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1367.5 - Western Australian Statistical Indicators, 2010  
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This document was added 01/20/2011.



THE INDIAN OCEAN FRONTIER:
WESTERN AUSTRALIA'S TRADE WITH INDIA AND THE INDIAN OCEAN RIM


INTRODUCTION

According to the Australian Strategic Policy Institute, the Indian Ocean region is becoming the focus of increasing strategic and political attention for a variety of geopolitical and economic reasons, with merchandise trade and investment opportunities in the region expected to continue increasingly into the future. Indicative of this growing focus on the Indian Ocean Rim (IOR) is that, in 2011 and 2012, India will Chair the Indian Ocean Rim Association for Regional Cooperation (IOR-ARC), with Australia as Vice Chair. Australia will take over the position of Chair for 2013 and 2014.

The IOR-ARC is a regional forum of countries in the Indian Ocean region and currently has eighteen member states. These range from developed states such as Australia and Singapore to some of the least developed such as Mozambique and Yemen. The objective of the organisation is to promote regional economic cooperation through liberalising trade and investment flows; developing a common position on global issues; and strengthening links with industry, academia, and training and specialised institutions within the region.

Composition of the IOR-ARC

The eighteen member states include Australia, Bangladesh, India, Indonesia, Iran, Kenya, Madagascar, Malaysia, Mauritius, Mozambique, Oman, Singapore, South Africa, Sri Lanka, Tanzania, Thailand, United Arab Emirates and Yemen.

Throughout the following analysis, the IOR-ARC grouping referred to includes India but excludes Australia. While Australia is geographically part of the IOR region, the exclusion of this country from the grouped data allows for a more meaningful comparison of its trade and investment relationship with the other IOR-ARC countries.

The Indian Ocean Rim


Map: The Indian Ocean Rim

IOR-ARC member countries
IOR-ARC dialogue partners

Source: Aris Katsaris, Wikimedia

India is Australia's fasting growing bilateral trade partner and is widely regarded as the next big emerging economy after China, powered by growing middle class demand and ongoing economic reforms. Regional cooperation is particularly important for Western Australia (WA) as the Indian Ocean is a key transit zone for export of mineral and energy resources. This article examines WA's and Australia's trade and investment with India and IOR-ARC from 2000 to 2009.

WESTERN AUSTRALIA'S MERCHANDISE TRADE WITH IOR-ARC

Over the last decade, WA's trade with IOR-ARC has grown considerably. Between 2000 and 2009, two-way merchandise trade more than quadrupled, from around $7 billion in 2000 to $29 billion in 2009. This comprised exports from WA to IOR-ARC, which increased from $5 billion to $17 billion, and imports from IOR-ARC, which rose from $2 billion to $12 billion over the same period.


Western Australia's Trade with India and IOR-ARC


Graph: Western Australia's Trade with India and IOR-ARC


In each of the years between 2000 and 2009, WA enjoyed a trade surplus with IOR-ARC, which ranged from around $2 billion in 2001 to $6 billion in 2005. A factor behind the surpluses has been a particularly strong trade relationship with India. Although merchandise exports to India have increased substantially, with India overtaking Singapore as the main IOR-ARC export destination since 2004, imports to WA from India have remained low in comparison, reaching $125 million in 2009.

Exports from WA

The global economic downturn saw WA's exports to IOR-ARC fall by 5% in 2009. Nevertheless, the value of exports had an average annual growth of 14% over the ten years to 2009. This growth was driven by exports to India, which had an average annual increase of 57% over the same period. For the 2009-10 financial year, India was WA's third largest export destination, accounting for 10% or $9 million of the total value of exports.

Growth in export values to India was driven, in turn, by non-monetary gold exports, which rapidly increased after gold import restrictions were eased in 2004 by the Indian government. Non-monetary gold features prominently in both WA's exports and imports due to the state's role in refining gold.


Value of Western Australia's Major Commodity Exports to IOR-ARC(a)

2000
2009
10 year total
Share of total WA
Commodity
$m
$m
$m
exports to IOR-ARC
%
Non-monetary gold
1,337
8,689
41,170
40.8
Petroleum, petroleum products & related materials
824
2,619
18,970
18.8
Metalliferous ores and metal scrap
76
404
2,688
2.7
Cereal and cereal preparations
18
888
1,587
1.6
Live animals
120
201
1,549
1.5
Total WA exports to IOR-ARC
5,326
16,944
100,966
Total WA exports
29,466
76,973
479,077
IOR-ARC share of total WA exports
%
18.1
%
22.0
%
21.1


(a) Based on total value (fob) of exports from Western Australia to IOR-ARC between 2000 and 2009.
Confidential items were excluded from the ranking but were included in the total.
Source: ABS data available on request, International Trade in Goods and Services, Australia, cat no. 5368.0

Between 2000 and 2009, India received much of the non-monetary gold (65%) and metalliferous ores and metal scrap (61%) exported from WA. Other significant exports to IOR countries included petroleum, petroleum products and related materials, 54% of which was received by Singapore. Indonesia and Malaysia were the primary markets for exports of cereals and cereal preparations (29% and 24% respectively). Indonesia was also the primary market for live animal exports (62%).

