The Middle East has always been considered an energy exporter to Asean, but this relationship has become more nuanced in recent years, especially as the former has shifted its focus to boosting non-oil exports.
Notably, countries such as Indonesia and Singapore have benefited.
Late last year, the Indonesian government announced they had secured US$32.7 billion worth of investment commitments from United Arab Emirates (UAE) businesses in various sectors, such as vaccine manufacturing and distribution.
“Indonesia is a very typical case of how I think Asean is becoming a magnet for foreign direct investment (FDI) from the Gulf countries,” said Gyorgy Busztin, a visiting research professor at the Middle East Institute, National University of Singapore.
Dr Busztin cited Asean’s political stability (outside of Myanmar) as well as a general lack of labour unrest as key factors that draw these Gulf countries to the region, even as he qualified that these countries have to be looked on a case-by-case basis.
“Compatibility, stability, and predictability, which are, of course, combined with the presence of a large, young, and highly trained workforce – it all comes together very nicely.”
Singapore too has benefited from the relationship.
A spokesperson from the Singapore Business Council, Qatar, noted that with Qatar is diversifying its economy away from oil and gas as part of its National Vision 2030, some of the key sectors they are looking at include sustainability and technology.
These are sectors in which Singapore has strong capabilities, he said.
“This makes businesses that wish to expand outside of the Middle East region look to Singapore as one of the key destinations to explore opportunities and use it as a base to springboard into the wider region due to its strategic location and easy access from the Middle East,” he said.
Alessandro Arduino, principal research fellow at the Middle East Institute at the National University of Singapore, added: “Expertise from Singapore will be beneficial to development in the Gulf and at the same time, can increase profitable cooperation between the Gulf and South-east Asia in areas ranging from artificial intelligence to Internet of Things, and smart cities.”
Leveraging Asean’s strengths
Economic ties between the Middle East and Asean have strengthened significantly since the first Asean-GCC Joint Vision was adopted in 2009.
In 2019, the two blocs further agreed to finalise the Asean-GCC Framework of Cooperation for 2020-2024 to advance collaboration in multiple sectors including smart cities, energy, connectivity, agriculture and halal products. Bilateral partnerships between individual countries have also risen.
The Singapore-UAE Comprehensive Partnership (2019) and the Malaysian Investment Development Authority’s (MIDA) MoU with the Investment Promotion Agency of Qatar (2019) are notable examples.
Heidi Toribio, regional co-head, client coverage, Asia, corporate, commercial and institutional banking at Standard Chartered, said: “As countries across the Middle East diversify into new non-oil sectors, Asean is emerging as an important trade and investment destination.”
In 2020, investments from the Middle East into Asean reached US$700 million, a three-fold growth from 2017. In the first three quarters in 2021 alone, merchandise imports to Asean from the Middle East grew more than 30 percent year-on-year, reaching US$52 billion in value, she noted.
According to a survey of Middle Eastern companies commissioned by Standard Chartered and prepared by PricewaterhouseCoopers, 82 per cent of Middle East respondents expect more than 10 per cent growth in their Asean business revenues this year.
They identified access to the large and growing Asean consumer market (60 per cent); access to a global market (from Asean) enabled by a network of Free Trade Agreements (58 per cent); and diversification of production footprint (51 per cent) as key reasons why they are interested in the region.
The Regional Comprehensive Economic Partnership (RCEP) is also expected to attract more investments; all of the respondents agreed that the ratification of the agreement will lead to more investments from their company. Close to 70 per cent said they expect their company to increase investments by more than 50 per cent over the next 3-5 years.
In terms of geographical preference, respondents chose Malaysia (78 per cent), followed by Singapore (69 per cent) and Indonesia (67 per cent).
Of those who picked Singapore, 94 per cent of the senior executives from the 45 companies based in the Middle East said they consider the city-state a major regional R&D/innovation centre.
A further 87 per cent said Singapore is a desirable hub for regional procurement and that Singapore is an ideal place to set up their regional sales and marketing headquarters.
Finding new growth opportunities
The report identified 5 growth sectors which it expects to drive the future of the Middle East-Asean corridor. They are namely refining and petrochemicals; infrastructure and real estate; renewable energy; retail and consumer goods; and digital infrastructure and services.
Perhaps unsurprisingly, consumption of fuels and petrochemicals continues to grow strongly in Asean, driven by rising consumer and industrial demand. To address energy security concerns, the region is also now focusing on boosting local production capacity by building integrated refining and petrochemical facilities.
Similarly, rapid economic and social progress have accentuated Asean’s infrastructure needs.
“The infrastructure segment will continue to dominate the construction industry, maintaining a 46 per cent share in sector GVA (gross value added) by 2025, followed by commercial real estate (32 per cent) and residential real estate (22 per cent),” said the report.
“In particular, demand for healthcare and transport infrastructure as well as logistics and industrial real estate are expected to drive growth, which is creating new investment and business opportunities for Middle East companies.”
Separately, demand for digital solutions and enabling digital infrastructure is expected to see significant growth. Indeed, the region’s flourishing digital start-ups are increasingly attracting capital from leading investment firms globally, including many from the Middle East.
In terms of more nascent sectors, Asean nations are increasingly prioritising solar and wind solutions to meet their future energy requirements. Retail and consumer goods sector in Asean is also expected to regain momentum in the years ahead, led by an expected surge in consumer spending.