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l Global Research l
Important disclosures can be found in the Disclosures Appendix
All rights reserved. Standard Chartered Bank 2014 research.standardchartered.com
Special Report
ASEAN – Growth in the fast lane
Special Report
5 November 2014 2
Table of contents
ASEAN in 10 key numbers 3
Infographics 6
Overview 11
Growth In the fast lane 11
Attracting global investment 15
An investment magnet 15
Box A: Our survey on ASEAN and Vietnam 20
Consumer market in 2020 26
Awakening the giant 26
Box B: Urbanising ASEAN 30
Demographics 32
In the middle of the pack 32
Trading with the world 39
ASEAN is a major global trader 39
Can ASEAN replicate China’s experience? 41
ASEAN-China trade corridor 45
ASEAN and the world 49
Intra-ASEAN trade 56
Stable growth 56
Reform 63
Seeking sustainable growth 63
Productivity 67
Capital stock is key 67
Productivity growth in ASEAN has been positive 68
Productivity growth requires supportive inputs 69
Productivity charts for selected economies 74
Infrastructure 75
A critical growth driver 75
Philippines – Work in progress 82
Thailand – Further vital steps towards infrastructure reform 86
Indonesia – Infrastructure bottlenecks 90
Box C: ASEAN leverage 98
Edward Lee +65 6596 8252
Macro Research
Standard Chartered Bank, Singapore Branch
David Mann +65 6596 8649
Macro Research
Standard Chartered Bank, Singapore Branch
Tony Phoo +886 2 6603 2640
Macro Research
Standard Chartered Bank (Taiwan) Limited
Jeff Ng +65 6596 8075
Macro Research
Standard Chartered Bank, Singapore Branch
Chidu Narayanan +852 3983 8568
Macro Research
Standard Chartered Bank (HK) Limited
Usara Wilaipich +662 724 8878
Macro Research
Standard Chartered Bank (Thai) Public Company Limited
Eric Sugandi +62 21 2555 0596
Macro Research
Standard Chartered Bank, Indonesia Branch
Betty Rui Wang +852 3983 8564
Macro Research
Standard Chartered Bank (HK) Limited
Wei Li +86 21 3851 5017
Macro Research
Standard Chartered Bank (China) Limited
Special Report
5 November 2014 3
ASEAN in 10 key numbers
History
5
ASEAN was first established on 8 August 1967 by 5 founding members:
Indonesia, the Philippines, Malaysia, Singapore and Thailand
Brunei (joined in 1984), Vietnam (1995), Laos (1997), Myanmar (1997) and
Cambodia (1999) subsequently joined to make up the current 10 member states.
ASEAN is not a customs union. It is trying to become more integrated as a single
market. The realisation of the ASEAN Economic Community (AEC) in 2015 will be a
key milestone rather than the end of integration. Progress has been made on
integration – tariff rates have been reduced to zero for 99% of tariff lines for the
ASEAN-6. For Cambodia, Laos, Myanmar and Vietnam (CLMV), tariff rates have
been reduced to zero for 72.6% of tariff lines. More can be done, particularly on non-
tariff barriers. The region also needs to do more to facilitate the flow of services,
investment, skilled labour and capital.
ASEAN works by consensus. Typically, all 10 member states need to agree to pass a
resolution. Under the ‘ASEAN minus X’ principle, member states that are ready can
proceed with economic initiatives in some cases. There is no central institution such
as the European Commission to enforce member states’ adherence to their
commitments.
Growth
2
ASEAN grew 2ppt faster than global growth on average from 1980-2013
This outperformance narrowed the gap between global and ASEAN GDP per capita
to 2.7x in 2013 from 6.0x in 1980.
From 1980 to 2013, growth was generally above 5%; the exceptions were the Asian
financial crisis and the global financial crisis.
The region has a combined GDP of USD 2.4tn, making it the world’s eighth-largest
economy.
Population
690
ASEAN’s population is set to rise by more than 10% to 690mn by 2020
ASEAN as a whole is the world’s third-most populous region. We expect the number
of people living in urban areas to grow 27% (+79mn) to 368mn by 2020.
The expected increase in the region’s urban population is equivalent to 3.3x the size
of Shanghai’s 2013 population, 4.4x Delhi’s, and 9.0x Tokyo’s or London’s.
The population will also likely become more educated, with higher female
participation in the workforce. This should drive demand for high-quality consumer
products and services. We expect demand for consumer durables to experience
explosive growth in Indonesia, Vietnam, and Myanmar between now and 2020.
ASEAN retailers need to offer differentiated products and services to different
consumers. The region’s diversity means that companies need to tailor products and
services to different cultures, languages, religions, preferences and habits.
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5 November 2014 4
Investment
9
ASEAN attracted 9% of global FDI in 2013
The region’s share of global FDI increased to 9% in 2013 from 4.1% in 2005. FDI in
ASEAN has grown at a CAGR of 15% since 2005.
ASEAN attracted more FDI than China in 2013. China’s loss of cost competitiveness
is incentivising a shift in investment from China into ASEAN.
The EU is the biggest source of inward FDI, accounting for 22% of the total in 2011-
13. Intra-ASEAN FDI was stable at about 16% of total FDI in ASEAN.
The manufacturing sector has been the top recipient of FDI in ASEAN.
Investors are attracted to ASEAN’s cost-efficient labour supply, improving
infrastructure, trade pacts, supportive investment environment, regional stability,
rising wealth and rapid economic growth.
The Mekong region (CLMV in particular), with its young and ample labour force and
relatively low operating costs, is an attractive option for manufacturers looking for new
production bases, especially in light of cost increases in China.
Labour
70
ASEAN’s labour force is expected to grow by 70mn by 2030 (versus 2010 level)
In contrast, China’s labour force is expected to contract by almost 70mn.
ASEAN’s median age was about 27 as of 2010. This is much younger than China’s
estimated 32 years.
ASEAN’s favourable demographic profile will likely help the region attract investors
looking for alternative manufacturing sites to China.
ASEAN will make up about 9% of the global labour force in 2030, largely stable
versus current levels.
The Philippines, Indonesia, Malaysia and Cambodia are expected to have growing
working populations until 2050. Singapore and Thailand face demographic
challenges.
Productivity
1/3
Productivity levels in ASEAN are about one-third to one-half of the US’
ASEAN’s productivity is comparable to China’s.
ASEAN can partly bridge the productivity gap with more productive economies such
as Japan and Australia simply by increasing the quantity and quality of capital stock
per worker. A critical factor is the efficiency of ASEAN governments in implementing
productive infrastructure projects.
ASEAN is set to benefit from favourable demographic trends. While Japan’s shrinking
working-age population has dragged down growth and China’s working-age
population is set to decline, ASEAN’s (particularly Indonesia’s and the Philippines’) is
set to grow. Urbanisation is a further tailwind.
Urbanisation
46
As of 2013, only about 46% of the ASEAN population was urban
The world passed the 50% urbanisation mark in 2007.
Urbanisation can be a strong growth driver. We estimate that ASEAN’s GDP per capita
may more than double to USD 8,500 in 2030 from USD 3,900 in 2013, based on recent
urbanisation trends.
We categorise ASEAN countries into three stages of urbanisation: Singapore (100%
urban population in 2013), Brunei (77%) and Malaysia (73%) are urbanised; Indonesia
(52%), the Philippines (45%) and Thailand (48%) are between rural and urban; and
Cambodia (20%), Laos (37%), Myanmar (33%) and Vietnam (32%) are rural.
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5 November 2014 5
Global trade
7
ASEAN accounted for 7% of global exports in 2013
ASEAN is the fourth-largest exporter in the world.
With FDI shifting towards ASEAN from China, ASEAN may catch up with China’s
current status as the top global exporter.
Assuming 15% of China’s exports (which are considered low-value-added) shifted to
being produced in ASEAN, ASEAN will become the world’s second-largest exporter.
The ASEAN-China trade corridor is one of the most important for ASEAN: trade grew
more than 7x from 2000-13, to USD 491bn.
ASEAN is set to benefit from major proposed free trade agreements over the longer
term. The Regional Comprehensive Economic Partnership (RCEP) and the Trans
Pacific Partnership (TPP) stand out. ASEAN economies can gain better to access
markets many times their size through these agreements.
Intra-ASEAN trade
26
Intra-ASEAN trade constituted about 26% of ASEAN’s total trade in 2013
Intra-ASEAN trade may rise further with closer economic cooperation facilitated by
initiatives such as the AEC, rising FDI, and growing wealth in the region.
Intra-ASEAN trade has broadened to include more economies two. The region’s
export-oriented economies have increased exports to the domestically oriented ones.
Singapore and Thailand are net exporters to the rest of ASEAN. Improving supply
chains mean that many goods are likely to be ‘made in ASEAN’. Rising incomes will
also boost demand for consumer goods.
World’s most diverse
55
The difference between GDP per capita in Singapore and Cambodia is 55x
In comparison, the maximum discrepancy within the EU is about 6x. This highlights
the wide gaps in economic development within the ASEAN region.
The region encompasses a broad range of cultures, languages, political systems and
demographics. The diverse landscape may explain some of the difficulties in
achieving closer integration. At the same time, the wide economic gap suggests the
need for more integration in order to address income inequality within the region.
Diversity is not all negative, as ASEAN gives companies different options for running
their operations in the region, assuming closer economic integration.
According to the World Economic Forum Global Competitiveness Report 2014-15,
Cambodia, Laos, Myanmar and Vietnam are in the factor-driven stage of economic
development. The Philippines is moving from being factor-driven to efficiency-driven.
Indonesia and Thailand are in the efficiency-driven stage. Malaysia is shifting towards
the innovation-driven stage. Singapore is the only ASEAN country currently in the
innovation-driven stage of economic development.
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5 November 2014 6
Infographics Figure 1: Map of ASEAN weighted by population, 2013
Population
Source: UNHNP, World Bank, IMF, Standard Chartered Research
VietnamPhilippines
Thailand
Cambodia
Malaysia
Singapore
Indonesia
Brunei
Myanmar
Laos
= 500mn people
Population
(mn)
Indonesia 250
Philippines 98
Vietnam 90
Thailand 67
Myanmar 53
Malaysia 30
Cambodia 15
Lao PDR 7
Singapore 5
Brunei 0.4
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5 November 2014 7
Figure 2: Map of ASEAN weighted by GDP per capita, 2013
GDP per capita (USD)
Source: UNHNP, World Bank, IMF, Standard Chartered Research
Vietnam
Philippines
Thailand
Cambodia
Malaysia
SingaporeIndonesia
BruneiMyanmar Laos
= USD 100
GDP per capita (USD)
Singapore 55,180
Brunei 38,560
Malaysia 10,510
Thailand 5,780
Indonesia 3,480
Philippines 2,760
Vietnam 1,910
Lao PDR 1,650
Myanmar 1,110
Cambodia 1,010
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5 November 2014 8
Figure 3: Map of ASEAN weighted by nominal GDP, 2013
Nominal GDP (USD bn)
Source: UNHNP, World Bank, IMF, Standard Chartered Research
Vietnam Philippines
Thailand
Cambodia
Malaysia
Singapore
Indonesia
Brunei
Laos
Myanmar
= USD 2bn
Nominal GDP
(USD bn)
Indonesia 868
Thailand 387
Malaysia 312
Singapore 298
Philippines 272
Vietnam 171
Myanmar 57
Brunei 16
Cambodia 15
Lao PDR 11
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5 November 2014 9
Figure 4: Map of ASEAN weighted by trade, 2013
Trade (USD bn)
Source: UNHNP, World Bank, IMF, Standard Chartered Research
Vietnam
Philippines
Thailand
Cambodia
Malaysia
SingaporeIndonesia
Brunei
Myanmar
Laos
= USD 2bn
Trade
(USD bn)
Singapore 783
Thailand 475
Malaysia 434
Indonesia 369
Vietnam 265
Philippines 119
Cambodia 26
Brunei 19
Lao PDR 11
Myanmar 5
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5 November 2014 10
Figure 5: ASEAN median age and labour force 2010
Median age (years, x-axis) vs labour force (population in log scale, y-axis)
Source: UNHNP, World Bank, IMF, Standard Chartered Research
Figure 6: ASEAN median age and labour force 2030
Median age (years, x-axis) vs labour force (population in log scale, y-axis)
Source: UNHNP, World Bank, IMF, Standard Chartered Research
Labour force(in log scale)
Median age (years)
1mn
10mn
100mn
1bn
20 25 30 35 40 45
China929mn
Singapore4mn
Thailand45mn
Indonesia151mn
Vietnam59mn
Malaysia18mn
Myanmar34mn
Philippines55mn
Laos4mn Cambodia
9mn
1mn
10mn
100mn
1bn
20 25 30 35 40 45
Labour force(in log scale)
Median age (years)
China861mn
Singapore4mn
Thailand40mn
Indonesia187mn
Vietnam63mn
Malaysia24mn
Myanmar39mn
Philippines55mn
Laos6mn
Cambodia12mn
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5 November 2014 11
Overview
Growth In the fast lane
ASEAN: Outperformer with upside potential
ASEAN is a high-growth region. Since 1980, growth has averaged around 5.4%. This
is well above the global growth rate of 3.4% over the same period. It is also faster
than other regions – including Latin America, Sub-Saharan Africa and Middle East
and North Africa – over the same period. During the 1980-2013 period, ASEAN
growth outpaced global growth by 2ppt on average. As a result, the per-capita GDP
gap between ASEAN and the world narrowed to 2.7x in 2013 from 6.0x in 1980. We
believe more than half of ASEAN has the potential to increase potential growth to 7%
or higher. Countries such as Myanmar, Laos and Cambodia are already growing at
such fast rates. At 7% growth, an economy doubles in size every 10 years.
