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Foreign Affairs, Defence and Trade References Committee
05/12/2012
Australia and the countries of the Indian Ocean rim

DAWSON, Ms Philippa, Group Manager, International Issues Branch, Australian Trade Commission

LANDERS, Mr David, General Manager, Growth and Emerging Markets, Australian Trade Commission

Committee met at 09:20

CHAIR ( Senator Eggleston ): I declare open this hearing of the Senate Foreign Affairs, Defence and Trade References Committee. The committee is hearing evidence on its inquiry into the significance of the Indian Ocean rim for Australia's foreign, trade and defence policies. I welcome you all here today. The committee's proceedings will follow the published program. This is a public hearing and a Hansard of the proceedings is being made.

Before the committee starts taking evidence, I remind all witnesses that, in giving evidence to the committee, they are protected by parliamentary privilege. It is unlawful for anyone to threaten or disadvantage a witness on account of evidence given to a committee, and such action may be treated by the Senate as a contempt. It is also a contempt to give false or misleading evidence to a committee. A witness called to answer a question for the first time should state their full name and the capacity in which they appear, and witnesses should speak clearly and into the microphone to assist Hansard in recording the proceedings.

The committee prefers all evidence to be given in public but, under the Senate's resolutions, witnesses have the right to request to be heard in private session. It is important that witnesses give the committee notice if they intend to ask to give evidence in camera. If a witness objects to answering a question, the witness should state the ground upon which the objection is taken and the committee will determine whether it will insist on an answer, having regard to the ground which is claimed. If the committee determines to insist on an answer, the witness may request that the answer be given in camera. Such a request may of course be made at any other time.

I remind senators that the Senate has resolved that an officer of a department of the Commonwealth or of a state shall not be asked to give opinions on matters of policy, and shall be given reasonable opportunity to refer questions asked of the officer to superior officers or to a minister. This resolution prohibits only asking questions for opinions on matters of policy, and does not preclude asking questions about explanations of policies or factual questions about when and how policies were adopted. Officers of the department are also reminded that any claim that it would be contrary to the public interest to answer a question must be made by a minister, and should be accompanied by a statement setting out the basis for the claim.

On behalf of the committee, I thank everybody who has made submissions and sent representatives here today for their cooperation in this inquiry. We open with Austrade and I welcome the representatives of Austrade here today. The committee has received your submission as submission No. 19. Do you wish to make any amendments or alterations to your submission?

Mr Landers : We do not.

CHAIR: Would you like to make an opening statement?

Mr Landers : We most certainly would, and thank you for the opportunity. I do apologise as I have left my glasses at the office, but I will do my best.

We believe the committee's inquiry into the significance of the Indian Ocean region to be timely as we consider Australia's place in the Asian century. Australia's trade, investment and education interests in the Indian Ocean are already significant, as you know. These interests are set to deepen further due to the region's growing population, its increasing prosperity and rapidly expanding demand for resources, energy, food and water. Australia's commercial interests in the Indian Ocean region extend beyond our trading relations with individual countries within the region. Specifically, the region contains sea and air routes and transportation hubs that are critical to Australia's ability to trade with other nations.

As reflected in Austrade's submission, we define the Indian Ocean region to include not only those countries that have Indian Ocean coastlines but also those landlocked countries whose international trade and commercial activities are critically linked to the Indian Ocean. The Indian Ocean region is home to around 40 per cent of the world's population, being 2.7 billion people approximately in 2011. It currently accounts for less than 14 per cent of the global economy. This disparity reflects the fact that many parts of the region remain underdeveloped by global standards and suggests that there is scope for significant improvement in the economic performance in many markets across the region. Indeed, the OECD forecasts the middle-class population of the globe to increase from 1.9 billion to approximately four billion by 2030. A significant and substantial increase in the middle-class population will occur within the Indian Ocean region countries under consideration.

The economies that make up the Indian Ocean region are highly diverse in scale. They are diverse in terms of their complexity and their trade characteristics. The region has five members of the G20—including Australia and India in Asia, Saudi Arabia and South Africa—together with some of the poorer and some of the least developed nations. They range from India, with a population of more than 1.2 billion and a GDP of almost US$2 trillion to tiny island nations, from major resource, energy and food exporting nations to countries highly dependent on imports to meet the needs of their populations, from sophisticated economies such as Singapore to fragile states such as Somalia.

Australian trade in investment relations with economies in the region reflects this diversity ranging from major trading partners to niche markets. The rising global significance of the growth of the economies of Asia, particularly China, is having a major economic stimulus impact not only on Australia but also for the whole of the Indian Ocean region. This is our main point. The rise of Asia is leading to changing trade and investment patterns between countries within the region and between the Indian Ocean region and global markets. Increasing economic integration and expanding global supply chains among Asian markets are helping to drive economic growth, encourage technology transfers and support industrial development across the Indian Ocean region, not just in the regions of the Asian economies. Like Australia, demand from Asia for the resources, energy, food, the water and other exports is helping to drive economic growth in many countries across the Indian Ocean. Asian and Middle Eastern investment into Africa is increasing, fuelled by the need to ensure access to resources, food, water and energy.

I will speak a bit about Austrade's role in the Indian Ocean region. Austrade, as you know, is the Australian government agency with responsibility for promoting the activities of Australian exporters, for marketing Australian education internationally and helping to attract foreign direct investment. In May 2011, Dr Craig Emerson, Minister for Trade and Competitiveness, announced major reform of Austrade.

These reforms have seen a shift of Austrade resource away from established markets, such as those of western Europe and the United States, towards growth in emerging markets, such as those in the Indian Ocean region. Austrade has reinforced its networks in India, in key Asian markets, in the Gulf cooperation countries and in sub-Saharan Africa accordingly. Within the Indian Ocean region, Austrade operates sub-regional networks in south Asia, primarily India; the ASEAN growth economies; the Middle East, with a focus on the oil-exporting countries of the Gulf; and southern and East Africa.

Austrade is seeking to maximise the value of its resources in the Indian Ocean by focusing on the region's major economies, particularly the region's largest economies and G20 members India, Indonesia, Saudi Arabia and South Africa. Key regional markets include Malaysia, Singapore Thailand and the United Arab Emirates. These markets present the greatest potential for building long-term, sustained business engagement by Australian companies.

