Asean’s golden age may finally arrive if it can channel a potentially massive wave of outbound investments from the North Asian economies, Iwan Jaya Azis, head of regional economic integration at the ADB has told Emerging Markets.
The Association of Southeast Asian Nations (Asean), with its population of 600 million, could be on the verge of a “third industrialisation”, following the previous period of massive growth driven by Japanese investment in the 1980s. That surge in outbound investment from Japan three decades ago — known as the “endaka” — may be about to repeat itself.
Increasing costs of production in China and Korea, together with Japan’s new economic policy course will usher a new era with Asean as the main beneficiary, according to Azis. “There will be flows of investments, flows of resources from Japan, China and Korea to Asean countries,” he said.
Asean’s goal of establishing an Asean Economic Community (AEC) aims to create an expanded free trade area by 2015 to give investors an entire region in which to invest more easily.
However Azis echoed recent media reports that Asean would not hit the target. “The timeline is not top of the policymakers’ agenda,” he said. However he stressed the important factor was not Asean governments falling behind on their political deadlines, as much as the public discourse surrounding them.
“The media coverage in Asean countries about the deadlines...should be seen positively. Their worry means there is pressure, psychological and real.” The implication is that deadlines will ultimately be less important than the build-up in political will to achieve the AEC goals.
The potential of Asean can be measured by the interest shown by non-member countries. India, which on 24 April named its first official envoy to Asean, seems to have big plans. “The Asean supply chain is behind the success story of Southeast Asia, but India was left out of that,” Azis said.
The Indian government is looking to remedy that and has commissioned an ADB study on the opportunity for India’s cooperation with a production network that has done wonders in boosting regional growth.
“The political interest in being part of Asean’s supply chain is definitely there,” said Azis. “The highlight of the study is that potentially there is a lot that India can be part of in the production network in southeast Asia.”
The biggest challenge to that cooperation is more domestic than transnational, however. “The most important and necessary condition for India is that they need to reform domestically first.”
Asean could be the logical destination for new outbound investment flows for the North Asia economies. But the shift will not be painless. “In the short run, there may be a negative impact, especially for Asean countries that depend on China as an export destination or as source of imports,” Azis said.
However he said it was important to keep in mind that China’s slowdown was at least partially policy driven. In that light, the likelihood of the shift being too traumatic for southeast Asia may not be so great. In the longer term, the benefits may far exceed expectations.