ASEAN Support Points for Growth | Global financial magazine

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Southeast Asia’s fast-growing economy is attracting foreign investors and new commitments from global companies. Can it challenge China in its own region?

ASEAN growth edited

“ASEAN is a bright spot,” said Federico Burgoni, head of Group Strategy and Transformation at Singapore’s United Overseas Bank.

Founded in 1967 as a political and economic community of five countries, the Association of Southeast Asian Nations today has ten countries and 647 million people under its umbrella, with a 2023 GDP of $2.9 trillion. It is also the US’s fourth largest trading partner; Thanks in part to the cooling of economic relations between Washington and Beijing, foreign direct investment in ASEAN reached $224 billion in 2022, with the US being the largest investor.

There have been growing pains; Plans to create an integrated, tariff-free common market by 2025 have been hampered by domestic protectionism and, more recently, the Covid-19 pandemic. But experienced Southeast Asian hands express optimism.

“ASEAN is supported by strong fundamentals, including a young population, a dynamic workforce and rising foreign direct investment,” said Burgoni. Total foreign direct investment for the region reached $228.9 billion in 2023, nearly doubling the 2015 output of $118.7 billion.

Burgoni expects growth in the region to remain strong thanks to a favorable combination of domestic demand, moderating inflation and increasing domestic trade and investment flows.

“Yes, there are some geopolitical risks [US sanctions from Trump, a war in Taiwan, etc.], but in Asia we think Southeast Asia is the bright spot,” he says. “ASEAN is one of the fastest growing trading blocs and is now seen as a manufacturing base and growing consumer market for both the West and China.” This contrasts with China and many Western economies.

By 2030, 65% of the projected population of 750 million people is expected to be middle class, partly due to resilient internal demand. Crucially, countries such as Malaysia and Indonesia are rich in all kinds of oil and minerals.

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But tech investors are also keeping an eye on the region.

Major technology players are expanding their activities

“There is no Asia, but there is increasingly an ASEAN,” says Bill Padfield.

Padfield is a technology veteran and founder and CEO of Salamander Advisory, a consultant to early-stage technology companies. He was a global technology and business leader in the region for more than thirty years. Previously, he was Global Senior Vice President Transformation at NTT, and previously Chairman and CEO of Dimension Data Asia Pacific and CEO of SGX-listed Datacraft Asia. He also helped Equant, now Orange Business Services, to a successful simultaneous IPO on the New York Stock Exchange and the Paris Stock Exchange.

“While not a single trading bloc, ASEAN is actively learning from Europe’s mistakes,” says Padfield. Moving too quickly with regulation and economic integration creates political opposition; national sensitivities must be respected.

Major technology players, including Google, Amazon and NTT, have set up offices in the region. Global Foundries completed a $4 billion expansion of its microchip facilities in Singapore last year, and Nvidia and AMD are eyeing the region’s artificial intelligence potential.

“Remarkably, investment in the electric vehicle sector has increased to $18.1 billion in 2022,” Padfield adds, “a 570% increase from $2.7 billion in 2021.”

Federico Burgoni UOB copy
Federico BurgoniHead of Group Strategy and Transformation at Singapore UOB.

In a sign of how the global investment community views Singapore as a financial and technological powerhouse, the London Stock Exchange now has 350 full-time employees there.

“Amazingly, we calculate that there are more than 400 venture capital funds registered in Singapore with $8 billion in funding,” says Padfield, “and more than 4,000 technology startups already active.”

Collectively, Apple, Microsoft and Invidia have committed billions of dollars of investment in ASEAN economies, he adds, and their CEOs have all “communicated with heads of state from Indonesia to Malaysia,” he notes.

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Singapore was in the spotlight last month when Amazon took over a massive site in the city-state to roll out a new $9 billion investment plan. In Malaysia’s Johor Bahru, which borders Singapore, Nvidia partnered with a local operator last year to build a $4.3 billion AI data center park. CEO Jensen Huang was seen in Vietnam enjoying street food and is rumored to be assessing Hanoi and Da Nang as possible centers for future investment.

Hoping to build on Big Tech’s interest, ASEAN is currently working on an ASEAN Digital Economic Framework Agreement (DEFA), the first of its kind globally, which is expected to triple the region’s digital economy from $300 billion today to nearly $1 trillion by 2030. Progressive rules (such as the more deregulation, the faster growth) in the DEFA would double this value contribution, unlocking $2 trillion for the region’s digital economy.

“I think it’s fair to say that the days of playing second fiddle to China are definitely over,” concluded Padfield.

AI will play a big role in that shift, says consultant Kearney, who estimates that AI adoption could add $1 trillion to the ASEAN economy by 2030. One specific catalyst will be generative AI, adds Tony Nash.a long-term resident of the region and former advisor to the Chinese government on its global Belt and Road Initiative, who founded Complete Intelligence, which provides AI-driven forecasting to major companies in Asia and globally.

However, much will depend on the region’s ability to integrate further.

Tony Nash
Tony NashFounder of Complete intelligence

“ASEAN consists of about a dozen politically, culturally and geographically diverse countries,” notes Nash. “While progress has been made, persistent protectionist trends and conflicting national interests continue to hinder the full realization of this ambition.”

That said, “there are persistent indications that ASEAN is benefiting from the cracks in China’s economic armor,” he adds. As tensions with the West persist and concerns about supply chain dependence grow, multinational companies continue to diversify their operations into Southeast Asia.

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“Vietnam in particular has emerged as a manufacturing center,” says Nash, “attracting investments that previously might have benefited the Middle Kingdom. And the tech majors are embracing the region’s cheap but tech-savvy workforce.”

Acutely exposed to climate change, ASEAN is also looking ahead in its efforts to decarbonize its economy.

Initiatives such as the ASEAN Carbon Neutrality Strategy, the Circular Economy Framework and the ASEAN Blue Economy Framework aim to help the region transition to a green economy while creating significant economic added value. Malaysia and Thailand are attracting sustained investment, often in partnership with leading Chinese technology suppliers seeking to escape heavy US tariffs on the mainland’s exports.

Seen from the US

From the perspective of a U.S. investor, ASEAN’s selling points are numerous. “The region has a growing middle class, abundant natural resources and a strategic geographic location on vital trade routes,” says Nash. The relative political stability and business policies could prove attractive, especially as the world grapples with an increasingly fragmented economic order.

Observers also generally agree that Singapore’s status as Southeast Asia’s preeminent financial center is assured, at least for the foreseeable future.

“The city-state’s impressive economic dynamism, robust legal framework and business-friendly policies have consolidated its position as a gateway to the region,” said Nash. But it has equally smart neighbors.

“Upstart challengers like Jakarta and Kuala Lumpur are eager to emulate Singapore’s success,” Nash adds, “by capitalizing on their own strategic advantages, including scale that Singapore lacks and the insatiable appetite for capital in ASEAN economies. Careful due diligence, selective local partnerships and a long-term vision are prerequisites for success in this complex but extremely promising region.”

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