Asian economies to seek diversification post-Covid-19: report

Wednesday, May 27, 2020 - 18:03
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REDUCING over-reliance on single sectors such as tourism will be part of Asian economies' diversification efforts in the aftermath of the Covid-19 pandemic, argues a May 26 Fitch Solutions report.

With the global pandemic having exposed economic and supply chain vulnerabilities, countries will seek to reduce such vulnerabilities through diversification, said the report.

One aspect is tourism, an important sector in Thailand, Cambodia, and the Philippines in particular, where it accounts for more than a fifth of gross domestic product on average, and over 30 per cent in Cambodia.

Even after the virus is contained, the tourism industry is expected to take many quarters to return to pre-Covid-19 levels. "As such, economies that are currently highly dependent on tourism for employment and income will face an urgent need to diversify their markets."

While Cambodia and the Philippines have yet to embark on a major diversification push, Thailand is forging ahead, said the report. It noted major infrastructure projects and moves to attract foreign direct investment for industries such as electronics, automotive, and petrochemicals.

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The pandemic is also likely to accelerate the existing trend of moving some manufacturing operations out of China. Early lockdowns in China disrupted manufacturing across the region, exposing the dangers of supply chain concentration.

"As such, we expect an accelerated push towards a ‘China Plus One’ manufacturing hub model over the coming years, especially for low-end export manufacturers," said the report. Accordingly, regional supply chains will develop.

This is likely to raise operating costs, but also means growth opportunities for certain emerging Asian economies. Given the sheer difference in scale, even a small shift in export manufacturing out of China could provide a significant boost to the sector in Vietnam, for instance.

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