The path forward for Asean
Bangkok Post - 14 September 2020
The path forward for Asean
As they look beyond the Covid era, regional policymakers need to build up strength for the longer term.
By Pattama Kuentak
The coronavirus is no longer novel to the world, having been a fact of life and death for almost nine months. Now most countries, particularly those in Southeast Asia, are not only facing the economic and social repercussions of a protracted outbreak but also witnessing emerging trends that will permanently change the way we live and do business.
Due to the ripple effects of Covid-19, gross domestic product (GDP) is expected to contract by 2.9% on average in emerging Asia which includes China, India and 10 Asean countries, according to the latest Economic Outlook for the region released by the Development Centre of the Organisation for Economic Cooperation and Development (OECD).
The contraction in Asean will average 2.8%, although it is expected to be far worse in some countries, the OECD predicts. Thailand is expected to be hit the hardest with GDP contracting by 6.7%, while Vietnam will outperform its neighbours with 2.5% growth for 2020 and a 7.2% improvement in 2021.
The forecasts underscore the urgent need for measures that will promote economic growth. All countries have introduced short-term fixes such as employment and income support and debt relief, placing a considerable strain on fiscal resources. In the longer term, they are looking for a more sustainable path.
In Asia, many are counting on an economic lift from the Regional Comprehensive Economic Partnership (RCEP), which is expected to be signed in November, after eight years of tough negotiations, several missed deadlines, and the exit of one of its original cornerstone members, India.
The world’s largest free-trade agreement (FTA), the RCEP groups 10 Asean countries plus China, South Korea, Japan, Australia and New Zealand. India walked away last year, afraid that it could not compete with a potential flood of cheaper Chinese goods and services.
"The RCEP is not just very large, but it’s the fastest-growing region in the world," Tharman Shanmugaratnam, senior minister and coordinating minister for social policies of Singapore, told a recent virtual forum organised by the UK-based financial group Standard Chartered, entitled "Unlocking the region’s potential; navigating Asean beyond Covid-19".
Even without India, the RCEP nations are home to 2.3 billion people or roughly 30% of the world’s population. They represent a combined GDP worth US$24.2 trillion, which accounts for almost one-third of global economic output.
"The world won’t suddenly change with the RCEP," Mr Shanmugaratnam said, but the RCEP will place the region on "a new trajectory" for "acceleration of liberalisation".
Despite the complexity of the region in terms of rules and regulations in each country, Mr Shanmugaratnam believes the RCEP will create more transparency and predictability for businesses to grow across the region.
The pact is focused on areas of trade and modern services, investment, intellectual property and rights, e-commerce, dispute settlement, economic cooperation, competition, as well as small and medium enterprises.
The current 15 partners have agreed to leave the door open for India, knowing having the rising powerhouse that is home to 1.3 billion people on board will make the RCEP an even more comprehensive agreement.
"The key part is for us to demonstrate that the RCEP is meaningful and beneficial for most, and it does not cause too much pain," said Simon Tay, chairman of the Singapore Institute of International Affairs.
He is optimistic about the potential for the RCEP to improve economies and augment market swings across the region.
The RCEP talks are entering their final stages at a time when trade tensions between the world’s two largest economies — the US and China — have been forcing businesses around the world to reconsider their strategies.
"One-third of global supply chains are looking for a non-China base now," Mr Tay said.
About 33% of 260 surveyed supply chain leaders are planning to move their business out of China because of the tariffs imposed by both countries, according to a survey by the US-based research firm Gartner.
While the Chinese economy is trying to move up the value chain, some China-based companies are diversifying out of China because of higher labour costs, and the need for labour-intensive production to be in more locations than one, Mr Shanmugaratnam acknowledged.
In his view, this could be a real opportunity for Southeast Asia because not only is Asean increasingly a source of demand and an increasingly important market of over 630 billion people, but also because it is an increasingly competitive production location.
"Asean is very well fitted out to complement China as we have both evolved in our economic development game," he said.
Where should Asean nations position themselves in the ongoing trade war? "We’re not going to take a side," said Luhut Binsar Pandjaitan, Indonesia’s coordinating minister for maritime affairs and investment.
Mr Luhut pointed out that Indonesia has good relationships with both the US and China, and as a large country with a fast-growing economy and prosperous opportunities, it aims to bridge both the US and China together because "that’s the best choice for us".
Mr Shanmugaratnam agreed, emphasising that Asean "is not without its own leverage as an economic bloc, as a strategic bloc, and as a region that both the US and China would like to get along well with".
