Introduction

Malaysia sits in the geographic heart of Southeast Asia, just north of the equator. Malaysia has land borders with Singapore, Thailand, Indonesia and Brunei and a maritime border with the Philippines. Together, West (Peninsular) Malaysia and East Malaysia, separated by the South China Sea, have less than half the land area of New South Wales. Malaysia's cultural and linguistic diversity, natural resources and manufacturing base make it a country of great promise.

Malaysia is one of the larger economies in the Association of Southeast Asian Nations (ASEAN), with the third-largest GDP in 2011 ($447.3 billion in PPP terms). The economy is growing steadily (5.1 per cent in 2011). Malaysia has transformed itself since independence in 1957 from a low-income to a middle-income country with GDP per person of $15,568. Malaysia's growth has been based on economic openness and foreign investment, assisted by the production of natural commodities such as oil, gas and palm oil. Total trade in goods and services amounts to over 150 per cent of GDP; manufactured goods, including electronic and electrical products, make up a large portion of trade.

Government, business and people-to-people links

The relationship between Malaysia and Australia is stronger than ever before. Traditional education, defence and economic links are complemented by cooperation on a range of security issues. The range of Australian Government representation at the Australian High Commission in Kuala Lumpur—open since independence in 1957—reflects the richness and diversity of Australian engagement with Malaysia.

Malaysia is Australia's third-largest trading partner in ASEAN and 10th-largest overall; two-way trade in goods and services was valued at $16 billion in 2011. The signing of the Malaysia–Australia Free Trade Agreement (MAFTA) in May 2012 demonstrated the two governments' commitment to forging closer trade and investment ties. MAFTA bodes well for future collaboration, particularly for efforts to achieve greater economic integration. Australian and Malaysian businesses have welcomed the conclusion of MAFTA, which builds on market access commitments under the ASEAN–Australia–New Zealand Free Trade Agreement (AANZFTA). MAFTA's entry into force (expected to be in 2013) will guarantee tariff-free entry for almost 98 per cent of Malaysia's current goods imports from Australia and provide tariff-free treatment for all imports from Malaysia to Australia that comply with the agreement's rules-of-origin provisions. MAFTA addresses important non-tariff measures and will provide a strong platform for further diversifying the trading relationship through important commitments on access to Malaysia's services sector.

The Malaysia Australia Business Council, which has more than 320 members and longstanding links to the Malaysian economic ministries, plays an important role in promoting business networks. Both the council and its counterpart in Australia, the Australia Malaysia Business Council, will be key promoters of MAFTA.

Investment flows are substantial, although Malaysians invest more in Australia than we do in Malaysia. Australia is Malaysia's third-largest investment destination. In 2011, Malaysian investment in Australia stood at $14 billion, including a multibillion dollar investment by Petronas (Malaysia's national oil company) in a joint venture with Santos, Total and KOGAS, to process coal-seam gas into liquefied natural gas in Gladstone. Australian investment in Malaysia was worth $5.7 billion in 2011. About 3,500 Australian companies export goods to Malaysia each year. Around 250 Australian companies have representation in Malaysia, including Ansell, Boral, BlueScope Steel, Leighton, Ryco, Toll, Gloria Jean's Coffee and Boost Juice.

Our membership of the Commonwealth is a point of shared experience. Our parliamentary processes also share a common heritage—British influence can still be seen today in Malaysia's institutions and Malaysians' English language proficiency.

People-to-people contact between Australia and Malaysia is deep and continues to grow. According to the 2011 Census, 116,196 Malaysia-born people live in Australia. In 2011, Malaysia was one of the top 10 overseas destinations for Australians, receiving around 258,000 Australian visitors. In the same year, Malaysia was the seventh-largest source of visitors to Australia, accounting for 241,000 visitors.

Our people-to-people links were profoundly shaped by the Colombo Plan, which helped to educate a generation of future Malaysian leaders, but the Plan built on earlier student contacts. The first Malayan student enrolled at an Australian university in 1934, and, even at the peak of the Colombo Plan, more Malaysian students paid their own way than were funded by Australia.

Today, Australia is the international education provider of choice for Malaysia. In 2011, 20,901 students were enrolled in Australia and about 21,000 were studying for Australian qualifications in Malaysia. There are more than 300,000 Malaysian alumni from Australian educational institutions, many of whom play senior roles in the government and corporate sectors. The number of Australians studying in Malaysia remains low, but there are growing signs of interest. Short-term university study programs are increasingly popular. The working holiday maker program between Australia and Malaysia is a further avenue for exchange.

