15 January 2020

ASEAN 2020 outlook: SEA needs to be more connected to reach its full potential: HSBC

Southeast Asia can lift its economic growth if the region’s business barriers in trade, sustainable infrastructure development, and the digital economy are removed, according to HSBC.

Tony Cripps, Chief Executive Officer, HSBC Singapore: “Southeast Asia has achieved incredible inroads in its economic development over the past 20 years; however, the region is at risk of seeing growth begin to slow. The key will be how policymakers continue to build greater connectivity across the trade bloc.”

GDP growth in ASEAN nations averaged 5.5% a year between 2010 and 20181. HSBC research suggests its contribution to global GDP could rise to 8% if reforms are made.

According to HSBC, there are 3 main areas to foster a more joined-up region: (i) further cutting of non-tariff trade barriers, (ii) developing sustainable infrastructure, and (iii) creating a seamless digital region.

Removal of non-tariff barriers

While most goods trade tariffs have been removed across South-east Asia, more than 6,000 non-tariff trade barriers across the region have emerged.2

Mr Cripps continued: “The region has been successful in removing virtually all formal tariffs; however, we’re seeing the emergence of ‘below-the-line’ trade barriers instead. These can impact the region’s ability to attract international investment, particularly in areas linked to the increasing supply shifts, if left unaddressed.”

A significant offset to these barriers will be the ASEAN-led Regional Comprehensive Economic Partnership (RCEP), which makes up 30% of the world’s population and 29% of the world’s GDP.3 The RCEP is expected to be signed in early 2020.

Other areas to work on in 2020 include:

  • Increasing the minimum threshold for goods that would require a Certificate of Origin (reducing the amount of administration).
  • Automating customs clearance across all ASEAN member states.
  • Encouraging the last ASEAN nations, including the Philippines4, to join the ASEAN Single Window.

Sustainable infrastructure and greening the region

The second vital element in positioning Southeast Asia for its next phase of growth is ramping up investment in sustainable infrastructure that will both bring the region closer together and expand the opportunities for industry.

The Asian Development Bank (ADB) says that Southeast Asia needs to invest USD210 billion – 5% of projected GDP – a year over the next decade in infrastructure just to maintain current levels of growth.5

And this challenge is compounded by the environmental threat facing the region.

The ADB estimates that if left unaddressed, climate change could reduce the region’s GDP by 11% by the end of the century.6

ASEAN member states will need to be increasingly focused on smoothing the path for greater private sector investment in sustainable infrastructure financing.

Digital connectivity

The final challenge is to create a borderless digital ecosystem that spans the region. Digital technology has the potential to play a key role in driving the development of new industries and growth. But the region has to agree on a common set of standards for data handling and digital commerce, which will encourage businesses to share data, to realise that potential.

Different digital regulatory regimes across Southeast Asia limit the ability of both local firms and multinationals to reap the full benefits of economies of scale, weakening its attraction as an investment destination.

The Master Plan on ASEAN Connectivity 2025 is the central node to enhance data management, facilitate harmonisation of data regulations among ASEAN Member States and promote intra-ASEAN flows of data.

However, this is largely a self-run programme for member countries, so ASEAN nations will need to maintain discipline for its momentum to build. The impetus for doing so will only become more pronounced as 5G begins to be rolled out across Southeast Asia in 2020.

Mr Cripps concluded: “Southeast Asia has achieved a lot in recent decades but there is more that can be done to build connectivity. Challenged by trade barriers, infrastructure gaps and a burgeoning digital economy, ASEAN needs to make tough political choices in order to create a borderless and sustainable bloc that will push past organic growth.”

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This article was prepared by The Hongkong and Shanghai Banking Corporation Limited, Singapore Branch.

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