Robust economic and trade dynamics and infrastructure developments position region to be a sustainable growth nucleus in Asia and new focus of global investors
Global and regional investors remain vested in ASEAN despite wider challenging economic externalities, according to a new EY report, Rediscover ASEAN: a growth story of 10 countries. Among emerging markets, ASEAN has in the recent decade become a focal point of global investor interest, with total trade having increased steadily by a compound annual growth rate (CAGR) of 6.4% to US$2.3t in 2015.
Mr. Max Loh, EY Asean and Singapore Managing Partner, Ernst & Young LLP says:
“ASEAN’s trade linkages are well-entrenched with over 230 markets globally. With the ASEAN Economic Community policy thrusts encouraging regional economic integration, there is even higher upside for intra-ASEAN trade growth. In the longer term, the Regional Comprehensive Economic Partnership involving ASEAN, Australia, China, India, New Zealand, Japan and South Korea will help to drive further regional trade growth.”
The relatively stable economies in ASEAN underpin investor interest. ASEAN’s member countries are expected to post healthy gross domestic product (GDP) growth rates of 3-8% over the next five years, and enjoy a CAGR of 5.1% from 2017 to 2021 collectively. The emerging markets – Cambodia, Laos and Myanmar – are expected to grow above 7%, while the developing markets of Indonesia, Malaysia, Philippines and Vietnam are projected to generate a steady CAGR of 5-6%.
Dato’ Abdul Rauf Rashid, EY Asean Assurance Leader, comments:
“At a time of volatility in various parts of the world, ASEAN may well be the prized ecosystem of certainty, consistent and resilient economic growth. The region is well-positioned to be a growth nucleus in Asia, even as China and India continue to power ahead.”
Dynamic performance and outlook for FDI and deal activity
Foreign direct investment (FDI) inflow into the region achieved double-digit CAGR of 11.5% in the past decade up to 2015. While extra-regional investments accounted for over 80% of total FDI, it is noteworthy that the growth rate of intra-regional investment was almost double that of extra-regional FDI.
Nearly two-thirds of the foreign investments were in the services sector, predominantly the financial and insurance segments. The key extra-regional FDI contributors were from the US, Europe and Japan, and these investors and regional titans are expected to remain keen on the region.
Over two-thirds (68%) of the M&A deals in ASEAN from 2010 to 2016 were either intra-ASEAN or inter-Asia-Pacific, reflecting the strong appetite in the region. The most active sectors were consumer, energy and financial services.
Mr. Vikram Chakravarty, EY Asean Transaction Advisory Services Leader adds:
“ASEAN is one of the few regions that still has robust fundamentals, and it has three stages of economic development – advanced, developing and emerging – which excite investors. Businesses should hold a long-term view of their prospects in the region and have a selective country or category strategy to win, given that the market typically rewards the largest two to three players.”
Growing infrastructure investments
ASEAN’s rapid economic transformation continues to fuel appetite for infrastructure development. Significant infrastructure investments are estimated at US$110b per annum until 2025. The key areas of infrastructure investment include multimodal transport connectivity to improve logistics efficiency, utilities infrastructure and infocomm and technology projects.
Mr. Chow Sang Hoe, EY Asean Advisory Leader comments:
“Infocomm and technology infrastructure development, as part of building a trusted, secure and resilient digital ecosystem, is vital to improving ASEAN’s economic competitiveness and enabling businesses to transform in the rapidly expanding digital economy. Today’s disruptive operating environment will require both governments and businesses in ASEAN to leverage the right data, tools and systems for predictive insights to identify long-term growth opportunities.”
Ms. Yeo Eng Ping, EY Asean Tax Leader concludes:
“Aside from her robust economic dynamics, ASEAN has a relatively young and diverse multilingual talent pool, burgeoning middle-class segment and a strong investment pipeline of infrastructure development projects, which present wide opportunities for investors to participate in her economic development. In the longer term, ASEAN’s growth will be shaped by economic policies, regional trade policies, competitive tax incentives, and access to infrastructure financing.”
Developed in conjunction with ASEAN’s 50th anniversary this year, the Rediscover ASEAN: a growth story of 10 countries report looks at the region’s performance and potential opportunities in economic growth and investments, as well as infrastructure developments.