Forging Economic Synergy: Australia’s Path to ASEAN Prosperity

Leaders from ASEAN and Australia gathered in Melbourne, Australia on 6 March to commemorate the 50^th anniversary of dialogue relations, heralding a new chapter in their partnership. The occasion marked an important milestone for Australia to reaffirm its commitment as a reliable partner of ASEAN, rooted in its unwavering support for ASEAN centrality and a rules-based order. Alongside China, Australia was the inaugural dialogue partner to be elevated to a Comprehensive Strategic Partnership (CSP) status with ASEAN in 2021. This underscores shared aspirations for deeper strategic alignment and progress.

Despite Australia’s diplomatic standing and geographical proximity to Southeast Asia, the potential of its economic influence has yet to be realised. The State of Southeast Asia 2023 Survey report highlights this discrepancy with Australia ranking 6^th in economic influence, trailing behind major and middle powers like China, ASEAN, the U.S., Japan, and the EU. Similarly, Australia’s leadership in championing global free trade remains modest, occupying the seventh position, alongside New Zealand in the same survey.  

Moreover, Australia’s trade and investment figures in Southeast Asia have not kept pace with Southeast Asia’s remarkable economic expansion over the past two decades. Two-way trade with ASEAN stands at USD 101.1 billion in 2022, making Australia the 8^th largest trading partner of ASEAN, representing just 3.4 per cent of the grouping’s total trade. Meanwhile, the stock of foreign direct investment from Australia in the region has also declined, accounting for only 2.9 per cent of ASEAN’s share in 2022, down from 6.3 per cent in 2017.

Recognising the significant economic potential of ASEAN, which is poised to become the world’s fourth-largest economy by 2030, Australia is eager to enhance its economic engagement with Southeast Asia. At the Summit’s CEO lunch, Australian Prime Minister Anthony Albanese unveiled the Southeast Asia Investment Financing Facility valued at A$2 billion (USD 1.3 billion) to facilitate greater two-way trade and investments. The new fund will focus on infrastructure and green-economy transition projects.

This builds upon the launch of its Southeast Asia Economic Strategy to 2040 in September last year featuring tangible recommendations aimed at overcoming barriers hindering deeper economic integration with the region. As a first phase, Australia has identified three foundational initiatives: securing Investment deals, promoting business exchanges with Southeast Asia and facilitating placements and internships for young professionals. These initiatives complement the strategy’s focus on ten priority sectors in areas such as agriculture and food security, green energy transition, digital economy, and education.

While Australia’s current economic standing and influence in the region may not appear remarkable at first glance, its success lies in the capacity-building domain. Australia has adeptly found its niche in supporting the development of crucial enablers for trade and investment activities, yielding significant impacts. Through its concerted efforts in this aspect, Australia has facilitated a more seamless trade and investment environment, while concurrently enhancing human capital development and technical expertise. As a result, valuable benefits have been reaped across the board, contributing to the region’s overall growth and prosperity.

Its support for the development of regional norms and standards across various sectors such as the mutual recognition of agri-food standards and conformity Assessment has been impactful. Additionally, Australia has actively contributed to ASEAN’s economic integration through various action plans and frameworks in important areas such as connectivity, MSME development, and consumer protection as evidenced in the work plans and guidelines adopted.

Moreover, Australia’s focus on capacity-building efforts to strengthen the institutional framework and the monitoring and evaluating capabilities of the ASEAN Economic Community (AEC) is commendable. These efforts are set to continue under the new phase of Australia-ASEAN engagement — Australia for ASEAN Futures Initiative (Aus4ASEAN Futures) to catalyse the momentum of the CSP and complement the Southeast Asia Economic Strategy to 2040.

Australia’s pivotal role in the region’s multilateral trading system architecture, particularly through agreements like the Regional Comprehensive Economic Partnership (RCEP) and the ASEAN-Australia-New Zealand Free Trade Area (AANZFTA) has been crucial in fostering stronger economic ties with ASEAN. Efforts are underway to upgrade the AANZFTA agreement to include key commitments on sustainable and inclusive trade, the strengthening of supply chain resilience, and digital technology adoption to deliver stronger economic integration. The ratification of AANZFTA is expected this year.

Australia’s economic development activities in the region, seemingly drawn straight from the AEC Blueprints, demonstrates its alignment with the region’s needs. However, Australia faces challenges in translating its capacity-building efforts into tangible trade and investment outcomes. The strategy ahead should then focus on reaping the benefits of what it has sown.

According to Australia’s Department of Foreign Affairs and Trade (DFAT), a significant impediment to increased investments into the ASEAN region is the perceived unattractive risk-return trade-off. This stems from concerns regarding economic governance, regulatory frameworks and legal recourse mechanisms in Southeast Asia which are deemed high-risk. DFAT suggests that investors may overcome these challenges as they become more familiar with the business environment in Southeast Asia. To reciprocate, governments in Southeast Asia should also do their part by building good governance mechanisms in assuring potential investors.

To address this, tailored capacity-building efforts in key enablers focusing on bolstering economic governance and public sector delivery systems, promoting greater transparency in rules and regulations, and support for implementation may boost investor confidence. Australian businesses should also increase their awareness about operating in ASEAN to enhance their risk management.  

Alongside these institutional aspects, Australian investors have also highlighted the challenges posed by the lack of availability in skilled labour in the region according to an AustCham ASEAN Survey. Although this presents another possible barrier to increased inward investments, it can also be seen as another area where Australia may be able to capitalise on in terms of institutional building and human capital development. According to the State of Southeast Asia 2023 Survey report, Australia ranks among the top three preferred study destinations for Southeast Asians. With over 140,000 ASEAN students registered under student visas in 2023, ASEAN is the second largest source of international students after China. Australia’s renowned research-focused universities, generous student visa policies, opportunities for part-time employment and proximity to home position it as an appealing study destination. The presence of ASEAN students in Australia has contributed to the country’s economy and filled labour force gaps in the service sector.

As such, Australian academic institutions have significantly expanded their footprint in Southeast Asia, enhancing educational opportunities and fostering collaboration. The establishment of Monash University in Jakarta in 2022, the first international campus branch in Indonesia, marked a milestone following its earlier venture in Malaysia in 1998. The Royal Melbourne Institute of Technology, James Cook University, and Swinburne University of Technology, have also established campuses in Vietnam, Singapore, and Malaysia, respectively. These initiatives have not only created research collaboration and technology transfer, but have also generated employment opportunities and facilitated mobility between the regions.

ASEAN citizens have also benefited from various educational support programmes including the Australia Awards Scholarship, the ASEAN-Australia Emerging Leaders Programme, as well as Technical and Vocational Education and Training (TVET) courses. Leveraging these successes, Australia’s continued investment in strengthening its institutional presence in the region will significantly bolster its economic engagement with ASEAN.

Southeast Asia will continue to play a pivotal role in Australia’s economic landscape and cultural diversity. The introduction of Australia’s Southeast Asia strategy and other economic initiatives at the recent Summit offers an opportunity for Australia to inject new vigor into its economic partnership with ASEAN. Through strategic collaboration and concerted efforts, Australia and ASEAN can unlock the full potential of their partnership and usher in a new era of prosperity and growth for the region.  

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Editor’s Note:
ASEANFocus+ articles are timely critical insight pieces published by the ASEAN Studies Centre.