Australia Commits Investments to Strengthen Ties with Southeast Asia

The Australian government has committed an AU$505 million (US$336 million) over five years to strengthen ties with Southeast Asia as part of the government’s 2024-2025 budget.

The investment facility is in line with key recommendations made by the Australian government in  Australia’s Southeast Asia Economic Strategy to 2040. Under the strategy, the government has identified several priority sectors that can help boost trade between Australia and Southeast Asia. These include agriculture, healthcare, infrastructure, the digital economy, and education.

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By 2040, the region is expected to have the world’s fourth-largest economy, with a compound annual growth rate of four percent between 2023 and 2040. Southeast Asia thus offers opportunities for Australian businesses in a variety of sectors in Southeast Asia ranging from green energy to infrastructure to healthcare. Two-way trade could reach AU$465 billion (US$310 billion) by 2040, an increase from the current level of approximately AU$287 billion (US$191 billion).

Australia’s Southeast Asia Economic Strategy to 2040

The strategy aims to allocate AU$2 billion (US$1.3 billion) in investment financing facility to help catalyze Australian private sector investments into Southeast Asia, particularly in support of the region’s infrastructure development and renewable energy transition. As such, the investment facility will provide loans, equity, guarantees, and insurance for initiatives aimed at boosting Australia’s investments and trade with Southeast Asia.  

Funding for the Partnership for Infrastructure Program

The economic strategy will also set aside AU$140 million (US$93.3 million) in funding for the Partnership for Infrastructure Program over the next four years. The program was initiated in 2021 and aims to drive sustainable and inclusive economic growth in Southeast Asia through infrastructure development.

Southeast Asia needs some US$3 trillion for infrastructure to keep pace with its economic development and demographic changes. Further, the region is poised to have a population of an estimated 766 million people by 2040, thus placing greater stress on cities and urban areas. Without significant investments in infrastructure will lead to greater pollution, congestion, and unequal access to basic services. For instance, congestion in Indonesia’s capital, Jakarta, costs the economy an estimated US$5 billion per year, a significant amount considering the city accounts for one-fifth of Indonesia’s economic activity.

Coupled with Australia’s expertise in engineering, construction, and ICT, there is significant scope for Australian companies to meet the region’s infrastructure needs through private financing, particularly when public sector financing in most countries in Southeast Asia cannot cover the infrastructure gap.

Priority sectors to boost trade between Australia and Southeast Asia

The Australian government has identified several priority sectors that can help boost trade between Australia and Southeast Asia.

Agriculture and food

Australia is already an important contributor to Southeast Asia’s food security needs, particularly for wheat, beef, and live cattle. Approximately half of the country’s wheat exports go to Southeast Asia, dominated by Indonesia, Vietnam, and the Philippines.

Population growth, rising urbanization, and rising incomes are drivers of Southeast Asia’s agricultural needs by 2040. As a result, the region is seeing an increase in the consumption of meat, dairy, manufactured foods, and wheat-based foods. Indonesia for instance, imports over 600,000 live cattle from Australia annually, or 62 percent of Australia’s total cattle and beef exports.

Green energy

Southeast Asia faces significant challenges in transitioning to clean energy, particularly since most countries in the region rely on fossil fuels for their energy needs. The region faces the additional challenge of rising energy consumption which is expected to double by 2050 – the region requires approximately 350 billion cubic meters of natural gas alone by that year.

This presents huge investment opportunities for Australian businesses that provide sustainable, low-emission technologies. Cross-border electricity trading is one of the most effective ways to increase the use of renewables throughout Southeast Asia. The region requires an estimated 464 gigawatts of new electricity capacity by 2050, with an estimated 60 percent coming from renewables.

Healthcare

Southeast Asia’s growing population will create demand for healthcare services and infrastructure. Spending on healthcare infrastructure will place constraints on public budgets, meaning the private sector will be key to filling this gap.

There will be opportunities for Australian healthcare providers can provide higher-quality medical goods and services, particularly for prevention care. The region’s supplement market is expected to reach US$10 billion by 2026.

Moreover, there will be more than 100 million people in Southeast Asia aged 65 and over which will increase demand for specialized aged care. Also, there will be opportunities in digital health, such as through providing healthcare management software, electronic medical records, hospital information systems, and data analytics and diagnostics.

Digital economy

Southeast Asia’s huge digital economy can bring huge economic opportunities for Australian businesses. The e-Conomy report compiled by Google, Temasek, and Bain & Company states that there are some 460 million internet users in the region as of 2022, with the digital economy having a gross merchandise value of US$194 billion – a 20 percent year-on-year growth. This figure is expected to reach US$330 billion by 2025. Furthermore, the region has over 23,000 digital or tech startups with Singapore and Indonesia having the largest concentration of these startups.

Australian businesses will see opportunities in cybersecurity, e-commerce, software development, digital services, fintech solutions, and cloud services.

Education

Southeast Asia’s youthful demographics and burgeoning middle class will drive demand for high-quality education services. Education is one of Australia’s largest and most valued services to Southeast Asia, valued at US$5 billion in 2022 to the economy.

Australia has attracted more than half a million students from Southeast Asia over the past 20 years – Indonesia, Malaysia, Thailand, Vietnam, and the Philippines are among the largest sources of international students studying in Australia.

Further, Southeast Asia is also one of Australia’s largest transnational markets with Australian universities having established offshore campuses, partnerships with local education providers, as well as online courses. As such, Australian higher education providers have campuses in Indonesia, Malaysia, Vietnam, and Singapore, such as Monash University and the Royal Melbourne Institute of Technology, among others.

Australia’s vocational and tertiary education capabilities can thus support Southeast Asia’s skills uplift, particularly for nuanced subjects such as cybersecurity, ICT, biomedical sciences, and food production.