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ASEAN: A region of complexities and contradictions

Investors and multinationals are increasingly turning their gaze southward to the dynamic markets that make up the Association of Southeast Asian Nations. ASEAN encompasses Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam — economies at vastly different stages of development, but all sharing immense growth potential.

ASEAN is a major global hub of manufacturing and trade, as well as one of the fastest-growing consumer markets in the world. As the region expands its ties and captures an even greater share of global trade, its economic profile is rising — and investors are examining one of the world’s most diverse, fast-moving and competitive regions.

The 10 member states of ASEAN collectively comprise the seventh-largest economy in the world. Together, they form an economic powerhouse with a combined GDP of USD 2.5 trillion. By 2050, the region is projected by economic analysts IHS to rank as the world’s fourth-largest economy.

Labour-force expansion and productivity gains drive the ASEAN success. With more than 600 million people, ASEAN has the third-largest labour force in the world, behind China and India, and one of the world’s most youthful. Almost 60 per
cent of growth since 1990 has come
from productivity, as sectors such as manufacturing, retail, telecommunications and transport become more efficient.

Yet, in this land of complexities and contradictions, workforce skills are under-developed in parts of the region, most notably in Indonesia and Myanmar, where the McKinsey Global Institute predicts the workforce will be under-supplied by 9 million skilled and 13 million semi-skilled workers by 2030.

Indonesia represents almost 40 per cent of the region’s economic output and is a member of the G20, while Myanmar, emerging from decades of isolation, is a ‘frontier market’. GDP per capita in Singapore is more than 30 times higher than in Laos, and more than 50 times higher than in Cambodia and Myanmar.

Such diversities extend to culture, language, religion... Indonesia, for example, is almost 90 per cent Muslim, while the Philippines is more than 80 per cent Roman Catholic, and Thailand is more than 95 per cent Buddhist – making it imperative that investors are aware of local preferences for goods and services as well as cultural sensitivities.

Yet, much less GDP volatility than in other powerhouse regions (ASEAN has proved to be resilient in the aftermath of the 2008 global financial crisis and achieved an annual average GDP gain of 5 per cent since 2000); and increasing opportunities for integrated development opportunities throughout the region (see below) provide an attractive platform for growth and investment.

Vietnam stands out as a leading contributor to this growth – the country took just 11 years (from 1995 to 2006) to double its per capita GDP from USD 1,300 to USD 2,600.

Growth of the ‘consumer class’
ASEAN’s people are becoming ‘consumer class’ – extreme poverty is rapidly receding: in 2000, 14 per cent of the region’s population was below the international poverty line of USD 1.25 a day (based on purchasing-power-parity terms) but, by 2013, that proportion had fallen to just 3 per cent.

Already 67 million ASEAN households are among the ‘consumer class’, with incomes exceeding a level at which they can begin to make significant discretionary purchases (defined as households with more than USD 7,500 in annual income). That number is expected to almost double to 125 million households by 2025, making ASEAN a pivotal consumer market of the future.

There is no typical ASEAN consumer in this land of complexities and contradictions, but McKinsey Global Institute has identified broad trends: a greater focus on leisure, a growing preference for modern retail propositions, and increasing brand awareness.

Predictably alongside growth, ASEAN’s cities are booming. Today, 22 per cent of ASEAN’s population lives in cities of more than 200,000 inhabitants — accounting for more than 54 per cent of the region’s GDP. An additional 54 million people are expected to move to cities by 2025.

And ASEAN consumers are increasingly moving online: mobile take-up is 110 per cent (in effect, everyone has a mobile device and some have two) and internet usage stands at 25 per cent across the region. Its member states make up the world’s second-largest community of Facebook users, behind only the US.

But, again, there are vast differences. Singapore has the fourth-highest smartphone usage in the world and almost 75 per cent of its population is online. Indonesia, the world’s fourth-largest population, is rapidly becoming a digital nation; it already has 282 million mobile subscriptions and is expected to have 100 million internet users by 2016. By contrast, to date, only 1 per cent of Myanmar’s population has access to the internet.

Export trade developments
ASEAN is the fourth-largest exporting region in the world, trailing only the European Union, North America and China/Hong Kong. As its member states have developed more sophisticated manufacturing capabilities, their exports have diversified. Vietnam specialises in textiles and apparel; Singapore and Malaysia are leading exporters of electronics. Thailand has joined the ranks of leading vehicle and automotive-parts exporters.

Other ASEAN members have built export industries around natural resources. Indonesia is the world’s largest producer and exporter of palm oil, the largest exporter of coal, and the second-largest producer of cocoa and tin. While Myanmar is just beginning to open its economy, it has large reserves of oil, gas and precious minerals. In addition to exporting manufactured and agricultural products, the Philippines has established a thriving outsourcing industry, with China as its key customer.

Export-processing zones have been established across ASEAN. The Batam Free Trade Zone (Singapore–Indonesia), the Southern Regional Industrial Estate (Thailand), the Tanjung Emas Export Processing Zone (Indonesia), the Port Klang Free Zone (Malaysia), the Thilawa Special Economic Zone (Myanmar) and the Tan Thuan Export Processing Zone (Vietnam) are all expected to propel export growth.

One-market opportunities
Meanwhile, intra-regional trade could significantly grow through the ASEAN Economic Community. Some 25 per cent of the region’s exports go to other ASEAN partners and the total value is climbing rapidly as the region develops stronger cross-border supply chains.

The ASEAN Economic Community (AEC) integration plan is enabling freer movement of goods, services, skilled labour and capital as well as tariffs on goods now close to zero in many sectors among most of the member states. By this year (2015), AEC is aiming for regional economic integration by establishing:

• A single market and production base

• A highly competitive economic region

• A region of equitable economic development

• A region fully integrated into the global economy.

The AEC blueprint for cooperation (agreed at a 2007 summit in Singapore) includes human resources development and capacity-building; recognition of professional qualifications; closer consultation on macroeconomic and financial policies; trade financing measures; enhanced infrastructure and communications connectivity; development of electronic transactions through e-ASEAN; integrating industries across the region to promote regional sourcing; and enhancing private sector involvement for the building of the AEC. “In short,” says the AEC, “we will transform ASEAN into a region with free movement of goods, services, investment, skilled labour, and freer flow of capital.”

Beyond its borders, ASEAN has forged free-trade agreements with trading partners including Australia, China, India, Japan, New Zealand and South Korea. ASEAN has also been party to the Regional Comprehensive Economic Partnership trade negotiations that would form a mega trading bloc comprising more than three billion people, a combined GDP of about USD 21 trillion, and 30 per cent of world trade.

Consistent with this growth, foreign direct investment (FDI) in ASEAN has boomed and the region has become a launch pad for new companies; it accounts for 38 per cent of Asia’s market for initial public offerings. In 2006, ASEAN was home to the headquarters of 49 companies in the Forbes Global 2000. By 2013, that number had risen to 74. ASEAN includes 227 of the world’s companies with more than USD 1 billion in revenues.

UHY member firms have offices in many of the ASEAN countries. For further details see