Asean is set to be the region to be situated in again this year. After
estimated growth of 5.2 per cent on a PPP-weighted (purchasing power parity)
basis, we project the region to expand by 5.3 per cent in 2013, outpacing the
International Monetary Fund's global growth estimate of 3.6 per cent.
The region is expected to see
economies such as Indonesia, the Philippines and Malaysia matching or exceeding
their 10-year average rates. And more is expected from Myanmar, which made
international headlines for the right reasons in 2012.
Confidence is high, not just
domestically but also among foreign investors, as the region attracted 7.6 per
cent of global foreign direct investment in 2011 versus 4.3 per cent in 2006.
Indeed, since 2000, after the crippling financial crisis, Asean gross domestic
product has outgrown the world's by an average of 1.5 percentage points. So can
the region keep running at this pace?
Nothing runs in a straight line.
Business cycles still exist. But there is certainly still a lot of room to
grow. Despite the world-beating growth rates registered over the past decade or
so, Asean can still achieve more. The region is hardly at the stage where the
growth factors have become complicated. At the most basic level, urbanisation
will help to drive "easy" growth. This is the economics of
agglomeration.
Urbanisation helps to improve the
overall well-being of an individual by improving access to services and
housing.
This can boost productivity and
consumption. Urbanisation helps to increase efficiency as distances are
shortened. This lowers the cost of doing business, or the cost of the
government to provide infrastructure and necessities.
Jobs and labour supply are
concentrated rather than dispersed. The benefits of clustering together, for
individuals and firms, are reflected in growth activity being concentrated in
cities, even if the city is small relative to the whole country. For example,
Jakarta accounts for about 17 per cent of Indonesia's GDP but only constitutes
0.04 per cent of the country's landmass and 4.2 per cent of its population.
According to the World Bank, the
world passed the halfway mark for urbanisation in 2007. As of 2012, there were
still six countries in Asean that had not passed the 50-per-cent point -
Cambodia, Laos, Myanmar, the Philippines, Thailand and Vietnam. Indonesia just
crossed the midpoint at 51.4 per cent. Singapore, Malaysia and Brunei are
largely urbanised. The region on the whole still has some low hurdles to cross
to keep growth sustained.
Urbanisation is typically
associated with rising wealth. Measuring this by GDP per capita and using the
world's experience with urbanisation as an example, every percentage-point
increase in urbanisation raises GDP per capita by about US$500 (Bt15,000).
Granted, every country's
experience will be different. How well urbanisation is planned and implemented
can affect the benefits accrued in the process. Or the productivity levels of
agriculture, for example, can play a part in determining how much GDP per
capita can increase relative to urbanisation.
In fact, improper urbanisation
can result in diseconomies. Indeed, nowadays, when we think of a city, negative
connotations such as congestion and pollution come to mind. But the fault does
not lie with urbanisation, but rather the way it is being carried out. Urbanisation
facilitates economic growth. And given the relatively low levels of
urbanisation across Asean, the law of diminishing returns is not likely to be
in play yet in any significant manner.
The low hurdles to growth can
also be seen in the GDP per capita of countries in Asean. Compared with the
world's GDP per capita of $10,000 in 2011, only two Asean countries, Singapore
and Brunei, exceed this level using World Bank data. Malaysia is nearly on par
based on 2011 numbers but the next-nearest country, Thailand, is only at about
half of the world's GDP per capita. At this level, simple improvements to
factors of production should help to support growth.
According to the World Econo-mic
Forum Global Competitiveness Report 2012-13, Cambodia and Vietnam are still at
the most basic stage of economic development - the factor-driven stage. Myanmar
and Laos are not included in this report, but would likely be categorised as
such too. Brunei and the Philippines are in the transition to efficiency-driven
while Thailand and Indonesia are already in the efficiency-driven stage.
In the earlier stages of
development, adoption of existing technology and practices, investment in
infrastructure, provision of a basic institutional framework, and health and
education facilities should help drive growth. In the region, only Singapore is
considered to be in the stage of economic development that is
innovation-driven. Malaysia is in the transition stage from efficiency- to
innovation-driven.
While this article highlights the
growth potential of the region, growth cannot be taken for granted. A proper
mix of fundamentals, policies and confidence is needed. At the moment, there is
certainly a nice mix of these ingredients. Confidence is high, and is even more
so amid the weak global environment.
Fundamentals are good and
policies have been supportive of growth. But nothing stays constant and
policies will need to stay relevant and forward-looking.
Business & Investment Opportunities
Saigon Business Corporation Pte Ltd (SBC) is incorporated in Singapore since 1994. As Your Business Companion, we propose a range of services in Strategy, Investment and Management, focusing Health care and Life Science with expertise in ASEAN 's area. We are currently changing the platform of www.yourvietnamexpert.com, if any request, please, contact directly Dr Christian SIODMAK, business strategist, owner and CEO of SBC at christian.siodmak@gmail.com. Many thanks.
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