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Australia’s Bangla focus cheered amid trade diversification

Quad has in the past two years positioned itself as an alliance to counter China’s influence

GreenWatch Desk Investment 2022-02-28, 10:08pm


Mention Bangladesh and for most Australians, what comes to mind is cricket, where both are fierce rivals in international competition. But Canberra is seeking to change that, with Australian Foreign Minister Marise Payne announcing earlier this month plans to deepen political and economic ties with the South Asian country.

Payne’s announcement, made on the sidelines of the four-nation Quad security alliance meeting in Melbourne, said Canberra would spend A$36.5 million (US$26.2 million) over the next five years to bolster relations with Dhaka, reports South China Morning Post.

About A$11 million of the budget would go towards improving regional cooperation in “maritime shipping, disaster resilience and information sharing” and just over A$10 million for finding new investments in the Bangladeshi digital sector.

It will also invest nearly A$6 million towards promoting Bangladeshi and other infrastructure projects around the region to Australian businesses and about A$4 million in expanding the liquefied natural gas supply chains between Australia, India and Bangladesh, a mega gas consumer.

“Together, these measures will support opportunities for trade, investment and connectivity in the North East Indian Ocean,” Payne said in a statement.

To political watchers, the timing and content of the announcement was noteworthy. Australia, while marking 50 years of diplomatic relations with Bangladesh this year, has traditionally focused its engagement in South Asia on India, its eighth largest two-way trading partner.

But as China grows its political and economic influence over countries in the Indian Ocean, a region traditionally seen as New Delhi’s backyard, India is pushing back by strengthening its bilateral relationships through investments, grants and naval patrols.

Shrey Khanna, a research analyst at Takshashila Institution’s Indo-Pacific Studies Programme, an Indian think tank, said the Quad’s imprint on Australia’s announcement was undeniable. Comprising the United States, Australia, Japan and India, the Quad has in the past two years positioned itself as an alliance to counter China’s influence by providing Asia-Pacific countries with funding and help on major challenges, from Covid-19 vaccines to climate change.

“Australia’s announcement of enhancing its engagement across the North East Indian Ocean is yet another example of increasing Quad convergence. This is what the Quad joint statement calls “practical cooperation” in the Indo-Pacific, said Khanna, adding that Canberra’s focus on Bangladesh could be seen as part of this “convergence”.

For one, Australia’s funding would go towards aiding India’s plans on energy security around LNG that would underscore more engagement between New Delhi and Dhaka over the creation of an “energy hub”, Khanna said.

Khanna also pointed to how India harnessed help from the US and Japan in pushing back on the Chinese-backed deep seaport project in Bangladesh’s Sonadia island on the nation’s southeast coast.

The project, conceived in 2006, would have been Bangladesh’s first deep seaport but Japan trumped China in the eleventh hour with a better port deal and higher financing at Matarbari on the Bay of Bengal in 2018.

Local observers said Dhaka had found it hard to say no to Delhi’s request to cancel Sonadia after it backed the Awami League government during local elections. The Sonadia deal was formally scuppered in 2020.

Australia and Bangladesh seek cooperation in trade

Analysts have welcomed the prospect of closer Australia-Bangladesh ties. While Bangladesh’s two-way trade with Australia, worth A$2.6 billion, is small when compared to trade juggernauts like China, the US and Japan, both sides have sought to change this in the past five years.

Last September, they signed a “Trade and Investment Framework Arrangement (TIFA)” that offered a formal platform for dialogue on new trade opportunities. It comes with a joint working group that would help realise trade ideas and is often a precedent to a full free-trade deal.

Australian Prime Minister Scott Morrison and his Bangladeshi counterpart Sheikh Hasina also held a tête-à-tête over climate change cooperation and Rohingya repatriation on the sidelines of the COP26 climate change conference late last year.

Hassan Ahmed Shovon, an analyst at Bangladesh’s Central Foundation for International and Strategic Studies, said in a recent paper that perhaps Australia “misperceived Bangladesh as an aid-dependent, impoverished, and politically vulnerable country”.

However, Bangladesh has made great strides to uplift its population from poverty and is now a lower middle-income country, according to the World Bank. Poverty declined from 43.5 per cent of the population in 1991 to 14.3 per cent in 2016, based on the international poverty line of US$1.90 a day.

Bangladesh High Commissioner to Australia Mohammad Sufiur Rahman told This Week in Asia that Canberra and Dhaka were “determined to make a serious effort” in adding “further content and dynamism in their bilateral relations”.

“Bangladesh has been on the move for about a decade … we have surpassed Singapore, Hong Kong and moved ahead of the Philippines and Malaysia in terms of total real GDP (purchasing power parity terms),” he said. “That does not mean we have crossed these countries in progress. We have huge deficits to overcome. But, the growing size of the economy in terms of GDP makes it an important trade partner.”