Further analysis of these export commodities reveals that approximately half of metalliferous ores and metal scrap exports to IOR-ARC countries consisted of copper ores and concentrates while crude oil made up nearly 95% of petroleum, petroleum products and related materials exports. Wheat was the major component (75%) of cereals and cereal preparations exports.

Potential for future export growth

The potential for a growing trade relationship between India and WA exists, with WA's oil, gas and mining sectors well-placed to supply India's industrial and infrastructure development. According to the Indian government's Eleventh Five Year Plan for 2007 to 2012, poor infrastructure in India is a significant barrier to economic growth. The government has focused on investing around US$500 billion on infrastructure including oil and gas pipelines, railways, ports and airports.

WA's exports of metalliferous ores and metal scraps to India have increased from about $16 million in 2000 to a peak of $464 million in 2008. These may increase in the future according to India's preliminary assessment of a further US$1 trillion investment in infrastructure during its Twelfth Five Year Plan.


Selected Exports to India, Western Australia

Graph: Selected Exports to India, Western Australia


According to the International Energy Agency's 2010 forecasts, India will account for 18% of the increase in global energy demand to 2035, second only to China. India is a net importer of oil as a result of its relatively flat oil production and rising oil consumption. As outlined in the Eleventh Five Year Plan, the Indian government also intends to promote the country as a competitive petroleum refining destination. Consequently, the value of Western Australian exports of petroleum, petroleum products and related materials to India has jumped in recent years, from just $36,000 in 2000 to around $90 million in 2009. Liquid Natural Gas (LNG) exports to India are also set to increase substantially (from zero), with the signing of Australia's first long-term supply contract with India in 2009.

A feasibility study by the Department of Foreign Affairs and Trade on an Australia – India free trade agreement (FTA) indicates that there may be other opportunities for WA outside of the resources sector. According to the study, agricultural trade is likely to grow, particularly if India's agricultural tariff barriers (e.g.tariffs on Australian dairy products, which were lifted in 2009) are further reduced. Presently, the average of India's applied tariff rate for agriculture is 36% while Australia's average applied tariff is less than 2%.

Other FTAs, in place or currently under negotiation with IOR-ARC countries, include agreements with Singapore, Thailand, Indonesia, Malaysia and the United Arab Emirates (under negotiation with the Gulf Cooperation Council), emphasizing their relationship with the Australian, as well as the WA, economy. WA's resources and agricultural industries feature broadly in these trade relations, with significant exports of petroleum to the refineries in South East Asia while agricultural exports reflect the IOR-ARC countries' demand for meat, cereals, vegetables and fruits.

Imports to WA

Western Australia's merchandise imports from IOR-ARC increased strongly from 2000 to 2009, albeit from a lower base than exports. Imports from the region saw an average annual growth of 23% during the period. Imports from Thailand contributed significantly to this growth, with an average annual growth rate of 44%.

In 2009, the value of imports from Thailand surpassed the value of those from Singapore (traditionally a major source of imports to WA) for the first time. This was driven by a $1 billion increase in non-monetary gold imports from Thailand as well as a decrease of nearly $2 billion in the import of petroleum oils (excluding crude) from Singapore during the year.

Imports of machinery and equipment from Thailand for WA's major resource projects have started to flow through during 2009, with a $1 billion increase in imports of pumps, compressors and fans. Imports of prefabricated buildings from Thailand for the Gorgon LNG project are also expected to increase in the future, with 2010 data to October already valuing imports of prefabricated buildings at $18 million, rising from $127,000 in 2009.

As previously noted, imports from India have remained comparatively low, with a value in 2009-10 of only $130 million (or 0.5% of all WA imports), including textile products, general industrial machinery and manufactures of metals. According to India's Department of Commerce, the top five countries importing from India were the United Arab Emirates, the United States, China, Hong Kong and Singapore. While, in 2009-10, India was WA's third largest export destination, it ranked 25th in the countries from which WA imported merchandise.