Austrade's work in the Indian Ocean region is closely coordinated with other Australian government agencies; state governments, including state representatives in the regions themselves; and industry organisations and business chambers. The Indian Ocean region presents expanding opportunities for Australian business and educational institutions. Key areas of opportunity include resources and agribusiness as well as education and, in particular, vocational training.

Australia's commercial relationship with many markets in the Indian Ocean region are dominated by mining and resources, as you know. This relationship is not just for Australian commodity exports but also for investment by Australian listed global mining firms together with mid caps, junior mining companies, and exploration activities, mine development and major operations of mine projects. Many of the countries in the region have significant resources and there is strong interest in attracting Australian expertise to help develop these resources.

This is also opening up opportunities for Australian suppliers of mining equipment technology and services, what we call METS companies. Australian METS companies have a world-class reputation. In February Austrade will be working with colleagues from DFAT to again deliver an Australia lounge at Mining Indaba in South Africa. This major regional mining trade event provides an opportunity to showcase Australian expertise in the mining sector, with participants from across Africa as well as the wider region. As you may be aware, Australian mining companies have either invested or committed up to US$50 billion into Africa. There are over 200 Australian mining companies active across sub-Saharan Africa, and they are active in over 40 countries within sub-Saharan Africa.

Australia is working collaboratively with other agencies to further a whole-of-government approach to assist governments in the region to develop sustainable and safe mining practices. Stronger policies and practices within the Indian Ocean region in the areas of environment, safety and community relations will ultimately benefit Australian industry, which is more accustomed to operating in the strict regulatory mining landscape that we find here.

Many of the countries in the Indian Ocean region are already net food importers, and food security is set to become a major issue for countries in the region, particularly for those in the Gulf cooperation countries. The region already includes significant markets for Australian agricultural commodities, particularly wheat and other grains as well as meat. The region's demand for agricultural commodities is likely to continue to outstrip the ability of the region to meet this demand. The region's growing middle-class and increasingly urbanised consumers are expanding opportunities for Australian producers of high-quality food products, fresh produce and beverages including wine.

In addition, poor farm productivity, similar climatic conditions and the challenges of climate change are presenting opportunities to Australian suppliers of innovative technologies and services including in dryland agriculture, animal health, irrigation, water management and aquaculture. By way of example, Australian businesses are helping Pakistan to improve the productivity of the country's dairy sector. There are approximately 35,000 Australian dairy cows in Pakistan. The productivity of those cows is double that of the Indigenous variety.

Along with the development of this dairy industry and the health benefits to the community at large is the need to build out the entire dairy value chain that surrounds dairy production, including cold chain management, pasteurisation and so forth.

The Indian Ocean region's young and growing population, combined with an expanding middle class, are driving a rapid increase in demand not only for school and higher education opportunities but, very, very importantly—and this a common theme right across all the countries that we deal with in this area of the world—vocational training as the key to unlocking the potential of these countries. This is an area where Australia fights well above its weight in the entire world, something for which we are highly regarded and recognised. Promoting Australian education, training and skills is a key element of our work in the Indian Ocean region. It involves not only attracting students from the region to come and study in Australia but also finding emerging opportunities for Australian education institutions and private sector providers to deliver training and skills development in these markets. In India, for example, Australia is engaging directly with the corporate sector to identify opportunities for Australian providers to deliver corporate and on-the-job training. Earlier this year, at the Africa Down Under conference in Perth, Austrade launched a directory of Australian providers of vocational education and training and corporate skills for the mining sector. There were 80 listed in that directory.

In addition to export and education activities, we also work with Australian and state government agencies to attract productive foreign investment into Australia. Indian firms are already significant investors in Australia, not just in the resources sector but more broadly in services and in manufacturing. Austrade is also engaging with sovereign wealth funds in the gulf to encourage further investment, particularly in national and tourism infrastructure. These discussions are ongoing.

As identified in our submission to this inquiry, many of the countries in the region are undergoing a period of profound change driven by rapidly growing opportunities, an expanding middle class and increasing urbanisation. In India alone, the middle-class population is projected to climb to over 580 million by 2025, according to OECD projections. A majority of countries in the region are facing the urgent need to provide education and employment options for the large numbers of young people. These demographic trends are putting pressure on governments across the region to meet the rising economic, social and political aspirations of their citizens. These changes are also creating emerging commercial opportunities for Australian business well beyond traditional sectors such as mining, hydrocarbons and agribusiness. The rising sophistication and aspirations of the region's upper middle-class consumers offer new markets for Australian businesses, including education and training, professional services, architecture, urban design, green technologies, sophisticated engineering and manufacturing as well as consumer goods and services.

Austrade is currently managing the Australian government's Australia Unlimited national brand initiative. A key finding of the research conducted as part of this project is that, while Australia enjoys a broadly positive reputation amongst key decision makers in our major trading partners, Australia was ranked much lower than international competitors as a source of innovation, services and world-class brands. The Australia Unlimited brand project also provides an opportunity to bring together federal and state government initiatives as well as industry and business organisations under a single integrated framework. For example, Austrade is currently supporting the Australian high commission in Delhi to deliver Oz Fest, which is coming to a close in December, which utilises integrated Oz Fest and Australia Unlimited branding. Oz Fest is the biggest Australian public diplomacy program ever conducted in India, including more than 100 cultural, business, education, science and political events.

With Australia assuming the chair of the Indian Ocean Rim ARC in November 2013, there is an opportunity to utilise the commercially focused activities associated with meetings of the IOR-ARC to help promote deeper Australian business links with markets in the Indian Ocean region. Austrade will be working with both government agencies and industry bodies to strengthen and reinvigorate the business focused activities around the IOR-ARC.

In conclusion, we would like to thank the committee for this opportunity to speak with you and we are happy to take your questions.

CHAIR: Australia is going to become the chair of the IOR-ARC conference in coming years. I think it is two years away. Do we have a plan in place for what we would like to achieve during that period of chairmanship and a plan for how we might exploit the opportunities that it presents, to develop closer links with countries around the rim, including trade and so on?

Mr Landers : The direct answer to your question is: I am not aware of any specific plan.

CHAIR: Okay. Do you think we should have a plan, since we have two years to develop one, with stated goals and objectives, to work towards strengthening our relationship with the countries of the Indian Ocean rim?

Ms Dawson : The Department of Foreign Affairs and Trade is taking the lead on coordinating a whole-of-government plan there. It is in the early stages of planning and we have attended some initial meetings and Austrade's role will be very much focused on the trade opportunities there and our links into the industry Association. It is at the early stages of planning but that is certainly our intent.

