The pursuit of economic diversification and innovation, along with a mutual aim to buffer against escalating U.S.-China rivalry, is encouraging stronger collaboration between Gulf and Southeast Asian governments, investors, and companies. By signing the Treaty of Amity and Cooperation with the Association of Southeast Asian Nations on July 12, 2023, Saudi Arabia demonstrated its resolve to deepen interregional ties. This interest is reciprocated by Southeast Asian countries, especially Malaysia and Indonesia. Malaysian Prime Minister Anwar Ibrahim described the relationship with the kingdom as undergoing a “phenomenal advance,” and Indonesian Vice President Ma’ruf Amin heralded a “new era” in bilateral relations. Yet, while progress has been significant, it has not fully met these enthusiastic expectations and promising forecasts.
Evolving Gulf-Southeast Asian Economic Relations
Trade and investment relations between the Gulf and Southeast Asia are evolving. Initially focused on oil and labor, these economic partnerships are diversifying into renewable energy, construction, finance, tourism, and digital technology. A recent Economist study indicates that while trade and investment between Gulf Arab and Southeast Asian countries remain underdeveloped, there is a solid foundation and scope for deeper engagement.
Interest is rising on both sides to expand interregional economic cooperation. In October 2023, Saudi Crown Prince and Prime Minister Mohammed bin Salman and Indonesian President Joko Widodo co-chaired the inaugural Gulf Cooperation Council-ASEAN Summit in Riyadh, with the theme “Sustainable Future Through Creative Partnership.” The summit, signaling a desire to move beyond bilateral ties and historical allies, concluded with an ambitious joint statement and the “Framework of Cooperation 2024-2028.”
However, despite the shared vision for interregional cooperation expressed in these foundational documents, most economic activity between the Gulf and Southeast Asian countries remains bilateral.
UAE Leading the Way in Relations With Malaysia and Indonesia
Malaysia and Indonesia are central to ASEAN’s economic growth, regional integration, and global economic influence, offering significant trade and investment opportunities. The United Arab Emirates has been proactive in leveraging these opportunities, with UAE-Malaysia non-oil trade reaching $4.7 billion in 2023. As of May 2023, UAE investments in Malaysia totaled $220 million, while Malaysian investments in the UAE amounted to $150 million.
Similarly, there has been robust growth in UAE economic cooperation with Indonesia, with bilateral trade increasing by 52% from 2015 to 2023, reaching $3.28 billion. The UAE also stands out as the leading Gulf investor in Indonesia. To illustrate, the UAE’s investment in Indonesia was $4.1 million in the first quarter of 2024, while Saudi Arabia’s foreign direct investment stood at $600,000.
These economic partnerships are expected to continue on a sharp upward trajectory, thanks to the UAE-Indonesia Comprehensive Economic Partnership Agreement that took effect in September 2023 and the anticipated implementation of the UAE-Malaysia Comprehensive Economic Partnership Agreement by the end of this year. This optimistic outlook raises questions about the progress of Saudi Arabia’s trade and investment ties with these Southeast Asian powerhouses.
Saudi Economic Ties With Malaysia and Indonesia: Expectations Outpacing Progress
Until relatively recently, religious and cultural ties between Saudi Arabia and Malaysia and Indonesia overshadowed economic relations. Saudi support for religious activities and institutions has long been a core element of the kingdom’s bilateral relations with Malaysia and Indonesia. As a result of this decades-long effort, Wahhabi or Salafi beliefs have firmly taken root in both countries.
The leadership of Mohammed bin Salman has brought a greater focus on economic cooperation rather than exporting Saudi beliefs, consistent with his vision to modernize and diversify the economy. This strategic shift aligns with the priorities of the current governments in Malaysia and Indonesia, resulting in tangible progress in strengthening economic ties with both countries.
Malaysian and Saudi relations became strained due to the 1Malaysia Development Berhad or 1MDB corruption scandal. The scandal involved the misappropriation of funds from Malaysia’s sovereign wealth fund, with millions diverted into then-Prime Minister Najib Razak’s personal account, including a controversial $681 million deposit labeled as a “personal donation” from the Saudis. However, in recent years Malaysia and Saudi Arabia have successfully mended ties. The rise to power of Prime Minister Anwar Ibrahim’s coalition breathed new life into the bilateral relationship, coinciding with Saudi Arabia’s eagerness to strengthen GCC-ASEAN connections. Ibrahim, positioning himself as a pragmatic “Muslim statesman,” has prioritized outreach to Gulf countries. His visit in October 2023 resulted in a joint statement committing to enhanced cooperation in multiple domains.
To facilitate this renewed collaboration, the two countries have established key institutional frameworks. They have formed a high-level ministerial task force to oversee the progress and potential of cooperative efforts, including investments from the private sector, public investment funds, and government-linked companies of both countries. In May, the Saudi-Malaysian Business Council was inaugurated to further promote investment partnerships and strengthen economic and trade relations.