Examining each decade since 1980, we note that ASEAN’s growth has been
remarkably stable. From 1980 to 2013, growth was generally above 5%. 1990-94 was
perhaps the golden period, but the benefit of hindsight shows that investment was
possibly over-stretched and high growth rates were undermined by poor fundamentals,
such as under-developed foreign exchange mechanisms and weak external balances.
The five-year period from 1995-99 was perhaps the worst period for ASEAN in recent
history, as the Asian financial crisis reduced growth to 3.5%. Since then, growth has
rebounded. Governments have grasped the nettle and pushed through much-needed
reforms. GDP growth rose to 5.1% for 2000-04.
Even during the global financial crisis, growth was resilient. ASEAN GDP growth was
just a touch below 5% – at 4.9% – from 2005-09. This is significant given the export-
driven nature of the region. Part of the resilience came from the huge pump-priming
by China. But it also reflects growing domestic engines, particularly from
consumption and investment. From 2010-13, growth was strong at 5.9%, although
the figure may be biased upwards due to the significant rebound post the global
financial crisis. Excluding the favourable base-induced bounce in 2010, GDP growth
averaged 5.3% from 2011-13.
Despite ASEAN’s high growth rates over the last few decades, we believe there is
considerable room for easy growth. ASEAN is still relatively rural: as of 2013, only 46%
Figure 7: ASEAN has consistently outperformed global growth (%)
Source: IMF, World Bank, Standard Chartered Research
ASEAN
World
-8
-6
-4
-2
0
2
4
6
8
10
1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013
ASEAN’s GDP per-capita gap with
the world narrowed to 2.7x in 2013
from 6.0x in 1980
ASEAN’s growth was resilient
during the global financial crisis
ASEAN’s GDP per capita could
double by 2030 on urbanisation
trends alone
Special Report
5 November 2014 12
of its population was urbanised. The world crossed the 50% urbanisation mark in 2007.
Within ASEAN, only Singapore, Brunei and Malaysia are considered urbanised.
Singapore and Brunei will possibly slow in the years ahead, but the broader ASEAN
region is likely to enjoy growth rates around 5% or higher over the medium term.
Assuming that the recent urbanisation trend in ASEAN continues, we estimate that the
region’s GDP per capita will more than double to USD 8,500 in 2030 from USD 3,900 in
2013. By then, 60% of the region could be urbanised.
ASEAN is attractive to foreign investors. The region overtook China in terms of FDI in
2013. Most FDI goes into the manufacturing sector, reflecting the region’s positive
attributes for investing in manufacturing facilities. However, the region is not just
attracting investment because of its production capacity; investors also perceive it as
a huge domestic market. If ASEAN were a single country, it would be the world’s
third-largest market by population after China and India.
We see tremendous growth potential for the ASEAN consumer market by 2020,
owing to rising urbanisation and income growth. The anticipated shift in labour
structure and demographics should create significant new demand. It should also
cause a shift in consumption patterns as ASEAN consumers allocate a larger share
of spending to high-quality products and services. We believe demand in Indonesia,
Vietnam and Myanmar will surge, given their relatively large populations and low
penetration rates for consumer durables and services. There are also potential
challenges. The region’s diversity suggests that companies looking to tap its strong
growth potential will need to develop multi-pronged strategies to cater to different
cultures and tastes. Furthermore, protectionist measures are possible in strategic
industries in the absence of strong domestic players. Even so, we expect the ASEAN
consumer market to offer strong growth and substantial opportunities by 2020.
ASEAN will benefit from the shift in investment from China as China loses cost
competitiveness and its labour supply tightens. ASEAN also has a demographic
edge. ASEAN’s median age was about 27 years as of 2013. This is much younger
than China’s estimated 32 years. ASEAN will also continue to add to its labour force
over the next few decades. Compared to 2010, ASEAN’s labour force is expected to
grow by 70mn by 2030, while China’s labour force is expected to contract by almost
70mn (source: UN data). Indonesia and the Philippines are poised to enjoy a
demographic dividend and should achieve faster and more resilient growth. This –
combined with low levels of household leverage, rising urbanisation and a potential
increase in productivity – should position these countries to become economic
powerhouses in the region in the next few decades. At the less favourable end, the
median age of Thailand and Singapore is forecast to be over 45 by 2045. Thailand’s
labour force is expected to shrink by almost 5mn by 2030 versus 2010 (source:
UN data).
ASEAN economies need infrastructure development to attract investment that is
shifting from China, and to compete with neighbours such as India. ASEAN economies
are relatively advanced in telecommunications and have good access to electricity.
Improvements are needed in transport infrastructure. To date, the focus has been on
developing national infrastructure, but seamless regional transport infrastructure across
ASEAN is needed to more closely integrate the region in the longer term. Within
ASEAN, Indonesia’s new president is trying to allocate more funds to infrastructure
construction. Thailand’s new government is trying to push ahead with an ambitious
THB 2.4tn infrastructure spending plan. According to the Global Logistics Performance
Index, ASEAN’s infrastructure score improved across the board between 2007 and
2014. With the exception of Indonesia (whose global infrastructure ranking fell to 56 in
ASEAN attracted more FDI than
China in 2013
ASEAN’s consumer market will
grow as the region gets richer
ASEAN’s favourable demographics
will help to attract investors seeking
new manufacturing centres outside
China
Special Report
5 November 2014 13
2014 from 45 in 2007) and Singapore (stable at number 2 globally), all other ASEAN
economies moved up in the rankings. In particular, Vietnam moved up 16 places to
rank 44 globally in terms of infrastructure capability in 2014.
ASEAN will likely maintain its position as one of the world’s top exporters. The
ASEAN-China trade corridor is one of the main trade corridors. In 2013, it was worth
USD 491bn, 7x the amount in 2000. Intra-ASEAN trade is also receiving strong
investor interest. Currently, around 26% of ASEAN’s total trade is between member
states. Closer regional co-operation will likely raise intra-regional trade volumes.
Meanwhile, ASEAN is poised to benefit from the shift of low value-added
manufacturing out of China. Today, ASEAN is the world’s fourth-largest exporter after
China, the US and Germany. ASEAN accounted for 7% of global exports in 2013.
Assuming 15% of China’s exports (which are considered low-value-added) are
shifted to ASEAN production, the region will become the world’s second-largest
exporter.
The region enjoys pragmatic growth policies and a relatively stable political environment.
ASEAN governments are focused on growth. They are keen to improve infrastructure
and are generally supportive of foreign investment. ASEAN has an ample and cost-
efficient labour supply, particularly in the context of China losing cost competitiveness.
The region also actively pursues trade agreements. As of 2013, ASEAN was involved in
90 free trade agreements (FTAs), of which 40 have been signed. The region is also
currently involved in two large multilateral FTAs, the Regional Comprehensive Economic
Partnership (RCEP) and Trans-Pacific Partnership (TPP).
The formation of the ASEAN Economic Community (AEC) in 2015 gives more reason
for confidence that the region will be able to sustain its high growth rate over the
medium term. The AEC is based on four pillars, 17 core elements, and 176 targets.
The initiative aims to push for a single market and production base in ASEAN, create
a competitive economic region, facilitate equitable economic development and
ensure that the region is highly integrated with the global economy.
ASEAN works by consensus, which is both its strength and its weakness. Most
ASEAN countries are focused more on domestic than regional development. But as
Figure 8: ASEAN Economic Community
Pillar 1. Single market and production base
Free flow of goods Free flow of skilled labour Priority integration sectors: Agro-based products; air travel; automotive; e-ASEAN; electronics; fisheries; health care; logistics; rubber-based products; textiles and apparel; tourism; wood-
based products
Free flow of services Free flow of investment
Freer flow of capital Food, agriculture, and forestry
Pillar 2. Competitive economic region
Competition policy Consumer protection
Infrastructure development: Transport; ICT; energy; mining; infrastructure financing
Taxation
Intellectual property rights E-commerce
Pillar 3. Equitable economic development
Development of small and medium-sized enterprises
Initiative for ASEAN integration
Pillar 4. Integration into the global economy
Coherent approach toward external economic relations (includes FTAs and CEPs)
Enhanced participation in global supply networks
CEP = comprehensive economic partnership, ICT = information and communication technology; Source: “ASEAN 2030: Toward a Borderless Economic Community”
The ASEAN Economic Community
initiative will place the region in a
stronger position
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5 November 2014 14
competition for global opportunities intensifies, ASEAN needs to integrate better as a
region to overcome challenges and attract investors. As an integrated region, ASEAN
would also have a more powerful voice on the global stage.
Progress on the AEC across the pillars is not uniform, as reflected in the AEC
Scorecard. Under Pillar 1, the AEC Scorecard noted a 93.8% implementation rate for
Phase 1; the rate fell to 49.1% for Phase 2. Pillar 2 had implementation rates of
68.7% in Phase 1 and 67.4% in Phase 2. Pillar 3 had implementation rates of 100%
in Phase 1 and 55.5% in Phase 2. Pillar 4 had rates of 100% and 77.8%. Falling
completion rates may mean that countries face greater difficulties in meeting more
complex requirements in the more advanced phases. Progress data on Phase 3 is
not available yet. The scorecard itself has drawn criticism – it is derived using
information provided by member countries, given the lack of a central ASEAN
monitoring body.
Pillar 1 perhaps has the greatest public awareness. Under this pillar, tariff rates on
goods have been reduced significantly. About 99.7% of ASEAN-6 tariff lines have
been reduced to zero. Tariff rates for CLMV (Cambodia, Laos, Myanmar and
Vietnam) are between 0% and 5% for 98.9% of tariff lines. However, non-tariff
barriers remain a key impediment to closer trade cooperation among the member
states. Progress on removing non-tariff barriers has been limited so far. Under Pillar
1, there is also a strong push to integrate National Single Windows (NSW) into an
ASEAN Single Window (ASW) to improve trade connectivity via electronic exchange
of cargo clearance data. However, three members still lack a NSW.
Under the free flow of services, priority sectors for liberalisation include air transport,
e-commerce, health care and tourism. However, domestic protection of services
sectors remains strong. Financial services appears to be the most protected by
national governments. On free flow of skilled labour, the temporary transfer of skilled
labour within companies across member states is allowed, but rules on permanent
relocation remain restrictive. Investment liberalisation is still hampered by regulations
and red tape. However, there has been an increase in intra-ASEAN investment in
recent years.
The implementation rate for Pillar 2 is relatively low for both Phase 1 and Phase 2.
Issues such as competition policy and intellectual property rights are difficult to
harmonise given countries’ differing stages of development. Equitable economic
development (Pillar 3) is a big challenge given the development gap within the region.
Pillar 4 is perhaps the most successful initiative so far, based on its high
implementation rates. In addition, the region is well connected with the world through
multiple FTAs. The main criticism of the AEC blueprint is that more may be needed to
achieve closer integration within the region. While this is true, it is also true that the
integration measures already achieved – and potentially to be concluded in the years
ahead – will make the region more competitive. The glass may not be full, but it is
certainly not half-empty. Importantly, the AEC does not mark the end of integration, but
rather a key milestone in as the region’s move towards closer cooperation. (For more
detail on progress on the AEC, see the publication ‘ASEAN 2030: Toward a borderless
economic community’ by the ADB Institute.)
