Australia seeks to unlock Indonesia investment through better project preparation

Australia's economic footprint in Southeast Asia is shrinking, and the numbers tell a story of missed opportunity. Since 2022, Australian investment across the region has fallen to $104 billion—less than half what Australia puts into New Zealand, and heavily skewed toward Singapore, which alone captures three-quarters of the total. The Albanese government laid out an ambitious vision in 2023 with its Southeast Asia Economic Strategy to 2040, built on a sensible premise: countries with strong economic ties develop shared interests in regional stability and peace. Yet two years in, the strategy's headline initiatives—a $2 billion infrastructure financing facility, new investment deal teams, modest gains in trade—haven't reversed the underlying decline.

Indonesia crystallizes the problem. With nearly 300 million people and a trajectory toward becoming the world's fourth-largest economy by 2050, Australia has managed to invest just $7 billion there. The gap between potential and reality reflects something deeper than mere market conditions. Indonesia's regulatory environment has long been opaque and unpredictable; corruption remains endemic. Australian institutional investors—pension funds, insurance companies, major asset managers—typically operate with low risk tolerances and high fiduciary standards. They lack deep Indonesia expertise. When Prime Minister Albanese visited Jakarta in 2022, a delegation of superannuation executives made the rounds making all the right statements. No major new investments followed.

Then the political ground shifted. President Prabowo Subianto took office in February 2024, and Indonesia's investment climate deteriorated noticeably. Foreign flows into Indonesian stocks and bonds have dropped roughly 7 percent since his election. The rupiah has fallen 11 percent against the dollar—a record decline. Rating agencies are now seriously considering downgrading Indonesia from emerging to frontier market status, a move that would further chill investor appetite.

The Australian government faces a hard truth: it cannot fix Indonesia's regulatory regime or corruption problem. It cannot make the rupiah stronger or reverse political uncertainty. What it can do is far more modest but potentially more effective—and largely unexecuted. Buried in the 2040 strategy with little visible progress is a recommendation to dramatically expand government support for early-stage project preparation and advisory work. The idea is straightforward: many credible projects in Southeast Asia fail to attract investment not because they lack merit, but because they lack polish on paper. A project that looks risky on a spreadsheet might be entirely sound once properly scoped and analyzed. Major investors like Macquarie have explicitly told government that this is where assistance would do the most good.

The mechanism could work several ways. The government could expand existing programs like Partnerships for Infrastructure, a Department of Foreign Affairs and Trade initiative, or ensure that programs like KINETIK—a $600 million fund for sustainable infrastructure investment in Indonesia—are actually being deployed to unlock new deals. Alternatively, government could extend grants to project preparation firms to cover their upfront costs for feasibility studies, with those firms recouping their investment through fees on successful projects that eventually close. Either approach produces the same outcome: more projects properly developed, their investment cases clearly articulated, their risks quantified and manageable.

The benefits compound. Government gets first look at opportunities, can de-risk them through its own financing facility, and attracts other investors once the groundwork is done. It builds a pipeline of bankable projects that might otherwise never reach market. The individual projects may be smaller than transformational megadeals, but as an Indonesian saying captures it: sedikit sedikit lama-lama menjadi bukit—little efforts over time become a big hill. For an Australia trying to deepen its economic stake in Southeast Asia's future, that accumulation matters far more than waiting for conditions to improve on their own.