However, "I think it would be a more complex world," added Mr Shanmugaratnam, referring to the "China Plus One" strategy that businesses have started to pursue to diversify operations by adding another location in Asia.
If the region plays its own game right, it will be an advantage to Asean, said the senior minister. "You have to be nimble, you have to be nifty. We’ll have to be diplomatically savvy" in order to manage the process, he said.
DIGITISATION IS NOW
One thing that pandemic has shown us is how profoundly technologies and digitisation have transformed our lives, enabling millions of people to work and study from home, albeit with less-than-ideal outcomes in some cases, especially for students.
"When the epidemic passes, which of course it will, the patterns of behaviour will not go back to the way they were before," said Bill Winters, group chief executive of Standard Chartered Bank, explaining that people have now experienced the convenience, safety and efficiency of technology, and this will eventually break down borders further.
The pandemic has shown that people can work remotely, "somewhere between reasonably and very effectively for some roles", he said. Consequently, "there will be implications for the way that people use their properties", Mr Winters said.
There will be fewer fixed office spaces and more collaborative working spaces, as more people will do some meaningful proportion of their work from remote locations. "This will put further pressure on high-cost locations where there are alternatives in terms of intellectual input," he added.
Singapore, which is no longer very cost-competitive relative to its main rivals in the global city race, might lose its competitiveness in terms of location since the remote working trend is on the rise.
Mr Shanmugaratnam acknowledged that "costs will never be our comparative advantage", but he believes that due to the impact of Covid-19 and geopolitical uncertainties, a high-trust location is going to be sought after.
In the post-Covid world, the degree of trust and reliability in a country, in a city and in systems of governance will be fundamental and an increasing consideration for a whole range of businesses, in his view.
"Singapore has to function as a high-trust location," said Mr Shanmugaratnam. "Our whole raison d’etre is to be a hub within Southeast Asia, within Asia and to build win-win opportunities because hubs don’t take business away from someone else."
Instead, he said, "they help to intermediate, they help to diversify risk, they help to manage risk, they help to make things more efficient".
Covid-19 has underlined how essential digitisation is and that governments must be equipped with technology and digital tools to prepare for the digital future.
Mr Shanmugaratnam pointed out that technology and digitisation can spearhead a Covid-19 recovery in Singapore and the rest of the region.
Small and medium-sized enterprises (SMEs) account for a significant share of the region’s economic activity. In 2019, Singapore had an estimated 220,000 SMEs which contribute 50% of national GDP. In Thailand, 43% of its GDP was contributed by 3 million SMEs.
Despite the numbers, SMEs have uneven degrees of preparedness relative to large companies. Consequently, "digitisation is fundamental to the way we help our SMEs in this next phase of growth", said Mr Shanmugaratnam.
Singapore, for example, is now working on a platform that will link buyers, suppliers, logistics providers, escrow payments, lenders and other service providers together to make it easier and more convenient for SMEs to export and import and tie up with partners around the region.
It also offers the Industry 4.0 Human Capability Programme which helps 300 SMEs develop digital use cases and redesign jobs to support them.
Mr Shanmugaratnam is aware that while "there’s a real risk of a digital divide within our own societies", there is also an opportunity to leapfrog and allow SMEs to exploit the opportunities of regional integration.
The workforce has also been unavoidably disrupted by automation, robots and digital technologies, and Covid-19 has acted as another catalyst forcing business leaders and governments to support reskilling and upskilling of people.
"We have to double down on our efforts to invest in the human capital of ordinary people," said Mr Shanmugaratnam. It addition to professionals and those rising very quickly in the careers, blue-collar and other white-collar workers need support.
"A good education system is of course fundamental … but it’s about investment at regular intervals through a person’s life," he said, adding that there is a need for "soft infrastructure as well as a system of financing to help invest in people through their lives".
"It’s going to be difficult to look far out into the future in anyone’s career, certainly for young people, but they must have certainty in one thing," he said. And that is "the certainty that when they get dislocated from one job, or the whole industry goes down, there’s a way in which they can bounce back".
Besides people’s own efforts, a supportive environment from employers is needed. They need to work with governments and education and training providers to facilitate reskilling and invest in new skills in different industries.
It doesn’t require major breakthroughs in thinking, just better coordination and trust among all players, said Mr Shanmugaratnam.
"Ordinary people require this trust that if things go wrong [they can obtain support]. ... That trust, I think, is going to be fundamental to what we call social capital and social cohesion," he concluded.