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5 November 2014 15
Attracting global investment
An investment magnet
A key characteristic of a successful economy is its openness to foreign direct
investment (FDI). ASEAN countries have courted FDI by improving the ease of
conducting business in their markets, increasing infrastructure investment and
providing investment incentives. A major strategy of the ASEAN Economic
Community (AEC) is to strengthen ASEAN’s ties with the global economy. ASEAN
has come a long way since the Asian financial crisis in this regard, and we believe
the increase in FDI reflects an improving business and investment environment.
FDI to ASEAN rose 7% to USD 125bn in 2013, according to UNCTAD data. This
translates into nearly 9.0% of global FDI, a significant increase from 4.1% in 2005. It
has also been attracting more investment than China since 2007, although it was
only USD 2bn more in 2013. While East Asia still attracts most of the FDI in Asia,
ASEAN’s share is increasing rapidly. It attracted nearly 30% of total FDI in Asia in
2013, up from 19% in 2005.
ASEAN’s attraction includes ample and cost-efficient labour supply, improving
infrastructure, trade pacts, supportive investment policies, regional stability,
increasing wealth and rapid economic growth. Negotiations on two major trade
agreements – the Trans-Pacific Partnership and the Regional Comprehensive
Economic Partnership – are also underway, which if successful, would attract even
more investment to the region.
Inward FDI has grown rapidly in recent years – at a CAGR of 15% since 2005, with
the EU being the biggest source. FDI is also highly volatile; for example, FDI from the
EU to ASEAN dropped to USD 18bn in 2012 from USD 30bn in 2011 before
recovering to USD 27bn in 2013. ASEAN itself is the second-largest investor in the
region, accounting for about 16% of total FDI to the region.
Figure 1: ASEAN is attracting more investment
% of total FDI to ASEAN
Source: UNCTAD, Standard Chartered Research
0 5 10 15 20 25 30 35
ASEAN (% of global FDI)
ASEAN (% of Asia FDI)
Singapore
Indonesia
Thailand
Malaysia
Vietnam
Philippines
Myanmar
Cambodia
Brunei
Laos 2013 Average (2005-12)
51% 48%
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5 November 2014 16
Japan is the third-largest source of FDI to ASEAN. It has invetsed more in ASEAN
than in China in recent years, likely owing to geopolitical tensions and China’s
diminishing cost competitiveness. The labour cost of a factory worker in China’s Pearl
River Delta region is estimated at USD 700 a month, versus c.USD 250 a month for a
factory worker in Vietnam and c.USD 130 for a worker in Cambodia. Thus, although
ASEAN-6 (Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam)
currently attract about 96% of total FDI to the region, we expect less developed
economies such as Cambodia and Myanmar to catch up as labour in China becomes
more expensive.
FDI in ASEAN goes towards various sectors. In Vietnam, the manufacturing sector
(electronics in particular) receives the most FDI. Steps in the electronics
manufacturing process can be compartmentalised, making operations cost-
competitive. Vietnam is therefore an attractive investment destination in this regard.
A large share of FDI in Indonesia, Malaysia and Thailand also goes into the
manufacturing sector. Myanmar attracts FDI mostly to its mining and power sectors;
Singapore to its financial sector.
Figure 2: Top 10 sources of FDI to ASEAN
USD bn; 2011-13
The EU is the main source of FDI to
ASEAN, accounting for 22% of the
total in 2011-13.
Intra-regional investment is also
increasing: it rose to 17.4% of total
FDI in 2013 from 15.6% in 2011. The
top 10 investors listed here account
for about 80% of total FDI. Five of
these (Japan, China, Korea,
Australia and India) have FTAs with
ASEAN. Including ASEAN, these
countries account for nearly 45% of
total FDI to the region.
Source: ASEAN Secretariat, Standard Chartered Research
Figure 3: Japan invests more in ASEAN than in China
USD bn; three-year moving average
Figure 4: ASEAN-6 attracts 96% of total FDI to ASEAN
USD bn, 2013
Source: ASEAN Secretariat, Standard Chartered Research Source: ASEAN Secretariat, Standard Chartered Research
0 10 20 30 40 50 60 70 80
European Union (EU)
ASEAN
Japan
USA
China
Hong Kong
Republic of Korea
Taiwan
Australia
India
China
ASEAN
0
2
4
6
8
10
12
14
16
18
20
2007 2008 2009 2010 2011 2012 2013
0
10
20
30
40
50
60
70
SG ID TH MY VN PH MM KH BN LA
Special Report
5 November 2014 17
Figure 5: Manufacturing sector is a main beneficiary of FDI
% of FDI
Agriculture Mining Manufacturing Utilities Construction Services
Vietnam Neg. Neg. 70 15 Neg. 13
Indonesia 6 17 55 8 Neg. 12
Malaysia Neg. 19 41 Neg. Neg. 38
Thailand Neg. Neg. 40 Neg. Neg. 60
Philippines Neg. Neg. 28 27 Neg. 43
Myanmar Neg. 11 16 65 Neg. 8
Singapore Neg. Neg. 17 Neg. Neg. 83
*Neg. – less than 5%; Source: Various official websites, Standard Chartered Research
Intra-ASEAN investment
Intra-ASEAN investment has remained relatively stable in the past few years, at
about 16% of total FDI into ASEAN. The relatively low proportion that comes from
within the region is partly due to the region being still in a development stage. The
ability to harness capital remains less developed compared to the developed world.
For example, bank credit-to-GDP in ASEAN can be as low as 15% of GDP in
Myanmar. In addition, ASEAN businesses still look within their own countries as the
first destination of their investments. This is primarily due to still-ample opportunities
and familiarity with domestic markets and regulations.
Singapore is the main source of intra-ASEAN investment, accounting for 58% of the
total (or USD 54bn of USD 93bn) over 2005-12. The second-largest intra-regional
investor is Malaysia, accounting for 19% over the same period, followed by Indonesia
and Thailand. These four economies accounted for nearly 95% of total intra-ASEAN
investment during the period; this is not surprising given their size and more
advanced stages of development.
Further regional integration will increase intra-ASEAN FDI. A key goal of the AEC is to
have a free and open investment regime to make the region more attractive for
investment. The more developed markets in the region will naturally drive intra-ASEAN
FDI, as they are better equipped to attract capital. The CLMV economies receive a
higher share of intra-ASEAN investment than ASEAN as a whole. For example, intra-
ASEAN investment in CLMV constituted 27% of the total in 2013, versus 16% for the
broader region.
Figure 6: Intra-ASEAN FDI has been stable
USD bn
Figure 7: CLMV receives more intra-ASEAN FDI
Intra-ASEAN investment as a % of total FDI to ASEAN
Source: ASEAN Secretariat, Standard Chartered Research Source: ASEAN Secretariat, Standard Chartered Research
Intra-ASEAN
Extra-ASEAN
0
20
40
60
80
100
120
2011 2012 2013
ASEAN-6
CLMV
0
5
10
15
20
25
30
2011 2012 2013
Special Report
5 November 2014 18
A closer look at the Mekong region
The Mekong region (CLMV in particular), with its young and ample labour force and
relatively low operating costs, is an attractive option for manufacturers looking for
new production bases, especially in light of cost increases in China. This is
particularly so for manufacturers in labour-intensive industries. We estimate that a
Chinese worker in the manufacturing sector in the Pearl River Delta region earns
around USD 700 a month, while a similar worker in Myanmar earns only about USD
110 a month (see On the Ground, 30 August 2013, ‘ASEAN – Traversing
the Mekong’).
China’s diminishing cost competitiveness may benefit the less developed economies
in ASEAN. For example, utilised FDI in China’s textile industry has been dropping
steadily in recent years. It reported an average of USD 1.3bn of FDI per annum from
2011-13, versus a peak of USD 3.1bn over 2003-05. This is almost the full amount of
FDI that Cambodia received in 2013.
Utilised FDI in China’s electronics and telecom equipment sector also appears to
have eased in recent years: it fell to USD 6.8bn per annum over 2011-13 from a peak
of USD 8.1bn per annum over 2006-08. If half of the FDI in China’s textile and
electronics sectors were to go to CLMV, this would boost FDI in CLMV by 25% per
annum. Excluding Vietnam, it would boost FDI by 80% per annum.
In addition to low operating and labour costs, the Mekong region provides a large
market for investors; the region is home to c.170mn (Vietnam: 90mn). Myanmar, with
its 53mn population, is largely untapped – a very attractive option for investors
seeking a first-mover advantage, in our view.
We conducted a survey of some of our clients based in the Mekong region, and it
revealed as much. Low labour and operating costs were their key reason for moving
operations to the region, followed by the large domestic market. Although domestic
income levels are low at present, affluence is increasing rapidly. For example,
according to another recent survey we conducted, our clients in Vietnam expect
average wages to rise 5-10% in 2014, despite a currently lacklustre local economy.
The CLMV economies reported the sharpest increase in GDP per capita among
ASEAN from 2005-13.
Figure 8: What was your main reason for moving to
Mekong (clients already operating there; % of total)
Figure 9: Shenzhen is more expensive than Mekong
Labour costs in various cities (USD per month)
Source: Standard Chartered Research
Source: JETRO, Standard Chartered Research
0
5
10
15
20
25
30
35
Low labour and operating
costs
Tax incentives Large customer base
Abundant labour supply
Supply-chain optimisation 0
100
200
300
400
500
600
700
Minimum wage Factory worker Clerical worker
Shenzhen Bangkok Ho Chi Minh
Vientiane Phnom Penh Yangon
Special Report
5 November 2014 19
Figure 10: Strong FDI growth in Mekong
CAGR, 2005-13
Excluding Thailand, Vietnam
attracts the largest amount of FDI
within the Mekong region, followed
by Myanmar, Cambodia and Laos.
FDI to Vietnam rose 6% to USD
8.9bn in 2013, with manufacturing
accounting for about 70%.
Myanmar, Cambodia and Laos
reported a significant increase in
FDI from 2005-13, although
absolute levels remain very low.
Nonetheless, the increasing FDI
trend is clear, particularly as low-
value-add industries move out of
China.
Source: CEIC, Standard Chartered Research
Figure 11: Mekong countries receive more FDI as a % of GDP
FDI as a % of nominal GDP, 2013
Mekong countries likely receive
only about 10.5% of total absolute
FDI to ASEAN. However, three of
them are among the top five
countries that report the highest
FDI as a percentage of GDP.
Cambodia’s place among them is
partly due to its very open
investment climate, with very few
restrictions on foreign investment.
Vietnam attracts the most absolute
FDI, and FDI to Myanmar has more
than doubled since 2010. Myanmar
should report a further increase
after its economy opens up further.
Source: IMF, UNCTAD, Standard Chartered Research
0%
5%
10%
15%
20%
25%
30%
35%
40%
MM LA VN SG KH BN MY ID PH TH ASEAN World
0
5
10
15
20
25
SG KH BN VN MM MY TH LA ID PH
Special Report
5 November 2014 20
Box A: Our survey on ASEAN and Vietnam
The FDI landscape in ASEAN has undergone significant changes over the past decade. These include rising FDI, the
emergence of new sources of FDI, a more mature M&A environment, more enterprise regionalisation and outward FDI from
ASEAN, regional integration that has attracted more FDI, a higher number of regional production networks, and the region’s
increasing prominence in the global value and supply chains in a growing number of industries. These changes are shaping a
new FDI landscape, with important policy implications for the region.
We recently surveyed a number of foreign companies in Vietnam, and the results generally reflect the trends outlined above.
We highlight key findings below.
More than 67% of the companies we surveyed said that they have already expanded their investment into ASEAN countries or
are thinking of doing so. Their preferred destinations other than Vietnam include Myanmar, Cambodia, the Philippines and
Thailand. This reflects the influence of regional integration on FDI decision-making, in our view.
55% of the respondents said their products are mainly sold within ASEAN, while 22% said they mainly export their products to
other regions. Another 22% sell their products both inside and outside of ASEAN.
Around 90% of respondents do not believe ASEAN will surpass China as the world’s largest exporter by 2020 or are unsure
about this. China maintains an edge in the global market and remains attractive to international companies. Its dominant role in
the global supply chain is unlikely to change in the near future, although rising labour costs are likely to erode its cost
advantage. Some investors are also concerned that developing ASEAN economies are at a disadvantage in terms of global
competitiveness owing to poor infrastructure, low labour quality and institutional inefficiency. More than 50% of respondents
regard ASEAN as offering many opportunities and a potentially large consumer market. 15% see the region as either
underdeveloped with numerous uncertainties or not integrated, making it difficult to apply a single strategy across the region.