Bangladesh posted GDP growth of 3.5 per cent in 2020 and 6.94 per cent in 2021, compared to declines in production in many countries during the pandemic. Although two-way trade between Bangladesh and Australia is low, the growth of that trade over the past decade has tracked at roughly the same pace as China-Australia trade, which grew 2.4 times over the past 10 years. Australia and its largest trading partner China’s two-way trade is worth A$250 billion.

Rabeth Khan, managing director of Bangladeshi digital advertising and martech firm D’reach, said Australian investors would reap benefits from funding projects in areas like the agricultural sector and SME financing.

Khan said, however, that it was premature and difficult to pinpoint direct digital projects Australia could fund – one of Australia’s target investments – although Bangladesh’s digital sector holds promise given its progress since Hasina, the prime minister, called for a digital shift 10 years ago to modernise and deliver services in Bangladesh transparently with the use of technology and the internet.

The Australian trade department did not respond to queries for comment on projects it was targeting in Bangladesh. Bangladesh-based American analyst Adam Pitman, who has been observing Dhaka’s foreign relations closely, says the investments offered by Canberra reflected shared interests.

The amount Australia was pumping into digital investments and infrastructure would fuel growth sectors in Bangladesh, he said, while the focus on mining and LNG would give Australian businesses seeking expansion and new sales in the region a leg-up.

The big question was if Canberra would now extend Bangladesh’s “least developed country” (LDC) trade privileges that allows it to enjoy concessions and easier market access to other countries after it is no longer a LDC, set to happen around 2026.

“If Canberra does extend Bangladesh’s LDC trade privileges, it would serve as a strong indicator that it is serious about a trade agreement with one of the most exciting emerging markets in Asia,” Pitman said.

With TIFA under way, Canberra and Dhaka bureaucrats looked like they were “likely working their way up to the big stuff”, Pitman said.

Complacency forces action

Those with the inside track on Canberra’s efforts to tap Bangladesh as a new market said they had been ongoing for a number of years but did not take off as doing business with Bangladesh was more complicated than say, China.

Take LNG as an example, says Brendan Augustin of consultancy Bina Group. He is a former executive in the LNG industry and ex-Australian diplomat dealing with Bangladesh.

Even though Australia’s LNG shipments should be competitive in price and distance due to the proximity of West Australian LNG exporters such as Woodside and Chevron to Bangladesh, Dhaka previously would only sign government-to-government contracts as it preferred relying on deals with state-owned LNG exporters (SOEs), Augustin said.

Dhaka has long term and secured contracts with SOEs such as QatarEnergy. As it relies on gas, Bangladesh also signed a deal last year for long-term supplies of re-gasified LNG from India to Bangladesh via a cross-border natural gas pipeline.

Government-to-government contracts also tend to contain other perks other than fuel supply and in the Bangladesh-Qatar example, better employment access for Bangladeshi workers to projects in Qatar might have been part of deals struck, Augustin added.

With no SOEs or known provisions for labour transfer in the Australian LNG industry, Augustin said advisers and diplomats had pushed for Canberra to be more “creative” in its approach to doing business with Bangladesh.

“The Australian government has a role to play including to build awareness of the opportunities and find ways to support them but the Australian industry must also be willing to spend the long term investment in building relations and knowledge of the market,” Augustin said, noting that organisations from other countries had spent a lot more time and money on developing new markets.

“I think Australian industry does have something to learn from their peers from other countries like Japan, Korea, Germany, France and even Turkey if they want to develop new, challenging and diverse markets.”

And while the amount of money pledged towards building LNG supply chains with India and Bangladesh was “modest in the scheme of things”, it signals the Australian government’s recognition that it needs to play a larger role in making markets like Bangladesh more accessible.

That would also advance Australia’s trade diversification amid its bilateral conflict with China which had resulted in Chinese restrictions on several Australian exports such as coal, barley and lobsters.

Augustin also says there is a need for Australia’s private sector to refresh its view of Bangladesh as an “aid-dependent, impoverished country” especially since it is the “least known, fastest growing economy in Asia”.

“Australia has been in an incredible position … very often its natural resources sold itself,” Augustin said.

“There was not a great deal required in recent years to help find new markets as China and other East and Southeast Asian countries grew. You could argue that brought in a level of complacency.”

As for whether Bangladesh’s growing closeness to Australia would complicate its relations with China – given tense Sino-Australian relations – Pitman said Dhaka had long been able to balance the competing interests of larger powers.

China is Bangladesh’s largest trading partner and has reduced tariffs for some 97 per cent of all Bangladeshi products including jute and jute products, rawhide and skins and cotton waste products. Last year, the Chinese ambassador to Bangladesh Li Jiming said during a virtual economic panel it was time the two nations considered a free-trade agreement along with an investment deal.

“Dhaka’s infrastructure putsch is case in point: it’s managed foreign financing and contractors from a diversity of partners, and today, remains relatively free of messy entanglements.,” Pitman said.

But still, Bangladesh’s ambiguity could come back to bite it - especially if larger powers want to see more from it before they commit to a deeper relationship, he added.