CHAIR: What, in your view, are the main factors attracting and impeding Australian companies from developing closer links with the countries around the Indian Ocean rim? Is it lack of awareness or are there other factors?

Mr Landers : I am happy to answer that question; I feel very passionate about it. In my experience, in the work that I do, having travelled across and/or lived in many of the countries in question, I think the major impediment to increase trade with these countries is indeed an awareness and an ability to not only make companies aware but also to show the relevance of these market opportunities, to support them—this is what Austrade is very good at; our great strength is our on-the-ground capability—in market, once we can get them there. Across all of these countries they vary significantly in terms of the steepness of the climb, is the way I would describe it. By 'steepness of climb' I am referring to things as simple as language issues, regulatory frameworks, red tape, corruption issues and how to establish building up initial proprietary networks for business success. The steeper the grade, the issue becomes one of staying power—the ability of an Australian company to finance itself during the period of time required to create business success.

CHAIR: Reference has been made to the fact that there is a huge growth in the middle-class in Africa, for example. When I began background reading for this inquiry, that surprised me. The population has gone up from 200 million to a billion or something around that, so obviously Africa presents great opportunities to Australia across a wide spectrum of fields. But how do we communicate those opportunities and make Australian business aware of them more so than they are now? That seems to be one of the challenges.

Mr Landers : One of the key ways we would do that and continue to do that and amplify our current initiatives is to work with industry associations. The Australian Industry Group would be a good example of that, with its extensive membership, to increasingly make Australian companies aware of what the opportunities are and where those opportunities are, again focusing on those best prospects, as we call them, for developing long-term sustained business between Australia and the country of question.

We do quite a bit in terms of our system of making opportunities available. Fundamental to our business model is the identification of opportunities in markets, the codification of those opportunities and the dissemination of those opportunities to Australian businesses. In the course of distributing those opportunities to Australian businesses, that really is the best way to wake them up to the opportunities in markets like Africa.

CHAIR: There are obviously emerging opportunities in Africa and the Gulf and so on and there is obviously great potential there. In Western Australia they have the Africa Down Under mining conference every year, which has meant there is quite a lot of Western Australian investment in mining in Africa.

Mr Landers : Yes.

CHAIR: There is also quite a lot of Western Australian interest in the Gulf. I just wonder how we can expand that interest to the rest of Australia so it sees the trading opportunities that are there. It is obviously an incremental process, but I would have thought that Austrade had a vital role to play in that. When we held hearings in Perth we were told the Western Australian government had their own system of trade offices in India and around the Middle East, but they said there was very little contact with Austrade. I wonder if that could be addressed so that the WA government and Austrade worked in a more coordinated fashion in trying to develop trade links with those areas.

Mr Landers : I would have to say that my own experience differs markedly to the comment that there is very little contact between us and the states, particularly in the Middle East. I myself have even met with them there and I think there is quite a robust relationship between our Senior Trade Commissioner, Gerard Seeber, and the state representatives based in the United Arab Emirates, in Dubai. I do believe we work quite closely with them.

We applaud the efforts of states. One example is Export Victoria and the megamissions that they run into various markets, with one forthcoming in the Gulf in February. We have worked very closely with them and we will work very closely with them on those missions to make them successful. In addition to the missions themselves, what is also very important is the ability to sustain what happens after the missions. A company comes, it visits the market, it goes back to the market. Out of 100 companies that come, maybe a mission will yield 20 companies that have a real opportunity to engage. Our great strength is that we have a depth and breadth of resources on the ground that can help those Australian businesses to sustain their engagement in that market.

CHAIR: The officer from WA who made the remarks was based in India, rather than the Gulf, so perhaps that is a different situation. I am very pleased to hear that that kind of coordination does occur. In evidence at the committee's hearing on 2 October in Perth the WA government noted that they do work well with DFAT and Austrade in relation to WA's own trade offices and the promotion of Australian business in the Indian Ocean Rim. However, the WA government officer did note:

When we talk about coordination, it is actually a little bit embarrassing out in those regions, because the same people—whether they are in business or government—are getting visits from people from Western Australia, visits from DFAT and visits from Austrade and then the Victorians send a delegation of 300 people to talk to them as well.

They mentioned there is a need for better coordination between DFAT, Austrade and the trade offices of the State governments. Would you like to comment on that?

Mr Landers : I would love to comment on that. Our Executive Director for Australian Operations, Tim Beresford, pioneered what we call SOTIG, the Senior Officials Trade and Investment Group. This is a deputy secretary level group that meets monthly, I think.

Ms Dawson : It may be quarterly.

Mr Landers : Certainly with great frequency. It includes all the deputy secretaries of each of the states. Under SOTIG is both a trade group and an investment subgroup. These are all the deputy secretaries of the states, and the very purpose of SOTIG is to address the very issues that you are talking about. The process is very well established. It has been going for about six months now, and it is gathering steam as we go. We are having active discussions with each of the states around, for example, offering them the opportunity to place embedded business development managers into our network. India would be one of the first cabs off the rank, so to speak, where the South Australian government is looking quite seriously at having a representative work on their behalf out of our Mumbai office, although it is not a done deal yet. We are happy to do that with any of the states. I think a lot of energy is being put into this issue. We recognise the issue as well and the importance of presenting a team Australia approach out there.

With respect to coordination with DFAT, again from my own experience, I think Africa Down Under and Mining Indaba will be a good example of how we work with DFAT. All the heads of missions throughout all of Africa will be intimately involved. In fact, they form the backbone of our presence at Mining Indaba. We work with the heads of mission to run the Australia Lounge. The ambassadors make available to Australian businesses all the ministers and other key relationships that they develop in their home country markets in Africa. They work very hard over the course of that event. I was at Mining Indaba last February and I expect to be going again this February, so I have seen it firsthand. It is very much a hand-in-glove approach. Our senior trade commissioners at post are very much instructed that they have whole-of-government responsibility; that is first and foremost. We work within the envelope of the head of mission in a market. In any given market, the ambassador will be making all best efforts to try to advance Australia's interests vis-a-vis that country. So if you say that in India that we are a tier 3 country, then our ambassador will be trying to move us to a tier 2 country. He may have 10 levers to pull, which include direct flights, bilateral negotiations, soft diplomacy efforts—you name it. Trade is just one of those levers, and we are his trade lever. That is the way in which we view our role. I see us as being quite integrated.

