03 April 2018

The changing face of Southeast Asia

Demographics are important for investors. The number of people in a country, their income and their household composition affect how they shop and spend.

We have studied the differing urbanisation rates, household composition and ageing in the Association of Southeast Asian Nations (ASEAN), plus marriage and fertility rates.

The region is diverse, but urbanisation is accelerating everywhere except in the Philippines. Household composition differs markedly within ASEAN and this impacts on consumer markets.

ASEAN trends do not always follow China’s: its households will remain more price-sensitive, even at equal levels of GDP per head. So while ‘trading up’ is a key consumer theme in China, this is much less so in ASEAN, where city congestion still allows neighbourhood ‘mom and pop’ stores to prosper.

E-commerce does well in markets that are: poorly served by shops, have price-sensitive consumers and logistics that allow quick delivery. This applies to large parts of ASEAN, especially Indonesia.

Small and medium-sized cities often drive economic growth in ASEAN

Asia in general has seen substantial population shifts to urban centres where most employment and wealth are generated. However, Asia’s average urbanisation is estimated at 48 per cent by the United Nations, compared with Europe’s 73 per cent and 82 per cent in North America, leaving scope for further concentration in large parts of ASEAN.

Urbanisation has been fastest in Malaysia but it fell in the Philippines partly because of the job opportunities created by IT service centres outside the capital. An unusual feature of ASEAN urbanisation is easy commuting from high-density towns 30km to 50km outside a city centre. Only 12 per cent of Asia’s urban population live in megacities, while 41 per cent live in towns of fewer than 300,000 inhabitants. These small and medium-sized cities often drive economic growth in ASEAN.

Education affects urbanisation if rural people lack the skills needed for city jobs. And speaking only a local language can inhibit mobility, especially in India.

Hong Kong and Singapore have low dependency ratios because single-person households are prevalent. China’s ratio is low too –- the average worker supports only 0.37 other people – reflecting not only the one-child policy, but also high female labour participation.

Thailand and Vietnam also have low dependency ratios; the Philippines has the highest, followed by Cambodia, India and Bangladesh.

Trends in marriage and family formation are other demographic factors. As incomes rise, women tend to have fewer children. Fertility rates are lower and women marry later in developed Asia, particularly in Singapore, Hong Kong, Korea and Japan. Singapore’s government actively encourages women to have children earlier through cash payments.

Fertility rates in the Philippines, Laos, Cambodia, Indonesia and Vietnam exceed 2.1 births per woman – the level that sustains a population – but rates below 1.5 in Singapore and Thailand mean their populations will decline without immigration.

Fewer births increase the proportion of older people and late marriage means more single-person households, which impacts consumer patterns. But older people have earned and saved so can spend, a key demographic dynamic in Asia.

ASEAN’S young population spends little on healthcare, but as more people turn 40 this market is likely to grow faster there than elsewhere in Asia – especially in Malaysia and Indonesia, where diabetes is high.


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