Association of Southeast Asian Nations ("ASEAN") is home to more than 600 million people. It has a larger population than the European Union ("EU") or North America. The ASEAN economy is mainly driven by manufacturing and tourism. Growth has been rapid and relatively stable. It is a very diverse market in terms of culture, language and religion.
In terms of labour force, it is the third-largest behind China and India. Taking the Gross Domestic Product ("GDP") of member countries, it is the 5th largest (combined) economy in the world.
ASEAN is not yet a fully integrated economy like EU, where there is free flow of goods, people and services. Therefore, the ASEAN Economic Community ("AEC") was established on 31 December 2015. The vision is to establish ASEAN as a single market, with the free flow of trade and investment among the 10 member states. Member economies are currently all at vastly different stages of development.
The region sits at the crossroads of many global flows. The trade war between the US and China has been sparking debates. It has had some impact on ASEAN. The consequences would not only be economic but strategic.
1) Vietnam
Vietnam tops the list of highest economic growth in ASEAN and in trade. In recent years, it has transformed from a centrally planned to a market economy. According to DBS forecast, Vietnam is expected to overtake Singapore's economy in 10 years time.
The service sector and industrial activity is growing rapidly fueling strong economic growth. Government’s commitment to private-sector–led growth has helped improve the business climate. Vietnam intends to become a global manufacturing hub.
Vietnam’s regulatory quality and ease of doing business generally improved over the years, reflecting a leveling of the playing field between the private sector and the state. Vietnam also took steps to strengthen governance and fight corruption.
The fallout between US and China has had some positive impact on Vietnam, as Chinese manufacturers shift production into the country to evade US tariffs.
However, growth is expected to slow down in 2019. This is driven by credit tightening, slower private consumption and weaker external demand.
2) Laos
Laos has a relatively small economy and population. It is rich in natural resources and is landlocked. The country is largely dependent on agriculture and capital-intensive natural resource exports. It is one of the least developed economy in ASEAN.
In recent years, tourism has also grown. Tourists are mainly from Asia Pacific and usually visit more developed border towns.
Its economic model resembles the Chinese and Vietnamese socialist-oriented market economies by combining high degrees of state ownership with an openness to foreign direct investment in a predominantly market-based framework.
The economy has benefited from high-profile foreign direct investment in hydropower dams along the Mekong River, copper and gold mining, logging, and construction, although some projects in these industries have drawn criticism for their environmental impacts.
The Government anticipates that by 2025, hydropower will become the country's biggest source of revenue.
3) Myanmar
Myanmar is the next frontier of ASEAN. It has vast untapped potential after decades of economic isolation and military ruling. We covered in an earlier post why investors should consider investing in Myanmar now. It is currently one of the least developed economy in ASEAN.
Economy is still largely agriculture. The government is focusing on accelerating agricultural productivity and land reforms, modernizing and opening the financial sector, and developing transportation and electricity infrastructure.
The government has also taken steps to improve transparency in the mining and oil sectors through publication of reports under the Extractive Industries Transparency Initiative (EITI) in 2016 and 2018.
Economic growth is expected to be driven by manufacturing, insurance and construction sectors and supported by market reforms.
4) Philippines
Philippines has an increasing urbanization, a growing middle-income class, and a large and young population. In recent years, the Philippine economy has made progress in delivering inclusive growth, evidenced by the declining poverty rates and a falling Gini coefficient.
The country is transitioning from agriculture to services and manufacturing. It is fast growing providing business process outsourcing services. Remittance from overseas workers account for 10% of GDP. It is also heavily reliant on cash remittance.
But major problems remain. There is still a wide income gap between regions and socio-classes. It also lacks investing in infrastructure required for future growth.
The current administration recognises this and targets to spend $180 billion on infrastructure projects under its Build, Build, Build program (http://www.build.gov.ph/) until 2022.
5) Indonesia
Indonesia has the largest economy in ASEAN. It is currently the world's fourth most populated nation. It has made enormous gains in poverty reduction, cutting the poverty rate by more than half since 1999, to 9.8% in 2018. But similar to all other ASEAN countries, there are still concerns on inter-regional income disparity.
There were some recent political issues due to the elections held in April 2019. But it is still a stable and democratic country. The issues are expected to resolve through legal and political ways and not violence. And there are also still concerns on corruption.
Indonesia’s economic planning follows a 20-year development plan, spanning from 2005 to 2025. It is segmented into 5-year medium-term plans, called the RPJMN (Rencana Pembangunan Jangka Menengah Nasional). Each has different development priorities.
Indonesia has potential for growth due to its large supply of labour (young population) and huge domestic consumption. It targets up to an average 6% GDP growth in the next five years for its best case scenario.
It is pushing for development of green technologies especially for automotive. But energy prices are distorted in Indonesia due to the high fuel subsidies. This inhibits the growth of green technologies.
It plans to improve its basic infrastructure (water, electricity), broadband and cellular speed. It also plans to shift its capital from Jakarta to Kalimantan. Kalimantan is currently undeveloped and will need huge investment into infrastructure.
The trade war between US and China has helped Vietnam boost manufacturing growth, but not Indonesia. Chinese manufacturers have exited China and shifted to Vietnam to evade tariffs. But none has invested in Indonesia likely due to proximity and the lower productivity as compared to Vietnam.
ASEAN has a relatively young and large population. It has large potential for growth and is one of the fastest-growing consumer markets in the world. Its economic profile is also rising, as it grows as a global hub of manufacturing and trading.
Vietnam is showing fundamental strength with large amount of foreign direct investment, supported by robust domestic demand and export-oriented manufacturing. The weaker external demand has moderated growth forecast in Vietnam.
Myanmar is expected to be the next frontier of ASEAN with its close proximity to two of world's largest markets (China and India). Labour productivity is improving as it opens its market to the world.
In future posts, we will cover some of these economies in-depth. Which ASEAN economy do you find most attractive? Share by leaving us a comment. If you require more information or assistance on ASEAN markets, contact us. We want to be an extension of our clients. Subscribe to our newsletter for regular feeds.
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References
BBC, Laos Country Profile, https://www.bbc.com/news/world-asia-pacific-15351898, published 24 July 2018
Focus Economics, Fastest Growing Economies in the World, https://www.focus-economics.com/blog/fastest-growing-economies-in-the-world
US Export, Philippines - Transport Infrastructure, https://www.export.gov/article?id=Philippines-Transport-Infrastructure, published 18 July 2019
VOA, Vietnam Tops List of Trade Performers in ASEAN, https://www.voanews.com/economy-business/vietnam-tops-list-trade-performers-asean, published 14 October 2019
Today Online, https://www.todayonline.com/singapore/vietnams-economy-overtake-singapores-10-years-dbs-report, published