CHAIR: I am very pleased to hear that. Thank you very much.

Senator FAWCETT: Mr Landers, thank you for your presentation. One of the things that has interested us is the almost complete lack of business interest in responding to this inquiry. We all talk about the wonderful opportunities of a growing middle class et cetera, but there has been very little response from business to the inquiry. It could come down to a lack of awareness. It could also come down to people's concerns about the hurdles. One of the hurdles, I imagine, is security, whether it is piracy issues off the African coast, sovereign risk or personal security for people—there is the young lawyer in Mongolia at the moment. What feedback are you getting from industry about their concerns in that area? How valid do you think those concerns are, and are there any priorities for action that you think the Australian government should be taking to seek to influence any of those areas, such that Australian business is more inclined to take up the opportunities?

Mr Landers : I appreciate the question. I believe passionately in making Australia a nation of exporters, which is why I do what I do.

Senator FAWCETT: You are obviously an import, though.

Mr Landers : I am sorry?

Senator FAWCETT: I take it from your accent that you are an import, though.

Mr Landers : At one time I was, until I became an Australian citizen. I have three little Aussies of my own, so I have a vested interest in seeing it all work out well in the end.

Senator FAWCETT: One of Austrade's agendas is to encourage inbound investment, so obviously we have a good example here.

Mr Landers : I take that as a compliment. There is merit in the question that you ask. My wife uses the expression: in order to have something, you first need to know it exists. That is pretty much the crux of it. Job No. 1 is making Australian business aware of the opportunities that exist offshore and particularly in these regions. It varies significantly by sector, as you would all be extremely aware. The intrepid adventurous miners go to places that many of us have never heard of before. They cover every square inch of the globe. That industry needs little coaxing to engage overseas. On the agricultural front, with respect to commodity exports and the meat trade, again I think they are pretty well represented in all the markets that are relevant to them. Regarding Australian industry that represents the international infrastructure corpus of companies—SMEC, WorleyParsons, the Leightons of the world—you would be hard-pressed to find a jurisdiction where they are not present or they have not prospected. What you say is true but it varies significantly by sector.

Once you start to move away from resources, the energy sector, the agrisector and the infrastructure sector to manufacturers, there is the capacity to take up elaborately transformed manufacturers. I do not have a lot of empirical evidence for this, but my intuition tells me that may vary depending on the state of development of the underlying economy. Some of those economies, particularly those in Africa, are at a relatively rudimentary stage. Countries like the Gulf Cooperation countries, where we have collectively, say, 43 million people, are the most import-intensive countries in the world. So the 43 million people equate to maybe 250 million people in any comparative country. There are untapped opportunities outside some of the sectors that I have spoken about. There is much more that we can do with manufacturing and high value added food products in those economies. The job is far from done, but it is quite an uneven picture. I hope that answers your question in part.

Senator FAWCETT: That addresses part of the awareness question. The other part of the question was the security aspect. Do you believe there are barriers in terms of either sovereign risk, personnel security or things like the lines of communication that dissuade industry or business from getting involved? Are there any priority areas where you think Australia can feasibly and should be engaging through whatever channels to try and enhance or improve the environment?

Mr Landers : As an organisation, as a policy, we pretty closely follow whatever travel advisory DFAT puts on the country. So we do not actively engaged Australian businesses vis-a-vis countries where there is a 'do not travel' warning. Examples of that would include places like Libya and Iraq. There still is interest from Australian businesses, particularly in the oil and gas sector, mining and large-scale agribusiness in those markets. We support businesses like that on a reactive basis, but we do not actively promote Australian businesses to go into those markets. We will only respond to them if they have taken the initiative already. Those are some of the extreme cases of security concern. Across Africa, the mining sector is quite distributed and is working across a portfolio of countries where security assessments vary quite dramatically. Within that sector, that is perhaps an indication of how Australian business views the security concerns.

Senator FAWCETT: On a different topic, tariffs, I notice that India, for example, has quite high tariffs on our horticultural products going into India, and I know you are about facilitating work there. But, in terms of bilateral work, how much engagement are you able to have with the department of trade in terms of the contact with governments and with players on either side that might move towards reducing some of those tariffs, because they are obviously a real disincentive for people here to play an active role in that food task?

Ms Dawson : I think that perhaps the easiest way to answer that is that, where we find out where there are problems and where companies raise with us their concerns and issues there, we feed that back into the Department of Foreign Affairs and Trade and into that trade policy development part of things, and then Foreign Affairs and Trade take the lead on those negotiations. So we really represent the business interests and feeding that back into the policy side of DFAT. They could probably elaborate a bit more about their negotiations and how they do that bilaterally.

Senator FAWCETT: I guess what I am looking for is that you can look across the world and say, 'Hey, there are 20 countries with trade barriers or tariffs that we'd like to get rid of,' but it strikes me that Austrade would be the group that says, 'This is the one that's really worth focusing on, because we have a business that has a product to sell and there's a market that needs it, but this is the barrier you should be focusing on.' Do you have that dialogue on an ongoing to prioritise DFAT's efforts in that regard?

Ms Dawson : We do meet regularly with DFAT on market-specific issues in terms of interdepartmental committees looking at those issues and feeding that back in. So it is on a market-to-market basis, and then also in line with preparations for any free trade negotiations or discussions that are going on there. Where there has been a particular issue raised or we are aware of a particular industry where we have seen trends from companies, we feed that back into the trade divisions within DFAT.

Senator FAWCETT: Do you have any examples where a nation will make a specific exemption for a company or a given contract, or does it only happen on a bilateral nation-to-nation basis every five or 10 years?

Ms Dawson : I am not aware of anything that has been done on a company-specific basis.

Senator FAWCETT: Could you take that on notice and come back to us.

Ms Dawson : Yes, absolutely.

Senator FAWCETT: My sense is that one of the ways to encourage innovation is to try and find parties in the other country that also see the benefit of the relationship and then to aggressively pursue those niche opportunities rather than wait for the umbrella arrangements to change.

Ms Dawson : Yes.

Senator FAWCETT: Certainly, if there are any precedents there, I would be interested to know that.

Ms Dawson : Okay, we are happy to take that on notice.

