Australia is well placed to increase its trade with the Southeast Asian (SEA) region. Its well-capitalised business sector, sophisticated and deep capital markets, and sizeable national savings including the superannuation industry, allows it to be a significant investor. These savings can be used to directly invest in assets or to help Australian enterprises that have strong investment plans grab opportunities in the region. There are also significant opportunities to boost our trade relationship to help meet the needs of businesses and consumers throughout the region.

Geographic proximity, economic complementarity, and the need for trade diversification are shared by the SEA region and Australia. SEA’s population, economic openness, political stability, and ambition make it one of the fastest-growing regions in the world right now. These factors combined will propel global economic growth through 2040 and beyond. Australia is well positioned to both profit from and contribute to this growth as a dependable and superior supplier of commodities to sectors like energy, minerals and agriculture, as well as a first-rate provider of services. Additionally, there is significant potential for Australian businesses to address the needs of the region’s green energy transition and significant infrastructure investment. Demand for a greater range of goods and services will rise as a result of urbanisation trends, population increase, and the emergence of a sizeable and prosperous middle class. Small- and medium-sized businesses will play a significant role as essential providers of employment and innovation.

Opportunities in SEA

Southeast Asia is the centre of global growth. Over the next few decades, the region will offer significant economic prospects to Australian businesses.

  • By 2040, SEA will be an economic powerhouse fuelled by favourable demographics, industrialisation, urbanisation and technological advances.
  • SEA (as a bloc) is projected to become the world’s fourth-largest economy by 2040, after the US, China and India, with an expected compound annual growth rate of 4 per cent between 2022 and 2040.
  • A large and growing population will lead to greater spending on lifestyle, education and housing, while there will be increasing demand for health and aged care services. By 2040, projections suggest that – based on the after-tax income of households – the potential consumer market in SEA will be 10 times larger than Australia’s.
  • Developments in key sectors provide opportunities to significantly increase AustraliaSEA trade and investment.

Australian investment in SEA

A number of Australian companies have invested directly in the region, including Orica and ANZ (in Indonesia and the Philippines), ResMed, Lendlease and QBE (in Singapore), Cochlear and Arnott (in Malaysia), Telstra, Toll Group and GHD (in the Philippines) and Callington (in Thailand).

Presently, Australian investment in the region is underweight. Australian foreign investment stocks in SEA countries were worth A$123.1 billion in 2022, representing 3.4 per cent of Australia’s total investment stocks abroad (A$3.7 trillion). The investment was concentrated in Singapore (A$76.2 billion) and Timor Leste (A$16.7 billion, nearly all of which is in a single investment in Santos’s Bayu-Undan gas facility). Only 0.8 per cent (or A$40.4 billion) of Australia’s total investment stock abroad went to the remaining nine ASEAN countries. While some of the investment going through Singapore ends up in other SEA countries, such as Indonesia, these figures were significantly less than Australian investment in some traditional partners’ economies. Green energy transition Australia and the SEA region share an ambition and imperative to act against climate change. Since their energy systems have historically relied on fossil fuels, they confront many of the same clean energy transition issues. The SEA region faces the additional challenge of rising energy demand, with energy use expected to double by 2050.

Countries accelerating their energy transition to fulfil ambitious net zero and emissions reduction targets will see an increase in demand for cleaner trade and investment with SEA as clean energy technology advances. Governments and multilateral organisations are working harder to mainstream climate change into their policy frameworks. The transition to a clean energy economy is both the most significant challenge and an opportunity for SEA and Australia. Australia has the expertise and technology to assist the region with its transition needs, and there is also scope to attract investment to support Australia’s clean energy manufacturing objectives. Diverse and resilient energy supply chains will be critical, and there is potential to collaborate on solar, electric vehicles and battery storage supply chains. Australia aims to become a global leader in renewable energy, achieving its carbon reduction targets while assisting the safe and stable decarbonisation of regional economies. Australia has a unique opportunity to assist the SEA region in its energy transition and to position clean, affordable energy as a competitive advantage. The renewable energy shift in SEA offers chances for technology, project engineering, design, construction and consultancy services. The total value of this market is expected to go up to $10 billion annually by 2030.

Infrastructure

The SEA region is expected to require $3 trillion in infrastructure investment by 2040 in order to bridge the infrastructure gaps and keep up with the demographic and economic trends. Infrastructure investment will become more necessary due to the problems posed by climate change, developing economies becoming more digitally connected and rapid urbanisation. It will take investments in energy to satisfy the region’s demands for the clean energy transition, in transport to connect the area, and in digital infrastructure to support inclusive and sustainable growth and future industries to close these infrastructure gaps.

Meeting the SEA region’s estimated infrastructure investment gap will require an average annual investment of $210 billion by 2040. Rapid urbanisation, climate change and digitalisation are driving current and future infrastructure needs in the region. Australia’s deep sectoral expertise means it is well-placed to capitalise on the need for investment in the region’s infrastructure. Moreover, assistance from governments across the infrastructure life cycle, from policy development to project delivery and asset maintenance, will be key to meeting the region’s infrastructure gaps by 2040. Australia has ample opportunity to contribute to the infrastructure needs of the SEA region by means of both public and private investment. The infrastructure deficit cannot be filled by the majority of SEA national budgets due to other priorities.

Currently, up to 50 per cent of projected investments in SEA are expected to be funded by the public sector. Over the past 20 years, private sector involvement in infrastructure has varied greatly amongst SEA nations, with a heavy emphasis on road, water and sewerage projects. Even though greenfield developments will continue to account for the majority of SEA’s infrastructure needs and carry a higher level of risk than brownfield projects, Australian companies still have a wide range of opportunities to explore.

This is an extract from a recent report titled “Invested: Australia’s Southeast Asia Economic Strategy to 2040”, a report for the Australian Government by Nicholas Moore AO