Monday, September 3, 2012

ASEAN - the next big thing?

While the Euro dream seems to be crashing down onto reality, could ASEAN – a disparate region of seemingly disparate economies and systems of governance, be on its way up?

Of course, as of now, ASEAN as a regional grouping carries little international clout or standing, unlike the European Union with its imposing common policies and army of bureaucrats in Brussels. ASEAN member states are also far from united, or even, similar – ASEAN spans a military junta in Burma to communist regimes in Indochina, to Singaporean-style democracy.  The same grouping also brings together one of the poorest– and tragically most bombed – nations on earth (Laos) and one of its richest (Singapore).

The statistics and news coming out of ASEAN recently, however, look promising, as opposed to the flow of bad news from the Eurozone. The Philippines, for example, has recently recorded the second highest growth rate in Asia, after China, while other Southeast Asian economies emerged relatively unscathed from the recent crises, perhaps all the wiser after the 1997 Asian Financial Crisis. Burma, in another surprising example, has set off a scramble by investors keen on its untapped markets and resources. Indonesia, of course, is still the fund investor’s emerging market darling. Malaysia grew at a very robust pace of 5.4% this quarter, propped up by government spending, while Singapore has recently been dubbed the ‘richest country on earth’.

Quite simply, ASEAN as a region, to quote a recent report, ‘is no pushover’. This should not come as a surprise, as is the statistic that the size of ASEAN’s economy is marginally bigger than that of India’s (at a combined GDP of US$1.35 trillion, compared to India’s US$1.3 trillion). ASEAN, however, unlike a stalling India and EU, is on an upward trajectory.

Other relevant statistics - ASEAN’s population stands at 600 million potential consumers (some 10% of the world population), with an emerging middle class. The region is also resource rich, with a young and increasingly educated demographic, and situated across some of the most important sea lanes in the world. For better or for worse, ASEAN is sandwiched between the twin giants of India and China, both of which have had much influence over the region historically. In an economic sense, it is for the better – trade and investment between ASEAN and these giants have hit an unprecedented high, and is expected to grow still.
However, even as China’s seemingly infinite pool of surplus labour from the countryside seems finally to be drying up and India stalls under political mismanagement, ASEAN still seems to be steaming ahead. Indeed, investors wary of a possible Chinese hard landing and rising costs have increasingly shifted bases to ASEAN.

Most of the economies, with the sole exception of Singapore, are still in the resource mobilisation phase, as opposed to a resource optimisation one which emphasises ‘productivity’ – in essence, getting more out of a fixed set of resources, to ensure continual economic growth. In other words, there is still much potential and space for growth ahead, at least until the veritable middle income trap is reached (where Malaysia, Southeast Asia’s 3rd largest economy, is stalled at).

What lies ahead for the ASEAN community is a move towards greater economic integration, bearing in mind, of course, the lessons of the Eurozone. First and foremost is clearly the integration of markets and the dismantling of trade barriers to encourage greater volume of trade – time and again, economic studies, since David Ricardo in 1817, have shown that trade benefits countries much more than protectionism – which, while packaged as ‘nationalism’ is often just a thin albeit useful veil to protect elite interests. Malaysia’s pantheon of scandals involving its ‘nationalised industries’ ranging from steel to automobiles bear witness to this, and I am quite certain that it is not Malaysia alone that has sustained huge losses from supposed protectionist, closed-door policies, especially now in an era of globalisation and global flows.

The fixation on free trade, however, always seems to neglect its equally important counterpart fair trade. Importantly, trade and the removal of tariff barriers have to done in a not just a free, but also fair manner, bearing in mind the differing levels of development of the member states, which Cambodian Prime Minister Hun Sen had just recently dubbed the biggest stumbling block to the realisation of the ASEAN economic community.

The age of small, export-dependent, Western-oriented economies booming seems to be over – the East Asian economic miracle that saw little dragons – Singapore, South Korea, Taiwan and Hong Kong flourishing, has been replaced by the era of the aptly named BRICs – large countries with sizeable resource bases, a young demographic and strong domestic consumption. Integration of markets and greater trade seem to be the only sure way for smaller countries to continue on the global growth trajectory, much of which will be driven by population growth and resource consumption.

Perhaps more pragmatically, beyond the idealism of a single ‘ASEAN’ community, Malaysia, Singapore and Indonesia would do well to integrate their economies, as these are at a more comparable level of development and also stand to benefit from historical cultural and trade ties. There is also a good mix of the much trumpeted ‘ingredients of development’ - capital, resources, human potential, consumer markets and decent infrastructure to really let the region take off.

While I would not count on paying for goods and services in ASEANs in the future, there certainly is much to be gained from greater integration and unity in the region, not just economically but also politically, to fend off the growing clout and assertiveness of China in a region it has long regarded as its backyard.