THE NEXT ECONOMIC SUPERPOWER?

p25-26_thumbAEC is still very much a work-in-progress and as integration shifts into high gear, one wonders whether ASEAN has what it takes to become the world’s next economic powerhouse.
What is so unique about the Association of Southeast Asian Nations (ASEAN) is that you have Singapore, Myanmar and Indonesia as members – the first one is a wealthy city-state where the rule of law is strictly enforced, the second is a fledgling democracy while the last one is home to the largest Muslim population in the world (13% of the world’s Muslims). There is no other least homogeneous regional grouping in the world, and yet it is precisely because of its diversity that it has the most to offer to investors.

In a space of several years, ASEAN, comprising Singapore, Malaysia, Indonesia, Philippines, Thailand, Laos, Cambodia, Myanmar, Brunei and Vietnam, has managed to overcome many barriers towards forming the ASEAN Economic Community (AEC), an economic union which aims for a free flow of goods, services, capital, investments and skilled labour among ASEAN member states.

The need for regionalisation has been ever-present since the 1980s; but it was in 1998 in the aftermath of the Asian Financial Crisis that the need attained greater urgency. The late Lee Kuan Yew (LKY) had then said, “East Asia has no choice but to follow the global trend towards regionalisation … because only then could Asia exercise its bargaining power against other regions.” Asia, in the above quote could just as easily refer to ASEAN. It is a sad reality but economic exigencies are what will push ASEAN nations towards merging into a single economic entity. A visionary LKY was fully aware that only an economically united Asia could rise up to the challenges of a troubled global economy. Today, that vision is close to being fulfilled – the AEC is over 90% complied. In fact, across ASEAN, about 99.65% of tariffs on goods have been removed. With half a year to go for full compliance, ASEAN is a patchwork of work-in-progress but one that is slowly and surely moving towards a common goal of peace and prosperity.

‘Diamond’ era

When peace prevails, it could only lead to a prolonged period of prosperity. This period of prosperity will endure the fickle cycles that come with anything that can be the subject of speculative activities. Despite the uncertainties in the world economy, international speaker and property consultant, Dato’ Sri Gavin Tee has an unwavering belief that ASEAN in general will still be strong within the next eight years, during the ‘Diamond Decade’, a 10-year period characterised by strong economic activities and cooperation between ASEAN and China. The concept of a ‘Diamond Decade’ was first laid out by China’s Premier Li Keqiang in 2013 during the China- ASEAN Expo (CAEXPO) in Nanning, Guangxi. “China clearly sees ASEAN as a very important strategic partner,” says Tee, who is also the Founder and President of Swhengtee International Investment Alliance.

“Where property is concerned, this period will see the opening up of many areas in each ASEAN country including more liberal guidelines for foreign property investment tourism activities in countries such as Indonesia, Myanmar, Cambodia, Philippines, Thailand, Laos and Malaysia,” he says. Jones Lang LaSalle (JLL) in a recent report has highlighted that a rising middle class, urbanisation and competitive labour costs in Southeast Asia will benefit the region’s real estate markets. The region’s middle class is expected to grow by another 70 million by 2020 while an additional eight million people per year are expected to make the rural to urban migration across Southeast Asia by 2020, according to the global real estate consultancy. “These trends are expected to lift demand for real estate, especially for retail space in Bangkok, offices in Manila and residential and logistics assets in Jakarta,” says Dr Chua Yang Liang, Head of South East Asia Research, JLL.

Even prior to this Diamond era, property expert, Tee notes that mobility within ASEAN has leapfrogged during the last few years due to the many low cost carriers operating in the region. “From 2015, expect to see even more transportation link-ups such as the Pan-Asia Railway network (some sections have already commenced work within China). Additionally, the ‘Silk Road Economic Belt’ and a ‘21st Century Maritime Silk Road’ have also been proposed by China.”

The ‘Economic Belt’ is a network of highways, railways and other critical infrastructure linking China to Central and South Asia, the Middle East and Europe while the maritime route entails building or expanding ports and industrial parks in Asia, the Middle East, Africa and Europe. This will improve connection and deepen relations between China and its neighbours while at the same time bringing vast economic benefits to the ports and towns along the routes.

Why is greater connectivity so important? This is perhaps one of the most effective ways to bridge the cultural divide among a diverse population. Take for example Air Asia, the Kuala Lumpur-based international budget airline which wants to enable everyone to fly. It has for many years made the distance closer among ASEAN nations. What used to be an expensive trip out to Phnom Penh from Kuala Lumpur can now cost as little as RM100 (USD27) one way. With such bargain basement flights, millions around Asia took to the skies resulting in intra-ASEAN travel becoming the main source of tourism growth in the region last year. A total of 28.05 million ASEAN citizens representing 53% share of total international tourists visited ASEAN during 2014. On a subconscious level, the visits had the effect of gradually closing the cultural gap. Imperceptible at first but each flight taken to our neighbour brings us closer – spiritually, culturally and one day, economically.

