Vietnam is a top priority destination as ASEAN strengthens its position in the global supply chain. Illustrative photo. (Source: Industry and Trade Newspaper)

ASEAN is one of the fastest growing regions in the world in 2022. In 2023, the world economic growth will plummet to 3.1%, but ASEAN's growth will still reach 4.7%, according to data from the Asian Development Bank (ADB). After the Covid-19 pandemic, amid the world's uncertainty, the economic picture of Southeast Asian countries continues to record positive signals, and ASEAN economies remain attractive destinations for international investors.

Connected and self-reliant

In 2024, economic growth in the ASEAN region is forecast to remain very positive, especially in some of the major consumer markets in Southeast Asia such as Indonesia, the Philippines, Vietnam and Malaysia, thanks to stable demand and improved exports of goods and services. Merchandise exports are expected to gradually increase, after exports in many industrialized Asian countries declined significantly in 2023, due to weakness in key consumer markets.

In what is considered the world’s fastest growing region, ASEAN member economies such as Singapore, Malaysia, Thailand, Indonesia, Vietnam often offer the best alternatives – amid the escalating US-China trade “war”; multinational companies want to diversify their manufacturing supply chains, towards cheaper manufacturing locations with competitive wages.

Most recently, the Southeast Asia Outlook 2024-2034 report (published on August 1) also predicted that Southeast Asia could surpass China in terms of growth rate and foreign direct investment (FDI) in the next 10 years, thanks to intra-bloc advantages and the shift of global supply chains.

In reality, however, the strategic environment in which ASEAN operates has changed dramatically compared to 10 or 15 years ago. Trade rivalry between major powers, the Covid-19 pandemic, wars and security issues in key regions of the world, and how countries respond to an increasingly fragmented global economy have all led to continued disruptions in global supply chains.

“Dual Motivation”

The ASEAN economic integration agenda is based on three basic “platforms”: the ASEAN Trade in Goods Agreement, the ASEAN Trade in Services Agreement and the ASEAN Comprehensive Investment Agreement, which have been continuously refined and improved over time to facilitate the implementation of all economic agreements within the bloc. However, to further promote regional economic development, ASEAN is still finalizing its work programs under the Master Plan on ASEAN Connectivity 2025 - focusing on improving physical, institutional and people-to-people connectivity, through infrastructure projects, policy harmonization and human resource development, etc.

In 2024, member countries adopted 14 priority economic cooperation initiatives (PEDs) proposed by Laos in its role as ASEAN Chair 2024, under the theme “ASEAN: Promoting Connectivity and Resilience”. The priority economic cooperation initiatives focus on three main directions: Recovering and connecting economies; creating an inclusive and sustainable future; and transforming towards a digital future.

The PEDs of 2024 are assessed by analysts to include both inherited and continuing ASEAN's achievements in 2023, and to take into account new contents and issues. Notably, many areas in trade and some other areas have been agreed upon in the annual priorities of 2024 such as: trade in goods, trade facilitation, customs, trade in services and movement of natural persons, financial investment, competition, intellectual property, e-commerce; micro, small and medium enterprises, etc.

According to Bernama, the national news agency of Malaysia, speaking at the conference “Vision 2045: The ASEAN Era” in Malaysia on August 6, Deputy Secretary General of ASEAN in charge of the ASEAN Economic Community (AEC) Satvinder Singh commented that ASEAN is moving towards becoming the world’s fourth largest economy by 2030, from the current fifth position, with the macroeconomic environment achieving significant progress. GDP has skyrocketed by 51% to reach 3.8 trillion USD in 2023 compared to 2.5 trillion USD in 2015.

This is further reinforced by the fact that regional trade has increased to US$3.5 trillion by 2023 from US$2.3 trillion in 2015, which has led to a significant increase in per capita income. This reflects ASEAN’s continued commitment to becoming an open economic region for global trade and investment, which has improved significantly, said Deputy Secretary-General Singh.

Importantly, ASEAN is among the very few regions in the world where trade is close to GDP. The largest trade volume is not between ASEAN and economic powerhouses such as China or the United States, but intra-regional trade, which is worth around $800 trillion.

Bernama quoted Mr Singh’s analysis as saying that ASEAN has “accelerated” to become the largest trading area in the world, as well as increasing trade with other regions and major partners, such as China, Japan, South Korea, India, Australia and New Zealand. This is unique to ASEAN economies, unlike the EU or the North American Free Trade Area (NAFTA) – most countries trade with each other and not with other regions.

On the path to promoting economic growth and integration, ASEAN's current attraction is to update and transform advanced technologies, such as 5G, artificial intelligence, Internet of Things, etc. According to some forecasts, in the coming years, the global supply chains of companies with low carbon emissions and high-value activities are likely to be located in ASEAN countries. Some industries will witness significant growth, including semiconductors, agriculture, data equipment as well as minerals and metals industries.

Assessing the attractiveness of ASEAN as the global supply chain changes, the report of OCBC Bank (Singapore) said that the trend of shifting investment directions is due to the diversification of regional and global supply networks. However, strong reforms and an encouraging macro environment in the region are increasing ASEAN's position as an attractive investment destination. FDI inflows into ASEAN will increase to 236 billion USD in 2023, up 24% compared to the annual average of 190 billion USD (period 2020-2022). The "dual driving force" - increasing FDI and shifting production supply chains will continue to create leverage for Southeast Asia in the process of global trade recovery.