The Australia–Malaysia Institute (AMI), established in 2005, has increased mutual awareness and understanding of each country's culture, values and traditions. AMI and the Victorian government support ongoing sister school relationships between Australian and Malaysian high schools. In 2012-13, AMI will fund training for Malaysian surf-lifesavers, send Malaysian artists to the Asia Pacific Triennial and World Theatre Festival in Brisbane and bring together talented young musicians from the Queensland Youth Symphony and Malaysian Philharmonic Youth Symphony.

Australia and Malaysia work together in regional forums. Malaysia was a founding member of ASEAN, the Asia–Pacific Economic Cooperation (APEC) forum and the World Trade Organization. Like Australia, it is a member of the Cairns Group of agricultural exporting nations. The trilateral Malaysia–Australia Education Program for Afghanistan, under which Australia works with Malaysia to train Afghan master teacher trainers, shows how Australia's deep relationship with Malaysia on education is evolving into new and innovative partnerships.

Our nations have longstanding defence ties. During World War II, Australian soldiers defended Malaya and Borneo against the Japanese. Between 1942 and 1945, 1,787 Australian servicemen from the Japanese Sandakan prisoner-of-war camp died in the camp or during three 'death marches' between Sandakan and Ranau, in Sabah, East Malaysia. Many local Sabahans were killed risking their lives to help the Australians. Following Malaysian independence in 1957, Australian soldiers served in Malaysia during the Malayan Emergency and Konfrontasi (confrontation) with Indonesia.

In 1971, Australia, Malaysia, the United Kingdom, New Zealand and Singapore signed the Five Power Defence Arrangements, which underline our shared strategic interests and affirm our shared commitment to the security of the region. Australian Defence Force (ADF) personnel remain at the Royal Malaysian Air Force Base, Butterworth, in Penang, to this day. In more recent years, Australian and Malaysian personnel have served together in Somalia, East Timor and Afghanistan.

Australia is a leading partner for Malaysia in cooperation on defence, law enforcement, border protection and other national security issues. We have invested heavily in these areas, especially over the past decade. Our longstanding intelligence and law enforcement links are very strong. The Federal Bureau of Narcotics, one of the three Australian Government agencies that later came together to form the Australian Federal Police, opened a liaison office in Kuala Lumpur in October 1973 – the first in what is now an international network.

Towards 2025

Malaysia's multi-ethnic population and linguistic links with three emerging economic giants of Asia – China, India and Indonesia – will offer the country substantial economic opportunities by 2025. With the right policy settings, Malaysia can use its diverse population to engage with those economies, as well as the English-speaking world, in their own languages. Malaysia's economy will also benefit from a relatively young and well-educated population.

With commercial and investment linkages across areas as diverse as agribusiness, information technology, telecommunications and financial services, the trade and investment relationship will continue to grow. Progress has been positive, but only about 250 Australian companies are represented in Malaysia, so there is certainly room for further growth and development. Malaysia will want to see increased investment from Australia. By 2025, MAFTA and AANZFTA will give Australian companies a solid platform to pursue new commercial opportunities created by the march towards an ASEAN Economic Community.

Continued defence cooperation will be crucial for both countries. Australia will continue to show its commitment to Malaysia's security and derive benefits from our presence at Butterworth, our largest permanent overseas ADF presence. Butterworth will be a symbol of our commitment to regional security and provide a logistical hub for the ADF in the region, including for disaster management. The Five Power Defence Arrangements and bilateral defence cooperation will continue to be of vital importance to both countries.

Australia will deepen its cooperation with Malaysia in new and important areas, such as cyber, and in areas where we can share experiences from our own story of economic reform including public sector, superannuation and regulatory reform. As Malaysia faces increasing competition in manufacturing from lower-cost neighbours in ASEAN and further afield, it will seek to retool its export economy and continue moving up the value chain.

Malaysia's main challenge over the coming two decades will be to move from middle-income to high-income status. If it can sustain reforms, it will be well placed to transform its economy. As Malaysia's economy grows, so will the opportunities for Australian investors and entrepreneurs.

These relationships will continue to build on the substantial people-to-people links that already exist between our two countries. The 300,000-plus cohort of Australian alumni in Malaysia will continue to grow. In many Malaysian boardrooms, there will be a senior person with a connection to Australia. Along with opportunities provided by MAFTA and greater liberalisation, this will help Australian companies to carve out a foothold in a growing Malaysian services sector.

Other aspects of people-to-people links will also grow even stronger through migration, trade and travel, Australia and Malaysia will develop a more complex understanding of each other and the complementary roles we can play in building a shared regional identity. The broad bilateral relationship will deepen, as links between government departments, civil society organisations and educational institutions expand.