May was an eventful month for democracy. Three of the largest Asia Pacific economies, with a cumulative population of 1.6 billion people and a combined GDP of over USD5 trillion, went to the polls.
The elections were gargantuan exercises. India’s lasted more than a month, drawing tourists keen to witness the world’s largest democracy in action. Indonesia’s massive but quick-fire polling effort reportedly claimed the lives of several election workers and continued to exact a human toll as supporters of the losing candidate protested the outcome. Australia’s elections, which featured officials and ballot boxes dispatched to remote outposts, including Antarctica, delivered an outcome that confounded most predictions, including from a crystal-gazing croc.
All of which brings us to the main point. Our clients often seek guidance on themes worth exploring through research and thought leadership. And the prospects of Australia, India and Indonesia fresh after the elections should be fertile ground for enterprises active in these markets. That’s why we’ll highlight here some of the key issues these countries will confront in the months and years ahead as their new (or not so new) governments embark on the next phase of their respective growth stories.
Australia is notably amongst the most successful developed economies in the world, having sidestepped past economic crises that afflicted other countries and, even now, with the US-China trade war threatening to hamper global growth, is expected to be dealt only a glancing blow.
Instead, the country’s problems are seen to be stemming from its all-important housing sector, which has suffered months of decline. While demand for housing is expected to endure, the key challenge may lie in the creation of enough affordable options, which requires the passage of key reforms - a promise made by the vanquished Labor Party. Other issues include reining in household debt while ensuring growth does not flag in the retail sector.
The victorious Liberal-National Coalition government, with its focus on enhanced spending on sectors such as infrastructure and lending to small and mid-sized businesses, will have its work cut out in keeping Australia on its historic growth track.
In search of good times
Ideally, economic growth should help job creation and vice versa, rounding out a virtuous cycle. However, this doesn’t seem to be the case in India, which recently lost its claim to the title of the world’s fastest-growing economy.
The unemployment rate among urban youth has risen to over 20% and this is a problem in a country set to become the world’s youngest by 2020. With a million youth believed to enter the workforce every month the government has struggled to emulate China’s success in creating an industrial sector capable of absorbing this massive workforce and elevating millions out of poverty. A key challenge for Prime Minister Narendra Modi's administration in its second term would be creating enough jobs after the vaunted ‘Make in India’ program failed to take off.
To be sure, the country has seen some key reforms - but the pace has left local businesses, foreign investors and markets underwhelmed. Other challenges include the ailing health of the country’s state-owned banks, and slow progress in the government’s efforts to divest its stake in loss-making public sector corporations across sectors such as telecom, transport and utilities.
The coming months should set the tone for the BJP government’s second stint and determine if Modi is able to deliver the ‘achche din’, or good times, his party promised on the campaign trail, and help the country achieve his stated goal of becoming the world’s third-largest economy by 2030.
Road to everywhere
Recently a country expert told us infrastructure is the issue that will dominate all others in Indonesia. Surely this is no exaggeration in an archipelago nation made up of about 17,000 islands, where transportation links are mostly conspicuous by their absence. The World Bank estimates that the country needs to invest USD1.5 trillion to fill these gaps, which means the sector will form a significant part of the country’s growth story in the years ahead.
Southeast Asia’s largest economy chose incumbent Joko Widodo to lead the country in an election seen as a referendum on his performance on key issues such as infrastructure development and labour market reforms, and growth in the country’s manufacturing sector.
Alongside other infrastructure projects, Jokowi’s government is also toying with a plan to shift the nation’s capital from Jakarta in a move that could cost about USD33 billion and take as much as 10 years to complete. It is hoped that the relocation will create more opportunities for infrastructure spending, and help develop other sectors such as real estate and retail as the population and markets adjust to accommodate the new capital, which is expected to house as many as 1.5 million people.
Indonesia will also have to tackle socioeconomic challenges such as improving access to public services, and reducing the widening income gap - a key requirement if the country is to reduce reliance on its exports and achieve its vision of becoming a USD2 trillion economy in the next five years.
Regardless of the market under consideration, the coming months will be anything but dull and present an ideal opportunity to address the global knowledge gap about the future direction of some of the region’s most promising economies.
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