For much of the last 2,000 years, Southeast Asia was the centre of global commerce. Nearly all trade between East and West flowed through the Straits of Malacca.
Today, the 10 countries of the Association of Southeast Asian Nations (ASEAN) are again playing a dominant role in world trade – but now the focus is on semiconductors and services, not spices and silk.
The ASEAN members range from wealthy Singapore to expansive Indonesia. The most recent states to join are Cambodia, Laos and Myanmar, while the other members are Thailand, Malaysia, Vietnam, Brunei and the Philippines.
Over the next five years alone, the bloc should add nearly as much to global output as the eurozone. With the right reforms, by 2030 its share of global GDP could exceed 8 per cent in purchasing-power parity terms.
ASEAN’s population will surpass 725 million by 2030 – one person in every 12 globally – with a median age of just 33. And rapid urbanisation will bring more people within reach of public services, offering better jobs and opportunities.
The region is already attracting investment, thanks to growing public infrastructure spending, China’s Belt and Road Initiative, Japanese infrastructure financing, and booming foreign investing in manufacturing. This should raise ASEAN members’ potential growth and improve incomes, but also provides the industrial foundation for playing a bigger role in global trade.
ASEAN’s population will surpass 725 million by 2030
Integration across ASEAN, while slower than hoped, will see the seamless movement of goods, services and people within the region. Besides gains from the eventual realisation of the ambitious ASEAN Economic Community, financial-sector integration could boost growth.
But ASEAN is also a driving force for global trade integration in a world beset with protectionism. The Regional Comprehensive Economic Partnership, the world’s largest proposed free-trade agreement, links the 10 nations with five others (including China, Japan and Australia) with which ASEAN already has separate agreements.
And four ASEAN economies are signing members of the CPTPP, the new trans-Pacific partnership, with two others interested in joining. Independently, Vietnam has signed a landmark free-trade deal with the European Union while Indonesia and the Philippines are looking to follow.
ASEAN attracted almost 11 per cent of global foreign direct investment in 2018 – more than China. The region’s electronics industry exports nearly 35 per cent of processor and controller chips globally plus almost half of all amplifier chips. Vietnam is a leading assembler of smartphones and ASEAN supply chains are well-placed for future global growth in 5G and electric vehicles.
Member countries rely less heavily now on commodities such as oil, rubber, nickel or palm oil but the region has vast nickel deposits.
It is not all positive, however, and there are risks to the outlook for the region. The slow pace of reform, infrastructure investment and regional integration may mean growth disappoints. A demographic dividend could become a demographic drag unless sufficient jobs are created, especially in Indonesia and the Philippines, risking political unrest and growing inequality.
But if the right decisions are made, annual GDP growth could be nearly 4.5 per cent in the next decade.
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