Senator MARK BISHOP: Mr Landers, in your opening remarks you made some remarks about sovereign wealth funds. I think—correct me if I am wrong—you said Austrade had some engagement with them in the Middle East. Did I hear you correctly?

Mr Landers : That is correct.

Senator MARK BISHOP: Could you just develop where you are at and what you are doing there in the context of, firstly, countries; secondly, purpose of engaging with these sovereign wealth funds; and, thirdly, whether Austrade has any guidelines imposed upon it by either the organisation or government in terms of its dealings or relationships with the SWFs.

Mr Landers : Sure.

Senator MARK BISHOP: Finally in that context, there was a Senate report that came down 12 or 18 months ago on SOEs—state-owned enterprises—and foreign investment, but it had a significant discussion therein on sovereign wealth funds. I am not aware that the government has made a response to that as yet.

Have you had regard to either the thrust of the argument in that or the set of recommendations that flowed? I know that is five questions. It is about countries, purpose, guidelines, government oversight of your engagement and what regard, if any, you have had to the thrust or the particular recommendations of that report on SWFs.

Mr Landers : I can certainly answer the first couple of those questions. I might have to tag team with Philippa.

Senator MARK BISHOP: It might be easier if you go through them sequentially.

Mr Landers : My reference was specifically to the United Arab Emirates and the sovereign wealth fund there. Our senior trade commissioner there, Gerard Seeber, recently facilitated a meeting between the UAE sovereign wealth fund and Tourism Australia. Austrade has an established and agreed set of foreign direct investment attraction priorities that have been agreed with the federal government. Prime amongst those is attraction of investment into tourism infrastructure and attraction of investment in economic infrastructure.

Senator MARK BISHOP: Are you saying 'attraction of investment'?

Mr Landers : Yes, or direct investment attraction—the attraction of investment. The meetings and the discussions that were initiated, I think within the last two months, were focused on the potential of attracting sovereign wealth investment from that fund into tourism infrastructure. There was a preliminary meeting—

Senator MARK BISHOP: Sorry to interrupt, but are you talking about 'tourism, infrastructure' or 'tourism infrastructure'?

Mr Landers : I am talking about tourism infrastructure. We have four federal government foreign direct investment attraction priorities. The first of those is attraction of investment into developing tourism infrastructure. The second is attraction of investment into economic infrastructure. The third is attraction of investment into innovation and the fourth is into clean energy. With those federal priorities in mind we go around the world looking at opportunities to attract investment into those areas. In this case we have been engaged in discussions with the sovereign wealth fund in the United Arab Emirates specific to their potential interest in making the case for investment into tourism infrastructure in Australia. The next question is—

Senator MARK BISHOP: You have answered the question about countries and about purpose. The next issue is guidelines in dealing with them. Apart from normal commercial realities and normal business ethics that would apply, is there anything else that the government imposes upon you or that you choose to impose upon yourself?

Mr Landers : We have an investment team across our Sydney and Canberra offices, and they are very well versed in any investment that would not fit in those federal priorities.

Senator MARK BISHOP: I am not talking about priorities; I am talking about the guidelines that go to sovereignty, behaviour and ethics.

Ms Dawson : Do you mean once a decision has been made on the foreign investment into Australia?

Senator MARK BISHOP: No, I mean more particularly in terms of who or what entity has effective sovereignty or control over the particular sovereign wealth fund: some are at arm's length and owned by different funds for different purposes; some are owned by governments and operated by governments as such in a commercial sense; some are owned by companies; and some are in turn owned by state-owned enterprises. They have different purposes depending on who has effective ownership or control. I am asking whether you have regard to that issue when you engage with them?

So, for example, an SOE petrol company out of Venezuela that has some sort of sovereign wealth fund may well have different interests to one perfectly market-driven legitimate enterprise out of New York City. I am not saying it does, but in the real world of finance there are differences.

Mr Landers : This is the UAE sovereign wealth fund.

Senator MARK BISHOP: It is owned by the government of the UAE?

Mr Landers : Yes. I cannot speak factually—there may be no simple answers to these questions and it might require some background research to establish exactly what all the ownership relationships are.

Senator MARK BISHOP: Do we do that as a matter of course?

Mr Landers : I don't personally.

Senator MARK BISHOP: No, of course you don't, but does the organisation have an internal rule—

Mr Landers : I think that is a step in the process. I understand what you are getting at, and it is a reasonable question, of course. I think is a step in the process. These are preliminary discussions that are taking place. I believe our ambassador is aware of them. Nobody has raised a red flag to say, 'You need to be alert and alarmed about engaging with the UAE sovereign wealth fund.'

Senator MARK BISHOP: No, and I am not for one minute suggesting there is any alert or alarm or red flag.

Mr Landers : I know that if things got more real—okay, let's start talking about the specific investment opportunity—it would be at that point when our team would evaluate all relevant criteria: is this an acceptable investor for investment in the sector in Australia? I think we have that process and safeguard in place, so things would not slip through.

Senator MARK BISHOP: Okay.

Mr Landers : But I also think that there is nothing, prima facie, that would alert or alarm our senior trade commissioner in respect of this particular fund to suggest that they should not be talking to them.

Senator MARK BISHOP: No, and I am not suggesting that, either. I am asking whether it is normal business practice within Austrade that you do that preliminary scrutiny. Let us not kid ourselves here: these are multibillion-dollar operations that take strategic interests in a range of endeavours around the world, and some of their links are of a nature that can be categorised as 'interesting'. I was just asking whether you alert yourselves to that potential.

Ms Dawson : We do have some criteria and perhaps we can take on notice the detail of those. I know there is a best interests of Australia criteria; there is one on net benefits. I think there are about five, but I would need to take on notice the detail there.

Senator MARK BISHOP: You might. I think we have gone as far as we can.

Ms Dawson : As Mr Landers was referring to, it is really where we get to any stage of the process with, then, liaison with Treasury. We can take the detail on notice.

Senator MARK BISHOP: That would be appreciated. Thank you, Ms Dawson; thank you, Mr Landers.

Senator STEPHENS: That was a fascinating discussion. I will certainly look forward to seeing that additional material. Thank you.

In terms of the Asian century white paper, how is Austrade focusing on those recommendations, particularly in helping Australian businesses to understand the needs—not just aspirations but opportunities—of the Indian Ocean rim countries?