About 61% of the respondents believe that the ASEAN Economic Community (AEC) will be helpful to their business in the
region, whereas 35% are either unsure about how it will affect their business or are unaware of the initiative.
Vietnam has become an attractive destination for FDI in recent years, particularly for Asian companies, and its participation in
regional trade pacts has helped raise its profile among international companies. Ten-year accumulated implementation FDI
capital reached a new high of USD 83.2bn in 2013, more than three times that in the previous 10 years. Greater China (i.e., the
mainland, Hong Kong and Taiwan), Korea and Japan are the major investors in the country, focusing mainly on the
manufacturing and infrastructure sectors. We expect FDI to be an important factor in shoring up Vietnam’s GDP growth in the
medium to -long term. More importantly, we believe it will help the country upgrade its industrial and export structure. Indeed,
Vietnam’s electronics exports have topped the country’s exports list, accounting for 23.0% of total exports in 2013, versus 3.7%
in 2004, when its largest exports were of crude oil, textiles, garments and footwear.
Our survey on the general investment outlook for Vietnam suggests that a large domestic market, low operational costs and
ample labour supply are the top three reasons the surveyed companies invested in Vietnam. About 70% of the respondents
believe that Vietnam’s participation in the TPP will benefit growth and affect their future investment decisions.
Most of the surveyed companies said that they do not face issues relating to labour supply as yet. They expect average wage
growth of 5-10% y/y in the next 12 months. We believe this is reasonable, compared with expectations of 9.2% wage growth in
China (based on our Q1-2014 survey on China wages). However, the difficulty in finding high-quality workers and the slow
improvement in overall productivity highlight Vietnam’s disadvantage in providing skilled workers, which we believe will limit its
potential to move up the value chain. About 66% of the respondents said they had engaged professional HR services to assist
with finding workers, which is likely a way for companies to address the issue.
Our clients believe infrastructure and customs clearance have room to improve. The country’s underdeveloped legal system
and application of law are also of concern. Vietnam has taken steps to improve local infrastructure and customs clearance,
particularly within industrial parks, but our survey indicated that more needs to be done. However, more than 50% of the
respondents said they were not concerned about social stability in the country, despite tensions in the region in Q2-2014.
Special Report
5 November 2014 21
We also asked our clients about their banking and financing experiences in Vietnam. About 57% of the respondents said they
were either not facing high exchange-rate risks or are able to hedge easily. This was slightly surprising given the country’s
underdeveloped financial market. And we believe this reflects a couple of factors: First, some international companies are likely
using the profits made in Vietnam to invest or buy raw materials domestically. Unlike when repatriating the cash back to their
own countries, this helps them avoid FX exposure. Second, a number of companies operating in Vietnam are only the export
arms of their parent companies. Their export/import contracts are normally handled by their parent companies, and transactions
are usually settled in hard currencies, for example, the USD or the EUR. This arrangement prevents loss in the event of local-
currency depreciation.
Survey results
Investment outlook for ASEAN
Figure 1: How do you view ASEAN? (you can choose more than one answer)
Figure 2: Do you plan to invest in any ASEAN countries?
Figure 3: Do you believe that ASEAN will overtake China to become the largest exporter by 2020?
Figure 4: Regarding your business in ASEAN, are you focused on selling your products within ASEAN or exporting
beyond ASEAN?
Figure 5: Do you think the formation of the ASEAN Economic Community (AEC) in 2015 will be useful for your
business?
0 2 4 6 8 10 12 14 16 18 20
F. Others; please specify:
E. An underdeveloped market with a lot of uncertainties
D. Not integrated as a region; difficult to apply a single strategy on ASEAN
C. A potentially large consumer market
B. A region offering lots of opportunities
A. An attractive manufacturing base
0 2 4 6 8 10 12 14 16 18 20
C. Already invested; please specify country:
B. No
A. Yes; please specify country:
0 2 4 6 8 10 12 14 16 18 20
C. Not sure
B. No
A. Yes
0 2 4 6 8 10 12 14 16 18 20
C. Our products are sold both outside ASEAN as well as within ASEAN
B. Mostly for exports beyond ASEAN
A. Selling my products primarily within ASEAN
0 2 4 6 8 10 12 14 16 18 20
D. What is AEC
C. Don’t know how AEC will impact my business
B. No
A. Yes
Special Report
5 November 2014 22
Investment outlook for Vietnam
Figure 6: For what reasons did you invest in Vietnam?
Figure 7: Do you plan to increase the number of factory workers in the next 12 months?
Figure 8: Do you manufacture goods outside of Vietnam due to free-trade-agreement (FTA) benefits?
Figure 9: Vietnam is involved in two major trade negotiations: the Trans-Pacific Partnership (TPP) and the Regional
Comprehensive Economic Partnership (RCEP). Do you think Vietnam’s involvement in these major trade pacts will
influence your decisions to invest in the country?
Figure 10: Do you think Vietnam will benefit from joining the TPP in the future?
0 2 4 6 8 10 12 14 16 18 20
G. Others
F. Large domestic market
E. Policy benefits
D. Good operating condition
C. Local culture (government, workers, etc)
B. Low operational cost
A. Ample labour supply
0 2 4 6 8 10 12 14 16 18 20
D. Yes, more than 20%
C. Yes, 10-20%
B. Yes, no more than 10%
A. No
0 2 4 6 8 10 12 14 16 18 20
B. No
A. Yes
0 2 4 6 8 10 12 14 16 18 20
C. Not sure
B. No
A. Yes
0 2 4 6 8 10 12 14 16 18 20
C. Hard to say as there are a lot of terms and conditions which might limit the benefits
B. No, disadvantages might outweigh benefits on joining TPP
A. Yes, it will help Vietnam strengthen its external position and raise its profile in the region
Special Report
5 November 2014 23
Labour costs
Figure 11: What is the average wage per factory worker, inclusive of meal allowances, etc.?
Figure 12: Do you expect average wages to rise in the next 12 months?
Figure 13: Has overall productivity improved as a result?
Figure 14: Do you have difficulty finding workers this year, compared with last year?
Figure 15: Do you engage professional HR services to assist with finding workers?
Figure 16: Have you seen increasing labour union activity in your region in the past year?
Figure 17: Do you have difficulty finding high-quality workers?
0 2 4 6 8 10 12 14 16 18 20
C. More than USD 250/month
B. USD 150-250/month
A. Less than USD 150/month
0 2 4 6 8 10 12 14 16 18 20
E. No
D. Yes, more than 20%
C. Yes, up 10-20%
B. Yes, up 5-10%
A. Yes, less than 5%
0 2 4 6 8 10 12 14 16 18 20
C. No, not at all
B. Yes, but only moderately
A. Yes, it has very clearly improved
0 2 4 6 8 10 12 14 16 18 20
B. No
A. Yes
0 2 4 6 8 10 12 14 16 18 20
B. No
A. Yes
0 2 4 6 8 10 12 14 16 18 20
B. No
A. Yes
0 2 4 6 8 10 12 14 16 18 20
C. NA
B. No
A. Yes
Special Report
5 November 2014 24
Infrastructure
Figure 18: Do you find road/rail access to the nearest seaport/airport adequate?
Figure 19: Do you find the current seaport/airport infrastructure adequate to meet your shipment needs?
Figure 20: Are you satisfied with the domestic supply chain?
Figure 21: Are you satisfied with electricity, water and communication facilities?
Customs clearance
Figure 22: Do you generally find local customs clearance efficient?
Figure 23: Do you find customs documentation and filing easy?
Figure 24: How many days does it take for goods to clear local customs?
Figure 25: Do you use utilise FTAs for exports and/or imports?
0 2 4 6 8 10 12 14 16 18 20
D. No, both
C. No, because of distance
B. No, because of bad conditions
A. Yes
0 2 4 6 8 10 12 14 16 18 20
B. No
A. Yes
0 2 4 6 8 10 12 14 16 18 20
B. No
A. Yes
0 2 4 6 8 10 12 14 16 18 20
B. No
A. Yes
0 2 4 6 8 10 12 14 16 18 20
B. No
A. Yes
0 2 4 6 8 10 12 14 16 18 20
B. No
A. Yes
0 2 4 6 8 10 12 14 16 18 20
C. More than 7 days
B. 3-7 days
A. 3 days or fewer
0 2 4 6 8 10 12 14 16 18 20
B. No
A. Yes
Special Report
5 November 2014 25
Banking and financing
Figure 26: Do you have a relationship with local banks?
Figure 27: Do you face high exchange-rate risk?
Figure 28: Do you face difficulty in raising local financing?
Government, regulations and laws
Figure 29: Are tax incentives (such as corporate tax rates and tariffs) attractive?
Figure 30: Are you concerned about any political or social instability?
Figure 31: Do you face difficulties when dealing with an underdeveloped legal system or a particular application of law
(such as contract enforcement, tax laws)?
Figure 32: Do you face operational difficulties from environmental pollution or natural disaster risks?
0 2 4 6 8 10 12 14 16 18 20
C. No, we rely solely on capital injection from the parent company
B. Yes, but the relationship is not strong
A. Yes, and the relationship is very strong
0 2 4 6 8 10 12 14 16 18 20
C. no
B. Yes, but we are able to hedge easily
A. Yes, and we find it’s hard to hedge
0 2 4 6 8 10 12 14 16 18 20
C. N/A
B. No
A. Yes
0 2 4 6 8 10 12 14 16 18 20
B. No
A. Yes
0 2 4 6 8 10 12 14 16 18 20
B. No
A. Yes
0 2 4 6 8 10 12 14 16 18 20 22
B. No
A. Yes
0 2 4 6 8 10 12 14 16 18 20
B. No
A. Yes
Special Report
5 November 2014 26
Consumer market in 2020
Awakening the giant
We see tremendous growth potential for the ASEAN consumer market by 2020. This
growth is likely to be driven by three factors: population growth, urbanisation and
rising per-capita incomes.
ASEAN’s population is set to rise by more than 10% to 690mn by 2020 from 625mn
in 2013, according to our projections using IMF data. Urban population growth will
drive this increase – we expect the number of people living in urban areas to grow
27% (or 79mn) to 368mn during this period (see Figure 1). The expected increase in
the region’s urban population is equivalent to 3.3x the size of Shanghai’s 2013
population, 4.4x Delhi’s, and 9x those of Tokyo or London (see Figure 2).
The rising urban population is likely to be accompanied by faster income growth. We
expect eight of the 10 ASEAN economies to grow at rates faster than the global
economy (in terms of PPP-adjusted per-capita GDP) between now and 2020.
Average income growth in PPP terms for Cambodia, Myanmar and Laos – the least
developed ASEAN economies today – is likely to match those of China and India
over this period. Vietnam and Indonesia, the region’s largest economies in terms of
population size, are expected to grow 1.5x the global average (see Figure 3). Rising
incomes and purchasing power present opportunities for companies looking to tap
ASEAN’s vast consumer market.
The rising urban population is likely to be associated with a growing middle class as
labour moves from rural villages to work in urban areas (See Figure 4). This is likely
to cause a shift in consumption patterns, creating significant new demand. The
increase in the number of middle-income households is expected to be accompanied
by rising household incomes. Household consumption data shows that average
spending on food items as a percentage of overall expenditure tends to fall as
incomes rise, while spending on non-food items increases. This suggests that
ASEAN consumers will allocate a larger share of their spending to higher-quality non-
food items as their incomes rise.
Figure 1: Significant growth in the urban population
Millions
Figure 2: Rise in ASEAN’s urban population to dwarf
current populations of major cities (millions)
Source: IMF, Standard Chartered Research Source: World Bank, Standard Chartered Research
289
368
0 0.4 1.3 1.9 5.5 5.9 7.1 11.3
11.5
33.9
200
220
240
260
280
300
320
340
360
380
400
2013
Bru
nei
Sin
gapo
re
Cam
bodi
a
Laos
Tha
iland
Mal
aysi
a
Mya
nmar
Phi
lippi
nes
Vie
tnam
indo
nesi
a
2020
+79mn
78.9mn
0
10
20
30
40
50
60
70
80
90
Incr. in ASEAN urban
population - 2020
Shanghai Delhi Tokyo London New York
Total = 67.9mn
Total = 25.9mn
ASEAN’s urban population is
expected to increase by 79mn, three
times Shanghai’s current
population, by 2020
Increase in middle-income
households and shifting labour
demographics to create significant
new demand
Special Report
5 November 2014 27
Expected changes in labour structure and demographics – including increased
female employment, a younger working-age population, and a better-educated labour
force – are likely to drive demand for high-quality consumer products and services.
