The Association of South East Asian Nations, to give ASEAN its full name, is home to 660 million people and an economy that is set to expand at over 4% this year, at a time when other major economies are cooling. ASEAN is benefiting from a realignment of global supply chains and growing numbers of middle class consumers. These factors helped trade between Australia and ASEAN reached USD101 billion in 2022, up 23% on the previous year.
This could be just the beginning, though. By 2040, the consumer market in Southeast Asia could be 10 times larger than Australia’s, according to the government’s own analysis. By that time, Indonesia’s economy alone will boast a nominal GDP of USD4.85 trillion, according to Economist Intelligence Unit data cited in the same report. That would be bigger than Germany, Japan or the UK in 2022.
As Prime Minister Anthony Albanese said at ASEAN-IndoPacific Forum on September 6: “This is where Australia's economic destiny lies.”
Australian businesses appear to agree.
In a recent survey of international businesses with an ASEAN presence that we conducted, Australian companies said they expect a 22.8% increase in their ASEAN organic growth over the next 12 months.
Our survey also found that these companies are continuing to invest in the region. More than half (55%) are looking to significantly increase inorganic growth by the end of 2024, pointing to a significant increase in mergers and acquisitions. Singapore, Indonesia and Malaysia are the most favoured nations for business expansion, while the Philippines tops the list for Australian firms looking to enter new markets.
Competitive wages and the region’s skilled workforce ranked as the most attractive features of ASEAN for Australian companies in our recent survey, just ahead of the size of the ASEAN market, its growing digital economy and young population.
The energy transition is another important investment opportunity for Australian firms. Southeast Asia needs to rapidly scale up renewable generation and reduce its reliance on fossil fuels to bring emissions in line with the Paris Agreement targets. External investment will be critical in mobilising the funds needed. Southeast Asia requires around USD210 billion a year to meet its climate-resilient infrastructure needs, according to the Asian Development Bank.
Australian companies and official bodies are also exploring opportunities to collaborate with Indonesia in the production of critical minerals, with Western Australia and the Indonesian Chamber of Commerce and Industry agreeing in July to strengthen ties.
Australian businesses also recognise the challenges they will face in making ASEAN a new driver of growth. Respondents to our survey were most likely to cite financial concerns such as foreign exchange, inflation and interest rates as a key challenge, along with ensuring the sustainability of their operations.
These challenges reflect the complexity of ASEAN. The region is moving towards closer economic connectivity, which has the potential to multiply the opportunity for international investors.
In this context, Australia’s new long-term economic strategy for Southeast Asia is a welcome framework for Australian businesses looking to expand in the region. Unveiled at the ASEAN-IndoPacific Forum in early September, the new strategy has the immediate backing of a AUD95.4 million package of government funding to support trade with Southeast Asia.
The funds will go towards establishing investment deal teams within the region, as well as a business exchange programme and internships for young professionals. These deal teams will blend the capabilities of the public and private sector to lower the obstacles facing Australian businesses – for instance, advocating for a robust institutional framework for tenders that will ease due diligence concerns for Australian investors.
Expanding in new markets is never easy, but this kind of support can make it easier. Australian businesses are right to be excited about ASEAN and to prioritise growth in the region. They should also recognise that this will be a long journey and find partners – whether government agencies, local firms or banks – who can help them find their way.
This article first appeared in The Australian on 24 September 2023.