March 28, 2024

What’s the role for development assistance in Australia’s Southeast Asia Economic Strategy to 2040?

Earlier this month, at the ASEAN-Australia Special Summit, the Government announced a new $2 billion investment financing facility to boost Australian investment in Southeast Asia.

The facility was a key recommendation of 2023’s Invested: Australia’s Southeast Asia Economic Strategy to 2040, which highlighted the role for Australian businesses and private sector in unlocking the region’s economic potential.

But with Australia still providing approximately $1.2 billion in development assistance to the region every year, we wondered whether development programs were being overlooked in the conversation about spurring Southeast Asia's inclusive growth.

So we went to the experts, and asked: what’s the role for development assistance in achieving the goals of Australia’s Southeast Asia Economic Strategy to 2040?

Gabrielle Stewart
Director, International Development, Equity Economics

Australia’s trade and development programs are like an old married couple – they are inextricably linked, but don’t always communicate well. Better communication between Australia’s development, trade and investment activities is essential if Australia is to meet its ambitions in Southeast Asia.

Invested: Australia’s Southeast Asia Economic Strategy to 2040 helps to do this. The Strategy identifies existing development programs that support the critical enablers of economic cooperation. Bridging this gap will help enhance communication between Australia’s trade and development agendas which support many of the same countries. Most of Australia’s Southeast Asian economic partners are also major bilateral Overseas Development Assistance (ODA) recipients - Cambodia, Indonesia, Laos, Philippines, Timor-Leste, and Vietnam received AUD760.4 million in ODA in 2023-24.

This is important because trade and development assistance need each other. Regional economic architecture is supported by the development program through capacity strengthening and capability development. For example, Australia is supporting Timor-Leste’s WTO and ASEAN accession through its economic governance program, PROSIVU. Government-backed business development programs such as Katalis in Indonesia, support strong, sustainable, and inclusive trade and investment with Australia. Recent announcements to finance the Strategy’s recommendations will similarly support development program objectives.

But we have to work at it. We need more development practitioners with skills and experience in economics, trade, and finance. Likewise, diplomats, trade negotiators and business leaders should understand the development program to better leverage activities designed to strengthen the private sector, as well as support other emerging economic opportunities in health, education, and the care economy.

Gabrielle is an economist and international development leader with extensive expertise in international and domestic economic and social policy. In a previous life she worked as a development consultant designing and evaluating programs, and a diplomat and policymaker focused on PNG and the Pacific. At the Lab, we love Gabrielle’s commitment to solving complex policy issues and cut-through insights.

Richard Moore
Strategic Advisor, Development Intelligence Lab

Delivering on Australia's new Southeast Asia (SEA) economic engagement strategy will take a sustained, government-led, whole-of-society effort that's been lacking for 30 years. Development assistance can uniquely contribute to better regional public policy and programs. This is just as important as equipping Australian companies with the knowledge, skills, attitudes and finance needed for success.

I’d argue that development cooperation should not be deployed as disguised industry assistance, or for de-facto trade promotion purposes. The biggest development, diplomatic and commercial gains for Australia will come not from an FTA here or an investment deal there. They will be generated by a continuation and deepening of decades of spectacular SEA growth.

SEA is now hitting the middle income trap. Growth is slowing as highly complex problems collide with vested interests and policy inertia. Broadening the tax base; upgrading education to deliver both skills and equity; responding to rapid technological disruption; attracting and deploying clean energy finance and building citizen-serving infrastructure. It's a daunting list, demanding well-informed, exploratory work and coalition-building to generate politically feasible solutions.

As the new economic strategy recognises, Australia invests more in New Zealand than the whole of ASEAN for reasons that include weak regulatory environments, policy inconsistency, poor protection of property rights and capricious courts. Development cooperation can help clear some of these bottlenecks, fuelling growth and opening markets for agile, inventive Australian companies in the process.

75% of ASEAN's 650m people – including the majority of its poor – live in Indonesia, the Philippines and Vietnam. It's not that hard to see where to focus, or even what to do.

Richard is a leading voice in Australia’s development and international relations reform debate. He’s been with the Lab since the start, and he is a relentless source of ideas. Richard’s knowledge of the Australian development program and Southeast Asia is unparalleled. At the Lab, we learn a lot from Richard’s experience, and love his quick wit, policy ambition and pragmatism.

Dr. Jenny Gordon
Honorary Professor POLIS: Centre for Social Policy, ANU

With the risk of geo-fragmentation rising, there’s a role for development assistance in strengthening the ‘bridging capital’ between Australia and countries in the region. Bridging capital is the relationships between groups, governments, business, and societies in the countries in our region. This type of capital underpins cooperation on everything from disaster prevention and recovery to standards for technological interoperability. Australia’s development assistance can provide support for countries to engage on a wide range of issues, and well as enhancing their capacity to engage.

Relationships between politicians, government officials, business, academia, communities and individuals are the means by which bridges are built. Person-to-person links are strengthened by participation in joint forums and projects, as well as education, which can be supported through the development assistance program. As relationships are coloured by perceptions, development assistance that is seen to deliver on common goals of poverty reduction and improved human service delivery will strengthen the foundation for both institutional and personal connections that provide a wider scope for cooperation.  

Activities that boost Australian investment and trade in the region will require – and, in turn, reinforce - relationships between Australian and Southeast Asian businesses. The stronger these relationships, the lower the transaction costs of doing business as it is easier to agree on and enforce the rules that underpin these transactions. Development assistance can be used to reduce the transaction costs of developing these relationships and agreements. But government-funded assistance must be designed to promote and then withdraw and not to replace private sector activity – acting only as a catalyst to build the necessary bridging capital.

Jenny is an expert in international economic policy and the former Chief Economist for Australia’s Department of Foreign Affairs and Trade. At the Lab, we’re big fans of Jenny’s sharp questions and ‘suffer no fools’ approach. We admire people with experience across the public, academic and private sectors – Jenny is one such gem.

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