Southeast Asia's (SEA) share of Australia's total goods and services trade has not substantively changed in over 15 years, hovering at around 15% (A$178 billion in 2022), while the growth of SEA economies has outpaced Australia's economic engagement into the region. With the aim of positioning Australia as a larger trade and investment partner of the SEA region, the Australian Government commissioned Nicholas Moore AO, Special Envoy to Southeast Asia, to create a Southeast Asian Economic Strategy to 2040. It provides 75 recommendations for facilitating business and government co-ordination in two-way trade and investment across 10 key industry sectors.
Southeast Asian Economic Strategy to 2040: overview and priority sectors
Underpinning the Strategy is the need to diversify trading partners and products to support Australia's long-term economic resilience and to avoid overreliance on only a few markets. As a bloc, SEA is projected to become the world's fourth-largest economy by 2040 (with an expected compound annual growth rate of 4%). Projections also indicate that the consumer market in SEA – as particularly affected by its expanding middle class and the related increase in consumer demand – will be 10 times larger than that of Australia's in 2040. This makes SEA a high priority for Australia's involvement.
Growing populations and the need for urbanisation, amid a changing climate, are going to be key influences on the growth and direction of SEA economies. Many SEA nations will be required to have an increased focus on their resources, infrastructure projects and taking necessary steps toward green energy transitions. As reflected in the Strategy, these are among the 10 identified priority sectors:
- agriculture and food;
- resources;
- green energy transition;
- infrastructure;
- education and skills;
- visitor economy;
- healthcare;
- digital economy;
- professional and financial services; and
- creative industries.
Resources as part of SEA's decarbonisation
Australia is a substantial supplier of SEA energy needs and a dedicated long-term energy security partner, having supplied more than A$31 billion in exports in 2022 alone. According to the Strategy, SEA's energy needs will double by 2050 from 2020 levels – following a steady two decades of growth. At the same time, 9 out of 10 SEA countries included in the Strategy have committed to emission reduction targets. Australia can play a substantial role in supporting SEA's broader decarbonisation strategy through exports given our position as a significant producer of raw and processed critical minerals and energy transition metals.
The Strategy further cites a lack of "in-market capability in mining technology and services" in the SEA region. Australia's sectoral expertise, which includes its mining equipment, technology services exports, can be leveraged to support new investment opportunities.
Green energy transition and carbon markets
SEA and Australia share the challenge and opportunity of rapidly transitioning to a net zero economy. In investment terms, SEA will need an estimated A$640 billion in renewable energy sources by 2030 to meet its electricity needs while aligning with climate targets under the Paris Agreement. According to the Strategy, cross-border interconnections and electricity trading will be the most cost effective to supply clean energy across the SEA region. The Strategy highlights Australia's potential to position clean and cheap energy as its "competitive advantage" via exports in renewable, clean energy expertise and associated technologies. Other opportunities exist for investment and trade in "clean" hydrogen and derivative fuels, including through sharing Australia's expertise and partnerships to accelerate commercial applications for these low emissions technologies.
Further, the Strategy cites the emergence of "high-integrity" carbon markets in SEA, with established carbon markets already operating in Singapore and Thailand, and other SEA countries following suit over the next 1-5 year term. The Strategy notes that "Southeast Asia’s nature-based solutions, including blue carbon, have technical abatement potential of around 5.2 gigatonnes of carbon dioxide equivalent abatement in 2030." To facilitate regional trading in emissions reductions, the Strategy recommends that the Australian Government work with its regional partners to develop harmonised and robust accounting and governance standards.
Infrastructure opportunities
SEA is experiencing rapid urbanisation and population growth and, by 2040, will need US$3 trillion in infrastructure investment to meet existing infrastructure gaps as well as economic, demographic and environmental shifts. This includes investments in quality and sustainable infrastructure at scale – in particular, in roads, water and telecommunications to support the region's productivity, livability and prosperity. The Strategy notes that without this investment, parts of SEA will experience "greater congestion, pollution and inequitable access to basic services."
Australia is well positioned to support SEA's infrastructure needs through both public and private investments. The Strategy highlights the broad range of opportunities for Australia's private sector, leveraging its strengths in planning, design, engineering, construction and ICT, and further opportunities for "mutually beneficial partnerships" across key areas, including constructing passive infrastructure, replacing aging assets and accelerating technological innovation.
Enabling foreign investment
Achieving a balance between regulatory and policy settings which protect Australia's interests and strengthen Australia's position as a favoured investment destination for SEA investors will be critical to realising the inward investment opportunities outlined in the Strategy.
The Strategy notes SEA investor concerns regarding the timeliness and transparency of foreign investment approval processes administered by the Foreign Investment Review Board (FIRB). These processes, regional investors argue, risk disincentivising further investment in Australia. SEA investors consulted in the development of the Strategy have suggested that the Australian Government reconsider FIRB processes for already approved investors who must currently reapply with each new investment that falls within FIRB's remit. The Strategy recommends that the Australian Government work with SEA partners to explore opportunities to reduce FIRB regulatory burden and seek reciprocal action in the region.
The Strategy further suggests the Australian government establish a "concierge" service, modelled on the successful Singapore Economic Development Board, to facilitate inward investment. Such a concierge service could assist SEA investors navigate Australia's regulatory system, related approval processes, tax arrangements and help build intra-region relationships by connecting investors with professional and financial service providers on the ground.