Winning in ASEAN
ASEAN countries are well positioned for growth, but new research suggests that partnerships are the key to fulfilling the region’s potential
The Association of Southeast Asian Nations (ASEAN) region stands at a crossroads. On the one hand, the economies of Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam are bouncing back from the disruption of the COVID-19 pandemic. On the other, new research suggests historical drivers of success in the region may not be enough to deliver further growth as the world moves on from the crisis.
There are certainly reasons to be positive. The International Monetary Fund expects the ASEAN-5 economies (Indonesia, Malaysia, the Philippines, Singapore and Thailand) to expand by 4.3 per cent in 2023 and by 4.7 per cent in 2024 – well ahead of global growth, but also in advance of many other developing economies. And although it accounts for less than 4 per cent of global GDP, ASEAN attracted around 12 per cent of foreign direct investment in 2021, up from an average of 7 per cent between 2011 and 2017.
Moreover, argues Alex Holmes, Senior Asia Economist at think-tank Oxford Economics, inflationary pressures are finally easing. “Inflation is past its peak and starting to edge down,” he says. “As it heads back towards target, we expect central banks’ concerns will start to abate; many have already pared back the pace of tightening alongside the US Fed.”
Capturing ASEAN's full potential will require greater collaboration and partnership between the private and public sectors”
But how can ASEAN best capitalise on this improving picture? “Capturing ASEAN’s full potential will require greater collaboration and partnership between the private and public sectors,” says Steven Cranwell, CEO and Regional Head of Client Coverage, Americas at Standard Chartered. “This will ensure investment is delivered into jurisdictions and sectors that will deliver the greatest benefit and have the largest impact.”
In fact, Standard Chartered’s Winning in ASEAN research suggests that 93 per cent of business leaders globally expect positive revenue growth from their ASEAN operations between 2023 and 2025; 81 per cent of business leaders expect that the recently agreed Regional Comprehensive Economic Partnership (RCEP) will drive an increase in their organisation’s investment in ASEAN between 2022 and 2026 . But the bank’s study also recommends that the region should look beyond its traditional strengths in areas such as manufacturing.
Four key sectors for ASEAN’s future
The Winning in ASEAN report highlights four key sectors – construction and infrastructure, consumer products, pharmaceuticals and healthcare, as well as digital and ecommerce – where growth prospects look especially promising.
Industry projections suggest construction and infrastructure could deliver compound annualised growth of 12.2 per cent between 2021 and 2025, followed by consumer products, with growth of 10.8 per cent, digital and ecommerce, with growth of 10.6 per cent, and pharmaceuticals and healthcare, with growth of 10.2 per cent.
In addition, the report also showcases a ‘THRIVE’ framework, representing the six growth pillars that corporates are pursuing to advance in ASEAN – Talent, Hi-tech, Regulatory, Infrastructure, Value Chain and Environment.
However, businesses will need to work towards greater maturity in these key growth pillars in order to capture ASEAN’s full potential – often through new alliances with stakeholders such as policymakers, finance providers and other partners.
The Winning in ASEAN research also highlights three areas in particular where collaboration needs to be strengthened by the mid-2020s to spur progress. Some 65 per cent of those surveyed by Standard Chartered point to the need for more partnerships to unlock greater potential across the value chain; 60 per cent say more needs to be done to upskill and future-proof the workforce; and 55 per cent are looking for a more proactive approach to improving infrastructure.
“The good news is that this cooperation is taking flight. For example, the RCEP – which was signed in 2020 by the ASEAN economies and also includes Australia, China, Japan, the Republic of Korea and New Zealand – is the largest free trade agreement in the world,” adds Cranwell.
The RCEP sets an important agenda by releasing huge resources for trade and investment”
“The RCEP sets an important agenda by releasing huge resources for trade and investment, creating dynamic regional and global value-chain activities,” says Dr Aladdin Rillo, Senior Economic Adviser at the Economic Research Institute for ASEAN and East Asia (ERIA). “It is a critically important framework for global trade and regionalism.”
Growth must be sustainable
Such agreements could also help the ASEAN nations tackle sustainability challenges. Governments and business leaders across the region recognise the need to focus on issues such as decarbonisation, resource management and social wellbeing as they pursue economic expansion. Of the leaders surveyed by Standard Chartered, 52 per cent said they plan to grow their business by investing in net zero solutions in ASEAN by 2025.
However, individual countries will struggle to make progress on their own. “Directing blended finance through public-private partnerships is key to enabling a just transition or for facilitating the change that is necessary across ASEAN,” says Cranwell.
It’s another example of how the region will be stronger if it stands together. There is certainly an opportunity to harness powerful economic momentum, but businesses active in the region also face critical headwinds, from talent shortages and infrastructure weaknesses to the sustainability imperative. By joining forces with governments and other key actors, they may be able to leapfrog these challenges, to the benefit of all.