“The ASEAN region has seven “unicorn startups”
What do you see as the biggest opportunities and biggest risks in 2017 for U.S. businesses in the Association of Southeast Asian Nations (ASEAN) region?
Despite uncertainty in the global environment, the ASEAN region is forecasted to have an average rate of growth above 5 percent GDP per year, and remains desirable for that reason. The region is also home to roughly 640 million people, with a population that is both young and urbanizing, driving strong demand for various goods and services. Additionally, the ASEAN region remains the best hub for the Asia-Pacific region because of existing free trade agreements (FTAs) with Asia’s largest economies (China, Japan, South Korea, India, Australia, and New Zealand), and is in the process of harmonizing these agreements into a comprehensive regional FTA. Such a comprehensive agreement would bode well for companies looking to access China and India. There is also rapid emergence in the startup space in Southeast Asia. The ASEAN region has seven “unicorn startups” (valued over $1 billion), as well as lots of foreign direct investment going into various markets in the region.
Which industries are seeing the biggest opportunities and demand signals in the ASEAN region?
One is aviation/aerospace. Asia is home to the fastest global growth for planes, components and other elements of that market. Education and healthcare services are also rapid growth sectors, due to the rapid growth of the middle class in places that have historically only had public education or public health care.
What kind of opportunities has the single customs window opened up? What is happening there that companies can respond to?
While ASEAN represents ten individual countries [Thailand, Vietnam, Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar/Burma, Philippines, Singapore], it is pursuing a regional economic integration agenda, forming the ASEAN Economic Community (AEC), a key pillar of which is an ASEAN single window customs network which would facilitate the efficient cross-border movement of goods. It has been a hallmark of the region to get each of the ten countries to first establish a national single window, then to connect these individual windows into a regional system. To date, seven of ten ASEAN countries have their national single windows in place, while three of the smaller economies are working to put their national windows in place. On top of that, pilot projects are underway in the larger economies that involve private sector participation to help connect the national single windows of Malaysia, Singapore, and Thailand to ensure efficient cross-border movement of goods.
How is this beneficial to companies?
It behooves businesses when developing a business development plan, to include a regional dimension in their business development strategy in order to explore opportunities in multiple countries. If a single window system is in place, then it alleviates customs issues and makes it that much easier to move goods from a single country into multiple markets.
Which countries are driving the GDP growth you mentioned earlier?
There are diverse growth performances within the region, with frontier markets like Cambodia and Myanmar at the upper level of growth (6-7 percent growth annually) because of their lower level of development and small size, while larger markets like Philippines are seeing 5-6 percent GDP growth. Economies like Malaysia and Thailand are projected to grow roughly 4 percent. Singapore, the most advanced economy, has slower projected growth for 2017 because of its external focus. A small economy like Brunei has a smaller growth outlook because of the low price of oil. This gives ASEAN a regional growth average of about 5.2 percent.
What is your high-level assessment of fundamentals in these markets?
Fundamentals remain a real strength in the region. Countries that have the urbanization dynamic fundamental, coupled with strong banking and governmental institutions, are best poised to navigate periods of slower economic growth. Singapore, in particular, because of its strong institutions and dynamic government is weathering a period of slower growth by initiating a number of economic transformation initiatives. When things recover, Singapore will ideally have new sources of GDP growth like big data analytics, advanced manufacturing and more. Middle income ASEAN countries like Malaysia, Philippines and Thailand have a more diverse set of growth engines which can make up for a lag in other industries and maintain solid GDP growth.
How do you see the new U.S. Administration approach the ASEAN region, especially after the political capital spent by many of the TPP countries on ratifying the trade agreement?
