ASEAN Mekong integration

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ASEAN Mekong integration

by Expat Life

 

 

The “Association of South-East Asian Nations” or “ASEAN” was formed from the ASEAN Declaration in Bangkok on 8th August 1967 (as a successor to the Association of South-East Asia, “ASA” in 1961), and is just four years younger than the EEC (now the EU). ASEAN is now a grouping of ten geographically, culturally and politically diverse countries, although initially consisted only of those countries which avoided any socialist experimentation: Singapore/Malaysia, Thailand, Philippines and Indonesia. Most of the Mekong countries joined later: Vietnam, Cambodia, Myanmar and Laos. 

 

ASEAN has 651 million people and a land mass of 4.5 million sq kms (50% larger than India and one-half the size of China), and a nominal GDP of US$ 3 trillion (on a PPP basis 4x higher at $13 trillion) and US$ 4,600 nominal GDP per capita. By comparison, the EU has twenty-eight countries, 513 million people, and an almost identical land area of 4.48 million sq kms, but it has a nominal GDP that is 7X higher than ASEAN at US$ 19 trillion (or $23 trillion translating to just 2X on a PPP basis), and a  US$ 37,300 nominal GDP per capita. The likelihood is that ASEAN will narrow the gap between its nominal and PPP GDP over the next few years, generating substantial gains for investors.

 

What is common to all ASEAN countries is the agricultural economic base (except for Singapore & Brunei) and their consequently more manageable workforces, their Chinese (mostly Fujian) diaspora business culture, and their Japanese/Taiwanese/Korean led industrial investment. The Mekong countries share a common Buddhist heritage, but are a mixture quasi-democratic, and factional 1-Party States.

 

The oldest cultures in ASEAN, the Mekong countries are the least developed, due to their proximity to China and its socialist sphere of influence from 1950-1980. That proximity is now a positive as China embarks on its “Belt & Road” initiative and its manufacturers rush to avoid rising labour costs and US/China trade friction, diversifying production to Thailand, Vietnam, Cambodia and Myanmar. Currently the former closed countries, Vietnam, Cambodia, Myanmar and Laos, “continental ASEAN” or the old Indochina, are now leading ASEAN in growth from their lower economic bases, and after a temporary lapse in 2020, are all expected to be back to 6-7% growth rates in 2021.

 

Demographics is a key determinant of economic activity, with Thailand, Indonesia and Malaysia with consumption rich median 35-45 year old population pyramids; Philippines and Vietnam progressing 25-35 year median; Myanmar, Laos & Cambodia 15-25 years, still too young to consume but sources of abundant labour. As the general populace becomes more demanding, all political leaders must turn to somewhat populist policies. This will ensure many decades of growth ahead. 

 

Mekong countries are generally emulating the successful Thai economic model, beginning with agriculture & food processing, then moving on to increased tourism, export driven manufacturing, and finally domestic consumption. Thailand has the advantage of having 20 years head start, but is already facing stiff but healthy competition from Vietnam in the agribusiness and manufacturing sectors. To some extent, there is room for all these countries to succeed, as they have India and China as neighbours. Thailand, with its excellent infrastructure & human resources, has a good chance to maintain its lead in the service sector, as a hub for tourism, entertainment, retail & healthcare, together with having numerous international schools and services for regional headquarters. 

 

However, given Thailand’s legacy exchange controls, Singapore & Hong Kong will likely retain the crown for financial services & banking for the Region. Due to their large foreign exchange reserves and surpluses, the Thai Baht and Singapore Dollar will likely remain strong as haven currencies. Also, Chinese initiatives like RCEP, Belt & Road, and the Asian Infrastructure Bank will encourage more transactions to be done in regional currencies. US Dollar dependence may gradually wane.

 

The extraordinary global political reaction to COVID has reinforced existing trends towards a tri-polar world: Asia dominated by China/Japan; Europe/Middle East/Africa; and North America (+South America). Given the extremely low incidence of COVID in South-East Asia in particular, governments will likely soon form sub-bubbles, starting with the Mekong Region “bubble” (CLMV in Thai speak). Thailand ranks 94th in the COVID table, Myanmar 182nd. Laos 187th, Vietnam 188th, and Cambodia 189th. Border trade (already 20% of Thailand’s total trade), and intra-regional services will enjoy a quick resurgence. 

 

The core ASEAN countries have long established stock markets, with Indonesia’s founded in 1912, Philippines 1927, Thailand in 1962, Malaysia 1964, and Singapore opening in 1973. As with the new Mekong markets today, these markets started slowly and it took many decades for them to reach a true representation of their underlying national economies. Many of the richest business families preferred to keep a low profile and investment in the capital markets were left to their second or third generation scions, who are now officially in charge. The same pattern may follow in Vietnam, Myanmar, Cambodia and Laos. Although we expect Myanmar to enjoy an accelerated progression due to its private sector need for capital, provided the appropriate incentives can be put in place.

 

Full Story: https://expatlifeinthailand.com/news-and-event/updates-news-and-event/asean-mekong-integration/

 

-- © Copyright Expat Life in Thailand 2020-09-16

 

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