ASEAN’S NEXT MOVE

As countries in the region learn to live with Covid, the focus turns to steering their economies into a more challenging future. By

The coronavirus pandemic has taken a severe toll on Asean countries again this year, with millions infected and tens of thousands of fatalities. While the worst of the surge appears to have passed, recovery will depend on pandemic management, especially the pace and efficacy of vaccinations, and response to the risks of new variants emerging.

As more people get vaccinated, there is a clear shift in the region as governments transition from “zero-Covid” policies to treating Covid-19 as endemic. Singapore — the first Southeast Asian economy to achieve high vaccination levels given its small population size — declared in June that it was time to start learning to live with the virus. The city-state has since moved to gradually loosen travel restrictions, including travel lanes with selected countries.

Its neighbours — Malaysia, Indonesia and Thailand — have since last month followed suit, reopening sectors of their economy starting with tourism, with some restrictions still. Although the path ahead will be difficult, reopening is essential because the cost of staying locked down is too high, economically and socially.

“This is a point at which these countries have either explicitly, like Singapore and others, or implicitly recognised the need to move from the pandemic approach of trying to get to zero to an endemic approach,” said Associate Professor Simon Tay, chairman of the Singapore Institute of International Affairs (SIIA).

“With safeguards, we can really learn to reopen the economy. In Singapore, we talked about not just recovery but emerging stronger. That’s the government’s task, in a way that aligns to the new economy,” he added.

The Asean economy, experts say, will benefit from the increase in global demand and supply chains that run through the region. Additionally, there is a silver lining from US-China competition as the two superpowers seek to invest and develop closer relationships with Asean and its member states.

“Asean in a way will start to move toward a new normal to work together again. That would be helped by external

demand as Europe and America have opened and China has been relatively unaffected so far,” Assoc Prof Tay noted at a recent virtual forum organised by the SIIA.

Steve Cochrane, chief Asia Pacific economist at Moody’s Analytics, said

the easing of movement restrictions is going to have a huge impact on the region, allowing Asean to catch up with North Asia.

“The strengths in Asia in terms of the pandemic economy have been in (South) Korea, Taiwan and China until recently, before some factors perhaps caused the slowdown in economic activity in China. But we will certainly see acceleration,” he said.

In much of Asean, he said, one of the biggest casualties of the pandemic has been small and medium-sized industries, in sectors such as retail and services, that served the local economy. But the expected quick turnarounds in spending will benefit this group.

“Of course, this region has a large and growing middle class with some savings available, and as soon as they can get out, they will spend and that will benefit the economy,” he said. “But those countries where the impact on small enterprises has been the greatest may see a little bit of a slower rebound.”

Each country has strengths and weaknesses, said Dr Cochrane. Singapore and Malaysia, for example, are strong in providing fiscal support to small businesses and unemployed households so there should be additional savings

or additional availability of either individuals or small businesses to go out and spend. “That may not be the case so much, say, in Thailand and Indonesia,” he noted.

“I do think one of the real strengths of the region, which improved its durability over the last 18 months or so, has been the export side of the economy,” he said.

“Exports have been a foundation that has kept the Asean economy from sinking deeper than it might have. The supply chain has also been resilient and active, and I think that will continue to drive the economy forward.”

Overall, foreign investors continue to show interest in Asean. A survey of senior executives at 40 US companies, commissioned by Standard Chartered in July and focusing on the US-Asean Corridor, revealed that US companies expect robust business growth in the region over the next 12 months, with 93% of respondents expecting an increase in revenue and 86% anticipating an expansion in production.

Investment numbers are indeed set to recover, judging by approvals of new projects across the region that will create more employment opportunities.

Dr Cochrane said that going forward, investors are going to be looking at how well different countries manage the pandemic, and whether they can “turn on a dime” to deal quickly with unforeseen situations.

In Vietnam, for example, the rapid pace of infections caused a shutdown of export-oriented industries as authorities doubled down on social distancing. Yet, GDP was very strong. “That is a perfect example of a well-managed pandemic economy turning into a real problem this year.”

“The countries really being watched in terms of political stability or instability are Malaysia and Thailand”

LEE CHEN CHEN Singapore Institute of International Affairs

DIGITAL SILVER LINING

Responses to the pandemic have hastened the adoption of digital technology across the region. From utilising technology for contact tracing to purchasing goods primarily online and embracing remote work, digitisation has permeated every domain of life.

For governments, technology has proven critical in helping manage the pandemic amid lockdowns and other restrictions. For companies across

Asean, meanwhile, digitisation plans have gone from “nice-to-have” to “must-have”.

According to a report launched earlier this month by Google, Temasek and the consultancy Bain & Co, since the pandemic began, 60 million Southeast Asians have become digital consumers: people who have used at least one service online, from groceries and food delivery to online entertainment and finance. There are now 350 million digital consumers across Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam.

A large proportion of the region’s internet users came online relatively recently. The total online population in the six countries in 2015 was 260 million, compared with 440 million today, the report said.

Thailand has seen 9 million new digital consumers since the start of the pandemic in 2020, 67% of whom are in non-metro areas, the report found. Activity in most sectors accelerated with double-digit year-on-year growth. Looking toward 2025, the overall internet economy will likely reach US$57 billion in value, with a 17% compound annual growth rate (CAGR).

Digital financial services are also becoming critical enablers, with 96% of online merchants now accepting digital payments and 82% adopting digital lending solutions.

“One of the silver linings is really the acceleration of the digital economy within Southeast Asia: the uptake of people going digital, digital finance, the rise of e-commerce, although it has implications for the ability of the supply chain to meet that demand,” said Lee Chen Chen, associate director and senior fellow at SIIA.

Governments’ commitment to the digital economy is clear, she said. Vietnam, for instance, has declared the acceleration of digital economy one of its core strategies. Thailand, meanwhile, aims to become an Asean digital hub that could challenge Singapore.

“It’s great to see that there is almost quite a consistent approach … to really ramp up the whole digital economy, also as a way for them to pull out of the current doldrums that the economy is facing,” said Ms Lee as she presented the SIIA report entitled From Crisis to Endemic: Stumbling or Pressing Ahead?

The report indicated that the digital economy is especially promising in Indonesia given its large population. Internet penetration rose from 64.8% in 2018 to 73.7% in the second quarter of 2020.

A report from Indonesia’s Ministry of Finance and the Asian Development Bank (ADB) suggests that technological transformation could add $2.8 trillion to the economy by 2040. The e-Conomy SEA 2021 report by Google, Temasek and Bain forecasts Indonesia’s digital economy in 2025 will reach a gross merchandise value of roughly $125 billion, out of an Asean total of $363 billion.