Saudi Arabia is Malaysia’s largest Gulf trading partner. Bilateral trade totaled $10.26 billion in 2022, an increase of 159.2% from a year earlier. In 2023, bilateral trade climbed to more than $11 billion, with Saudi exports topping $9.57 billion. Yet, even with these advances, the trade balance is still skewed toward Saudi Arabia and dominated by crude oil and petroleum products.
On the energy front, the Pengerang Refining and Petrochemical complex in Johor, Malaysia, a joint venture between Saudi Aramco and Petronas, resumed operations after a two-year closure due to a deadly fire and explosion. Aramco remains keen on expanding its downstream activities in Malaysia.
Other significant developments include Ajlan & Bros Holding Group partnering with Dagang NeXchange Berhad to explore opportunities in smart cities and large enterprise projects and Malaysian-based SIBS Group securing contracts to deliver modular apartments in Neom. Additionally, Saudi Arabia’s ACWA Power reportedly has shown interest in investing in renewable energy projects in Malaysia. Qhub International Sdn Bhd, aiming to expand its Middle Eastern presence, is joining forces with Saudi Arabia’s eRomman Technologies Sdn Bhd.
King Salman’s historic visit to Indonesia in March 2017, accompanied by a 1,500-member entourage and the signing of numerous memorandums of understanding, revitalized the bilateral relationship and signaled Saudi Arabia’s intention to play a more prominent role in the Indo-Pacific region. However, the momentum to strengthen Saudi-Indonesian relations has primarily been driven by Indonesian President Joko Widodo.
As with Malaysia, Saudi Arabia is Indonesia’s largest Gulf trading partner. Between 2018 and 2022, trade between Saudi Arabia and Indonesia increased by about 5% per year, totaling $7 billion in 2022. In the first eight months of 2023, the trade volume was $3.80 billion, with Indonesia’s exports at $1.39 billion and imports at $2.41 billion.
During Widodo’s October 2023 visit to Riyadh, an agreement was signed to establish the Saudi-Indonesian Supreme Coordination Council, aimed at intensifying bilateral cooperation across various fields. Additionally, the Indonesian Chamber of Commerce and Industry and the Federation of Saudi Chambers agreed to create a joint task force to promote new collaborations.
Widodo has been proactive in seeking to revive ties between Pertamina and Aramco, following the cancellation in 2020 of their joint venture to upgrade the Cilacap Refinery due to valuation disagreements. He has also sought to enhance cooperation in petrochemical production and attract Saudi investment in the agricultural sector, particularly in edible oil products. Indonesian officials have proposed that Saudi Arabia become a shareholder and operator in airports dedicated to the hajj and umrah pilgrimages. And roundtable discussions have been held to explore investment partnerships in energy, health care, food, human resources, and education.
Additionally, over the past two years, the Indonesian government has been intensively courting foreign investors, including Saudi Arabia, to help fund the development of its new capital, Nusantara, in East Kalimantan. Saudi Arabia has reportedly shown interest in investing in the new capital’s renewable energy sector. Despite Saudi interest in investing in Indonesia and strong lobbying by Widodo and other officials, the actual investment levels remain disappointingly low.
Imbalances and Uncertainties Going Forward
Southeast Asian countries are moving up the value chain in manufacturing and services, while the Gulf petrostates are reducing their reliance on oil and gas revenue by investing in technology, tourism, and renewable energy. Both regions, moreover, are diversifying their partnerships while seeking to mitigate the risks associated with the U.S.-China rivalry.
Like the UAE, Saudi Arabia seems keen to get in on the action. Saudi-Malaysia investment ties have lately heated up. In 2023, Saudi investment in Malaysia reached $66.9 million. Spurred by Ibrahim’s four visits to the kingdom since becoming prime minister, the two sides are exploring potential investments in high-value projects, such as the digital and green economy. Malaysia may yet become the hub of Saudi Aramco’s oil and gas development in Southeast Asia.
As for Saudi-Indonesia cooperation, the expansion of religious tourism shows promise with new visa rules set in place. Other bright prospects include efforts to promote stronger collaboration between the Saudi Public Investment Fund and the Indonesia Investment Authority. Several promising agreements are on the table, such as the 2020 memorandum of understanding between PT Pertamina and Aramco to jointly work on projects involving the hydrogen and ammonia value chains.
However, despite progress in Saudi economic relations with Malaysia and Indonesia, significant imbalances and uncertainties persist. Oil continues to dominate trade, heavily favoring Saudi Arabia. While priority sectors have been identified, few new major project investments have been announced. It remains uncertain when and to what extent the new frameworks, institutional structures, and intensive diplomacy will translate into concrete trade and investment outcomes.
