ASEAN: the EU of Southeast Asia

Thao Le, International Trade Practice Director, discusses some of the high growth opportunities offered by the ASEAN market

ASEAN
Credit: Pixabay (Dragon Bridge, Da Nang, Vietnam)

If you have an interest in new opportunities in Asia, this article is for you. It covers some of the high growth opportunities offered by the Association of Southeast Asian Nations (ASEAN) – dubbed “the EU of Southeast Asia”.

It was established in 1967 by Indonesia, Malaysia, Philippines, Singapore and Thailand and later joined by Brunei Darussalam, Vietnam, Lao PDR, Myanmar and Cambodia. More than half of ASEAN’s population of 630 million is under the age of 30. It is predicted to become the fourth-largest economy in the world by 2030, after the US, China, and the EU.

Real GDP growth in the ‘five fastest-growing economies’ in Southeast Asia (annual percentage change):

ASEAN-5 country 2017 2018 2019
Vietnam 6.8 6.9 6.7
Philippines 6.7 6.4 6.5
Indonesia 5.1 5.2 5.2
Malaysia 5.9 4.9 4.8
Thailand 3.9 4.5 4.1

Source: OECD

The Singapore case

The island country and city-state ty-state in maritime Southeast Asia is the de facto ASEAN’s financial capital. It is a major finance and fintech hub with an advanced economy. In addition, it is the base for many Western businesses of all sizes – they want to invest and trade in Southeast Asia. Singapore banks and professional services help them navigate the complex and unique regulations of each ASEAN country.

There is a Fintech boom across the ASEAN countries. Singapore stands out in terms of market maturity and number of regional fintechs based there, according to an Economist Intelligence Unit report published in 2018. Its financial regulator, the Monetary Authority of Singapore (MAS), wants fintechs to succeed and is willing to help them. There are a lot of global fintech start-ups looking to set up shop there.

The World Bank ranked Singapore 2nd (behind New Zealand) among 190 economies in its latest Ease of Doing Business Index. Singapore is also widely regarded as the country with the best governance in Asia. English is the trade language and many services are available only in English.

The Vietnam case

Due to the Us-China ongoing trade war, American companies, alongside Chinese ones, have re-routed more than half of the 2,000 circa tariffed products in the US-China trade war so far, reported Bloomberg in June. Vietnam is the biggest winner of the trade war so far, with a boost equivalent to 7.9% of its projected 2019 GDP through the first quarter of the year, according to Nomura Holdings.

In addition, Vietnamese companies in sectors ranging from Trucking to Fintech are attracting a record wave of VC money, reported FT in July. VNG, an online games, platforms, digital payments and cloud services company, was valued at an estimated $2.2 Billion in a fundraising round led by a unit of Temasek, an investment firm from Singapore, reported Reuters in March.

After much progress since the launch of the “doi moi” (renovation) policies in 1986, Vietnam could soon be included in the MSCI Emerging Market Index, which institutions use to allocate their assets. This could potentially attract billions to its stock market. 

ASEAN challenges

In 2018, the World Economic Forum identified the following as the top two challenges for the future of ASEAN.

1. Geopolitical stability and regional relationships

ASEAN states are located at a strategically important junction, bordering China and India, which makes ASEAN a focal point for both regional and global powers. ASEAN members are also enmeshed in territorial disputes with interested powers. And China’s claim to territories in the South China Sea, for example, overlaps with competing claims by Brunei Darussalam, Malaysia, the Philippines and Vietnam.

Closer coordination and common goals among ASEAN governments can help promote stability.

2. Governance challenges for businesses

There are huge family-owned conglomerates and state-linked businesses. Examples are the Central Group in Thailand, Salim Group in Indonesia, Singtel in Singapore, and Vinamilk in Vietnam. Yet small and mid-sized businesses are 90% of business activity. Entrenched interests with conglomerates and corruption are undermining the business environment, particularly hurting smaller businesses.

Digital innovations may enable greater transparency and promote economic growth.

Final thoughts

In 2020, ASEAN will host not one but two Formula 1 Grand Prix races. Next year, Vietnam will join the elite nations (which already include Singapore) organising the races valid for the prestigious F1 World Championship. Although this is no market index, one could argue that it is a signal that, despite its challenges, Southeast Asia is a buy!

 

To learn how we can help you take advantage of the opportunities in ASEAN:

International Trade services

 

Thao Le

View posts by Thao Le
Thao helps small and mid-sized businesses enter new markets, leading the International Trade practice. She works with companies in fast-moving consumer goods (FMCG), specialty consumer goods and other sectors that want to trade with countries around the world. Her expertise: market research (countries and sectors), trade missions, marketing, logistics and more. Thao has over ten years of business experience in several sectors.
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