Tony Cripps, CEO of HSBC Singapore, says that Southeast Asia’s fortunes had risen tremendously since the Asian financial crisis in the late 1990’s but for ASEAN to continue to prosper in 2019 and beyond, policymakers across the region should step up reform efforts designed to boost the region’s openness and integration.
Cripps said: “Now is not the time to rest easy,” adding it was crucial to shield its economies and businesses from the challenging global backdrop, and allow them to capture opportunities going forward.
ASEAN’s past integration efforts have driven much of the success for the region, as evidenced by the level of geopolitical and economic interest and investment that the region is receiving, according to Cripps. But ASEAN needs to quicken the pace in order to give it a larger and stronger political and economic voice amid an increasingly fragmented and protectionist world.
Tangible reform is needed to smoothen intra-regional trade, encourage international investment, and create a sustainable future. Achieving these in 2019 will help the region both capitalize and shield itself from global events that are likely to play out over the coming years.
Global trade slowdown
The policy shifts in the US and China and their impact on trade coincides with the cyclical slow-down in electronics trade, one of Southeast Asia’s most integral sectors, equivalent to 25% of the region’s total exports in goods.
According to Cripps, “No one wins in a trade war but the impact on ASEAN economies can be partly offset if the much-discussed supply chain diversion to Southeast Asia, from the likes of China, US and Korea, materializes.
Supply chain diversion is happening in pockets across Malaysia, Thailand and Vietnam, given that they bulk-export the same products impacted by U.S. – China tariff. But increasing the ease in which goods and services flow across ASEAN will make the transition more widespread.
Important progress has already been made including the imminent launch of the ASEAN-wide self-certification scheme, that allows certified exporters to self-certify the origin of their exports.
The ASEAN Single Window, which digitizes intra-ASEAN trade documents launched across Indonesia, Malaysia, Thailand, Vietnam and Singapore in early 2018, has reduced the number of days it takes to clear cross-border goods flows to one day. But more needs to be done to smooth the flow of goods and services across ASEAN. This includes rolling out the window to all ASEAN countries, standardizing the cost and time of customs clearance across Southeast Asia and enabling the freer movement of professionals across the region.
ASEAN also needs to attract more investment from outside the region. While Foreign Direct Investment (FDI) into Southeast Asia grew after the global financial crisis, the lion’s share has gone to Singapore, Vietnam and Malaysia, not to countries like Thailand, Indonesia or Philippines, where supply chains are expected to grow in future.
The levers to attract investment to ASEAN more widely are clear: reasonable production costs, stable institutions, improved technological innovation, lowering tariffs and import barriers for production inputs, and increasing labor skills.
HSBC says that improving digital connectivity and investment in ASEAN’s digital space to support the region’s burgeoning consumer base can both shore up the region’s supply chain potential and increase the gravitational pull for multi-nationals and companies.
The master plan on ASEAN Connectivity 2025 has stated that between $220 billion and $650 billion USD in additional annual economic impact in ASEAN by 2030 could be injected into ASEAN through new technology and the Internet economy.
Its potential is clearly understood with US, Chinese and Japanese companies investing in information and communications technology over the past two years. But ASEAN’s digital advancements are still mixed. For example, in five ASEAN countries, e-commerce represents 3% or less of total retail sales, compared to China with 23 %.
Perhaps the biggest challenge for ASEAN will come in the form of natural disaster events. Southeast Asia is one of the most natural disaster-prone regions in the world, which has only been exacerbated by climate change in recent years.
An ISEAS-Yusof Ishak Institute survey found that threats from more intense weather events resulting from climate change were more concerning for ASEAN government and business leaders than economic downturns, terrorism and military tensions.
Weather aside, urbanization will mean that between 2015 and 2030 more than 100 million people region-wide are expected to migrate from the countryside into towns and cities across Southeast Asia. HSBC’s Cripps commented that, "Southeast Asia should find ways to deal with the strain on resources such as food, health and infrastructure."