Innovation Nations: The Argument for Collaboration with Vietnam

In a post-COVID-19 world, Australia must reenvisage its global trade relationships, seeking out emerging innovation partners by leveraging new age commodities in travel and transport. Such partners are at our doorstep, and we should start with Vietnam.

Despite long-held forecasting of the inevitability of future pandemics, it seems many states – blinded by desire for heightened economic growth – were seemingly ill-prepared for the economic consequences of a global pandemic. In many ways, Covid-19 has revealed the socioeconomic consequences of supply-chains geared around a sole trading partner. Admittedly, some states including Australia, were beginning to consider the impacts of overdependence on one trade partner pre-Covid-19. Now, however, as states re-evaluate long held economic policies, the floodgates to once tempered questions about Australia’s economic relationship with China have blown open.

Trade diversification is inevitable

In May 2020, the Henry Jackson Society, a UK think tank, launched a report entitled “Breaking the China Supply Chain: How the ‘Five Eyes’ can Decouple from Strategic Dependency”. Utilising United Nations Bureau of Statistics data, researchers assessed 5,910 subsets of goods to determine ‘strategic dependency’ on China. They found that of the Five Eyes (Australia, Canada, New Zealand, the United Kingdom, and the United States) – whom together are dependent on China for 831 separate categories of goods and 260 of critical national infrastructure – Australia is the most strategically dependent on China.

Australia is strategically dependent on China for 595 categories of goods, 167 of which have applications in critical national infrastructure including pharmaceuticals and manufacturing.

In this regard, while the relationship between Beijing and Canberra may be at an all-time low, it is not inherent distrust or some diplomatic spout which will act as the catalyst for trade diversification. Rather, it is Covid-19 which has exposed the hard-hitting economic consequences of too great a reliance on one trade partner, and is causing states, including Australia, to diversify.

In April, for example, Japan became the first country to shift supply chains out of China through ¥243.5 billion (AUD$3.6bn) in funding to support manufacturers to return to Japan or diversify in Southeast Asia, including Vietnam. So too, the United States Congress is considering a Bill to reduce reliance on China for Pharmaceuticals.

So, in this era of restructuring of supply chains and diversification of trade, how can Australia leverage its strengths to emerge an economic survivor of Covid-19?

We need innovation partners, not trade partners

In part, Australia can seek ‘innovation partners’, rather than ‘trade partners’ – particularly in our developing neighbours to the North.

Regardless of the short-term economic impacts of COVID-19, developing economies like Vietnam and across the broader Indo-Pacific are forecasted to rebound and continue to enjoy rapid growth, fuelled ever increasingly by major investments in innovation. In 2021, the Asian Development Bank (ADB) has forecasted growth across Asia to reach 6.7 per cent, while the International Monetary Fund (IMF) has forecasted the ASEAN-5 (Indonesia, Malaysia, the Philippines, Singapore, and Thailand) to reach 7.8 per cent.

These ambitious growth targets coincide with soaring innovation rankings within the Indo-Pacific. According to the Global Innovation Index 2019, while countries Singapore (8th), South Korea (11th), China (14th), and Japan (15th) already outrank Australia (22nd), others like Vietnam (42nd, from 47nd in 2017) and Thailand (43rd from 51st in 2017) are quickly closing the gap.

By pure numbers, Australia cannot expect developing economies in the Indo-Pacific to remain manufacturers, merely capable of providing textiles and affordable goods. These frontier and emerging economies are transitioning to areas of innovation in pharmaceuticals, agriculture, and food. Australia could benefit greatly from leveraging its own expertise in the Commonwealth Scientific and Industrial Research Organisation (CSIRO) amongst other institutions, to partner with such countries to drive collaborative solutions to emerging regional and global issues.

The recently ratified Australia-Singapore Digital Economy Agreement and Memorandum of Understanding Between Australia and Singapore on Data Innovation represent large steps in a pivot towards innovation partnerships with advanced markets.

Picking the leaders of tomorrow

If Canberra wishes to reduce strategic dependence on China, it must look to the leaders of tomorrow. We must learn from strategic investment policies of Japan and South Korea and realise the tremendous opportunity for collaboration with emerging innovation hubs like Vietnam in a post-Covid-19 world.

Driven by rapidly expanding accelerator programs, technological hubs and business incubators, Vietnam’s youth-driven economy is primed for innovation investment in agriculture, finance and healthcare – all of which are among Australia’s strengths.

Elsewhere in pharmaceuticals, Vietnam is becoming an innovation hub. In a recent KPMG report, researchers conducted a regional scan of Asia and forecasted the innovative pharmaceutical industry in Vietnam (currently valued at USD$200m) could ‘leapfrog’ regional markets to reach a direct GDP contribution of USD$7.4bn by 2040, as compared to Singapore (USD$5.5bn) and South Korea (USD$4.2bn).

Likewise, in manufacturing, Vietnamese corporations are driving transport innovation in companies like VinFast. Bursting onto the international market in June 2017 with its fully electric, long range scooter, the company has heavily invested in R&D, aiming to become a forefront Electric Vehicle (‘EV’) manufacturer.  Led by Vingroup (ascending global value rankings with a market value of USD$13.3bn), VinFast is already driving Australian-Vietnamese innovation collaboration via a USD$1.3bn investment in a Melbourne research and development operation.

Driving people to people links

Collaboration in these fields represents the opportunity to diversify Australia’s strategic dependence, but practically, it also provides Australia the ability to remain on the forefront of innovation.

Canberra should leverage Australia’s growing strategic relationships to drive post-Covid-19 commodities in travel and transport towards heightened people to people links – the cornerstone of Australia’s public policy. Practically, we can follow in the footsteps of close allies like Japan who have actively sought to re-establish travel and transport, and funding investment diversification away from China and towards Vietnam. We should seek to establish a travel bubble not merely for travel, but to drive business innovation and collaboration. 

Having managed to contain Covid-19, as former Australian Ambassador John McCarthy AO stated, like “no country in Asia – and arguably the world”, Vietnam represents not only a growing strategic ally, but also a growingly enviable innovation partner.

The views and opinions expressed in this article are those of the author, and do not represent the views of the Australian Government.

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