Major exports markets—Stronger exports amid better governance
World Risk Developments October 2023
Governance indicators improved in most of Australia’s 20 largest emerging market export destinations between 2017 and 2022, according to new World Bank data. Better governance is associated with stronger export growth to these markets (Chart).
Governance scores strengthened sharply in Saudi Arabia, Qatar and Bahrain, reflecting better control of corruption, government effectiveness and regulatory quality. Indeed, governments in the Gulf Cooperation Council are implementing reforms, such as easing foreign investment regulations and increasing non-oil sources of government revenue, to diversify their economies and enhance resilience to shocks. Pakistan and PNG are benefiting from financial and technical support from the IMF, that enhances their capacity to implement economic reforms and ease debt distress. In countries such as Indonesia and the Philippines, reforms to remove regulatory obstacles to investment (particularly in infrastructure) and address labour market rigidities are making it easier to do business, spurring foreign investment and strengthening institutions and governance. Raising spending on infrastructure development and reducing inefficient spending (particularly on subsidies) in countries like India, is increasing government effectiveness.
On the negative side, growing social discontent and diminished trust in public institutions is hitting governance scores in Latin America, although this does not appear to have hurt Australian exports to Chile (up 14% over the past five years) and Brazil (up 5%)—where the latter economy is growing steadily and the government is progressing reforms to lift private sector activity. South Africa’s governance scores have dipped, as ailing power infrastructure weakens the economic outlook, challenges the government’s ability to deliver public services and raises risks of social unrest; Australian exports to South Africa have barely grown over the past five years. On balance, improving governance and business conditions in Australia’s largest emerging export markets bodes well for continued export growth ahead.