Why ASEAN is poised for inclusive growth and prosperity
- ASEAN is on its way to becoming the world’s fourth largest economy.
- Coordinated pandemic response efforts, along with the implementation of the Regional Comprehensive Economic Partnership (RCEP) and digital transformation, will drive inclusive growth and development in the region.
- Public-private cooperation is essential for the sustainable, resilient and green future of ASEAN.
The COVID-19 pandemic has caused a slump in global investment activity – due to economic uncertainties, lockdowns, supply chain disruptions and the postponement of investments by multinational companies. ASEAN also recorded a drop in foreign direct investment (FDI) in 2020 to $137 billion, down from its highest-ever inflow of $182 billion in 2019, when it was the most major recipient of FDI in the developing world.
Despite the decline, ASEAN remained an attractive investment destination. The region’s share of global FDI increased from 11.9% in 2019 to 13.7% in 2020, while the intra-ASEAN share of FDI in the region increased from 12% to 17%. In addition, the longer-term trend shows that the value of international project financing in ASEAN has doubled from an annual average of $37 billion in 2015-2017 to an annual average of $74 billion in 2018-2020.
And the future looks bright. According to the first ASEAN Development Prospects Report (ADO), the combined total GDP of 10 ASEAN countries in 2019 was valued at $3.2 trillion, making ASEAN the world’s fifth-largest economy. , on track to become the fourth largest by 2030. With a total population of around 700 million people, 61% are under the age of 35 – and the majority of young people are embracing digital technologies in their daily activities.
The outlook remains bright, with coordinated pandemic response efforts and several key developments underway in the region.
Coordinated responses to the pandemic
ASEAN members have taken coordinated action to respond to the challenges of the pandemic, such as the Hanoi Action Plan on Strengthening ASEAN Economic Cooperation and Supply Chain Connectivity in Response to the COVID-19 Pandemic. Members have collaborated in the movement of essential goods and built the resilience of its supply chains and sourcing in the region. This joint response was essential given how the concentration of FDI in ASEAN is linked to global value chain activities or regional production networks that involve intra- and inter-firm linkages.
To support recovery and build resilience, ASEAN launched the ASEAN COVID-19 Response Fund and cooperated with external partners on the ASEAN Center for Public Health Emergencies and Diseases (ACPHEED) to enhance regional health security and maintain ASEAN’s preparedness and resilience to public health emergencies.
Regional Comprehensive Economic Partnership
The ASEAN-led Regional Comprehensive Economic Partnership (RCEP) Agreement entered into force on January 1, 2022 for Australia, Brunei Darussalam, Cambodia, China, Japan, Lao PDR, New Zealand , Singapore, Thailand and Vietnam. With him, ASEAN resolves to keep markets open while strengthening regional economic integration for an inclusive post-pandemic recovery.
RCEP is the largest existing regional free trade agreement and will cover 30% of global GDP and 30% of global population in addition to accounting for more than a quarter of global trade in goods and services. Key provisions relate to the liberalization and promotion of intra-RCEP trade, investment and services, as well as the development of e-commerce, which is highly relevant for regional value chains and market-seeking investments and investments. of efficiency. In addition, non-RCEP member companies can also enjoy the benefits of RCEP by locating and operating in the region.
Considering that 40% of investment in ASEAN comes from RCEP members – of which 24% comes from non-RCEP ASEAN member countries – opportunities exist to stimulate more sustainable FDI in the region, especially FDI linked to the value chain taking into account the benefits of RCEP and the recently concluded ASEAN Investment Facilitation Framework (AIFF).
Fourth industrial revolution and digital transformation
The recent adoption of the consolidated strategy on the Fourth Industrial Revolution (4IR) for ASEAN at the 38th and 39th ASEAN Summits and the ASEAN Agreement on Electronic Commerce will advance the region’s push towards digital transformation and private investment in the development of digital infrastructure (5G networks and data centers), cloud computing, cybersecurity, artificial intelligence and smart manufacturing.
The ASEAN Comprehensive Recovery Framework (ACRF) has identified digital connectivity as a priority to facilitate regional connectivity and economic recovery. This correlates with the results of a survey conducted by the World Economic Forum and the Sea among 86,000 people from six ASEAN countries, which found that respondents (including business owners) who were “more digitized” tended to be more resilient economically during the pandemic.
However, the survey also revealed several barriers to digital adoption, including affordable access to internet and quality digital devices. The Forum is tackling this global issue through initiatives such as the EDISON Alliance, which mobilizes multi-stakeholder collaboration to extend digital access to more than one billion people by 2025.
The ASEAN Digital Integration Framework will also support the ACRF. The Forum complements ASEAN’s efforts through the ASEAN Digital Initiative on Data Policy, Digital Skills, Electronic Payments and Cyber Security.
The way forward: public-private cooperation
The Forum’s Center for the Fourth Industrial Revolution network, which brings together stakeholders to maximize the benefits of technology while reducing potential risks, has shown that public-private cooperation is essential for business and government to develop cooperative ecosystems to advance digital transformation and innovation.
Governments have an important role to play in encouraging investment in research and development, while the private sector will drive the transformation of Industry 4.0 by investing in the digitization of manufacturing, using advanced manufacturing solutions, building smart factories and establishing R&D facilities, technology hubs and centers of excellence in the region.
Embracing the 4IR also requires a parallel commitment to environmental sustainability. This can establish new forms of efficiency in which sustainability and competitive excellence are not only compatible, but, in fact, closely linked. A green future not only benefits the well-being of ASEAN’s next generation, but is also good for ASEAN economically, enhancing the region’s competitiveness by attracting green FDI to meet new climate-related investments and trade measures adopted by developed economies.
ASEAN has demonstrated a strong commitment to climate change and global sustainable development efforts. Several initiatives support ASEAN’s sustainable ambitions, including the Global Plastic Action Partnership in Indonesia and Vietnam.
However, greater commitment to environmental stewardship is also required from the private sector to design corporate purchasing commitments that can stimulate investment in green technologies and market demand for low carbon technologies. carbon to help ASEAN achieve climate-related goals. The First Movers Coalition launched at COP26 could offer valuable insights to ASEAN on how the private sector can drive decarbonization across different industries and societies in the region.