Mr Landers : We have a well-defined business model that was part of our redefinition and reorientation around growth and emerging markets. We define our value-added as including, first and foremost, the identification of opportunities for Australian businesses—opportunities that are quality opportunities, that are actual opportunities and they are contestable opportunities. Those opportunities get codified offshore by our business development managers and trade commissioners and they get distributed through our network to Australian businesses. That is one way we add value.

The second way we add value is through the gathering and dissemination of market insights. This is often hidden information.

This is information that is original or information that is synthesised from a number of different sources. It is based on our in the market presence and our in the market knowledge. That information is made available to Australian businesses in a variety of ways. It can be delivered directly to them or in our one-on-one engagement with them under business servicing that we do both starting here in Australia as well as in the market. We provide Australian businesses with partnering referral contacts in the markets they want to deal in, which helps them save a lot of time and effort and money getting up and running and becoming highly productive in those marketplaces. We also, very importantly, leveraged our badge of government to help them. A very obvious example is with mining companies, being able to give them access to ministers in an industry where there is a real need to understand subsurface policy and understand where it is today and where it is likely to go by talking to the minister of mining and so forth. Our ambassadors will be based in Mining Indaba in Cape Town in two or three month time and will be providing that leveraging of badging and providing that access to Australian businesses.

Senator STEPHENS: I was interested in what you said to Senator Bishop about the investment of sovereign funds. Does your service in these countries go to identifying opportunities for investors in those countries to invest in products in Australia that then could be taken to the market, or is that beyond your remit? For example, with an investor who is looking to build some kind of an industry around perhaps water purification, would your services extend to being alert to the market opportunities and some innovation that is happening here in Australia and being able to take that innovation into those countries?

Mr Landers : Absolutely. Our foreign direct investment people are constantly on the lookout for investors who want to invest in Australian innovation. It is core to what we do and it is one of our four foreign investment attraction priorities.

Senator STEPHENS: I notice that your submission you said that four key areas for growth and opportunities were food, water, resources and energy. We talk a lot about energy, we talk a lot about resources and mining boom. Food security is a global conversation. I was intrigued to discover that we export water, significant amounts of water.

Senator MARK BISHOP: How and where?

Senator STEPHENS: That was my question, how and where? Lots of bladders, lots of big containers take water to places.

Senator MARK BISHOP: We used to import it in the 1840s from Boston. There was a big shipping trade of ships out of Boston heavily laden with ice and they used to ship it all the way down here for 10 or 20 years and use it for a particular purpose. So now we have gone from being an importer of water to an exporter of water.

Mr Landers : I grew up in Boston and I much prefer the water here, so I do not know what they were thinking back then.

Senator MARK BISHOP: From that big lake out of Cambridge.

Senator STEPHENS: It is not just physical water but also the water technologies, desalination and those kinds of things. Are we doing much in that space?

Mr Landers : Our position is that one of Australia's core comparative economic advantages is in the water area particularly as it relates to agriculture and dryland farming. How do you reduce evaporation? What are the most effective tools and technologies for the efficient use of water in irrigation? We also have the urban side of water and then there is the remediation of water particularly as it relates to mining and the use of water in the oil and gas industry to create pressure for wells. I am intrigued by your earlier comment when you were talking about the export of water and you were talking about water, the commodity, is that correct?

Senator STEPHENS: Yes.

Mr Landers : I do not specifically know about bulk exports of water where we load up a ship with water, but I would certainly expect that. It would be quite reasonable for bottled water to be shipped particularly throughout the Pacific Islands where such water would be scarce. The scale of manufacturing of bottled water, particularly for the tourism industry and other markets, would make a lot of sense to me.

Senator STEPHENS: I read recently about a Queensland based company that had developed a much more effective packaging system for bulk water which enabled it to have a much longer life in the packaging. It was some kind of treated container that prevented the bacteria from growing inside the container.

Senator MARK BISHOP: Walden Pond. That is the reservoir near Boston where they export the ice from.

Senator STEPHENS: The opportunity where those kinds of innovations in Australia could be marketed overseas is what I was interested in. In your opening statement you canvassed the opportunities for growth and change in investment and trade in the Indian Ocean rim—we have already canvassed the business about a growing middle class across the region—and the opportunity for vocational education and training particularly into the African countries. I would be quite interested in hearing a bit more about that.

Mr Landers : My colleagues know to stop me when I get onto vocational education and training. I will first make clear and differentiate trade and investment education. Most of our conversation around the Indian Ocean rim would be about trade and education. Foreign direct investment attractions were targeted and we were quite deliberate about that. Within the Indian Ocean rim there would only be two locuses from which we would be seeking to attract foreign direct investment. One would obviously be the large sovereign wealth funds in the Middle East with substantial cash reserves. The other would be predominantly from corporates in India. Outside of that we do not really focus on foreign direct investment attraction within the Indian Ocean rim because the capacity is not there on the part of the sourcing side.

In relation to your query around vocational education and training, one of the common things that we see across all growth and emerging markets—and this encompasses Latin America—is the need for vocational education and training. Many of these markets—Latin America, the Middle East and Africa—have large, youthful populations. In places like Egypt and Saudi Arabia and in many Latin American countries the percentage of population below the age of 25 would be towards 50 per cent. It is very heavy, many, many of those people are unemployed and it is a real issue.

A case example of Chile might illustrate the point. In Chile, the Chilean resources industry is the backbone of the economy. It has what the government has estimated to be some $30 billion or more of investment lined up to go into further develop the industry. But, in order to unlock that investment, they are short 250,000 vocationally trained people to enable that resource investment. So their labour minister, an amazing woman named Evelyn Matthei, came to Australia with a delegation of 40, including people from government, unions, education as well as the senior-most HR people from the major mining companies in Chile. They went around the east coast of Australia looking at our system for vocational training and decided that it was the best that they had seen—but we already knew that. They have gone back now and begun to implement our framework for vocational training, our 11 skills areas, including the course curriculum and course content, adapted for the Chilean market. They have begun to implement that in Chile, focusing first and foremost on the mining industry. But these skills areas cover more than extractive industries. They include hospitality, transport and logistics, and so forth.

In Saudi Arabia you have this anomaly. There are 40 million people, but 25 per cent of them are guest workers doing most of the vocational jobs, yet you have a very high level of unemployment amongst the population under the age of 25. It does not make sense, right? There is a particular attitude towards vocational work and the government realises it needs to work on that, but, from a policy point of view, it has now identified and established that vocational training is a real priority. Life is a bell-shaped curve and not everybody can be a brain surgeon. So, in order to get people employed—in order to make that economy work and be self-sufficient—vocational training is the key.

