The Future of Southeast Asia
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- Authors: MANU BHASKARAN
- Published: September 1, 2018
Overview and outlook
- Southeast Asia faces key challenges from shifting demographics, climate change, and harnessing new technologies for growth.
- The region comprises 643 million people in 10 nations, ranging from Lao P.D.R. to Singapore.
- The author expresses cautious optimism that the region will overcome global challenges by combining resilience and flexibility.
- Historical resilience: the region successfully dealt with the crisis of 1997–98 and has emerged stronger since.
Demographics and aging trends
- Major demographic transition: population growth will slow and aging trends will become more pronounced.
- Singapore and Thailand will age faster; Malaysia and the Philippines will still experience slower population and labor force growth.
- The era of plentiful and cheap labor that supported export-led, labor-intensive manufacturing will largely be over across the region.
- Urbanization projection:
- Urban population will expand from 49 percent of the current total to about 56 percent by 2030.
- This implies an additional 80 million people moving to towns and cities (framed both as pressure on infrastructure and as 80 million potential more productive workers and consumers).
Technological developments and implications
- Advances such as artificial intelligence, robotics, 3-D printing, and new composite materials will transform manufacturing, making it less labor-intensive and enabling new products and competitiveness drivers.
- Indirect effects include development of super-long-haul aircraft using carbon fibers that could increase tourism through cheaper point-to-point travel.
- Examples of technology-driven opportunities:
- Wider use of SMAC (social, mobile, analytics, and cloud) to enhance business profitability and consumer reach.
- Increased use of renewable energy, especially solar and wind, reducing reliance on polluting fossil fuels and enhancing energy security.
- New biomedical therapies, some based on genomics, that may raise life expectancy and quality of life and spawn new business activities (noting emerging medical hubs like Bangkok).
- Labor market dynamics:
- Wholesale displacement predictions are viewed as overly pessimistic; displacement and job creation will coexist.
- Example: the Internet spawned the cybersecurity industry; the United States cybersecurity workforce is estimated at 768,000 (CompTIA).
- New technologies and data analytics will create new jobs and industries (e.g., Philippines’ business process outsourcing).
Forms of globalization and regional integration
- Multilateral "whole-of-the-globe" initiatives may become harder to execute; smaller-scale subregional partnerships and cross-border trade are likely to expand.
- ASEAN-specific approach:
- ASEAN is pursuing practical integration plans, such as the ASEAN Economic Community 2025 plan, which sets long-term goals while allowing country flexibility to improve flows of goods, services, capital, data, and people.
- Regional examples:
- Greater Mekong Sub-Region: over 20 years of cooperation leading to improved transportation, growing trade, and labor flows; cross-border trade transforming small towns into hubs.
- Continued global financial integration poses two challenges:
1. Frequent bouts of stress and volatile capital flows complicate monetary policymaking and can destabilize currency, equity, and bond markets. 2. China’s growing role in global finance: liberalization of China’s savings, Belt & Road initiative, and institutions such as the New Development Bank and the Asian Infrastructure Investment Bank will become integral parts of the global financial architecture.
Climate change and environmental risks
- Southeast Asia is likely to be among the world’s hardest-hit regions from rising sea levels and increasingly violent storms (as reckoned by the Asian Development Bank).
- Annual smoke from forest fires in parts of Indonesia, Malaysia, and Singapore demonstrates potential for extensive damage.
- Water scarcity is a significant but less highlighted risk:
- Dams on the upper Mekong River in China have altered nutrient-rich sediment flows and the annual flood pulse, affecting downstream fishing and livelihoods in the lower Mekong Basin.
- Managing water resources and equitable safe water provision will be challenging.
Building resilience and flexibility
- Need for both resilience (capacity to bounce back) and flexibility (ability to seize opportunities and mitigate risks).
- Improvements since 1997:
- More diversified economies.
- More flexible exchange rate regimes.
- Financial structures less prone to crises; banks better capitalized.
- Stronger balance sheets across companies, households, financial institutions, and governments.
- Evidence: the region weathered shocks such as the global financial crisis, successive euro area crises, and the collapse in commodity prices.
Bottom-up adjustment and private sector dynamism
- Spontaneous, bottom-up adjustment by companies and individuals is generally strong.
- Regional corporate success stories include AirAsia and Thai conglomerates such as Charoen Pokphand Group and the Siam Cement Group expanding across the Mekong and beyond.
- The multiplicity of emerging technologies can create new industries and opportunities (example: Philippines’ business process outsourcing).
Policy-driven adjustment and government support
- Globally competitive clusters have emerged with government support through industrial master plans, industrial estates, and incentives for foreign investors.
- Notable clusters and initiatives:
- Thailand’s eastern seaboard: major manufacturing hub for petrochemicals and automobiles; now being transformed into an expanded Eastern Economic Corridor.
- Malaysia’s Penang-Kulim corridor and the southern region of Iskandar: globally competitive manufacturing and logistics clusters.
- Key public goods to support adjustment:
- Infrastructure, education and skills training, research and development, and social safety nets.
- Policy progress cited:
- Major turnaround in infrastructure investment after decades of slow progress.
- Regulatory cuts and anti-corruption efforts: Indonesia’s rise in the World Bank ease of doing business rankings and prosecutions by its anti-corruption agency; Malaysia’s new government attacking corruption.
Conclusions and prospects
- The next couple of decades could be exhilarating for Southeast Asia because of technology and global growth, but also tumultuous due to risks like an unreformed and unstable international financial architecture.
- Policymakers have not solved all challenges but are moving in the right direction.
- Companies are growing in scale and sophistication, aiding flexible and effective adjustment.
- Historical track record supports confidence that Southeast Asia can continue to respond to challenges over time.
The Future of Southeast Asia — MANU BHASKARAN, F&D Magazine, September 2018
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