The report highlights the potential of ASEAN, driven by growing economic integration, favourable demographics, low labour costs and geo-strategic position between Europe, Africa and North America.
“With a projected economic growth rate only marginally behind China and India, ASEAN is on track to emerge as Asia’s third engine of growth and the world’s fifth largest economy by the end of the decade” said ANZ chief economist for South Asia, ASEAN and the Pacific, Glenn Maguire.
The youthful population of the region, comparatively low labour costs and scope for productivity improvement and strategic location position it well to emerge as the possibly the fifth largest economic area worldwide by 2025.
The roots of this prediction by ANZ Bank lie in the massive infrastructure investment being witnessed across Southeast. Some estimates place the required investment into infrastructure as double that of what China committed to, in the aftermath of the Asian Financial Crisis in 1997.
The growing middle class in ASEAN will similarly be driving increased consumption in the region, while the mature markets likes the Anzac nations, the European nations and the growth markets of East Africa will also see an increased demand for products manufactured in Southeast Asia, even as China rises in economic importance globally.
Some anticipate Singapore to be the emerging centre of this trade bloc, given the presence of many international corporations, MNCs, SMEs, private equity firms and other asset management (i.e. holding companies). Much of the trading and business architecture is being built in the region. This leverages on the business infrastructure and connectivity of the networks that have rooted themselves in the city-state.
While infrastructure investment is emerging as a very promising area, challenges remain in fulfilling the potential represented by the region. Amongst the challenges, are the governance issues that could emerge from such investment, as well as the massive disparities from the fragmented markets of Southeast Asia.
Economic discrepancies across Europe, the EU and the Eurozone economies, as a whole, are modestly harmonised; but creating this arrangement is challenging, both in policy formulation and implementation. Countries like Thailand, at the hub of mainland Southeast Asia, also face challenges in political stability as well as the middle-income trap, with Asian countries having the potential to fall into such a trap.
There are regional deficits in the emerging markets like the Philippines, Indonesia, Vietnam and Myanmar, particularly in industry verticals like education, energy, human resources, infrastructure, transport, logistics and manufacturing. These deficits also imply an opportunity for both investors and entrepreneurs. 3d printing technologies present significant promise to the region, especially in terms of disrupting manufacturing, transport and logistics.
Countries in a middle income trap have lost their competitive adverting, particularly in terms of export-oriented strategies of manufactured goods. The reason is rooted in increasing wage costs that increase business costs for employers, while economies in more advanced development states have evolved their value chains towards capital intensive manufacturing an other industries in that segment.
Middle Income Challenges
The World Bank defines middle-income nations as “…having a per capita gross national income of $1,026 to $12,475.”
This description characterises countries like South Africa and Brazil, which have historically suffered from low levels of foreign direct investment (FDI) and slow growth in secondary industries – typically economic sectors that produce finished, usable products like the manufacturing and construction sectors. In addition, limited industrial diversification and poor labour markets characterise such economies.
Financial integration in ASEAN may pose a challenge. According to the ANZ Bank report”…only a small number of high quality banks that meet specific qualifications will gain access to the banking markets in all the member states. Second, some within-market restrictions that may hinder cross-border expansion will remain at the discretion of the host member state. Third, progress in regulatory harmonisation will be slow.”
In short, the socioeconomic, political and regulatory challenges that exist and face Southeast Asia are tremendous. By all estimates, 2030 will see half of Southeast Asia’s 650 million people under the age of 30. They will have high rates of consumption which will be the emerging trend and with significant regional economic opportunities centred on Indonesia.
ANZ CEO International and Institutional Banking Andrew Géczy explained “While China is top of mind, the way that the world manufactures, is changing; but critically, where it consumes is shifting to ASEAN.”.
The region deserves more attention particularly as progress continues toward the formation of the ASEAN Economic Community, which will unlock a new phase of growth in the region.”