This makes ASEAN attractive to companies seeking new growth markets. Female
participation in the labour force is set to increase as public education becomes more
affordable and widespread across the region. This also indicates a likely increase in
the number of double-income families. We believe ASEAN consumers will be a
source of strong demand for residential and commercial property, home appliances,
motor vehicles, information and telecommunications products, and health-care and
financial services.
Demand for fast-moving consumer goods (FMCG), including processed and
packaged foods, is also expected to grow as ASEAN consumers increasingly adopt
Western culture and consumption patterns.
We expect demand for consumer durables to experience explosive growth in
Indonesia, Vietnam, and Myanmar between now and 2020. In addition to their large
population sizes and fast income growth, Indonesia and Vietnam are attractive
because of their lower current penetration rates for durable goods such as cars. Car
ownership per 1,000 people is just 88.8 in Indonesia and 19.6 in Vietnam. This is far
below the 400+ levels in the more developed ASEAN economies of Malaysia, Brunei
and Thailand. Indonesia and Vietnam also have lower internet and mobile-phone
penetration rates (see Figures 5-7). This suggests growth opportunities for
companies in these sectors.
Although the consumer markets of Cambodia and Laos are also expected to
experience robust growth, their potential is likely to be constrained by smaller
population sizes and a smaller scale of urbanisation. We see lower growth potential
for mature markets like Singapore and Brunei, while prospects for Thailand, Malaysia
and the Philippines are slightly better.
The emerging ASEAN consumer is likely to be internet-savvy. This will create vast
market potential for online shopping and demand for internet services infrastructure.
We expect the ASEAN consumer in 2020 to be different from those in developed
markets like US and Europe in terms of preferences, demand and habits. They are
likely to be younger on the whole than European and US consumers. They are also
expected to adapt faster to online shopping and be more comfortable with internet
Figure 3: Compounded growth in PPP terms, 2013-20
Growth, %
Figure 4: Agricultural employment vs. urbanisation
Urbanisation, % (x-axis); employment in agri, % (y-axis)
Source: World Bank, Standard Chartered Research Source: World Bank, Standard Chartered Research
0 2 4 6 8 10
Japan USA
HK Korea
Taiwan India
China Singapore
Brunei Malaysia Thailand
Philippines Indonesia
Vietnam Laos
Myanmar Cambodia
CAGR Per Capita GDP in PPP terms 2013 to 2020
Global Average = 4.5%
y = -1.3081x + 93.639 R² = 0.9566
0
20
40
60
80
100
120
0 10 20 30 40 50 60
Urbanisation %
Employment in Agriculture %
Countries with larger populations
and higher income growth are likely
to see dramatic growth in demand
for consumer durables and services
Special Report
5 November 2014 28
payment. This reduces the need for physical shop space and enables delivery to less
urbanised areas, allowing online service providers to extend their market coverage
from the usual Tier 1 cities to Tier 2 cities.
Spending on health care also tends to rise with income levels, as shown in Figure 8.
ASEAN’s expected demographic boom and urban population growth is likely to put
pressure on public health-care infrastructure. This is especially true in second-tier
cities and less urbanised areas, which suffer from a shortage of caregivers and
inadequate supply of and access to medical facilities. We see an opportunity for
private operators to tap ASEAN’s potentially fast-growing domestic health-care
markets. The growing number of affluent people in the region demanding quality
medical services also provides an opportunity for premium medical providers in
Singapore or Malaysia to extend their reach across ASEAN.
The challenges
Despite the large potential of the ASEAN consumer market, there are significant
challenges in tapping this market. The region’s diversity means that companies need
to tailor their products and services to different cultures, languages, religions,
preferences and habits. This will require multi-pronged branding and/or marketing
strategies and an ability to offer differentiated products and services across ASEAN.
In sectors such as banking, governments may introduce barriers to entry to protect
national interests in the absence of strong domestic players. This should not deter
foreign financial service providers from establishing a presence in ASEAN, given the
region’s strong growth potential and market opportunities. Our study shows that the
size of private-sector credit tends to rise with the level of income (see Figure 9). This
is likely to result in rapid growth in demand for higher-quality financial services in the
region. However, we see a clear distinction between markets with younger
populations and faster income growth (such as Indonesia, Vietnam and Myanmar)
and those with slower growth and older populations (such as Singapore, Brunei
and Thailand).
Savings rates in Asian economies with per-capita income below USD 10,000 tend to
rise as incomes grow (see Figure 10). In contrast, savings rates in economies with
per-capita income above USD 10,000 tend to fall as incomes rise. This suggests that
slower-growing and more mature economies have undergone a de-saving process,
Figure 5: Number of motor vehicles per 1,000 people
No. of cars (y-axis); growth in PPP terms (x-axis)
Figure 6: Number of internet users per 100 people
No. of users (y-axis); growth in PPP terms (x-axis)
Source: World Bank, Standard Chartered Research Source: World Bank, Standard Chartered Research
BN
KH CN HK
IN
ID
JP
KR
LA
MY
MM PH
SG
TW
TH
US
VN
1,000 300
10
0
100
200
300
400
500
600
700
800
900
2 3 4 5 6 7 8 9
No
. of
mo
tor
veh
icle
s p
er 1
000
pp
le
CAGR in PPP terms % (2013-2020)
Size of market BN
KH
CN
HK
IN ID
JP KR
LA
MY
MM
PH
SG TW
TH
US
VN 2,000
500 10
0
10
20
30
40
50
60
70
80
90
100
2 3 4 5 6 7 8 9
No
. of
inte
net
use
rs 1
00 p
ple
CAGR in PPP terms % (2013-2020)
Size of market
ASEAN’s diversity in terms of
culture, language and preferences
could pose challenges for
companies seeking to tap the
consumer market
Special Report
5 November 2014 29
while economies with younger populations and faster income growth are
accumulating wealth. The latter group are likely to experience rising credit demand
for mortgages, credit cards and auto financing, while more mature/slower-growing
economies are likely to see higher demand for financial services such as pensions
and/or annuity products, as well as health insurance and/or death benefits.
Figure 7: Number of mobile phones per 100 people
No. of mobile phones (y-axis), growth in PPP terms (x-axis)
Figure 8: Health-care spending rises with income levels
Per-capita GDP, % (y-axis); health-care spending, % (x-axis)
Source: World Bank, Standard Chartered Research Source: World Bank, Standard Chartered Research
Figure 9: Domestic credit to private sector rises with
income levels
Per-capita GDP (y-axis); private-sector credit (x-axis)
Figure 10: Wealth tends to accumulate in younger Asian
countries with faster income growth
Savings rate, % (y-axis); per-capita GDP (x-axis)
Source: World Bank, Standard Chartered Research Source: World Bank, Standard Chartered Research
BN
KH
CN
HK
IN
ID JP
KR
LA
MY
MM
PH
SG
TW
TH
US
VN
2,000 500 10
0
50
100
150
200
250
2 3 4 5 6 7 8 9
No
. of
mo
bile
per
100
pp
le
CAGR in PPP terms % (2013-2020)
Size of market
y = 3718.1x - 10114R² = 0.7943
-10000
0
10000
20000
30000
40000
50000
60000
0 5 10 15 20
Healthcare % GDP
GDP per capita
y = 252.74x - 10552R² = 0.7085
-10000
0
10000
20000
30000
40000
50000
60000
0 50 100 150 200 250
Domestic credit to pte sector % GDP
GDP per capita
0
5
10
15
20
25
30
35
40
45
50
55
100 1,000 10,000 100,000
India Indonesia Japan Korea Malaysia PhilippinesThailand Vietnam China Cambodia Hong Kong Taiwan
Savings % GDP
Per capita GDP (log)
Special Report
5 November 2014 30
Box B: Urbanising ASEAN
Urbanising ASEAN
ASEAN is relatively rural. However, the common misconception is that it is otherwise, as many visit only Singapore or a capital
city or holiday town in ASEAN and mistakenly judge the level of development in the region based on that.
According to the World Bank, the world passed the 50% urbanisation mark in 2007. Six ASEAN countries – Cambodia, Laos,
Myanmar, the Philippines, Thailand and Vietnam – had yet to pass this threshold as of 2013, while Indonesia had barely
crossed it at 52.3%, although the quality of urbanisation there may yet not be ideal. Singapore, Malaysia and Brunei are
largely urbanised. ASEAN’s rate of urbanisation (weighted by population) was 46% as of 2013. We think the region as a whole
still has some hurdles to cross to sustain the world-beating growth rate it has registered since the global financial crisis.
Urbanisation is typically associated with increasing wealth. However, any benefits that accrue from urbanisation depend on
how well it is planned and implemented. Factors like agriculture productivity also play a part in determining by how much per
capita GDP increases as a result of urbanisation. Mismanaged urbanisation can result in diseconomies. Indeed, negative
images such as of congestion and pollution come to mind when we think of cities. The fault does not lie with urbanisation, but
rather with the way it is carried out. Urbanisation usually facilitates economic growth, and given the relatively low levels of
urbanisation across ASEAN, the law of diminishing returns is unlikely to come into significant play anytime soon.
We conducted a simple study on the positive impact of urbanisation on economic growth. Urbanisation and economic growth
tend to go hand-in-hand, although there have been cases where urbanisation is not accompanied by economic growth. In this
report, we assume that urbanisation efforts are successful in increasing economic wellbeing. We categorise ASEAN into three
stages of urbanisation: Singapore (100% urban population in 2013), Brunei (77%) and Malaysia (73%) as urbanised;
Indonesia (52%), the Philippines (45%) and Thailand (48%) as transitioning between rural and urban; and Cambodia (20%),
Laos (37%), Myanmar (33%) and Vietnam (32%) as rural.
The pace of urbanisation varies considerably within ASEAN. This is largely due to the stage of economic development each
country is in. Singapore, being a city state, is already considered to be 100% urbanised. Brunei’s pace of urbanisation slowed
to about 0.4% of total population per annum from 2010-13. Malaysia urbanised rapidly at 0.8% per annum during the period, in
line with its investment-focused policy. However, given the already-high levels of urbanisation, we expect the pace to drop in
the coming years.
Figure 1: ASEAN is still relatively rural
Urbanisation, % (X axis) versus GDP per capita, USD (Y axis), 1961-2011
Source: World Bank, Standard Chartered Research
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
11,000
5 10 15 20 25 30 35 40 45 50 55
Cambodia Indonesia Lao PDR Philippines Thailand Vietnam World
50% mark in urbanisation
Special Report
5 November 2014 31
Indonesia also urbanised rapidly at about 0.8% per annum from 2010-13. Given its still-low level of urbanisation, we believe it
will be able to continue to reap the benefits of urbanisation for some time to come. It may need to develop major centres other
than Jakarta to prevent overcrowding. The Philippines bucks the urbanisation trend, but this is likely due to its large offshore
workforce, which constitutes nearly 10% of its total population. We expect the trend to normalise if recent strong economic
growth is sustained. A large number of jobs available onshore will reduce the need to look for jobs offshore.
Of the more rural countries, Laos urbanised the fastest, at 1.1% per annum, from 2010-13. It has a relatively small population,
and this likely means that the country could urbanise rapidly if strong economic growth is sustained. Vietnam and Myanmar
urbanised at about 0.5-0.6% per annum, and given strong foreign investor interest, we believe they will continue to urbanise
further over the medium term. Cambodia’s rate of urbanisation was slow at 0.2% per annum during the period, but we believe
increasing foreign investment will speed it up over the medium term.
Based on GDP per capita and urbanisation data from the World Bank and the ASEAN countries themselves, we broadly
estimate that each percentage point (ppt) increase in urbanisation increases GDP per capita by about USD 400. Assuming the
urbanisation trend in ASEAN continues along the recent trajectory, we estimate that GDP per capita in the region will more
than double to USD 8,500 in 2030 from USD 3,900 in 2013. By 2030, 60% of the region may be urbanised. Only Cambodia,
Myanmar and Vietnam may not have passed the 50% mark by then.