That’s the question that is really resonating throughout Southeast Asia right now. Obviously, the Trump Administration differs greatly from the Obama Administration about the Trans-Pacific Partnership (TPP) and trade agreements generally. But, there will be a degree of continuity, as the U.S. government is a very large bureaucracy, with several initiatives and programs in place aimed at increasing engagement in Southeast Asia. There may be a slowdown, but it will be difficult to switch them off across multiple agencies. Clearly, we are moving into a period of uncertainty regarding how the Trump Administration wants to engage in economic relations with Southeast Asia, but the ASEAN region is projected to be a $100 billion-dollar export market in 2017, so while it is very unlikely the TPP will move forward in its current form, it may be used as a basis for a new economic and trade initiative toward Southeast Asia. The alternative, of course, for U.S. businesses, is to lose marketshare to international competition.
“Asia is home to the fastest global growth for planes and components and other elements of that market.”
How do you see the region reacting to China and the Regional Comprehensive Economic Partnership (RCEP)?
The RCEP negotiations were always the number one trade priority for ASEAN because it is based on a framework developed by ASEAN’s ten trade ministers and it includes all ten members, while TPP was the second or third most important trade initiative for ASEAN countries. It’s safe to say the RCEP negotiations will only become more important to ASEAN as they look to wrap them up by the end of 2017 with an agreement that would create preferential market access relations between ASEAN countries and their six largest trading partners in Asia.
What are the most important lessons from 2016 to keep in mind for companies considering breaking into the ASEAN market?
Fundamentals such as demographics on rates of growth and urban development will be important for companies considering entering the region. Secondly, it is important to try to assess opportunities to match business development resources and tolerance for risk with market opportunities. The beauty of ASEAN is that it has something for every business in terms of risk (frontier markets like Myanmar, Cambodia, and Laos) and opportunities (strong institutions and rule of law in Singapore and Malaysia). Last, it is important to invest in mapping out the key stakeholders, competitors, and institutions in the market, and then build relationships with them. You cannot underestimate the value of these relationships, especially in Southeast Asia.
Are there more temporal considerations, like the recent elections in Philippines, or the succession in Thailand that companies should keep in mind?
It’s important to understand any relevant political risks. Thailand is going through a political transition that is likely to result in an election process in late 2017 or early 2018, which is also tied to the royal succession process (Crown Prince Maha Vajiralongkorn became King Rama X in December 2016, but will likely not be officially coronated until 2018, which could affect scheduled elections).
Philippines has a new government (elected May 9, 2016), so it will be crucial to balance the sometimes-challenging relationship between the United States and Philippines with the growth potential of the Philippines economy. While the politics may be unnerving, things are improving. While there are concerns about corrupt business practices, US-ASEAN led a large business mission to Philippines recently. Former president Benigno Aquino III prioritized putting an end to systemic corruption. As a result, fresh examinations of the Philippines show the problem of corruption lessened significantly between 2014 and 2016, making the Philippines a more attractive place to do businesses. The prevalence of English speakers and a talented workforce also make the Philippines an attractive business destination.
What are some of the 2017 priorities of the US-ASEAN Business Council that companies should keep an eye on?
ASEAN is celebrating its 50th anniversary this year. It’s also the 40th year of formal diplomatic relations between the United States and ASEAN, so it will be a big year for events and programs tied to the launching and growing of the ASEAN Economic Community. We will continue to urge ASEAN countries to get the single window up and running. We’re looking for ASEAN to create strong regional frameworks regarding cross-border data flows that protect privacy and security. Another 2017 initiative is for ASEAN to continue to move forward with putting in place regional frameworks to enable skilled professionals to legally work across borders. To date, ASEAN has put in place frameworks so that a chartered accountant in Singapore can legally work and meet demand in Thailand. We are seeing a regional environment where skilled labor can move freely to markets of demand (particularly in accounting, tourism, medical professionals, and engineering) so we are going to continue to encourage the ten countries to continue this process into other fields like education and healthcare. Finally, the regional economic integration vision for ASEAN requires continued infrastructure investment (the power grid, rail lines, bridges, aviation) to support a region of 640 million. U.S. companies can really compete for these types of infrastructure projects because of the advanced technology they can bring to bear. Also, the Asia-Pacific Economic Cooperation (APEC) summit is coming to Vietnam this year, which gives a market of nearly 100 million an opportunity to be on the world stage.