asean growth opportunity

Geography and Demographics

South East Asia spans approximately 4,500,000 square kilometers, comprising 8% of Eurasia and 3% of the Earth's land area. With a total population exceeding 675 million, it accounts for 8.5% of the global population, ranking as the third most populous region in Asia, after South Asia and East Asia. Notably, 10 out of 11 countries in the region are members of the Association of Southeast Asian Nations (ASEAN), a pivotal regional organization fostering economic, political, military, educational, and cultural integration among its constituents.

Cultural Diversity and Historical Influences

Southeast Asia boasts a rich tapestry of cultural diversity, characterized by numerous languages and ethnicities. The region's history is marked by significant influences from Indian, Chinese, Muslim, and colonial cultures, which have become integral to its cultural and political landscape. Many modern Southeast Asian nations have historical ties to colonization.

Economic Potential

Southeast Asia is witnessing remarkable economic growth, driven by a burgeoning population that is increasingly affluent and educated. The region possesses a skilled workforce with competitive wages, and its young, upwardly mobile demographic signals the emergence of a growing consumer class. Projections indicate that Southeast Asia will welcome approximately 140 million new consumers by 2030.

Digital Advancements

The region is also experiencing a digital revolution, with a surge in internet users and rapid growth in e-commerce. Around 40 million new internet users came online in 2020 and 2021, and the region's e-commerce sales are predicted to be the world's fastest-growing, reaching a total of US$90 billion in 2022.

Wealth Creation and Investment

Entrepreneurship has always been a hallmark of Southeast Asia, and now the region has the resources to amplify wealth creation. For instance, Thailand's wealth is projected to grow by nearly 60% from 2022 to 2030, with the number of millionaires expected to double within the same period.

Economic Outlook

Despite some headwinds, the ASEAN region remains an attractive destination for foreign direct investment. Economic growth may slightly moderate in 2023 due to global economic conditions and tighter monetary policies. However, the latter half of the year could witness more conducive conditions for organic growth, as falling inflation allows for greater rate flexibility, complementing increased economic activity in China.

The International Monetary Fund (IMF)  predicted economic growth in Southeast Asia at 4.6% for 2023,  4.9% for ASEAN in 2024 due to weakening global demand. 

These figures, place regional economic growth significantly above the global average, which the IMF forecasts at 3.0% in 2023 and 2024. As such, ASEAN remains an attractive destination for international investment, offering exposure to one of the world's fastest-growing regions.

Geopolitical Dynamics

The ASEAN nations may benefit from their strategic geopolitical position as the rivalry between the US and China intensifies. Both superpowers seek deeper ties with the region, with China notably leveraging agreements like the Regional Comprehensive Economic Partnership (RCEP) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). The US, on the other hand, has free trade agreements with selected ASEAN countries.

This geopolitical rivalry is not the sole factor contributing to ASEAN's growth. Several countries in the region boast thriving international tourism sectors, and an improving epidemiological environment is expected to aid the industry's recovery in 2023. According to Goldman Sachs, Thailand and Malaysia may experience solid growth, around four percent, in 2023 as global tourism normalizes, and current accounts rebalance.

• The Association of Southeast Asian Nations (ASEAN) with 10 member states as Indonesia, Malaysia, the Philippines, Singapore, Thailand, Vietnam, Brunei, Cambodia, Laos and Myanmar expected to generate a combined nominal GDP in 2022 of about $3.65 trillion making ASEAN the fifth-largest economy in the world, well on track to become the fourth largest by 2030 with a total population of about 700 million people, about 60% are under the age of 35 years. 

• These Member States target a free exchange of goods in the region with less trade barriers and deeper economic linkages, lower business costs, increased trade, and a larger market and economies of scale for businesses. 

• With the ASEAN Trade in Goods Agreement (ATIGA) intra-ASEAN import tariff lines have been almost entirely eliminated. Nevertheless non-tariff measures exist, which could have non-tariff barrier effects on the region's trade and business activities.

• The COVID-19 pandemic caused global investment activities to fall – due to economic uncertainties, lockdowns, supply chain disruptions and postponement of investment by multinational enterprises. ASEAN also recorded a decline in foreign direct investment (FDI) in 2020 to $137 billion, down from its highest-ever inflow of $182 billion in 2019 when it was the largest recipient of FDI in the developing world. 

• Despite the decline, ASEAN remained an attractive investment destination. The region’s share of global FDI rose from 11.9% in 2019 to 13.7% in 2020, while the intra-ASEAN share of FDI in the region increased from 12% to 17%. 

• Additionally, the longer-term trend shows that the value of international project finance in ASEAN has doubled from an annual average of $37 billion in 2015–2017 to an annual average of $74 billion in 2018–2020 (ASEAN Development Outlook ADO report) 

•  The implementation of the Regional Comprehensive Economic Partnership (RCEP) and digital transformation, which will drive growth and development in the region is adding to the optimistic outlook. RCEP came into force on 1st January 2022 for Australia, Brunei Darussalam, Cambodia, China, Japan, Lao PDR, New Zealand, Singapore, Thailand and Vietnam. 

• RCEP is the biggest regional free trade agreement in existence and will cover 30% of global GDP and 30% of the world population in addition to accounting for over one-quarter of global trade in goods and services. 

• Key provisions addresses liberalizing and promoting intra-RCEP trade, investment and services as well as developing e-commerce, which is highly relevant for regional value chains and market- and efficiency-seeking investment. Furthermore, non-RCEP companies can also take advantage of RCEP benefits by locating and operating in the region.

• Considering that 40% of investment in ASEAN comes from RCEP members – of which 24% comes from non-ASEAN RCEP member countries – opportunities exist to boost more sustainable FDI in the region.                         (World Economic Forum, Davos Agenda 01/2022, International Money Fund (IMF), ASEAN Development Outlook ADO report 2019)