Although ASEAN has growth potential, we believe the right mix of fundamentals, policy and confidence is needed to capitalise
on it. Confidence is strong at present, particularly in the context of the currently weak global environment. Fundamentals are
good, and policies have been supportive of growth. However, we believe policies would need to remain relevant and forward-
looking to achieve strong and sustainable growth.
Figure 2: Degree of urbanisation shows a high positive
correlation with per capita GDP
1960-2013
Figure 3: Potential for high-growth, low-GDP-per-capita
countries to catch up
Average GDP growth, %, 2000-13 (Y axis) versus GDP per
capita, USD, 2013 (X axis)
Source: World Bank, Standard Chartered Research
Source: IMF, World Bank, Standard Chartered Research
0.6
0.7
0.8
0.9
1.0
World TH MY VN KH ID LA BN PH
Brunei Darussalam
Cambodia
Indonesia
Lao PDR
Malaysia
Philippines
Singapore
Thailand
Vietnam
0
1
2
3
4
5
6
7
8
9
0 10,000 20,000 30,000 40,000 50,000 60,000
Special Report
5 November 2014 32
Demographics
In the middle of the pack
Slowing population growth across the world is raising concerns about the ageing
population, particularly in China; South Asia and Sub-Saharan Africa are poised to
reap a demographic dividend. In this section, we analyse the UN’s population
database to understand how ASEAN countries are positioned in terms of
demographics.
The UN estimates that global population growth will slow sharply to 38% from 2010-
50, after the population almost doubled in the previous 40 years. Global population
growth has slowed in every five-year period since 1970, except in the period to 1990.
The UN forecasts that the global population will grow at less than 1% per year after
2020, and only 0.5% y/y in 2050, versus the 1.2% per annum increase from 2000-13.
Of greater concern is that the global working-age population, a key contributor to
economic growth, is likely to grow more slowly than the total population in the 35
years from 2015 – the first time since 1960-65. The UN forecasts that the global
working-age population will grow only 0.7% per annum in 2020-30, slower than 1.6%
in 2000-10. It forecasts growth of less than 0.2% in 2045-50, but that the over-60 age
group will grow 1.9% p.a. during the period.
Figure 1: Old-age dependency ratio is rising fast in ASEAN-5
Population in millions (LHS), % (RHS)
Figure 2: Increase is sharper in other ASEAN countries
Population in millions (LHS), % (RHS)
Source: UNHNP, Standard Chartered Research Source: UNHNP, Standard Chartered Research
Figure 3: Global population is set to age rapidly
% y/y (LHS), % of working-age population (RHS)
Figure 4: ASEAN is slightly better placed vs. rest of world
Population in millions
Source: UNHNP, Standard Chartered Research Source: UNHNP, Standard Chartered Research
Old age dependency ratio (RHS)
0%
5%
10%
15%
20%
25%
30%
35%
40%
0
100
200
300
400
500
600
700
1970 1980 1990 2000 2010 2020 2030 2040 2050
60+
15-60
0-14
Old age dependency ratio (RHS)
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
0
50
100
150
200
250
1970 1980 1990 2000 2010 2020 2030 2040 2050
60+
15-60
0-14
Total population
growth
Working-age population
growth
Old-age dependency ratio (RHS)
0%
5%
10%
15%
20%
25%
30%
35%
40%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
1965 1975 1985 1995 2005 2015 2025 2035 2045
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2010 2030 2050 2010 2030 2050 2010 2030 2050 2010 2030 2050
China ASEAN India Euro area
0-14 15-60 60+
Global population growth will likely
slow to half its current pace by
2045, according to the UN
Special Report
5 November 2014 33
The world’s median age is increasing as fertility rates drop and longevity increases.
This adds to pressure on the (in some cases shrinking) working population to support
a fast-growing older population. The old-age dependency ratio – the ratio of those
over 60 to those aged 15-60 – is forecast to rise rapidly, more than doubling in 2050
from the level in 2010.
Most of the concern relates to China and the euro area, where the working-age
populations are forecast to shrink as the older populations increase. UN forecasts
indicate that the old-age dependency ratio will also increase in ASEAN countries,
with a sharper rise in Cambodia, Laos, Myanmar and Vietnam than in ASEAN-5.
However, ASEAN is slightly better placed than the rest of the world – its working-age
population is forecast to increase mildly. This, combined with likely productivity gains
and increasing urbanisation, is likely to mitigate the risk of a high old-age
dependency ratio in the region.
A few bright spots in the world
The working-age populations of South Asia and Sub-Saharan Africa are forecast to
increase sharply, accounting for the bulk of the increase in the global working-age
population (see Figure 5). The working-age populations of China and the euro area are
forecast to shrink; China’s more rapidly. ASEAN lies in the middle – its working-age
population is forecast to rise, but at a more moderate pace than South Asia’s. The UN
forecasts that the increase will plateau in 2040, before it starts to shrink mildly.
Figure 5: Median ages are rising across the world
Figure 6: South Asia and Africa will have the largest
working-age populations in the next 40 years (mn)
*SA = South Asia; SSA = Sub-Saharan Africa; NA = North America; Source: UNHNP, Standard Chartered Research
Source: UNHNP, Standard Chartered Research
Figure 7: Philippines’ working-age population is likely to
almost double in the next 40 years (mn)
Figure 8: Working-age population as a percentage of the
total is on a downtrend globally
Source: UNHNP, Standard Chartered Research *SSA = Sub-Saharan Africa, EU+NA = Euro area and North America; Source: UNHNP,
Standard Chartered Research
0
10
20
30
40
50
ASEAN China South Asia SSA World
1960 1980 2010 2050
China
ASEAN
Sub-Saharan Africa
South Asia
EU+NA*
0
200
400
600
800
1,000
1,200
1,400
1970 1980 1990 2000 2010 2020 2030 2040 2050
Malaysia
Philippines
Thailand
Myanmar
Vietnam Indonesia
(RHS)
0
20
40
60
80
100
120
140
160
180
200
0
10
20
30
40
50
60
70
80
90
100
1970 1980 1990 2000 2010 2020 2030 2040 2050
Mill
ions
China
ASEAN
Sub-Saharan Africa*
South Asia
EU+NA* World
45%
50%
55%
60%
65%
70%
1970 1980 1990 2000 2010 2020 2030 2040 2050
Old-age dependency is likely to
increase across the world
Special Report
5 November 2014 34
A mixed outlook for ASEAN
ASEAN’s share of the global working-age population rose to 8.9% in 2010 from 7.1%
in 1970, driven primarily by growth in Indonesia, Thailand, Vietnam and the
Philippines. Indonesia’s working-age population grew almost three-fold during this
period, and was almost as large as that of the rest of ASEAN combined. Only China
and India added more to the global working-age population, highlighting the
advantage they have enjoyed over the past 40 years.
Indonesia’s working-age population is forecast to continue growing steadily until 2030
before it slows (see Figure 11). The UN forecasts that ASEAN’s share of the global
working-age population will peak at 9.1% in 2025 before it declines to 8.7% in 2040.
We divide ASEAN countries into three categories for 2010-50. Indonesia, the
Philippines, Malaysia and Cambodia belong to the first group – countries with
growing working-age populations. The second group – the ‘neutral’ category –
comprises Myanmar and Laos. The UN forecasts that these countries will have
broadly flat working-age population profiles, with minimal growth over the next 40
years. Laos’ working-age population is increasing, but likely at too slow a rate to
significantly affect its economic growth prospects. The third category – areas of
Figure 9: Change in population by region, 2010-50
Millions
Figure 10: Share of working-age population
% of global working-age population
*SA = South Asia, SSA = Sub-Saharan Africa, NA = North America; Source: UNHNP, Standard Chartered Research
*SSA = Sub-Saharan Africa; Source: UNHNP, Standard Chartered Research
Figure 11: Indonesia and the Philippines to see the largest increases in working-age population (mn)
Source: UNHNP, Standard Chartered Research
-600
-200
200
600
1,000
1,400
-40
-20
0
20
40
60
80
100
ID MY PH SG TH KH LA MM VN SA* CN BR SSA* EU NA*
Working age population
Total population
Working age population (RHS)
Total population (RHS)
0%
10%
20%
30%
40%
50%
60%
70%
80%
1980 2010 2020 2030 2050
SSA Euro area ASEAN South Asia China
0
50
100
150
200
250
300
350
0
20
40
60
80
100
120
2010
2030
2050
2010
2030
2050
2010
2030
2050
2010
2030
2050
2010
2030
2050
2010
2030
2050
2010
2030
2050
2010
2030
2050
2010
2030
2050
Indonesia Malaysia Philippines Singapore Thailand Cambodia Lao PDR Myanmar Vietnam
60+ 15-60 0-14 60+ (RHS) 15-60 (RHS) 0-14 (RHS)
Indonesia’s working-age population
has grown exponentially, and is set
to continue to rise until 2030
Special Report
5 November 2014 35
concern in terms of demographics – comprises Thailand, Singapore and Vietnam.
Their working-age populations are forecast to decline over the next 40 years, rapidly
in the cases of Thailand and Singapore.
Demographic dividends for Indonesia, Philippines, Malaysia, Cambodia
Only four ASEAN economies are forecast to see growth in their working-age
populations until 2050 – Indonesia, the Philippines, Malaysia and Cambodia.
Indonesia and the Philippines are already the most populous ASEAN countries, and
their productive populations are estimated to increase significantly in the coming
years. The UN forecasts that Indonesia’s 15-60 age group will increase by the total
current population of Malaysia (30mn) over the next 20 years. The same age group
in the Philippines is forecast to increase by 23mn. These four countries’ working-age
populations as a share of their total populations are also set to increase in the next
few years, and remain higher than ASEAN’s and the world’s.
The Philippines’ pace of working-age population growth is particularly noteworthy. The
pace of growth in Indonesia is expected to slow, but the UN forecasts that the
Philippines will continue to add steadily to its working-age population, easily outpacing
the rest of ASEAN. Its working-age population is forecast to increase more than that of
the rest of ASEAN combined from 2020-50 (Figure 12), and the pace of growth will
likely be faster than all but some South Asian and Sub-Saharan African countries.
Figure 12: Working-age population is forecast to
increase steadily for the next 40 years… (mn)
Figure 13: … but is mostly flat as a share of total
population
Source: UNHNP, Standard Chartered Research
Source: UNHNP, Standard Chartered Research
Figure 14: Philippines’ old-age dependency ratio is increasing, but is lower than ASEAN and rest of world
Source: UNHP, Standard Chartered Research
Malaysia
Philippines
Cambodia
Indonesia (RHS)
0
50
100
150
200
250
0
20
40
60
80
100
120
1970 1980 1990 2000 2010 2020 2030 2040 2050
Indonesia
Malaysia
Philippines
Cambodia
ASEAN
45%
50%
55%
60%
65%
70%
1970 1980 1990 2000 2010 2020 2030 2040 2050
Indonesia
Malaysia
Philippines
Cambodia
ASEAN
World
0%
5%
10%
15%
20%
25%
30%
35%
40%
1970 1980 1990 2000 2010 2020 2030 2040 2050
Indonesia, the Philippines, Malaysia
and Cambodia are best placed to
reap demographic dividends
Special Report
5 November 2014 36
The Philippines is also forecast to have a steadily growing young population (below
15 years of age) – the only country in ASEAN where this segment of the population is
growing (Figure 11). This is likely to extend its demographic dividend for a longer
period. The country’s significantly lower old-age dependency ratio indicates this
(Figure 14). Although the ratio is forecast to rise, as it is for the rest of the world, it is
appreciably lower than that of any other ASEAN country. The Philippines’ ratio has
the lowest trajectory in the world, except for Sub-Saharan African countries.
We believe the Philippines’ considerable demographic dividend will position it to
become a key player in the regional and global economies in the next few decades.
Its large and growing young population, if properly tapped, could significantly
enhance the country’s economic output, if combined with increasing urbanisation and
productivity.
Countries of concern – Thailand, Singapore and Vietnam
In terms of demographics, we are most concerned about these three countries within
ASEAN. Their working-age populations are either already shrinking (as in Thailand)
or are forecast to shrink soon. Adding to the concern is the low childbirth rate
forecast for these countries. Their young populations (less than 15 years of age) are
forecast to shrink between now and 2050, meaning that they will have fewer people
to replace their shrinking working-age populations.