It is true across all of Africa. In all of the extractive industries, investment and the development of infrastructure require vocationally trained people that do not exist today. One of the reasons they do not exist is that the way of doing it does not exist. We have a great framework for doing it. The challenge that you find is: who is going to pay? In the Gulf countries, where they have substantial reserves and are oil exporters, that is not a problem. In India, where we have active programs, for the extractive industries people that is not a problem. Corporates will pay to do this.

We have a recently published booklet of some 80 vocational training and corporate training providers that we distribute. These are all Australian providers that can deliver their value-add in the vocational training/corporate training space offshore. One of them just visited a mining trade show in Mongolia and walked away with 64 business leads. He was ecstatic. He wrote us an email saying, 'I had no idea.'

So it is a real opportunity for us. In my whole business career I do not think I have ever seen a more well-defined, urgent and important problem than this, so it is something we are not going to let go of.

Senator STEPHENS: That is quite interesting. Yesterday we were talking about the youth bulge in Afghanistan and the same kinds of issues. Thank you.

Some of us went on a trade delegation to Korea and Japan recently and had the opportunity to meet some organisations and businesses that, with the assistance of Austrade, were leveraging their reputation, I suppose, to assist some Japanese and Korean organisations to get into the markets in some of these other countries where they do not have bilateral or multilateral relationships, like Myanmar and Cambodia.

To what extent do you find that it is becoming more DFAT's role to act to enable Australian companies participate in third-party negotiations? Is that happening more and more?

Mr Landers : I would say that Japan is the reason why that strategy is well developed. We have a Japan in Asia strategy. The example that you were referring would have come under that, I would have thought. I am not sure what specific example that you are referring to but if I were to guess or speculate and if I understand what you are getting at I would have thought that that would have been a supply chain play. In order to play in global supply chains, the vessel that you want to travel in might be a Japanese company or a Korean company that has elaborate global supply chains in the industries that they are dealing in, so—

Senator STEPHENS: It was actually a little bit more than that. It was about reputation and the fact that the Australian companies have such strong reputations and are valued by the Japanese companies—their partners or trading partners—that those Japanese companies are using Australian companies to facilitate their entry into markets that they would not normally have been able to get into. They were able to use the strength and reputation of these Australian industries to help them break into some of these new markets. Some examples include the dairy industry, some supply chain and logistics kinds of services and financial services. It was quite interesting to see that kind of leveraging off us.

Mr Landers : I can well imagine that an example might be an Australian dairy product. There is a perception of purity and high quality in the Chinese market. China has had a lot of issues with the safety and security of dairy product. If I was a Japanese company that was involved in the distribution of food products within China and I wanted to further establish my credentials and broaden my distribution I would turn up the volume on a particular Australian product that I was licensed to distribute. That would make good business sense to me. In that case, both parties win.

Senator STEPHENS: That is right. I was interested to learn whether you were seeing more of that. The other thing that we see was that foreign investment is much more vertically integrated. I am thinking about the supermarket chain in Japan that had invested right down to the Wagyu beef farms in Tasmania. They, through their investment, were guaranteeing their own supply chain but also supporting Australian farmers. Is that happening more?

Mr Landers : That is a business model that we have developed. It is a model that we hope to replicate in other markets where food security is as important as it is in Japan. That particular program is called Taste of Australia. It focuses on a well-defined, urgent and important problem in Japan, which is food security and food safety, and leverages Australia's value to them as a reliable source but also a safe and very high standard of food supply for Japan in a world that will be increasing prone to food security issues.

Senator STEPHENS: Could you see the same model being applied to other services, such as—for example—vocational education and training? An organisation or an industry sector might want to invest right down into RTOs or private providers here in Australia to ensure that they had the same kind of capacity for training and education.

Mr Landers : I think in any industry where ongoing security of supply and access is an issue it would be quite a reasonable model for them to pursue.

Senator STEPHENS: I am thinking about English language and those kinds of things.

Mr Landers : I do not think we are there yet in terms of vocational education. But food is one very obvious area where you can take that same strategy and bring it into the gulf co-operation countries. The issue is severe. They do not have arable land. The only water they have is desal; they have 40 per cent of the world's desal capacity. Desal depends on a cheap energy source, and that is not always going to be the case.

Senator MARK BISHOP: Over the last couple of years a number of matters have occurred sequentially in the context of Australian expertise and mining investment out of Australia. There was an inquiry by a joint committee which made a number of recommendations. We have become much more aware of the huge ongoing Australian investment in Africa. We have the Africa Down Under conference on a regular basis, which the chair referred to. The government has thrown $20 million or $25 million at the facilities runs by the University of Western Australia and the University of Queensland. We have had a discussion this morning and you have particular priorities. What I am hearing said repeatedly in all of those forums—and you have confirmed it today—is that there is a real, ongoing and practical desire from government ministers in countries in Central and South America and from South Africa right up to North Africa and also heads of departments and senior bureaucrats in mines, energy or mineral departments to come here and learn about mining. I get a lot more advice on this from the Western Australian government, which often is the first point of contact, and my colleagues in Queensland tell me the same—and that is simply because of the comparative advantages those states have in mining and associated matters. What I am hearing is that these ministers, these governments, these senior officials, come to Australia in large numbers seeking advice and access to expertise and to learn all of the things associated with developing a mining site from beginning to end—digging minerals out of the ground, transport, logistics, evaluating, administrative issues, the regulatory regime, the environmental consequences of doing it wrong, the risks involved and the opportunities for honesty as opposed to corruption in the selection process. Those are the things that come across my desk that they are discussing. And we have had evidence from AusAID who, not as a central feature of the work, are getting involved in offering expertise. We have also had evidence in other inquiries from BHP and Rio on how they engage in the network.

That is a long introduction to my question. Are you or the government giving any consideration to the creation of what would effectively be a one-stop shop that could address all of those issues which are individually of great consequence and when you put them together of even more consequence for those countries when they send leaders, ministers, delegations and very senior and large sets of officials to this country?

