Four growth strategies for a recovering and resilient ASEAN
Much has been discussed of the challenges facing businesses and governments in 2022. These include soaring inflation due to a shortage of food and energy, rising interest rates, and a looming cost-of-living crisis. In addition, there are supply chain disruptions brought about by the lingering effects of pandemic lockdowns and heightened geopolitical tensions. These are but a few of the issues facing economies worldwide.
Yet despite today’s challenging backdrop, there remains cause for optimism, especially for businesses in ASEAN. At the recent Bloomberg Live event, “Recovery and Resilience: Spotlight on ASEAN Business”, speakers outlined areas where the region has performed well, alongside emerging trends and opportunities for businesses and governments to tap into.
“ASEAN is on track to become one of the world’s largest trading blocs, benefitting from global supply chain shifts” opined Benjamin Hung, CEO of Asia at Standard Chartered. “Particularly the China-plus-one strategy, and the Regional Comprehensive Economic Partnership, which covers approximately 30 per cent of the world’s GDP.”
“ASEAN is one of the very few economic blocs in the world where every major economy wants to do further business with,” added Hung. “Capturing the region’s full potential will require active collaboration between the private and public sectors – to bring synergies and break barriers.”
During the event, policy makers and industry leaders outlined four key strategies that should help drive the recovery and build resilience for ASEAN-based businesses in the near-term.
1. Focus on core strengths
For Tengku Zafrul Aziz, Malaysia’s Minister of Finance, his nation’s economy performed better than expected during the first six months of 2022. The minister acknowledged that a strong US dollar continues to be a cause of concern for his ministry, as is a slowing global economy. Nonetheless, the Malaysian economy is now back on track, and set to post GDP growth of up to 7.3 per cent for the year – while keeping inflation at 2.8 per cent for the same time period. Unemployment has dipped from 5.3 per cent in 2021, to 3.3 per cent this year.
The minister also noted that while the Malaysian ringgit is at its lowest level against the US dollar since the Asian Financial Crisis of the late 1990s, the currency has nonetheless appreciated against the Euro, Japanese yen, and British pound. This bodes well for local businesses as well as foreign entities considering entering the market. Malaysia’s economic resilience is due to numerous factors, including the exporting of commodities, and electrical and electronic products. Robust performance of these sectors should continue in the future.
Sri Mulyani Indrawati, Indonesia’s Minister of Finance, noted how the archipelago nation is also experiencing inflationary pressure from rising food and energy prices, with the current inflation rate at 4.6 per cent. Nonetheless, the minister remains bullish on Indonesia’s economy.
Foreign direct investment into the country is rising, as too is demand for Indonesian government bonds. The country’s push to be at the forefront of emerging industries is noteworthy. Combined, the country’s interconnectivity, advancing human capital capabilities, and wealth of natural resources has put Indonesia in good stead to play a key role in sectors that will be critical to achieving net zero emissions in the coming decades. This includes electronic vehicles (EVs), where the nation’s footprint in global automotive supply chains and status as the world’s largest nickel produceri makes it well-positioned to capitalise on the fast-growing demand for EVs.
2. Climb the value chain
The crises of the past few years have provided an opportunity to restructure ASEAN economically, noted Ambassador Sihasak Phuangketkeow, Special Advisor of Eastern Economic Corridor, and Former Permanent Secretary of Thailand’s Ministry of Foreign Affairs. While the bloc has invested heavily in infrastructure for decades, it lags behind other regions in terms of productivity and competitiveness, the ambassador opined. Continued investment in human capital, digitalisation, and the green economy will be key to bridging the gaps.
ASEAN is not short of creating impactful policies, according to Deborah Elms, Founder and Executive Director of the Asian Trade Centre, and President of the Asia Business Trade Association. Yet the bloc typically struggles with implementation of such plans, particularly at national and local levels.
Elms cited the ASEAN Agreement on Electronic Commerce of 2018, a policy that defined rules on e-commerce transactions across the region, paving the way for a regionally integrated digital economyii. Despite coming into force for December 2021, this has yet to be fully implemented by several bloc countries, a deficit which is impeding the ability of ASEAN to harmonise its e-commerce activities. To reap the benefits of these many plans, businesses must collaborate with governments to make them workable across all markets.
