As the common English phrase goes, it never rains but it pours!
Tensions between the US and China, uncertainty over Brexit, political transitions around the world, protests in Hong Kong and now the escalated US-Iran geopolitical tensions are among recent developments affecting economies and financial markets. While these events may have shaded global outlooks with pessimism, ASEAN is emerging as a much-needed engine of growth, giving us a reason to be upbeat. Just looking at growth rates, the region has consistently outperformed the world economy since 2000 and the trend looks set to become more secular. Beyond core economic growth, the expected explosion from adoption of technology and the start of the supply chain re-location to the ASEAN countries will have a profound impact.
Much has been written about the factors fuelling the growth. One of the key drivers is the large and vibrant population of circa 650 million, with more than half under the age of 30, providing one of the largest labour force in the world. With almost half living in urban areas, there is a rapidly growing middle class, which offers untapped opportunities for businesses.
This is fueled further by the rapid adoption of technology, with ASEAN being home to the world's most engaged internet users with more than 90 per cent connecting to the web through their smartphones. This is fueling direct-to-consumer online sales and the explosion of the Internet Economy, which encompasses sectors such as e-commerce, ride hailing, on demand services, online travel and many more.
Overlay on top of this, the radical modernization of the payment systems in every country, which is adding another powerful dimension. Within a year from now, all the countries in this region are expecting to have national real-time payment platforms such as PayNow in Singapore. To add to this, Citi is introducing value-added services such as sophisticated QR code technology and request-to-pay scheme on top of these real-time payment rails which makes the proposition even more compelling for users. All across ASEAN, governments have recognized the importance of instant payment platforms to bring speed and convenience to their citizens increasing the velocity of money and in turn economies. The prospect of greater financial inclusion providing more people with access to banking services and encouraging micro-entrepreneurship is only just beginning!
A key driver of the digital economy is data connectivity. In the next few years, 5G is expected to be rolled out globally and in ASEAN, and its impact cannot be underestimated. From self-driving cars to remote healthcare, this new generation of mobile network is touted as the transformational driver in the way the world works and lives in the future. In the financial services industry, 5G has the potential to shorten settlement cycles considerably and remove latencies with real-time mobile trading capabilities. Many familiar banking operations may possibly attain new forms extending to newer channels, such as wearables and virtual reality. All these are just the tip of the iceberg. 5G will enable businesses to imagine a future that does not exist yet. This will help make banking services accessible to the vast unbanked population in ASEAN giving them the opportunity to save, invest, spend, protect and borrow for their personal and micro business needs.
While the US-China trade tensions appear to be dark clouds hovering above the region, we are beginning to see some positive impact arising from trade diversion and supply chain reconfiguration in favour of ASEAN. Latest trade data shows that the region is fast emerging as a strong contender for positive spill overs. Already, about 4 per cent of US imports from China are currently being diverted into Asia to avoid US tariffs. Longer term, more companies are likely to diversify their supply chains. Citi analysts believe the entire ASEAN geography stands to benefit with wide ranging capabilities from low wage, low end manufacturing to the high-end electronics and bio sciences. In our estimate over the mid to long term this alone could add as much as 50-70 basis points of GDP growth to the ASEAN countries. It is not just US and European parented corporations that are looking to ASEAN, but large number of Chinese, Japanese, Korean and Taiwanese companies as well.
Overall, a confluence of internal and external factors are working together to sustain ASEAN’s momentum and propelling the region as a leading force in the next chapter of global growth. There will be a demographic dividend as the youthful population gets onto the workforce, and when this is seen in the context of most of them being digital natives, they will be a strong force for growth. With 5G coming on stream, greater financial inclusion will further drive the momentum. Whether it is increased flows along the trade corridors or supply-chain shifts, the region will stand to benefit. Taken as a whole, these developments will indeed drive phenomenal growth across ASEAN. There is no better time than now to plug into this new growth engine as it revs up and show the world what it can do.
The writer is ASEAN head & Citi country officer, Singapore.