Address to Australian and South African Business Lunch

Johannesburg, South Africa

12 September 2006

Introduction

It is a great pleasure to be here today in Johannesburg — the commercial heart of South Africa. I am grateful to the two sponsors of today’s event, Macquarie First South and the JSE (Johannesburg Stock Exchange). I am particularly pleased to see that the first of these is a joint venture with one of Australia’s leading financial institutions.

South Africa has made great strides since all‑party elections were first held in 1994, with a firmly entrenched democracy, a free press and a growing economy. The business sector has played a key part and I congratulate you for that.

I am proud that Australia was able to play a significant role in advocating and supporting South Africa’s transition to democracy.

I would like to range fairly widely today, to talk about some of the interests Australia and South Africa share — the work we are doing in the Group of 20, our common interest in energy and minerals issues and, of course, in trade liberalisation. I will also mention some of the development challenges facing Africa.

But before doing so, let me touch briefly on the bilateral relationship.

Australia‑South Africa relationship

Underlying our vigorous and growing bilateral relationship are our strong trade and investment links.

The strength of the Australia‑South Africa business relationship surprises many people on both sides of the Indian ocean. Here are the key statistics:

• Last year, bilateral trade was worth $3.8 billion (seventeen billion rand). This is a nicely balanced trading relationship, with Australia’s exports to your country worth $2.2 billion and our imports from South Africa worth $1.6 billion in 2005-06.
• The growth in trade between us is striking. Last year, our exports to each other grew about 35 per cent apiece.
• Australia is the sixth largest export destination for South African goods. That means that Australia is a larger market for South African goods than, for instance, China, India, France, South Korea, or Nigeria – or indeed any country in Africa. The majority of goods exported from South Africa to Australia are finished goods. Exports of high quality motor cars — BMWs, Mercedes and VWs — head the list.
• The majority of the goods exported from Australia to South Africa are primary products, with our biggest export to South Africa being alumina, well in excess of half a billion dollars and coal worth a quarter of a billion dollars. Our exports of transformed goods to you are also substantial and growing – in 2005-06, pharmaceuticals were worth $330 million and motor vehicles – like Toyota Camry and Ford Territories – were worth $126 million.

The merger of the Australian BHP and South African Billiton has created the largest mining company in the world. The merger continues to be a great success, and to drive value for shareholders on both sides of the Indian Ocean.

Recently, the Australian company International Ferro Metal opened a new ferro‑chrome mine near Pretoria. It is a 2 billion rand investment set to employ 2,300 people. Australian businesses are making serious commitments to South Africa.

Of course there are also other key links of importance to both countries — strong tourism and migration links, and of course cricket, rugby, and soccer.

Shared global interests

Turning to our shared global interests, Australia has always worked hard in the multilateral institutions to help shape the international rules of trade and finance.

Likewise, South Africa recognises the value of well‑functioning multilateral institutions. A market-oriented, rules‑based system benefits us both.

G‑20

A key multilateral forum of which both Australia and South Africa have been members since its creation in 1999 is the Group of Twenty Finance Ministers and Central Bank Governors, or G‑20. (Not to be confused with another G-20, the G-20 trade group of developing countries in the WTO.)

I am delighted that South Africa will be succeeding Australia next year as the G‑20’s rotating chair and I take this opportunity to pay tribute to the remarkable contribution South Africa’s Finance Minister Trevor Manuel has made internationally, not only to the G‑20 but as past chairman of the World Bank Development Committee.

The G‑20 was established in response to the Asian financial crisis and to ensure that there is a broad international group to discuss and respond to threats in the international financial system. It comprises a unique mix of the world’s leading developed and developing economies, representing 85 per cent of world economic output and two‑thirds of the world’s population.

By bringing together the systemically important industrial and emerging market economies, the G‑20 is equipped to help resolve a range of global economic issues. These include reform of the international financial institutions, trade, globalisation, regional integration, demographic change, development assistance, and development issues.

For example, with both developed and developing countries as members, the G‑20 is able to focus on development issues from an established donor, emerging donor and developing country perspective. It can also draw lessons from the development experience of emerging market members.

The G‑20 also has a broad geographic spread. It includes representation from all the world’s regions — from Africa, the Asia‑Pacific, Latin America and the Middle East, as well as the mainly European and North American home of the G‑7 countries.

And the G‑20’s membership brings together producers and purchasers in important sectors. At the G‑20 table we have the leading consumers and producers of oil, gas, coal, uranium, iron ore, bauxite, nickel, gold and zinc. So it is ideally placed to deal with global energy and minerals market issues — a leading item on this year’s agenda.

The G‑20 provides this unique coverage while also being of manageable size.

I have attended all the G‑20’s meetings since its inception. In that time, it has established a solid track record as an effective forum which promotes open and constructive dialogue and genuinely seeks to help secure practical, achievable outcomes.

