japan

Other Indian S-C

3.0%

2.8%

1.41.9

3.03.0

3.23.8

4.24.5

5.45.45.4

5.85.8

6.06.2

6.76.8

7.27.2

7.38.0

0 1 2 3 4 5 6 7 8 9 10 11 12

JapanThailandAustralia

NZTaiwan

S KoreaSingapore

NepalPakistan5.4

IndonesiaMalaysiaVietnam

BangladeshIndiaAsia

PhilippinesMyanmar

CambodiaSri Lanka

ChinaLaos

Asia Growth 2014 (E)Major Asia Pacific and Indian S-C nations (ppp ranking)

IMF/IBISWorld: 19/08/14

Regions GrowthAsia 6.3%E. Europe 2.9%World (8 regions) 3.1%N. America 2.9%EU 1.0%

Growth % (GDP)

Asia, the place to be

Australia has integrated its economy and society into Asia at large and China in particular.

Asia is a mega-region consisting of the Asia Pacific and Indian sub-continent. It is the most powerful region (36% of world GDP) and the fastest growing (6-7% pa, almost double the global average).

Over 75% of our export of goods & services now go to Asia, less than 7% of our GDP is exposed to troubled nations, and two-thirds of our inbound tourists and immigrants come from Asia.

3. Some Australian Perspective

Australia’s Industry MixShares of GDP, in F2012 price terms Year to March 2014

ABS 5206-26 IBISWorld 05/06/14

Agriculture

2.2% Utilities2.4%

GDP $1558 billion

Finance & Insurance

Mining

10.3%

Govt. Adm. 5.2% 7.6% Construction

2.7%

8.2%

Info Media & Communications

Cult & Rec. Serv.0.8%

Pers. & Other Serv.

Hospitality

SectorsPrimarySecondaryTertiaryQuaternaryQuinary

Admin. & Support Services

Note 1: includes stat. discrepancy (0.15%)

Rental, Hiring &

Real Estate

2.9%

Australia’s Export MarketYear 2013

IBISWorld: 11/09/12

$319 billion

Tourism 10.8%

Agriculture

8.0%

OtherServices

1.1%

49.3% Minerals

Freight/Postal1.2%

BusinessServices

Manufacturing26%

Resources57%

Services17%

Australia’s Export MarketMerchandise goods 2014

IBISWorld: 22/05/14

$274 billion(year to March 2014)

Other5.8%

40.3% Greater China China 36.6%

Taiwan 2.7%H/K 1.0%

17.9% Japan

Asia Pacific 78%Asia 82%

Other A-P 5.4%

Indonesia 1.8%

4. International Investment

Who owns who, and how much?

Total foreign investment in Australia is around $2.6 trillion (via direct, debt and portfolio forms)

So, some 20% of the nation’s total assets of over $12 trillion are owned or “mortgaged” by other nations, 3% of which is Asia

Australia has c. $1.7 trillion of the world’s assets.

In net terms, foreign ownership and indebtedness is about 8% of our the nation’s assets

Foreign Investment By Type2014

$1.66 trillion $ 2.51 trillion

Direct

Debt

Portfolio

Derivatives

OtherReserve assets

Outward

28.2%

3.8%

38.9%

6.4%

19.0%

3.7%

18.4%

8.2%

55.4%

4.5%

13.5%

Inward

Source: ABS 5302.27A & 5302 26F 22.08.14

Australia’s Global Investment Position2014* % of total basis

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

$US92.5 trillion $1.63 trillion $2.46 trillion

World Investment InwardGDP Abroad Investment

Source: ABS 5352.0*(2013)

Indian S-C 7.3%ME 5.3%Africa 3.9%

C & S America 6.3%

E Europe 4.0%

Asia Pacific33.0%

W & C Europe18.3%

North America 21.9%

*(2013)

Asia Pacific16.8%

Unspecified21.1%

North America27.9%

India0.4%

W & C Europe24.8%

W&C Europe29.1%%

North America27.9%

Asia Pacific14.3%

Unspecified27.1%

$ 0.89trillion

$2.46trillion

$0.54trillion

$1.63trillion

Source: ABS BOP

Foreign (inwards) Abroad (outwards)2001 2013 2001 2013

North America

C&S America

W&Europe

Eastern Europe

Asia

India SubcontinentMiddle East Africa

Unspecified

International InvestmentShares of Total Investment (Direct, portfolio & debt)

26.0%

33.2%

17.0%

24.4%

28.0%

29.1%

17.0%

27.1%

ME 0.9%Africa 0.1%

E. Europe 0.2%

42.2%

24.8%

16.5%

16.1%

32.5%

27.9%

16.8%

27.1%

North America

C&S America

W&C Europe

E. Europe (0.2%)

AsiaIndia SubcontinentMiddle East Africa

Unspecified

0

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Percentage of all countries

Inward Foreign Investment - AustraliaAsia Mega-Region 2001-2013

Inve

stm

ent

$ b

illio

nAsia Region

(Asia Pacific & Indian sub-continent)

Source: ABS 52520 17/08/14

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Percentage of all countries

Inward Foreign Investment - AustraliaChina 2001-2013

China

Source: ABS 52520 17/08/14

Inve

stm

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$ b

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Percentage of all countries

Australian Outward Foreign Investment Asia Mega-region 2001-2013

Inve

stm

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$ b

illio

n

Source: ABS 52520 17/08/14

Asia (Asia Pacific & Indian sub-continent)

0

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Percentage of all countries

Australian Outward Foreign Investment China 2001-2013

Inve

stm

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$ b

illio

n China

Source: ABS 52520 17/08/14

5. Australia: Asia’s Food Bowl?

• We are currently feeding our population of 24 million and another 20-25 million with our exports; say 45 million or so, all up. This is 2% of the Asia Pacific population.

• With a changing product mix, new technology, continuing productivity, and changes to the industry’s structure (finances and ownership style) we could conceivably increase output five-fold over this 21st Century, supporting 200-225 million local and O/S people.

• This would represent 4.5% of the Asia Pacific population of 5 billion at that time, or around 3% of Greater Asia’s population. If the increase was to be 10-fold rather than 5-fold, we would be supporting just under a tenth of our region’s citizens. But what an opportunity, either way!

What can we do?

• So, Australia needs to become increasingly a more- specialized niche player in terms of products and customer nations; almost certainly focused on the Asia Pacific, although with some ultra-niche products that stretch across to other of the world’s 8 regions

• In the process, it can produce far better returns on equity than the levels of recent decades; but change and adaptation will be required to achieve this

What can we do?