Figure 15: Working-age population is falling as share of total population, except in the Philippines and Laos
Source: UNHP, Standard Chartered Research
Figure 16: Philippines’ old-age dependency ratio has one
of the lowest trajectories
Figure 17: Shares of global working-age population
*SSA = Sub-Saharan Africa; Source: UNHP, Standard Chartered Research *SSA = Sub-Saharan Africa; Source: UNHP, Standard Chartered Research
45%
50%
55%
60%
65%
70%
ID MY PH SG TH KH LA MM VN
2000 2010 2020 2030 2050
Philippines
ASEAN
India
Bangladesh
SSA*
World
0%
5%
10%
15%
20%
25%
30%
35%
40%
1970 1980 1990 2000 2010 2020 2030 2040 2050
0%
10%
20%
30%
40%
50%
60%
70%
1970 1980 1990 2000 2010 2020 2030 2040 2050
USA SSA* China Philippines Indonesia India
The Philippines has the fastest-
growing young population in
ASEAN
Special Report
5 November 2014 37
Thailand’s declining working-age population is of significant concern. After strong
growth from 1970-90, second only to Indonesia in ASEAN, growth has slowed
sharply. The UN forecasts consecutive declines in every five-year-period from 2015
onwards. Thailand will need to ease labour-market constraints arising from an ageing
population, slowing labour productivity growth, and a mismatch between labour
supply and demand (for more detail, see On the Ground, 11 March 2014, ‘Thailand –
Roadmap for sustainable growth’.)
Thailand is one of the first ASEAN countries to face the challenge of an ageing
population. We believe it needs to commit to labour reforms to improve labour
productivity, increase labour mobility to more productive sectors, and promote capital
investment. Educational reform is crucial, particularly providing specialised education
such as occupational training and promoting greater collaboration between
institutions of higher education and industry. Policy makers are considering
measures to encourage the reallocation of existing labour to the more productive
manufacturing and services sectors. However, additional measures may be needed
to encourage manufacturers to restructure their production processes to boost
productivity and substitute capital for labour.
Figure 18: Old-age dependency ratio is of significant
concern in all three countries
Figure 19: Rapidly ageing population, combined with a
falling childbirth rate, is a concern (mn)
Source: UNHNP, Standard Chartered Research
Source: UNHP, Standard Chartered Research
Figure 20: The working-age population is forecast to
increase steadily for the next 40 years (mn)
Figure 21: Share of the working-age population has
already peaked or is close to peaking (% of total
population)
Source: UNHNP, Standard Chartered Research
Source: UNHNP, Standard Chartered Research
Singapore
Thailand
Vietnam
ASEAN
World
0%
10%
20%
30%
40%
50%
60%
70%
80%
1970 1980 1990 2000 2010 2020 2030 2040 2050
0
50
100
150
200
250
300
350
0
5
10
15
20
25
30
35
40
45
2010
2030
2050
2010
2030
2050
2010
2030
2050
Indonesia Malaysia Philippines
60+ 15-60 0-14 60+ (RHS) 15-60 (RHS) 0-14 (RHS)
Thailand
Vietnam Singapore
(RHS)
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
0
10
20
30
40
50
60
70
1970 1980 1990 2000 2010 2020 2030 2040 2050
Singapore
Thailand
Vietnam
ASEAN World
45%
50%
55%
60%
65%
70%
1970 1980 1990 2000 2010 2020 2030 2040 2050
Declining young populations in
Thailand and Singapore are a
significant concern
Special Report
5 November 2014 38
Singapore has one of the worst demographic profiles in ASEAN, better only than
Thailand’s. Of particular concern is the sharp drop in its young population to only
about 15% of the population today from 39% in 1970. Only Thailand has registered a
sharper fall – to around 17% at present from 44% in 1970. The UN forecasts that
both countries will see a further drop to 12% of their total populations.
Singapore reported a high resident labour participation rate of 66.7% and a low total
fertility rate of 1.19 in 2013. Efforts to improve the fertility rate have proven
unsuccessful so far, and the government has adopted a liberal approach towards
managing the population and the labour market to support economic growth.
Singapore had 1.6mn foreigners residing in the country as of H1-2014 – 29% of the
total population, and an increase of 12x since 1980 (131,000 foreigners, about 6% of
the total population). Its foreign labour force accounted for 37% of the total labour
force in 2013, versus 18% in 1991.
In addition to introducing foreign labour, the government has used other methods to
maintain labour supply, such as encouraging female participation in the labour
market. Female labour participation rose to 58.1% in 2013 from 48% in 1991. The
government has also provided incentives to employers to hire older Singaporean
workers. It has, however, started to slow the rate of increase in the foreign labour
force, to about 2.3% annualised as of June 2014 from the 5.8% p.a. increase seen
from 2010-14. Instead of relying on foreign labour, the government has changed its
policy to increase productivity. We believe it may further slow growth in the foreign
labour force to 1-2% by 2020 from about 3.3% p.a. over 2010-13. It would then need
to increase productivity growth to 2-3% until 2020 to achieve GDP growth of 3-5%.
We expect foreign labour-force growth to slow to about 1% p.a. after 2020 and GDP
growth to slow to 2-3% p.a.
Figure 22: Young population*
% of total population
Figure 23: Median age in Singapore and Thailand is
forecast to increase to over 45 by 2045 (years)
*Young = Less than 15 years of age; Source: UNHP, Standard Chartered Research Source: UNHP, Standard Chartered Research
Thailand
Singapore Vietnam ASEAN
Sub-Saharan Africa
World
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
1970 1980 1990 2000 2010 2020 2030 2040 2050
0
10
20
30
40
50
60
Singapore Thailand ASEAN China World
1960 1980 2010 2030 2050
The share of Singapore’s young
population has dropped
precipitously in the past 40 years
Special Report
5 November 2014 39
Trading with the world
ASEAN is a major global trader
The ASEAN region is among the fastest-growing and most open regions in the world.
As a bloc, the region is the eighth-largest economy in the world with a combined
GDP of around USD 2.4tn. Merchandise trade is about 104% of GDP. The most
open economy is Singapore, with trade of goods and services accounting for about
360% of GDP and Myanmar at the other end at 30% of GDP. But with the opening up
of Myanmar, we should see the country’s trade rising in the years to come.
ASEAN is an attractive setting for global manufacturers. Favourable demographics,
business cost levels, supportive government policies and generally stable regional
politics provide an attractive environment for investors. There are areas that can be
improved, such as infrastructure in varying conditions; but with the increase in wage
costs in China over the last few years, more labour-intensive industries have shifted
to ASEAN. This trend is likely to continue.
Investors find varying manufacturing capabilities across ASEAN. The low-cost
producers include CLMV (Cambodia, Laos, Myanmar and Vietnam), and Indonesia.
The Philippines, Malaysia and Thailand have expertise in mixed manufacturing and
electronics. Singapore has high value-added manufacturing expertise and strong
intellectual property rights protection. But ASEAN needs to integrate more in order to
better capitalise on its manufacturing capability. This is not just a matter of
infrastructure links. For a manufacturing company looking to locate its operations
across the region, a single framework for investment regulations would make it much
easier to carry out its ASEAN strategy.
Figure 1: The intra-Asia trade heatmap
Shades indicate 2011-2013 growth (darker shade = stronger), numbers indicate trade corridor size in USD bn 2013
Exporter
Importer KR CN HK ASEAN ID MY PH SG TH VN IN
JP 34.7 149.9 17.5 116.3 27.1 25.3 11.4 17.7 21.9 12.9 6.8
KR 91.2 8.3 50.7 11.4 8.3 3.1 16.8 4.5 6.5 4.1
CN 145.9 251.4 150.6 22.6 30.7 6.6 48.5 26.8 15.4 14.5
HK 27.8 384.9 80.8 2.7 9.9 4.4 46.2 13.0 4.6 13.0
ASEAN 80.4 229.7 29.5 295.3 39.6 62.3 8.6 123.7 46.6 14.5 34.3
ID 11.6 36.9 2.5 65.2 10.5 0.8 40.7 10.7 2.5 5.2
MY 8.6 45.9 3.4 80.4 10.7 1.3 50.1 12.8 5.5 5.1
PH 8.8 19.8 2.8 19.3 3.8 3.0 6.7 5.0 0.8 1.4
SG 22.3 45.6 7.6 66.4 16.7 31.9 4.0 11.1 2.8 13.5
TH 8.1 32.7 5.6 38.9 6.1 12.7 1.9 15.3 3.0 3.9
VN 21.1 48.6 7.6 25.1 2.4 4.2 0.5 10.9 7.1 5.3
IN 11.4 48.4 10.7 40.4 13.0 8.2 0.3 11.3 5.1 2.6
AU 9.6 37.6 4.8 44.1 4.4 9.2 0.8 15.8 10.2 3.7 2.2
EU 49.1 339.3 43.2 123.5 16.8 20.7 6.2 32.4 21.8 25.6 51.7
US 62.3 369.0 42.8 111.7 15.7 18.5 7.8 24.1 22.6 22.9 38.7
Source: CEIC, Standard Chartered Research
Special Report
5 November 2014 40
With more FDI shifting towards ASEAN from China, ASEAN may catch up with
China’s current status as the top global exporter (see section on foreign direct
investment for more details). In 2013, ASEAN accounted for close to 7% of global
exports. However, this share has remained broadly similar for some time.
Comparatively, China took over the top global exporter spot in 2008-09. China
currently accounts for close to 12% of global exports. Other major exporters,
including the US, Germany and Japan, have seen their share of global exports
gradually decline in recent years.
Figure 2: Can ASEAN take over China’s role as top exporter?
% of global exports
Source: WTO, Standard Chartered Research
ASEAN
US
CN
JP
DE
0%
2%
4%
6%
8%
10%
12%
14%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Special Report
5 November 2014 41
Can ASEAN replicate China’s experience?
Lessons from China
China’s extraordinary economic development owes much to the country’s active
participation in global trade. Trade helps China to improve the efficiency of resource
allocation, supply natural resources for domestic consumption and transfer
technological know-how through imports of capital goods. Trade growth has also
contributed strongly to the creation of non-farm jobs, a growing urbanisation rate and
reduced rural poverty. According to the latest trade profiles report from the World
Trade Organization (WTO), China‘s merchandise exports and imports reached USD
2209bn and USD 1950bn, respectively, in 2013, making it the world’s largest
exporter and second-largest importer.
China’s experience demonstrates the importance of global trade in facilitating
improvements in economic structure and propelling growth. While there are many
factors that have contributed to China’s outperformance in global trade, one of the
most important ones, in our view, is the country’s strong adherence to economic
openness policies. This can be seen in the creation of Special Economic Zones
(SEZs) in Shenzhen and other similar regions as early as the 1980s. These were
designed as areas where foreign companies (and later, domestic firms) could invest,
be subject to lower taxes and limited trade barriers, and enjoy a supportive
bureaucracy.
The SEZs were focused on attracting firms that would manufacture for export,
although as the economy developed, many firms established in these zones turned
to selling to China. Economic reformers pointed to SEZs to demonstrate the benefits
of freer markets – and, as they got richer, to make local governments strong
supporters of more liberal reform. However, as national-level regulation became
more business-friendly for manufacturers over the past 20 years, the SEZs lost much
of their uniqueness. The unification of corporate tax rates in the 2000s also removed
one of their main attractions. That said, many industrial zones around the country still
offer tax incentive-like measures to firms.
China’s accession to the WTO in 2001 expedited its integration into the world
economy. Trade policy liberalistion since then has been substantial. The average
tariff rate dropped from 43% in 1992 to less than 10% by 2008, according to the
WTO. During 2003 to 2008 (before the onset of the global finanical crisis), China’s
foreign trade experienced the fastest growth, at an average rate of 26.85%, since the
country’s opening-up in 1978. China also made strong commitments to liberalise
services trade in the WTO‘s General Agreement on Trade in Services (GATS). From
China‘s perspective, the accession to the WTO meant much more than just securing
access rights to the world market, as it also allowed China to make more decisive
reforms according to a transparent and rule-based global system.
Foreign companies and foreign direct investment (FDI) have also found China
attractive for its abundant and low-cost labor (until recently, at least). China’s
unbanisation rate is only 53% at present, up from 19.4% in 1980, which means many
surplus laborers in agricultural sectors having moved into industries and services
over the past three decades. Moreover, compressed credit and resource costs have
supported China’s trade growth. The USD-CNY exchange rate was depreciated from
1.70 in 1981 to 8.62 in 1994, and was kept roughly at this level until July 2005. The
government also subsidised exporting companies until the early 1990s.
