With a combined economy bigger than India or South Korea and a total population of more than half a billion people, ASEAN has the potential to become an economic force that could rival China, India, Brazil and Russia. The absence of ASEAN from investors’ radar screens as a unified economic unit is due to the lack of integration of the bloc’s economies and financial markets. Both local and international investors still widely view the Southeast Asian region as 10 separate economies due to differences in regulations, business environment, institutional capacity and culture. Thus, further integration of ASEAN is necessary in order to maximize intra-regional synergies and keep the region relevant to the international economy and investors.
History is on ASEAN’s side. The global economic and financial crisis has seen a redistribution of economic power from the developed economies to the emerging markets. Last month’s summit of G20 leaders in Pittsburgh was a landmark event in this shift, with the expansion of the forum from seven industrialized nations to the 20 countries with the greatest global economic influence.
Although Indonesia became the only Southeast Asian member of the G20, ASEAN as a group was invited to participate in the G20 summits in London in April and in Pittsburgh in September as a result of its growing influence on the global economy. The US is set to hold its first-ever summit with ASEAN next month, when US President Barack Obama visits Singapore for the APEC meetings. These events have provided opportunities for ASEAN to emerge from the shadows of China and India and transform itself into an economic force in its own right.
ASEAN has earned its way to the global high table. Its member countries have weathered the financial storm well. Economic activity did contract in some open economies, such as Singapore, Thailand and Malaysia, but the worst is over, and their economies and financial systems have suffered no collateral damage. Meanwhile, Indonesia and Vietnam are emerging as Asia’s two outperformers. We estimate that ASEAN’s purchasing power could double by 2023, creating significant opportunities in consumer products and services.
All of this reflects the fact that ASEAN economies have built up their resilience through years of reform and restructuring since the Asian financial crisis of 1997-1998. The accumulation of foreign-exchange reserves has helped to maintain investor confidence and limit undue volatility, while a well-capitalized banking sector has been crucial to ensuring the smooth running of the region’s economy. Last but not least, disciplined fiscal policy has provided governments with the capacity to pump-prime, often in innovative ways, when needed.
Indeed, the ASEAN region has all the ingredients to become a global economic force. Last year, its 10 members had a combined GDP of US$1.5 trillion, 580 million people and total trade of US$1.7 trillion (26 percent of it intra-regional). If ASEAN were a single country, it would be the world’s 10th-largest economy and the third-most populous country. Counting only extra-regional trade, ASEAN is the world’s fifth-largest trading power, after the US, Germany, China and Japan. In recent years, ASEAN’s free-trade agreements with China, India, Japan and South Korea have deepened the region’s economic links with the rest of Asia.
Also, ASEAN as a combined economy would rank among the world’s top 10 in terms of foreign direct investment inflows. Fears of China taking every foreign direct investment (FDI) dollar from ASEAN have not been matched by reality. ASEAN still managed to attract US$60 billion of FDI last year, with intra-regional investment accounting for a sizeable portion as foreign investors, especially from within Asia, see countries such as Indonesia and Vietnam as alternative manufacturing bases as the cost of doing business in China rises. In fact, relative to the sizes of their economies, ASEAN attracted more FDI than China — China absorbed US$108 billion of FDI last year, while its GDP was three times the size of ASEAN’s.
That said, further enhancements are badly needed to increase foreign investor interest in ASEAN. The region’s economic integration is still at an early stage and much more work is required to remove barriers to the trade of goods and the free flow of capital, information and talent. These measures are relevant to businesses as they enhance access to the whole ASEAN consumer market from any one member country.
Amid the rise of China and India, there are ongoing concerns that some of South East Asian nations may be marginalized. This is primarily a result of the economic and political diversity of ASEAN members. For example, the World Bank’s Doing Business Survey 2010 ranks Singapore as the easiest place in the world to do business, while it ranks Laos 167th out of 181 countries. Politically, ASEAN’s members range from Indonesia, the world’s third-largest democracy (after India and the US), to Myanmar at the other end of the spectrum. Brunei’s economy is heavily dependent on oil and gas. Thailand, Vietnam, Indonesia and Malaysia have considerable agricultural production bases. By contrast, Singapore has few, if any, natural resources and relies on imports for local consumption and manufacturing, while financial services and trading drive its economy. Singapore, ASEAN’s richest member, has a per capita GDP 150 times higher than its poorest, Myanmar, and 15 times the ASEAN average. While Singapore, Malaysia and Thailand boast the region’s best ports, airports and transportation networks, other ASEAN countries are disadvantaged because of poor logistics and infrastructure.
Clearly, ASEAN’s smaller members need a common platform to represent their interests and ASEAN could become that key channel through which these members can make their voices heard on the global stage.
The challenge for ASEAN leaders who converged in Thailand this month for the 15th ASEAN Summit was therefore to convince the business sector and investors that ASEAN is a workable concept. The ASEAN Charter, adopted by all 10 members last year, is an important step forward towards integration. The plan to establish an ASEAN Economic Community by 2015, while ambitious, is necessary to push the region’s integration forward and thus help establish ASEAN as a global economic powerhouse.
Tai Hui is regional head of research, Southeast Asia, at Standard Chartered Bank.
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