JLL’s Chua agrees that the impact of the ‘Diamond Decade’ will be positive. “The focus is not just on building relations between ASEAN and China; the physical connection through land and sea will also go a long way towards creating a collaborative atmosphere conducive to inter-regional trade flow.”

Enabling factors

As a single market, the AEC integration will promote economies to be more competitive and productive, hence increasing overall GDP growth within a larger internal market. Businesses would be encouraged to operate beyond their borders, hence enlarging their market share and encouraging innovation and higher value added services.

“During this eight-year Diamond period, ASEAN’s importance as a manufacturing hub will continue to attract FDIs with its lower costs and abundance of skilled labour. ASEAN’s huge reserves of natural resources also make it the ideal place to locate manufacturing facilities – it’s more convenient due to the convergence of all these favourable factors,” Tee sums it up.

Even now, the property expert observes that the income per capita among millions in ASEAN is rising sharply. This translates into strong demand for property and luxury items as the young population are keen spenders with strong purchasing power. They are not only into shopping but also travel and leisure activities, making up a significant portion of tourists in ASEAN countries.

The other group of travellers are made up of older and wealthier tourists who enjoy coming to ASEAN for its many health and wellness centres, and beautiful sceneries. Some even look to retire in ASEAN states due to its milder climate, lower cost of living and excellent medical care, in addition to friendly people and good food. Thus, geographically, ASEAN is ideally located to take advantage of visitor inflows. As a result, Tee expects medical tourism and leisure activities to ramp up from 2015.

“ASEAN is still the fastest-growing region in the world and you can be sure its lustre will last the next few decades while this decade will see more activities by China to cement its presence and influence in Southeast Asia. Thus, I am very confident that going forward, the future will still be very sustainable with great upside potential for ASEAN.”

Notes the JLL report, “Amidst this potential, some ASEAN countries still face challenges of transparency, legal and political risks, and corruption. Nonetheless, selected areas have seen improvement in recent years and some risks can be mitigated.” Clearly, ASEAN is still very much under construction but with so many enabling factors, it’s a matter of time before it rises up to become an economic powerhouse in the world stage.

Enter the ASEAN age?

Big hopes are placed on ASEAN to emerge from the rubble of economic upheavals and political unrests into a prosperous, stable and peaceful region

  • Within 10 years, ASEAN’s population rose to 625 million in 2013 from 542 million in 2003, making it the third most populous region in the world after China (1.36 billion) and India (1.24 billion). It also boasts the fastest average annual population growth rate of 1.44%, faster than China’s 0.52% and India’s 1.41% during the 10-year period.
  • Its GDP per capita rose three times to USD3,837 in 2013 from USD1,342 in 2003. But the gap is extreme, from USD55,000 (Singapore) to USD1,000 (Myanmar). In the case of Indonesia, Malaysia, Thailand and the Philippines, the range is between USD2,700 and USD10,400.
  • In terms of Foreign Direct Investment (FDI), Singapore received USD61 billion, accounting for over 50% of FDI inflow into the region (2013) followed by Indonesia (15.6%), Malayvsia (9.2%), Thailand (8.6%) and Vietnam (8.4%). ASEAN has grown 6 ½ % annually since the Great Financial Crisis in 2008, although growth is now slowing somewhat. FDI in 2013 hit a record high of USD125 billion—9% of the global total.

How this wide gap in economic fortunes of member states will impact on the AEC agenda remains to be seen. Analysts have widely acknowledged that this could pose the biggest Achilles’ heel for the full implementation of a single market. Doubtless, many free trade agreements have been signed, the real challenge is how these agreements are implemented at the end of the day. How do governments balance the commitment to protect their citizens’ well-being with the commitment to integrate economically with its neighbours?

Political will is certainly needed. The main obstacles to integration according to Dr Benjamin Quinones, Chairman of Asian Solidarity Economy Council are: “Lack of synchronisation of policy for cross-border transactions and intra-ASEAN investments; institutional arrangements that are not supportive of intra-ASEAN initiatives; and endemic corruption in most ASEAN member states.”

So far, the AEC has been more of an evolving process rather than a major one-off event. Further progress is still needed on non-tariff barriers as well as regulatory harmonisation. Thus the end of 2015 is just a target which is unlikely to be met but which provides a goal post for all member states to move towards. It may well herald the beginning of a new era – the age of ASEAN, a brave new world where ASEAN leads in unifying the most diverse region in the world towards a common goal of peace, prosperity and a more equitable society.

Dr Benjamin Quinones,
Chairman of Asian Solidarity Economy Council

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