ASEAN’s rise in the global economy

Ronald Mendoza, Young Global Leader, Class 2013, discusses why ASEAN’s success is due to collaboration and not competition

I repatriated to the Philippines in late 2010, after 15 years working abroad on international economic development policy. The Asia I left behind in the mid-1990s was on the verge of a deep crisis that would see many countries in the region rethink their development models. Yet today, the continent appears to have a renewed exuberance and energy, even as the rest of the world continues to dig out of the last global crisis.

Some have argued that the VIPs (Vietnam, Indonesia and the Philippines) are on the rise, with their young populations and dramatic possibilities for high growth and industrial catch-up. But I think the group to focus on is the slightly broader cluster of countries in the Association of Southeast Asian Nations (ASEAN), which could collectively make a push for sustained high and inclusive growth.

Unlike the BRICs, whose fortunes were based largely on individual economic competitiveness, ASEAN’s strength is buttressed on its “competitive interconnectedness”. ASEAN lies at the heart of many important global industrial production chains in manufacturing and services trade. These allow countries to specialize in different parts of the production process, tapping the competitive advantages of each location. Trade in intermediate goods in Asia trumps all other regions in the world – a sign of how vibrant these production networks have become. Already about half of Asia’s trade is intra-regional, and the ASEAN countries are at the heart of this.

ASEAN is also (collectively) home to a young and skilled labour force that could eventually (at least according to the ASEAN blueprint for integration) move more freely around ASEAN itself. In terms of the number of international migrants hosted, Asia is now second only to Europe; and the region now accounts for close to one-third of the total global migrant stock. ASEAN countries like Singapore, Malaysia and Thailand now host large and growing numbers of migrants, including those from fellow ASEAN countries like Indonesia and the Philippines. Many ASEAN nationals are also returning home from industrial countries, bringing with them connections to technology, capital and international business networks.

Furthermore, the formation of the ASEAN Economic Community in 2015 will result in a common market of about 600 million people, dwarfing the EU’s 500 million and NAFTA’s over 400 million. While China will account for much of the emerging middle class in Asia, countries such as Indonesia, Thailand, the Philippines, Vietnam and Malaysia will also begin to account for much larger numbers of middle class consumers. In 2009, the US$ 4.5 trillion in total expenditures in developing Asia represented 19% of total global expenditures. By 2030, if projections hold true, this number could reach up to US$ 35 trillion, which is about 50% larger than the US$ 21 trillion in expenditures forecast for the OECD countries by that time. In an era of export volatility, it’s a distinct advantage to be able to leverage a large internal market with its own consumption and investment dynamism.

Yet challenges do exist – in particular peace, security and the sustainable use of natural resources in the South China Sea. The recent events in the Scarborough shoals and in Sabah are stark reminders of the real risks of conflict that threaten to scupper the region’s development. These disputes should not distract ASEAN and its neighbours from the reality that the only prosperous future for any of the countries involved is inevitably a shared one. Cooperation rather than competition will be key to sustaining and sharing the growth and wealth-creating potential of the region.

Author: Ronald Mendoza is a Professor of Economics at the Asian Institute of Management (AIM) and Executive Director of the AIM Policy Centre. He was named as a Young Global Leader, Class of 2013, by the World Economic Forum.

Image: Workers in Vietnam in a construction site in Hanoi, Vietnam REUTERS/Kham