Resilience will be key to helping economies move up the value chain, noted Ng Lai Yee, Singapore Managing Partner and Country Leader at IBM Consulting. This includes fostering different risk models and alternative supply chains, with technology playing a pivotal role. To future-proof further, businesses should implement “cognitive control towers”, through which artificial intelligence and big data can provide smart visibility over multiple supply chains, helping automate their decision making and minimise disruptioniii. Firms can also leverage digital twins, enabling companies to simulate future events and subsequent disruptions, with the goal of making more informed decisions.
3. Connect and collaborate around green growth
While ASEAN’s target of sourcing 23 per cent of its electricity from renewable sources by 2025 is realistic, further connectivity and collaboration between states is needed. Sonali Tang, Regional Director of Singapore at the Asian Development Bank, noted how Laos is hydropower-richiv with its share of electricity generation from hydro accounting for 85 per cent of total energy usage. Meanwhile in Vietnam, solar, onshore wind, and offshore wind account for 36 per cent, 28 per cent, and 36 percent of the country’s electricity mix respectivelyv.
Yet not all countries are capable of producing high levels of renewable energy, Tang cautioned. The bloc must therefore share its green energy resources equally among members: and while efforts to realise this model feature in the ASEAN Power Grid – a project dating back to 2007vi that aspires to connect all 10 member states – presently it only connects Singapore, Malaysia, Thailand, and Laos. By connecting all ASEAN states, energy will ultimately become more equitable and more affordable for end-users, as well as helping some countries to remove subsidies.
The rolling out of the ASEAN Power Grid will also help mitigate climate change beyond the bloc’s borders. According to The Honourable Mohammad Atiqul Islam, Mayor of Dhaka North in Bangladesh, slowing climate change could help the city avoid floods and droughts, which are gaining in frequency and displacing residents.
Like many emerging market cities, Dhaka is short of the funds needed to pay for climate solutions, like renewable energy or flood defence systems. Private capital is critical to meeting this need. Angelia Chin-Sharpe, Singapore CEO at BNP Paribas Asset Management, acknowledged that there is appetite for such investments, provided that projects are bankable, and money earmarked for climate action projects is channelled to these causes.
4. Deploy cutting-edge technologies to kickstart new markets
For most businesses, the concepts of Web 3.0 and the metaverse may seem foreign. As such, the ways to leverage these new technology platforms remain unclear. To this end, businesses need solid examples of how these works-in-progress might in fact function.
The Pacific Island country of Palau is betting big on Web 3.0. According to its President, His Excellency Surangel S Whipps Jr, Palau’s digital residency scheme is already leading the way towards a new digital-first world. Within this realm, digital assets and transactions among residents located anywhere in the world can be executed entirely online and paid for with cryptocurrencies.
To this end, cryptocurrencies, including central bank digital currencies, will also play a major role in embedded finance – whereby seamless transactions take place with the click of a button. Nischint Sanghavi, Visa’s Regional Crypto Lead for Asia Pacific, noted how embedded finance already underpins payments on online marketplaces, and will soon facilitate the purchase of goods and services in the metaverse.
It’s not just private companies that will benefit from the metaverse, asserted Pang Xue Kai, CEO at Tokocrypto. Governments stand to gain enormously as well. Indonesia plans to showcase its upcoming new capital city – Ibu Kota Nusantara (IKN) – to its citizens through the metaversevii. This will allow visitors to experience IKN’s many features using virtual reality, allowing them to access a three-dimensional feel for how the city will look once built.
Collectively, the four strategies discussed above provide a roadmap for companies to recover, build greater resiliency, and fuel further growth in the region and beyond. As the only international bank with a presence in all 10 ASEAN markets, Standard Chartered is likewise in a strong position to help businesses capitalise on these emerging opportunities and realise the region’s full potential.
ii https://asean.org/asean-agreement-on-electronic-commerce-officially-enters-into-force/
iii https://developer.ibm.com/blogs/introduction-to-cognitive-control-tower/
iv https://www.andritz.com/hydro-en/hydronews/hydro-news-asia/laos#
v https://www.eco-business.com/opinion/paving-the-way-for-wind-energy-prosperity-in-vietnam/
vi https://asean.org/our-communities/economic-community/asean-energy-cooperation/key-documents/