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ASEAN ANALYSIS

Asean Affairs    5  September  2011

Asean looks ahead positively

By  David Swartzemtruber

 
AseanAffairs     5  September 2011

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The main reason the Asean community came into existence was economic and based on discussions and projections emanating from the recent 43rd Asean Economic Ministers meeting economic prospects appear good.

Intraregional trade and investment flows continue to show upward momentum this year and are expected to support gross domestic product growth of between 5.7 percent and 6.4 percent. Intra-Asean FDI inflows rose 132 percent in 2010 and accounted for 16 percent of all foreign direct investment in the region. In the service sector alone, FDI inflows totaled $49.2 billion or 65.7 percent of all Asean FDI.

The combined gross domestic product of the region was estimated at US$1.5 trillion last year.

Merchandise trade within Asean expanded by 32.9 percent from 2009 to $2.04 trillion in 2010 after a 19 percent decline in 2009, reflecting the impact of the global economic downturn.

A recent Asian Development Bank study said that by 2050, Asia's GDP of $148 trillion, compared with $16 trillion now, would account for more than 50 percent of world gross domestic product.

Its per capita income could rise sixfold to $38,600 to reach the global average and would be similar to European levels today, though Europe and North America will remain much richer in per capita terms.

The so-called Asia-7 economies (China, India, Indonesia, Japan, South Korea, Malaysia and Thailand) had a combined population of 3.1 billion (78 percent of Asia) and a GDP of $14.2 trillion (87 percent) in 2010. By 2050 their population share is expected to fall to 73 percent, while the share of GDP would rise to 90 percent of Asia's.

These seven economies alone will account for 45 percent of global GDP. Their average per capita income of $45,800 (by purchasing power parity or PPP) would be 25 percent higher than the global average.

Although the region remains at risk for political instability and questionable governance, with Thailand and Myanmar being could examples of the former and latter, respectively, political and economic reforms have occurred in the region since the 1997-98 financial crisis.

A new generation of Southeast Asian companies, with paradigm-shattering innovations, global ambitions and talented management, is now coming of age.

In Thailand, Indorama has become the top global producer of Polyethylene terephthalate (PET), used to make plastic bottles. In Malaysia, CIMB, through aggressive yet reasonable acquisitions, has quickly become the fifth-largest bank in Southeast Asia by total assets.

The largest companies in Southeast Asia — SingTel, Malaysia’s Petronas Carigali, Thailand’s PTT and Indonesia’s Astra — have revenues around $30 billion to $50 billion, which compares favorably to similar companies in the BRIC universe and places them squarely among the world’s largest corporations.

These performances were partly the result of a wave of deregulation following the Asian financial crisis, which encouraged restructuring and competition among established players.

Southeast Asian countries also score well on the World Bank’s Ease of Doing Business Index, with Singapore, Thailand and Malaysia coming first, 19th and 21st, respectively. Intellectual property is also reasonably protected in Malaysia and Indonesia, which came 33rd and 58th, respectively, and when it comes to rule of law, Indonesia, Malaysia and Thailand generally perform well in comparison to countries with similar income levels, as the World Justice Project’s 2010 Rule of Law Index noted.

Human development indicators continue their steady improvement. Literacy has always been high, but today record levels of public funding are allocated for higher education, particularly in Malaysia and Indonesia. Malaysia’s education spending as a proportion to GDP exceeds that of top high-income countries like Denmark, Iceland or New Zealand, while Indonesia’s higher education expenditure increased by 20 percent in recent years.

With most countries featuring a younger population, Asean growth looks good for the medium and long terms.



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