I am hearing that they go to the government of Western Australia, to the government of Queensland, to the government of South Australia, to yourselves, to AusAID and to universities to get advice on 10 or 12 things. That might be very useful for an advanced or a developed country that has had, like us, 150 years of involvement in the exploitation of minerals or resource projects. I wonder whether we are doing any work on adding value in that particular way as a part of facilitating trade or adding value to export services, which is the critical issue attached to the development of mining projects. Or has this question just come out of the blue?

Mr Landers : In terms of the education—higher education, technical training and vocational training—we have already talked a lot about that.

Senator MARK BISHOP: You did. It was the questions from Senator Stephens that reminded me of previous hearings and previous discussions I have been involved in. I do not want to talk about whether we do those individual things well or badly. My question is: is there any opportunity in your mind for a one-stop shop that provides expertise or advice that addresses all of those things that are critical to a huge-scale investment of billions of dollars in mining, gas or energy?

Mr Landers : A one-stop shop from the vantage point of, say, a foreign mining minister coming to Australia and saying, 'We are geologically well endowed but we need help to do anything about it.'

Senator MARK BISHOP: Yes. I hear increasingly that our regulatory and administrative regime is transparent, accountable and responsible, and facilitates investment. Countries that come here see a system that works, and they want to take and copy and adapt and adopt. That is the focus of my questioning.

Mr Landers : This has always been my impression of government policy and what AusAID is doing, particularly in Africa. As I understand it, the view is that having transparent, well-governed and technologically advancing systems in place for government bureaucracy, subsurface policy, taxation regimes, training and so forth—all those elements that are required to establish a healthy industry and ensure trickle-down and a healthy development of that country from a macroeconomic point of view—is the essence of the AusAID strategy in Africa and Latin America in particular. There are scholarship programs to identify and recruit individuals out of foreign governments to attend the International Mining for Development Centre—the UQ/UWA amalgamation—and these were put in place for exactly that purpose. That is about as one-stop shop as we are at present. I do not think it is a bad idea at all to think about how we could take that even further.

Senator MARK BISHOP: Is that UQ/UWA thing AusAID or DFAT? Do you know?

Mr Landers : That is a distinction I may not be definitive about.

Senator MARK BISHOP: It is an important one.

Mr Landers : I do know it is the locus for both short- and long-term scholarships that are made available through AusAID in these jurisdictions. That is the program they attach themselves to. Whether that $30 million of funding you referred to was channelled through AusAID or DFAT I do not know.

Senator MARK BISHOP: It is an important distinction. AusAID have a view of the world and they have a developmental focus, and they give effect to that, and I do not quarrel with their right to do so. Government policy is a very different approach and focus to that of large corporates. It is a very different focus to that of an organisation like yourselves. So if they are the best part of a one-stop shop that is a real concern. But inside Austrade you are not giving any thought to that, are you?

Mr Landers : We have not, to be quite honest with you. We have not thought about it as a one-stop shop. It is all there in an unbundled fashion.

Senator MARK BISHOP: Yes. There are about 20 or 30 different points of contact. That is the point.

CHAIR: Mr Landers, there was a Professor Rumley who referred to the structure in the Indian Ocean Rim ARC when it was set up as having an academic group, a tourism group and a business group. In his assessment, the only group that has actually taken off a little bit is the business group. The main reason for that, it is said, is that it is driven very hard out of India. The Indian community has, as we know, a very strong view of India's role in the Indian Ocean. Would you like to comment on Professor Rumley's observation about the business group in the IOR-ARC as being the predominantly engaged group? Is it driven very largely by the Indian business community? To what extent is the Australian business community engaged at all?

Mr Landers : On your question about the business group within the IOR-ARC, I am not in a position to provide you with a lot of subject matter expertise and insight on that, to be honest. Just looking at trade patterns and the mosaic of Indian business across all of the Indian Ocean rim, it intuitively sounds quite consistent to me. As with the overseas Chinese, the overseas Indians are pervasive through the whole of the region—in Africa, obviously in their home country, and in the Arab Emirates. There are probably two or three generations of Indians that live there. They are a very large community there and they would outnumber the Emiratis easily. That foundation has been in place for decades, so it does not surprise me that, if you put the IOR-ARC over the top of that, there is the observation that there are quite strong trade flows within the IOR-ARC at a business level but perhaps not as much at an education level or a tourism level.

CHAIR: Can we infer from that that, in developing Australian business contacts around the rim, there would be an advantage in our forming associations with Indian business groups and focusing on alliances with India in developing business links in particular? Is that something we could think about doing?

Mr Landers : Indeed. It makes a lot of sense. We are present to it. You may be aware of the CEO forum that has been launched in India. That is an example of a forum that could leverage those region-wide Indian business contacts to the benefit of Australian businesses—but we do think of those paradigms.

CHAIR: The sense we get about this is really that we are on the doorstep of something. There is great potential down the passage way, if you like, but we are only just beginning to really become focused on the potential of the Indian Ocean rim. I wonder how, within your department, you are organised to deal with the actualisation of that potential. Do you have separate desks for Africa, the Middle East, the gulf and so on?

Mr Landers : Our organisation is along the lines of growth and emerging markets, East Asian growth markets and then established markets. The growth and emerging markets area maps very well to the Indian Ocean rim plus Latin America. That is the very essence of our focus. Our resourcing is accordingly allocated on that basis.

CHAIR: But do you have specific groups that focus on African development opportunities or gulf development opportunities?

Mr Landers : Yes. Our team is in the field. In the gulf we have a headcount of perhaps 30, and they focus on the Middle East and North Africa, and within that strategically on the Gulf States and within that strategically on Saudi Arabia—the jewel in the crown, so to speak. In India we have a headcount of over 60, and they focus on South Asia, as we call it, so that is predominantly India but also the contiguous countries, including Pakistan, which should not be forgotten.

CHAIR: And Africa?

Mr Landers : In Africa, we have added resources. We have a senior trade commissioner based in Johannesburg and one based in Accra, in Ghana, and we have a post manager based in Nairobi. So we run those markets as regions, if you will. They have separate and distinct strategies which are unique and germane to those jurisdictions. And of course the expertise in those regions is fed into the challenge at hand. So I would say the answer to your question is yes, we do operate in alignment with what you are suggesting.

CHAIR: Okay. Thank you both very much for being here this morning. We have found your evidence very interesting, useful and insightful, so thank you very much indeed.

Mr Landers : Thank you all for your time. It has been a pleasure.

CHAIR: We might break for morning tea now.

Proceedings suspended from 10:51 to 11:06