19 August 2019

Understanding ASEAN countries and opportunities in a snapshot

This article is produced by The Economist Intelligence Unit

The Association of Southeast Asian Nations (ASEAN) was established in 1967 originally by Indonesia, Malaysia, Philippines, Thailand and Singapore. Membership expanded over the years to include five additional countries Brunei Darussalam, Cambodia, Laos, Myanmar, and Vietnam as well as Papua New Guinea as an observer.

Forged in part to accelerate economic growth in the region, ASEAN has grown to become the fifth-largest economy in the world with a combined GDP of US$2.9bn. Progress is expected to continue as some member states Vietnam, Cambodia, Myanmar and Laos in particular slowly cement new positions in manufacturing supply chains, owing to rising populations and relatively lower wage costs. Global trade dynamics are likely to benefit ASEAN states, as firms currently manufacturing in China look for lower-cost options and begin to seek diversification in sources and suppliers. In particular, automotive parts makers in Thailand, electronics producers in Malaysia and furniture manufacturers in Indonesia could all experience a boost.

Six bilateral free trade agreements (FTA) currently tie ASEAN member states to partners in Asia—Japan, South Korea, China, India, New Zealand and Australia. The Regional Comprehensive Economic Partnership (RCEP), which involves the same six countries and the regional bloc, has potential to significantly improve trade facilitation and market access across Asia. But execution is still on the horizon, with expert observers saying it is likely to be signed only within the next 12-18 months. For now, integration efforts will be sustained under the ASEAN Economic Community (AEC), the region’s foundational FTA that calls for free movement of goods, services, investments, capital and labour.

ASEAN however still has room to improve in terms of preparedness for technological changes. Advancements develop at unequal paces across member states, which may hinder cohesiveness and can introduce competitive issues. For example, the internet penetration rate in Malaysia is 86% but in Laos penetration is only about 26%, presenting lopsided opportunities for each county’s citizens. Among ASEAN members, Singapore is the only one to reach the top ten on the EIU Technological Readiness Rankings, tying with Australia and Sweden for a first-place spot on the index and surpassing the next-closest ASEAN country by more than 20 levels.

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Written by The Economist Intelligence Unit.

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