This can be seen in an issue currently in the news which concerns the International Monetary Fund. We hope that, by this time next week, the main contours of an agreement on IMF quota and governance reform will be approved by the IMF membership.

This reform has two key objectives. First, to recognise the growing economic importance of emerging market economies by increasing their representation in the Fund. And, second, to enhance the participation and voice of low income countries in the Fund.

The second objective has a particular relevance for Africa.

The G‑20 has made a major contribution to the outcome to date. It helped build political momentum for reform, articulated a two stage approach to reform that was adopted by the IMF, and contributed on the substance of particular proposals.

It would be easy to underestimate the importance of these reforms. However, as the Washington Post said in a recent editorial: ‘… to be legitimate, multilateral institutions must reflect the global distribution of power as it is now, not as it was when these institutions were set up more than half a century ago’.

So the reforms are a recognition of the fundamental shift occurring in the global economic balance due to the rapid growth of emerging market economies.

Reflecting this shift in the governance arrangements of the IMF will help ensure the Fund’s continuing legitimacy and effectiveness. It will strengthen the rules‑based system in which countries like Australia and South Africa have such an important stake.

A further example of the G‑20’s practical focus is its landmark Accord for Sustained Growth. The Accord sets out domestic economic policy principles acknowledged for their clarity and relevance to both industrial and developing countries.

Australia looks forward to hosting the G‑20 meeting in Melbourne in November. It will be the most important economic and financial forum ever held in Australia.

Under the broad theme of ‘Building and Sustaining Prosperity’, the meeting will address some of the important issues facing the international economy. I have mentioned reform of the IMF and World Bank and global energy and minerals markets. The meeting will also consider the challenges of demographic change and current developments and risks to the world economy.

Australia strongly supported South Africa’s appointment as G‑20 chair next year. We have worked closely together on the G‑20 management troika this year — comprising the past, current and next year’s chairs. We look forward to collaborating closely with South Africa again on next year’s troika.

South Africa gives every indication that it will follow in the G‑20 tradition of preparing an agenda for its host year that is relevant, strategic and important to the international economy. I had a very productive discussion with Trevor Manuel in Cape Town yesterday about these plans.

I look forward to a continuation of the G‑20’s prominent role in driving the international economic and financial agenda next year.

Energy and minerals

As I mentioned, a key theme for Australia’s G‑20 host year is global energy and minerals markets.

These sectors are clearly important to the functioning of the world economy, and are particularly relevant at the moment in light of the rapid industrialisation of China and India. They are also of particular importance to South Africa. Both our countries have substantial resources and play a significant role in satisfying the growing global demand for resource inputs.

The G‑20 forum will allow dialogue around two aspects:

• First, the macroeconomic implications of changing global patterns of supply and demand. This includes the implications of commodity price cycles for inflation, economic growth and capital flows.
• The second aspect is the role of open and well‑functioning global markets in underpinning consumption, production, investment and trade in energy and mineral commodities.

This second focus is particularly important in light of the growing reliance of many countries on cross‑border trade in energy and minerals to satisfy their demand for resource inputs.

Open and well‑functioning markets can be characterised as those with a robust market architecture, clear energy price signals and minimal regulatory distortions. These characteristics provide incentives for long‑term investment, encourage increased trade and investment flows and deliver greater resource security.

One of the challenges of possessing resource wealth is to ensure the economic benefits can be harnessed over the long‑term. Too often, resource wealth has failed to deliver sustainable economic performance. The benefits can be dissipated through a combination of institutional weaknesses, corruption and unsustainable public expenditure.

As successful, resource‑rich and democratic economies, South Africa and Australia can use their international profile to encourage and assist countries to implement policies that strengthen institutions and promote good governance and transparency.

One way of moving in this direction is the Extractive Industries Transparency Initiative. This important global initiative encourages improved governance in resource rich developing countries through the publication and verification of company payments and government revenues from oil, gas and minerals.

Trade liberalisation

As open trading nations, Australia and South Africa share a common interest in maintaining an open, rules‑based multilateral trading system.

As a result, we both have a major stake in the outcome of the current Doha Round of multilateral trade negotiations.

In particular, as members of the Cairns Group, Australia and South Africa have been working together in the WTO to reduce distortions in agricultural trade.

We would both benefit from an ambitious outcome that delivers a fairer global trading system.

Australia is disappointed with the lack of progress at the July ministerial meetings in Geneva that led to the suspension of negotiations.

We hoped that key countries would have been able to narrow their differences and agree on common approaches to reducing trade barriers.

There is widespread agreement that a successful outcome depends on progress in reducing the maximum levels of domestic support for agricultural producers, lowering agricultural tariffs to create new trading opportunities, and opening markets for industrial products and services.

Progress in these three areas is necessary to unlock the Round and achieve real reductions in global trade barriers. Losing the opportunity to achieve meaningful trade liberalisation would be a significant blow for the global economy, and for the development prospects of many nations.

