Why the world is excited about ASEAN
The bloc is actively working as an organisation to remove barriers to intra-regional trade.
Originally published in The Business Times.
While the world debates the next chapter of globalisation, it’s a case of full steam ahead in Asean markets.
Investors are flocking to the region, drawn by its trade links, digital transformation and the demand for sustainable infrastructure.
Less visible, but of vital importance, is the work that Asean is doing as an organisation to integrate its 10 member states.
Foreign direct investment (FDI) keeps flowing into the South-east Asian bloc, even as it has retreated in some other parts of the world. The region’s total FDI in 2023 was US$226 billion, second only to the United States. This represented a 17 per cent share of world FDI, compared to just 8.2 per cent in the years between 2015 and 2019.
As the International Monetary Fund reported in November, Asean members are expanding trade not only with the United States and China, but with the world more generally. We noted previously that Asean, through its membership in trade agreements such as the Regional Comprehensive Economic Partnership, is acting as a gateway between Asia and other regions, particularly for “South-South” trade.
ASEAN – the life within
However, in the view of Standard Chartered’s Future of Trade report, the fastest growing trade corridor is likely to be within Asean itself. We expect annual growth of intra-Asean trade to be the fastest of any such corridor in the world, averaging 8.7 per cent a year until 2030.
Asean markets have a combined population of more than 650 million, 200 million more than another well-established grouping, the European Union. It has a rapidly growing middle class, and gross domestic product for the bloc was US$3.8 trillion at the end of last year. By 2030, Asean may be the world’s fourth-largest economy.
Digitalisation is advancing rapidly, with tech companies and hyperscalers racing to build data centres, and major Asean cities aiming to double their data-centre capacity by 2028.
What is often less visible is that, like the EU, Asean is actively working to remove barriers to intra-regional trade.
This has increased demand for cross-border financial services, such as trade financing and foreign exchange, allowing banks like Standard Chartered, which have strong global relationships, to bring even more business into the network.
Or take the Asean Economic Community’s efforts to integrate financial services via its Banking Integration Framework. By promoting cross-border payment systems, lending and trade finance, the framework helps us ensure that our clients and their ecosystems have the necessary liquidity and working capital when and where they need it.
Beyond the factory
Much of the recent discussion on Asean has focused on how it has become an attractive base for global manufacturers as they seek to diversify and strengthen their supply chains in a period of geo-economic uncertainty.
But the good story is broader than manufacturing.
Asean member Singapore, where Standard Chartered’s regional operations are based, is a global hub of finance and digital innovation. It was in Singapore that we partnered with Linklogis to launch Olea, a fully digital platform that connects institutional investors with businesses that need supply-chain financing.
Asean is supporting this kind of innovation by finalising a Digital Economy Framework Agreement. This framework will enable faster and more secure cross-border e-commerce and payments, for many organisations, including global banks like ours.
It establishes clear rules on data storage and management, reduces regulatory fragmentation and facilitates seamless digital and fintech solutions across multiple Asean markets in a cyber-secure way.
The bloc’s AI Governance and Ethics Guide offers a light-touch approach to how artificial intelligence can support this digital growth.
The tangible links
Another key area of opportunity is Asean’s physical infrastructure requirement.
Respondents to our Greater Bay Area survey cited the infrastructure deficit of Asean markets as one of the main headwinds to success, alongside bureaucratic hurdles and poor local financing.
The Asean Power Grid is driving a pan-regional overhaul of power systems, linking national power grids with interconnectors to maximise the potential of intermittent renewable energy sources such as wind and solar.
The region’s energy infrastructure is particularly deserving of investor attention, not least given the power demands of new data centres. Across Asean, there is a desire to expand the existing transmission capacity of 7.7 gigawatts (GW) to 17.6 GW by 2040.
The bloc has put in place sustainability standards and mechanisms – such as the Asean Taxonomy for Sustainable Finance, Asean Green Bond Standards and the Asean Catalytic Green Finance Facility – that will help to raise finance for large-scale energy infrastructure projects by tapping global funds allocated to sustainable investment.
When it comes to trusted data, the flagship Asean Energy Outlook serves as a critical reference, charting the bloc’s progress in delivering the energy – particularly renewable energy – needed to fuel the region’s economic growth. It also provides an honest assessment of the investments still needed to achieve these goals.
The latest edition of the outlook report, for example, notes that Asean is targeting a 23 per cent share of renewables in its total primary energy mix by 2025, but that the share stood at only 15.6 per cent as of 2022, presenting a challenge to hitting this target.
In short, Asean – a global bright spot – is making significant strides in integrating its 10 member states, while recognising that much remains to be done.
As the only international bank with a presence in all 10 Asean markets and decades of expertise in South-east Asia, we look forward to continued collaboration with our regional partners to help turn even more of this potential into performance.
Source: The Business Times © Singapore Press Holdings Limited. Permission required for reproduction.
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