They say age is only a number, but as the trading bloc of ASEAN crosses the 50-year mark, numbers speak volumes about the dynamic transformation of this region.
Taken as one economy, it’s $2 trillion GDP makes it the seventh largest in the world, heading towards $6 trillion (and the fourth largest) by 2030. It hasn’t been without growing pains. There is dramatic diversity in the 10 countries in the region. In that diversity lies challenges, but also strength.
ASEAN is a microcosm of the world today – highly developed nations, middle income countries and those just emerging. It has become a beacon of multilateral cooperation in a world darkening with greater protectionism, a shift to bilateral trade and changing attitudes towards globalization. In this part of the world, globalization is still seen as the key to the future.
The real measure of success will be to understand and address the concerns and discontent created by globalization and technological change in the West and ensure that as ASEAN continues to grow, no one gets left behind.
A hierarchy of needs
To do that, there must be a hierarchy of needs, with basic infrastructure – electricity, healthcare and clean water – at the top of the list. Helping meet the challenges of financing by connecting capital to bankable projects is paramount.
Power plants can be up and running in three months in challenging locations, with the latest technology and digital solutions to maximize efficiency and minimize carbon emissions; healthcare equipment is now portable and connected, allowing remote locations access to improved healthcare, facilitating improved infant and maternal care; and clean water for hospitals enhances the quality of patient care and allows facilities to spend precious budget on patient programmes rather than bottled water.
Next in the hierarchy is human capital
The other key number for ASEAN is its labour force. At 600 million people, it is the third largest in the world, and more than 50% of this population is under the age of 30. We need to shape the future for the region’s youth by balancing vocational and digital skills education and training, with companies playing a bigger role, in partnership with governments and educational institutions. People must commit to continuous and lifelong learning to adapt to technological disruptions and align skills to the shifting demands of the economy.
This skilled and adaptable workforce will drive innovation
Upgraded skills, increased financing for SMEs, encouragement of more gender diversity and investments in digital infrastructure will help to decrease poverty by providing more livelihood opportunities, sustain growth and improve productivity. This will ensure the workforce of the future is resilient and flexible.
This skilled and adaptable workforce will drive innovation – the key to sustained economic growth and rising living standards in the 21st Century. With its commitment to cooperation and interconnectedness, ASEAN has all the ingredients to build its capabilities and foster greater innovation. The ability to leapfrog into the digital industrial age will allow countries to immediately adopt and implement more efficient and sustainable technologies. Partnerships with government-funded programmes and private technology incubators raise the bar on digital literacy in ASEAN. Technological change through innovation will lead to higher value-add jobs.
The numbers add up for ASEAN as it steps out of the sidelines onto the global stage. It needs to keep investing in infrastructure that will generate real growth and shared prosperity – growth that will continue to drive the economies of its countries. It must focus on its youth population by investing in jobs, skill building and training to meet the needs of both traditional technical requirements and those of the digital future. And it should deepen innovation – developing hardware and software solutions to meet the real-world challenges of its diverse communities.
Assessing the economic impacts of COVID-19 on ASEAN countries
All ASEAN countries are dependent on tourism flows but Thailand is probably the most dependent.
Author: Jayant Menon, ISEAS–Yusof Ishak Institute
The COVID-19 pandemic is first and foremost a human tragedy. Measures introduced to deal with the pandemic could save lives but are having wide-ranging economic effects and inducing economic contagion.
There are already studies estimating the economic impact of the virus. But greater focus is needed on the transmission mechanisms of the economic contagion and in critiquing how assessments of the economic impacts are made, concentrating on the ASEAN region.
The effects of COVID-19 are hitting ASEAN economies at a time when other risk factors, such as a global growth slowdown, were already rising.
COVID-19 is disrupting tourism and travel, supply chains and labour supply
Uncertainty is driving negative sentiment. This all affects trade, investment and output, which in turn affects growth. Tourism and business travel, as well as related industries, especially airlines and hotels, were the first to be affected. And the conditions are worsening as more countries go into shutdown.
The supply disruptions emanating mostly from China will reverberate throughout the value chain and disrupt production. Since China is the regional hub and accounts for 12 per cent of global trade in parts and components, the cost of the disruption in the short run will be high.
The negative effects of quarantine arrangements on labour supply could also be high depending on duration and sector. Manufacturing has been hit harder than service industries, where telecommuting and other technological aids limit the fall in productivity.
All these disruptions will lead to sharp declines in domestic demand. And their impact on economic growth will further propagate these disruptions. This compounding effect can magnify and extend short-run effects into the long run.
The highest economic cost could come from the intangibles
The effects of negative sentiment about growth and general uncertainty — which is already affecting financial markets — will feed into reduced investment, consumption and growth in the long run.
Rolling recessions around the world now appear inevitable, despite the stimulus measures being contemplated. If so, there will be sharp increases in unemployment and poverty. Some degree of decoupling from China, or de-globalisation in general, may also be a permanent reminder of this pandemic.
Among ASEAN countries, Singapore, Malaysia and Thailand are heavily integrated in regional supply chains and will be the most affected by a reduction in demand for the goods produced within them. Indonesia and the Philippines have been increasing supply chain engagement and will also not be immune.
Vietnam is the only new ASEAN member integrated into supply chains with China and is already suffering severe supply disruptions.
Given time, supply-side adjustments will alter trade and investment patterns. The main adjustment will involve relocating certain activities along the supply chain from China to ASEAN countries. Although the pandemic will disrupt the relocation phase, ASEAN countries can benefit from the new investments, mitigating overall negative impacts.
Thailand is probably the most tourism dependent Asean country
All ASEAN countries are dependent on tourism flows but Thailand is probably the most dependent. Cambodia and Laos receive most of their investment and aid from China, and a marked growth slowdown in China will affect them the most.
The Philippines and Mekong countries have large overseas foreign worker populations and restrictions on their movement or employment prospects as COVID-19 spreads will affect sending and receiving countries. Brunei and Malaysia are net oil exporters and the price war indirectly induced by the pandemic will hit them hard. Others will benefit from lower oil prices, as will the struggling transport sector.
In measuring the impacts of COVID-19, it is important to separate its marginal impact from observed outcomes. This is important because the remedy may vary depending on the cause of the disruption. This requires an analytical framework that can measure deviations from a baseline scenario that incorporates pre-existing trends. A model-based analysis, rather than casual empiricism, is required to reduce the problem.
Even before the outbreak, risks of a global growth slowdown were rising
The restructuring of regional supply chains had started, driven initially by rising wages in China and accelerated by the US–China trade war. While COVID-19 may further hasten the pace and extent of the restructuring, it is only partly responsible for what may happen. It would be misleading to attribute all of the current disruption to COVID-19. Had the trade war not preceded it, COVID-19 may have resulted in greater disruption to supply chains.
Any assessment of impacts must recognise that the spread of COVID-19 is unpredictable, and so too the response by governments. It is difficult to estimate the impacts of a shock that is uncertain in itself. This reiterates the need for rigorous modelling and scenario analyses. The current trend points to risks rising, often accelerating, as with previous epidemics. This uncertainty underscores the need for caution in assessing, and regular recalibration in producing assessments.
Jayant Menon is a Visiting Senior Fellow in the Regional Economic Studies Programme at the ISEAS–Yusof Ishak Institute, Singapore.
A version of this article first appeared in ISEAS Commentary.
This article is part of an EAF special feature series on the novel coronavirus crisis and its impact.
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