Australia is committed to moving negotiations forward quickly.

A key objective of the Doha Round is to assist developing countries to participate more fully in the global trading system as a means of facilitating economic growth and development.

Significant progress has been made in agreeing aid for trade and trade facilitation measures. However, the potential benefit of these initiatives will not be fully realised without real reductions in all countries’ trade barriers, including those of developing nations.

Developing countries can play a critical role in maximising their development gains from the Round by responding to the challenges of economic adjustment and grasping the opportunity to liberalise their own trade, including in agriculture.

Development challenges

Australia and South Africa are both situated within regions where some of our neighbours face particularly difficult development challenges.

Australia and South Africa also share a commitment to regional approaches that can help create a turnaround in these countries.

We welcome and embrace your political and economic efforts to strengthen and encourage economic growth across southern Africa and elsewhere in the continent. South Africa, for example, has played an important role supporting the recent elections in the Democratic Republic of the Congo.

We, too, recognise that our position in the Asia‑Pacific region places us in a key role to promote growth and stability. We are taking an active and comprehensive approach to our support for neighbouring countries, through diplomacy, security efforts, our enhanced aid program, and trade policy and networks.

In recent years, Australia has increased its level of interaction with the Pacific, especially in fragile states. In some cases, Australian officials and police are working alongside local counterparts to provide support for effective and accountable government, enhanced service delivery, and improved law and justice. A key component is building the capacity of local counterparts and institutions to ensure that gains are sustainable.

As you can imagine, the principal focus of our aid effort is in the Pacific and South East Asia.

But Australia has played a role in contributing to South Africa’s development. Since 1994, the Australian Government has provided development assistance to South Africa worth more than $100 million (500 million rand).

Of course, the South African Government has many of the resources it needs to carry out its development priorities, so we have focused on niche areas, where assistance can add real value.

On Sunday, at Kayamundi just outside Capetown, Australia provided $30,000 (120,000 rand) to the Maties Community Clinic. Yesterday, I announced new funding of $250,000 (1.36 million rand) for a new joint South Africa-Australia Economic Research Programme and a further $70,000 (380,000 rand) to support the South African Finance and Fiscal Commission.

I would like to announce today a further contribution by Australia which will assist Africa.

In the Budget I brought down earlier this year, we announced that Australia would make an upfront payment of A$136 million to the World Bank to cover its share of the cost of the first 10 years of debt forgiveness for low income countries under the Multilateral Debt Relief Initiative — one of only a handful of countries to do so.

I am pleased to announce that Australia has made good on this commitment. Today, Australia is paying A$136 million as our contribution to paying off 10 years of debt owed by heavily indebted poor countries to the World Bank — including 16 African nations — benefiting these countries and ensuring that the World Bank’s work in the fight against global poverty is not reduced. Today’s payment is in addition to the A$112 million that Australia has already provided to the World Bank and IMF for debt relief.

Under the Heavily Indebted Poor Countries Initiative, Australia goes beyond the objective of reducing debt to sustainable levels and gives 100 per cent bilateral debt relief to eligible countries.

While poverty in Africa remains widespread, there are some encouraging signs. After steep declines between the mid‑1970s and the late 1980s, average annual GDP growth in Sub‑Saharan Africa doubled to 3.8 per cent since the mid‑1990s and was 6 per cent in 2005.

African countries are increasingly taking ownership of their development programs and there have been measurable improvements in both political and institutional governance. The challenge is to build on this momentum by accelerating the pace of reform.

The key to success without doubt is a commitment to sustained economic growth. The evidence is that when the average income of a society grows, the proportion of people living below the poverty line falls.

Not only income, but also social indicators such as life expectancy, maternal and infant mortality, and education all tend to improve with economic growth.

In East Asia, economic growth has been mainly based on opening the economy, trade liberalisation and moving to a market economy. It is not aid, but trade and economic reform that have led economic growth in East Asia, delivering millions from poverty.

The proposition that economic growth is central to development does not mean that education, health and physical infrastructure are not important. But sound economic policy is essential to allow resources to be used more productively, incomes to be increased and social and physical infrastructure to be developed for the benefit of the whole community.

This is the reason we focus on governance — on institutional reform and capacity building — in our own region and beyond.

Closing remarks

My message today has been very largely a positive one:

• the strength of our bilateral relationship, including substantial and growing trade and investment links;
• the closeness of our co‑operation in important multilateral forums such as the G‑20;
• and increasing prospects for real progress in the fight against poverty in Africa.

But there is plenty of work still to be done:

• to re‑energise multilateral trade reform;
• to help reshape the multilateral economic framework;
• to promote open and well‑functioning global markets in energy and mineral commodities;
• and, above all, to tackle poverty in strategic and effective ways.

Australia and South Africa are key partners in these endeavours.