Value of Western Australia's Major Commodity Imports from IOR-ARC(a)

2000
2009
10 year total
Share of total WA
Commodity
$m
$m
$m
imports from IOR-ARC
%
Petroleum, petroleum products & related materials
686
3,616
21,883
37.3
Non-monetary gold
170
4,681
16,602
28.3
General industrial machinery, equipment & machine parts
44
1,819
3,557
6.1
Road vehicles
112
396
2,771
4.7
Office machines & automatic data processing machines
320
88
1,755
3.0
Total WA imports from IOR-ARC
1,945
12,445
58,650
Total WA imports
8,927
29,529
176,971
IOR-ARC share of total WA imports
%
21.8
%
42.1
%
33.1


(a) Based on total value (customs value) of imports from IOR-ARC to Western Australia between 2000 and 2009.
Source: ABS data available on request, International Trade in Goods and Services, Australia, cat no. 5368.0

During the last decade, WA imported the largest proportion of its petroleum, petroleum products and related materials (37%); and office machines and automatic data processing machines (60%) from Singapore. General industrial machinery, equipment and machine parts; and road vehicles were imported primarily from Thailand (55% and 74% respectively). These countries were also the main sources of non-monetary gold imports, with Singapore contributing 36% and Thailand 34%.

WESTERN AUSTRALIA'S SERVICES TRADE WITH IOR-ARC

Although detailed services trade data by country are not available for Australian states and territories, an examination of WA's international trade in services with all countries reveals that travel services accounted for a substantial proportion (59%) of services exports between 2000 and 2009. Further examination indicates that the main category of travel services was personal travel (89%), which comprised travel for education and other purposes including holidays. The significance of holiday and education-related travel to the WA economy is supported by data on WA's overseas arrivals from IOR-ARC.

Short-Term Visitors



Long -Term Visitors




Estimates of Western Australia's overseas arrivals from 2000 to 2009 indicate that the number of short-term arrivals (staying less than 12 months) from IOR-ARC countries increased moderately, with 3% average annual growth. The increase in the number of long-term visitors (12 months or more) was proportionately larger with 15% average annual growth. During this period, nearly half (49%) of all short-term overseas arrivals from IOR-ARC to the state were holiday-makers and for long-term visitors, education (47%) was the main reason for travel.


Western Australia's IOR-ARC Student Enrolments and Commencements


Graph: Western Australia's IOR-ARC Student Enrolements and Commencements


Prior to 2007, both IOR-ARC student enrolments and commencements were slowly declining from the major source countries: Indonesia, Malaysia and Singapore. The increasing number of IOR-ARC student enrolments and commencements from 2007 to 2009 was largely driven by those from India. Enrolments from India more than doubled in both 2008 and 2009.

IOR-ARC Student Enrolments in Western Australia


Country
2002
2009
Total
2002-2009
Share of total
IOR-ARC enrolments
no.
no.
no.
%
Malaysia
35,001
45,743
324,058
28.7
Singapore
29,625
22,106
203,247
18.0
Indonesia
32,919
19,460
189,965
16.8
India
4,608
65,371
141,420
12.5
Thailand
9,629
11,707
80,727
7.2
Kenya
6,535
9,362
62,750
5.6
Mauritius
2,539
15,766
48,362
4.3
Sri Lanka
2,499
5,009
24,590
2.2
Bangladesh
1,728
2,408
17,784
1.6
South Africa
629
2,610
9,680
0.9
Oman
327
1,154
8,709
0.8
Iran
210
1,780
7,125
0.6
Tanzania
555
634
5,267
0.5
United Arab Emirates
115
608
4,229
0.4
Mozambique
26
48
477
0.0
Yemen
na
93
255
0.0
Madagascar
na
18
96
0.0
Total IOR-ARC student enrolments
126,945
203,877
1,128,741
100.0
Total overseas student enrolments
261,731
475,366
2,692,761
IOR-ARC share of total overseas student enrolments in WA
%
48.5
%
42.9
%
41.9


(a) Based on total number of student enrolments in Western Australia between 2002 and 2009.
na not available
Source: Australian Education International

Overall, Malaysia, Singapore and Indonesia were the major source countries for students in the eight year period from 2002 to 2009. However India surpassed Malaysia as the top source of IOR-ARC student enrolments in 2009, reflecting an increase in student enrolments from a growing Indian middle class. The high Australian dollar and changes to student visa rules, as well as negative publicity relating to recent attacks on Indian students in Australia, may impact on short-term future growth in Indian student enrolments.

Detailed services trade data by country at the Australian level offer an alternative perspective on services trade with IOR-ARC. Due to confidentiality requirements, international trade in services data are not published for many of the IOR-ARC countries. Nevertheless, aggregated services trade data on selected IOR-ARC countries (India, Indonesia, Malaysia, Singapore, South Africa and Thailand) can be used as an approximation of Australia's services trade with the IOR-ARC. Between 2000 and 2009, Australia's two-way trade in services with these IOR-ARC countries doubled, with a $6 billion increase in services exports and a $5 billion increase in services imports.


