Bernardo M. Villegas
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ASEAN Markets Continue To Shine

           As emerging markets like Brazil and Russia have lost some of their lustre, those of the Association of Southeast Asian Nations (ASEAN) continue to shine.  Especially in the so-called VIP (Vietnam, Indonesia, and the Philippines) countries, GDP growth rates of 5 to 7 percent annually are being attained.  In fact Myanmar leads them all at 8 percent.  Over a longer period of 30 years, growth has averaged 5.4 percent, surpassing the global average of 3.4 percent over the same period.  As Edward Lee of the Standard Chartered Bank wrote in a publication of the Singapore Management University, growth in the ASEAN has been faster than other emerging regions such as Latin America, Sub-Saharan Africa, the Middle East and North Africa.  This superior performance has narrowed the gap between global GDP capita and ASEAN GDP per capita by more than half, from 6.0 times in 1980 to only 2.7 times in 2013.

          Thanks to the lessons learned during the East Asian Financial Crisis in 1997 to 1999, the ASEAN growth remained higher than that of the rest of the world during the recent Great Recession.  The most resilient were Indonesia and the Philippines that are not as export-dependent as the rest of the ASEAN countries.  But even the more export-driven members of the ASEAN grew on the average faster than the developed countries, thanks to exports to a pump-priming China, which has slowed down only recently.  There is much room for future growth because ASEAN is still predominantly rural.  As Mr. Lee argued in the article cited above, ASEAN’s urban population in 2013 was only about 47 percent, while the world had crossed the 50 percent mark in 2007.  Within ASEAN, only Singapore, Brunei and Malaysia are highly urbanized.  Assuming that the urbanization trend in the ASEAN continues along its recent path, GDP per capita in the region will be more than double at $8,500 in 2030 from US$3,900 in 2013.  By then, 60 percent of the region would be urbanized.  The Philippines already surpassed this 60 percent mark in 2014.

          Foreign direct investors are the first to capitalize on the attractiveness of the emerging markets of the ASEAN.  In 2013, the ASEAN overtook China for the first time in terms of foreign direct investments (FDIs).  This trend can only intensify as China has already lost a great deal of its labor cost competitiveness, having experienced increases of 15 percent annually in its wages over the last five years.  To make matters worse, attrition rates in Chinese factories can range from 30 to 50 percent monthly, making manufacturing operations very unstable.   The first to benefit from these developments would be the Mekong area (Cambodia, Laos, Myanmar and Vietnam).   The young and growing population of the Mekong region provides low operating costs.  A Chinese manufacturing worker in the Pearl River Data earns around US$700 per month while in Myanmar, for example, a comparable worker earns only US$110.  The Philippines, however, enjoys the added advantage of having attained labor peace in contrast with the ongoing radicalization of workers in the other ASEAN emerging markets.

          The young and growing population of the large ASEAN economies is not only a rich source of manpower for the factories of the world.  It also provides a huge market that totals as much as 650 million for the ten ASEAN countries.  This demographic dividend is accompanied by the rapid rise of the middle classes which will constitute one of the most attractive markets for all types of consumer goods and services that will attract industries from all over the world to relocate in the region.    For comments, my email address is bernardo.villegas@uap.asia.