Snapshot of Australia’s investment opportunity in Southeast Asia
06.09.2023 - 09:44
Following the release of the Australian Government's new Invested: Australia’s Southeast Asia Economic Strategy to 2040, we looked at a snapshot of Australia's investment opportunity in Southeast Asia - sharing 15 key facts about the economic opportunities.
The 15 facts to know about Australia's Southeast Asia investment opportunity
Australia is a natural geographical neighbour of Southeast Asia, and vital to our future geopolitical and economic security. The region's economic rise has been significant over the past decade. ASEAN as a block is the fifth largest economy in the world after the US, China, Japan and Germany. But ASEAN is looking for long-term, invested partners.
Fact 1: Southeast Asian (SEA) economies are growing faster than the rest of the world and the G7
Southeast Asian countries have experienced faster economic growth than the world, and the G7, over the last ten years. Vietnam’s and Cambodia’s growth has exceeded over 7% per year. During this period–Vietnam’s growth has been driven by manufacturing, especially in electronics, machinery, and clothing. Manufacturing has also been critical to Cambodia’s fast expansion, alongside tourism. Singapore’s growth has also outpaced the Southeast Asia and G7 average at 4.7%.
Fact 2: The population is booming – Southeast Asia is set to grow by 100 million people by 2040
The population in Southeast Asia is expected to grow by 13% over the next two decades. Between 2021 and 2040, Southeast Asia is projected to grow 13% from about 675 to 765 million people. During that period, the rest of the world is projected to grow 16.4% from 7.25 to 8.4 billion people.
Fact 3: People are becoming richer – the middle class in Southeast Asia is projected to grow to 334 million by 2030 and 418 million by 2040
The middle class – defined as those earning between USD 10 to 100 a day – is estimated by over 200 million people currently and if trends persist, will double by 2040.
Investment
Fact 4: We are misaligned with growing markets: Australia’s direct investment growth has centred on the UK and Japan over the past decade and not towards Southeast Asia
Australian outbound direct investment is growing fastest for the UK, Japan, and North America. Australian direct investment towards the UK grew at 13% per year on average over the past decade… and 10% per year towards Japan…and 8.4% per year in North America. Meanwhile growth flows of direct investment into Southeast Asia have been comparatively weak over the past decade at 4.2% on average per year.
In fact, over the past five years, our overall level of investment in New Zealand outpaced our investment into ASEAN as a group.
Fact 5: The intensity of our investment in Southeast Asia lags behind other peer countries. Australia’s direct investment in Southeast Asia since 2010 is 9% of total outbound FDI but this has faded over time
Fact 6: In the competition to capture strong investment opportunities in Southeast Asia, our positioning relative to other peers has fallen.
Our absolute levels of investment lags behind countries such as Canada and the UK.
Australia's flows of direct investment in ASEAN has also remained comparatively low in absolute terms over the past decade.
Despite our geographical proximity, we also don't rank in the top 10 sources of FDI into ASEAN.
Trade
Fact 7: Australia’s traders are actively expanding its activities in Asia, but its trade with Southeast Asia is growing slower than in China and Japan
Australian trade is generally geared towards the fast-growing economies of the world. Growth in two-way trade over the past ten years between Australia and Southeast Asia was 5.6%, 1.5 percentage points higher than its GDP growth. However, Australian two-way trade growth is much stronger with China and Japan. Trade growth between Australia and China have almost tracked Chinese GDP growth at 7.3%; that figure is 7.2% for Japan, despite its contracting economy. Australia continues to grow its trade with North America, Europe, and the UK but at slower rates compared to these Asian economies.
Fact 8: Two-way trade between Australia and SEA can grow to half a trillion dollars by 2040
Australia and Southeast Asia are continuing to grow the value of its trade with each other. Growing at 5.5% per year, total trade between Australia and the region can increase its value by A$287 billion by compared to current levels… but an addition A$69 billion worth of value can be added if growth could lift to 6.3% per year… meaning that by 2040, two-way trade between Australia and Southeast Asia could be worth over half a trillion dollars. This would be worth about triple the value of 2022.
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