Australia's Services Trade with India and Selected IOR-ARC Countries(a)

Graph: Australia's Services Trade with India and Selected IOR-ARC Countries


During the last decade, Australia recorded surpluses in services trade with the selected IOR-ARC countries. The main driver of growth was services exports to India, which showed an average annual growth of 26% over that period. India also surpassed Singapore as Australia's primary services exports destination within IOR-ARC for the first time in 2009.

From 2000 to 2009, Australia's services exports to Iisted IOR-ARC countries were mainly travel related (61%) while transport services made up more than half (52%) of services imports from listed IOR-ARC countries.

AUSTRALIA'S INVESTMENT WITH IOR-ARC

Again, due to confidentiality requirements, investment data are not published for many of the IOR-ARC countries. Nevertheless, the available published information shows that the levels of foreign investment in Australia from listed IOR-ARC countries exceeded Australian investment in those countries, reflecting Australia's traditional reliance on foreign direct investment as a source of finance.


Australia's Investment with IOR-ARC(a)


Graph: Australia's Investment with IOR-ARC


IOR-ARC investment in Australia has been declining since 2001 although it rose strongly, by around $22 billion (60%), in 2007. This sharp increase was largely attributed to investments made by Singaporean government-backed entities during that year. Singapore is Australia's major source of foreign investment from IOR-ARC, contributing 76% of total published IOR-ARC investment. Singapore is also the primary IOR-ARC destination for Australian investment abroad, with 63% of total published Australian investment in the region.

While Singaporean investments in Australia are mainly concentrated in real estate and utilities, significant IOR-ARC investments in WA are focused in the resources industry. Notable investments include Indian interests in a US$2.5 billion urea plant and $80 million copper mine.

CONCLUSION

The major findings of the analysis indicate the increasing importance of India to the WA economy. WA exports to India have increased from around $135 million in 2000 to nearly $8 billion in 2009. However, non-monetary gold made up more than 85% of exports during the decade, highlighting the need for WA to diversify its merchandise trade with India.

The emergence of India as an important trading partner, along with its recent investments in WA, suggests that WA's economic relationship with India is evolving. Over the past ten years, India has overtaken Singapore as WA's main export destination within IOR-ARC and is also the major source, within the region, of overseas student enrolments, contributing the second largest number of overseas enrolments (after China) in 2009.

A growing middle class and ongoing economic reforms in India, together with a free trade agreement under consideration, mean that WA is positioned to benefit from India's economic growth. Additionally, Australia's increased role in the IOR-ARC over the next few years and Perth's position as an Indian Ocean Rim capital provide opportunities for Western Australia to diversify and develop stronger economic ties with India as well as the other IOR-ARC countries.

ACKNOWLEDGEMENT

This article was written by Huoy Wei Tang of the WA Department of State Development.

REFERENCES

ABS, International Investment Position, Australia: Supplementary Statistics, Calendar Year, 2009, cat. no. 5352.0

ABS, Customised report, 2010, International Trade in Goods and Services, Australia, cat. no. 5368.0

ABS, International Trade in Services, by Country, by State and by Detailed Services Category, Calendar Year, 2009, cat. no. 5368.0.55.004

ABS, Customised report, 2010, Overseas Arrivals and Departures, cat. no. 3401.0

Austrade & KPMG, 2008, Opportunities in Infrastructure and Resources in India, http://www.austrade.gov.au/ArticleDocuments/1418/Austrade-KPMG-Joint-Report-Summary.pdf.aspx

Australian Education International, 2010, International Student Data, http://aei.gov.au/AEI/Statistics/StudentEnrolmentAndVisaStatistics/2010/Default.htm#Pivot

Australian Strategic Policy Institute, 2010, Our Western Front: Australia and the Indian Ocean, http://www.aspi.org.au/htmlver/ASPI_OurWesternFront/index.html

Department of Foreign Affairs and Trade, 2010, Australia – India FTA Feasibility Study, http://www.dfat.gov.au/fta/india/index.html

Federation of Indian Chambers of Commerce & Industry, 2004, IOR-ARC Charter, http://www.iornet.com/iorarc/charter.htm

Government of India, 2010, Department of Commerce – Total Trade Country-wise, http://commerce.nic.in/eidb/default.asp

Government of India, 2010, Eleventh Five Year Plan Investment in Infrastructure, http://infrastructure.gov.in/pdf/IBEF.pdf

International Energy Agency, 2010, World Energy Outlook 2010 Executive Summary, http://www.worldenergyoutlook.org/

U.S. Energy Information Administration (2010), Country Analysis Briefs – India, http://www.eia.doe.gov/emeu/cabs/India/Oil.html


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