India, Malaysia, Philippines and Vietnam pose the highest risks to Australian exporters

Less favourable economic conditions for many of Australia’s trading partners have led Atradius to recommend Australian organisations looking to do business in the Asia–Pacific region be cautious. The January 2017 Atradius Country Report, which offers an in-depth analysis of 12 key countries in Asia–Pacific — including China, India, Indonesia, Japan, Malaysia, Philippines, Singapore, South Korea, Taiwan, Thailand and Vietnam — revealed that India, Malaysia, Philippines and Vietnam pose the highest risks to Australian exporters, while Singapore poses a low risk and is relatively stable.

Mark Hoppe, managing director ANZ, Atradius, said, “It’s crucial for local businesses to be aware of the potential pitfalls to ensure they make smarter decisions and take steps to protect themselves in the event a debtor doesn’t pay.”

Additional key insights:

• China: Insolvencies continue to rise and businesses are struggling to pay. Key affected industries are construction, metals and steel, shipping, mining and paper. Australian companies should exercise caution when dealing with small and medium-sized private businesses. Furthermore, the credit risk situation is strong for agricultural and financial service industries.
• India: India’s stable political climate, reform-oriented government and low oil prices are driving economic growth but the banking sector is weak, so Indian businesses are looking for finance from foreign banks, in foreign currencies. That hampers India’s long-term growth potential even as GDP is set to increase to around 7.5%. The best outlook is in chemicals and pharmaceuticals, food, paper and services industries, while the risk is high in construction and materials, including metals and steel.
• Indonesia: Commodities account for more than 60% of Indonesia’s exports, while the country depends on oil imports and a high stock of inward portfolio investment. Red tape, widespread corruption, a poor legal system, an inflexible labour market and poor infrastructure limit Indonesia’s growth rate and create risks for businesses. Food, and construction and materials are markets trending upwards, while Australian businesses should exercise caution with the automotive/transport, and metals and steel industries by making sure their business is proactively managing risk through strategies like trade credit insurance.
• Japan: Japan’s growth remains lacklustre but a forecasted strong US dollar in 2017 may increase Japanese exports and business sentiment. Extremely high public debt, a shrinking population and declining working age make it difficult for Japanese companies to grow. There is, however, a good performance forecast for the agriculture, electronics/ICT, financial services and food industries. The textiles industry is one for Australian businesses to be wary of: the risk is high with performance in this sector below long-term trend.
• Malaysia: China’s struggling economy poses a risk to Malaysia and a corruption scandal surrounding Prime Minister Najib could affect business and consumer sentiment. However, the performance outlook is good for industries including agriculture, financial services, food and services. High-risk industries include construction, construction materials, paper, steel and textiles.
• The Philippines: Economic growth has been persistently high for the past five years, driven mainly by private consumption. Foreign direct investment has tripled since 2009 and growth is expected to remain stable in 2017 and beyond. The Philippines depends on the US and Japan rather than China so it will be relatively unaffected by China’s economic woes. Infrastructure projects will drive demand for related products and Philippine businesses can expect a good performance outlook for agriculture, chemicals/pharmaceuticals, consumer durables, food, machines/engineering and services industries. Politically, President Duterte’s violent antidrug campaign has raised doubts among international investors about the government’s commitment to the rule of law, and relations with the US are becoming strained. Australian businesses should therefore proceed with caution.
• Singapore: Singapore is stable and business-friendly. Its growth may be sluggish but strong macroeconomic fundamentals remain in place, making Singapore relatively low-risk. The city state has strong ties to China, which may affect the economy, while the potential protectionist measures taken by the US government may also slow growth.
• South Korea: Experiencing some political turmoil, South Korea also faces challenges with a highly indebted population and strong trading ties with China. South Korea’s economic model is export driven and is currently incapable of providing sufficient employment and purchasing power. The political climate makes immediate improvements unlikely. The metals, steel, construction and construction materials markets have a bleak outlook but the automotive, chemical/pharmaceutical, financial services, food, services and consumer durable industries are all looking up.
• Taiwan: Taiwan’s political situation remains unstable with China threatening to invade the island if it formally declares independence. Weak external demand means economic growth is subdued, especially given 40% of its exports are destined for China. Public finances are sound and the budget deficit is low. Industries with a higher risk include the automotive/transport, steel and metal industries. Services, consumer durables and electronics/ICT are looking up, while the food industry is excellent.
• Thailand: Thailand’s economy is expected to grow in 2017, mainly due to increasing tourist arrivals and public investment in infrastructure improvement. Government debt remains low and the banking sector is healthy. However, the long-term outlook isn’t quite as positive, with growth being held back by less export demand from China and low commodity prices. The textiles, steel and consumer durables industries are high risk while the food industry is looking good.
• Vietnam: Vietnam’s communist government remains in power despite public discontent. Its manufacturing industry depends on raw materials imported from China, even as it engages in a territorial dispute with China over conflicting claims in the South China Sea. Economically, growth is high and inflation is under control. However, Vietnam depends on Asia as an export market so it remains vulnerable to economic downturns in the region, and the withdrawal of the US-led Trans-Pacific Partnership will deal a heavy blow to Vietnam’s growth prospects. Consumer durables is the only bright spot in Vietnam’s economy, with struggling industries including construction, construction materials, financial services, metals, paper and steel.

Mark Hoppe said, “While Asia–Pacific remains a key market for Australia, it’s important to be aware of the political and economic vagaries of the countries organisations do business in and with. Australian businesses should protect themselves by thoroughly researching potential business deals and by taking out trade credit insurance, which can protect the organisation in the event of non-payment.”