Special Report
5 November 2014 42
However, over the past 10 years, structural changes in China have led to a gradual
disappearance of cheap money, resources and labour. For example, in July 2005, a
managed floating-exchange rate regime was establised, with the Chinese yuan
(CNY) appreciating against the US dollar (USD) by 2.1% on revaluation. The labour-
force growth rate was above 1% annually from 1978 to the late 1990s, then slowed
from 1998 to only 0.4% in 2012. In 2003, labour shortages (especially in
manufacturing sectors) began to surface in some provinces, driving rapid wage
growth. For example, in the most important export sector, manufacturing, wages
have risen around 14% in nominal terms per year since 2003.
Even though China may be gradually losing its comparative advantage in traditional
labour-intensive manufacturing exports, there is still room for China to catch up with
developed countries. In 2012, China’s per capita trade, at USD 2,853, was only half
of the world’s average level, while in developed countries it is usually several times
that of the world average. China’s export growth potential mainly lies in capital-
intensive and technology-intensive exports, which in turn rely on technological
progress and high productivity rather than cheap labor and cheap resources. In this
regard, China’s future export growth path will mostly depend on the success of its
market-oriented reforms to boost the competitiveness of domestic industries.
ASEAN could strengthen its global export role
ASEAN’s exports to the world have stayed at around 6-7% of global exports since
2000. As of 2013, ASEAN is the fourth-largest exporter in the world after China, the
US and Germany. ASEAN’s export gap with the US and Germany has been steadily
decreasing over the years even as ASEAN’s share of global exports has held steady.
China was the overall outperformer over the last two decades as its cost
competitiveness, trade liberalisation, large domestic market, and infrastructure
investment-focused policies attracted global manufacturers and propelled China to
become the largest exporter in the world. China overtook Germany as the largest
exporter in the world in 2008. Today, China accounts for nearly 12% of global
exports. In USD terms, China exported USD 950bn (76%) more than ASEAN did
in 2013,.
ASEAN is in a strong position to take advantage of China’s loss of cost
competitiveness. China’s wages have risen around 15% per annum since 2000, its
real effective exchange rate (REER) has appreciated around 33% since 2000, and its
labour force is shrinking and ageing. China’s working-age population peaked at 69%
of the total population in 2010 and is expected to shrink to 60% by 2030. The median
age was already 32 years old in 2010 and will age towards 47 years old by 2050.
Still, China remains an attractive investment destination, with its established
infrastructure, a large domestic market, and a skilled labour force. Given the mix of
factors, we believe that China will need to move up the value chain in the
manufacturing process as it will no longer have a cheap, young and ample labour
force to support labour-intensive industries.
China’s manufacturing wages are below Singapore’s and close to Malaysia’s but
otherwise are above those in the Mekong region, Indonesia and the Philippines.
There may be areas in China where wage costs are still competitive, particularly
towards the west, but the shrinking labour force means that wages will likely quickly
catch up with those in eastern China.
Special Report
5 November 2014 43
Labour-intensive industries tend to hire younger workers. ASEAN’s median age
(weighted by population) is 27 years old (projection in 2015). This is five years
younger than China’s median age. Even though Vietnam’s median age is similar to
China’s at 32 years old, China’s population is ageing faster than Vietnam’s. China’s
median age is projected to rise to 42 years old in 2030 versus Vietnam’s 37.
Vietnam’s rural population as a percentage of the total population is larger. Vietnam’s
urbanisation in 2013 was 32% versus China’s 53%. The rural population could be a
large source of supply for labour-intensive industries.
China has about 50mn workers in the manufacturing industry. Assuming that 25mn of
the workers are in labour-intensive sectors, and about 15mn jobs need to move out
of China, ASEAN could easily absorb these. ASEAN’s rural population is about
280mn. In addition, the rise in the labour force in ASEAN from 2015 to 2020 is about
21mn, of which Indonesia contributes 10mn, Philippines 6mn and CLMV close
to 4mn.
China ranks higher than all ASEAN member states except for Singapore and
Malaysia in terms of its economic competitiveness and infrastructure. ASEAN
member states will need to improve on both counts to attract more investment into
the region. That said, China’s infrastructure was also weak 30 years ago, but this did
not stop investors from seeking to take advantage of its low-cost environment.
We estimate that about 20% of China’s exports are considered low-value added.
Assuming that 15ppt of the 20% moves out from China and is exported from ASEAN
would raise ASEAN’s share of global exports to c. 8.5%. This would make ASEAN
the second-largest exporter in the world. There is a lot at stake here for ASEAN.
China benefited from the global manufacturing shift over the last two to three
decades and ASEAN has a great opportunity now to receive similar benefits.
Figure 3: Room for ASEAN to improve
Ranking
Figure 4: China’s economy is relatively competitive
Ranking
Ease of doing business
SG 1
MY 18
TH 26
VN 79
CN 90
PH 95
BN 101
ID 114
KH 135
LA 148
MM 177
Global competitiveness
SG 2
MY 20
CN 28
TH 31
ID 34
PH 52
VN 68
LA 93
KH 95
MM 134
Source: World Bank, Standard Chartered Research Source: WEF, Standard Chartered Research
Special Report
5 November 2014 44
Figure 5: China has strong logistics infrastructure
Ranking
Figure 6: ASEAN has advantages in labour costs
USD per month
Logistics Performance
SG 5
MY 25
CN 28
TH 35
VN 48
ID 53
PH 57
KH 83
LA 131
MM 145
Wages (manufacturing)
SG 1433
CN 500
MY 429
TH 366
PH 248
ID 234
VN 200
LA 137
KH 120
MM 110
Source: World Bank, Standard Chartered Research Source: JETRO, Standard Chartered Research
Figure 7: ASEAN is more youthful
Years
Figure 8: ASEAN’s labour force will rise versus China’s
Labour force (mn)
Median age (2015) Median age (2030)
SG 37 42
TH 37 42
VN 32 37
CN 32 42
KH 27 27
ID 27 32
MY 27 32
MM 27 37
ASEAN 27 32
LA 22 27
PH 22 27
Labour force (2010)
Labour force (2030)
Labour force (2050)
CN 929 861 709
ASEAN 378 452 460
ID 151 187 193
VN 59 63 54
PH 55 78 98
TH 45 40 31
MM 34 39 35
MY 18 23 25
KH 9 12 13
LA 4 6 7
SG 3 4 4
Source: UNHNP, Standard Chartered Research Source: UNHNP, Standard Chartered Research
Special Report
5 November 2014 45
ASEAN-China trade corridor
A partnership between two economic giants
We think the ASEAN-China trade corridor will stand out over the next few decades.
The two economic blocs already account for a significant portion of global GDP
(ASEAN: 3%, China: 13%), world trade and population. IN 2000, the ASEAN-China
(including Hong Kong) trade corridor was USD 67.2bn, 70% of the intra-ASEAN trade
corridor. In 2013, this had risen to USD 491bn, 166% of the intra-ASEAN trade
corridor. With the region’s economic growth likely to continue at a faster pace than
the rest of the world, trade growth is set to follow suit.
The ASEAN-China trade corridor is also set to benefit directly and indirectly from
rising emerging-market (EM) trade. Global trade performance in recent years has
been characterised by the growing importance of emerging markets. The rise in the
South-South and North-South trade corridors has been accompanied by a decline in
North-North trade (see Special report Global Trade Unbundled). Asia is at the centre
of this change, accounting for c.40% of the total increase in trade growth since 2000.
Within the Asia trade mosaic, we find that the growth in the ASEAN-China trade
corridor stands out (see our intra-Asia trade heatmap, Figure 1). ASEAN-China trade
has been characterised by strong China export growth to ASEAN in recent years
(20.8% annually on average in 2011-2013, compared to ASEAN-China exports of
10.5%), evidenced by the darker shades in the heatmap.
ASEAN’s trade deficit with China reflects rising ASEAN wealth
ASEAN’s trade deficit with China (including Hong Kong) has been increasing (see
Figure 9). While ASEAN’s exports to China have increased, import growth from
China was much stronger. ASEAN registered a trade deficit (export balances
between ASEAN and China) of USD 27.7bn in 2013. This is a reversal from the USD
25.8bn surplus in 2010. The largest increase in imports from China was seen in
Vietnam and Malaysia, where there is a significant increase in consumer goods
imports (Figure 10). Figures 11 and 12 show the top products that ASEAN
economies trade with China. With ASEAN’s trade surplus with the world similarly
falling over the last few years, this suggests that there is more end demand within
ASEAN itself.
We identify a few possible future trends for the trade corridor. ASEAN and China
Figure 9: ASEAN’s trade surplus with China have become
a deficit for the past two years (USD bn)
Figure 10: Singapore’s trade surplus is offset by the rest
of ASEAN’s trade deficits (USD bn)
Source: IMF DOTS, Standard Chartered Research Source: IMF DOTS, Standard Chartered Research
Trade balance
Total trade (RHS)
-500
-400
-300
-200
-100
0
100
200
300
400
500
-40
-30
-20
-10
0
10
20
30
40
2000 2002 2004 2006 2008 2010 2012
CN
HK
-50
-40
-30
-20
-10
0
10
20
30
40
50
SG TH MY PH ID VN
ASEAN-China trade has grown
more than seven times since 2000
Thanks to its position at the centre
of the global supply chain, the
ASEAN-China trade corridor is
likely to benefit from rising EM trade
Special Report
5 November 2014 46
cooperation are likely to deepen. ASEAN and China already have free trade
agreements, and the planned RCEP agreement is likely to deepen these links
further. Instead of competing for FDI, it is likely that China will be an important FDI
investor and vice versa. Malaysia has reported this year that investment from China
is rising. FDI is expected to exceed MYR 3.15bn this year, up from MYR 2.8bn last
year, according to The Star Online. As ASEAN and China economies develop, there
will be rising demand for intermediate goods and increased capability to export
higher-value added goods. Supply chains within the trade corridor will develop, as
goods are increasingly “made in the world”. Rising wealth in Asia is likely to create
more demand for consumer goods.
While Japanese FDI flows to mainland China have been larger than those to the
ASEAN in the past decade, the cumulative Japanese FDI stock in ASEAN remains
higher than in the PRC according to the ADB. Also the latest data suggests that
Japan’s FDI flows have already shifted more in favour of the ASEAN and away from
China since 2013.
ASEAN will likely experience stronger export growth to China than import growth
from China in the coming years. We think that ASEAN’s trade deficit could narrow
and turn to a surplus by 2020. A key theme for China’s companies this year has been
to shift peripheral operations out of China due to rising costs and labour shortages.
At the same time, ASEAN economies, particularly Indonesia and the Philippines, are
likely to continue to enjoy labour-force growth in the coming years. This could shift
some productive capability from China to ASEAN. Manufacturing capabilities are
deepening in Vietnam and other parts of the Mekong Delta Region, as well as the
Philippines. The emergence of Myanmar and Cambodia as low-cost manufacturing
locations could accelerate by 2020. The deepening of China’s middle class may also
boost China’s imports from ASEAN.
We expect ASEAN to have a trade
surplus with China by 2020
Special Report
5 November 2014 47
Figure 11: What does ASEAN export to China?
Exports
Aircraft, spacecraft, and parts thereof Animal, vegetable fats and oils, cleavage products, etc Articles of iron or steel Articles of apparel, accessories, not knit or crochet Cereals
Copper and articles thereof Cotton Edible fruit, nuts, peel of citrus fruit, melons Electrical, electronic equipment Electrical machinery and equipment and parts thereof;
sound recorders and reproducers, television image and sound recorders and reproducers, and parts and accessories of such articles Edible vegetables and certain roots and tubers
Fish and crustaceans, molluscs and other aquatic invertebrates, Furniture, lighting, signs, prefabricated buildings Iron and steel Knitted or crocheted fabrics Machinery
and mechanical appliances; parts thereof Man-made staple fibres Mineral fuels, mineral oils and products of their distillation; bituminous substances; mineral waxes Nuclear
reactors, boilers, machinery and mechanical appliances; parts thereof Oil seed, oleagic fruits, grain, seed, fruit, etc. Optical, photographic, cinematographic, measuring, checking,
precision, medical or surgical instruments and apparatus; parts and accessories thereof Organic chemicals Ores, slag and ash OC Other commodities Paper & paperboard,
articles of pulp, paper and board Plastics and articles thereof Pulp of wood, fibrous cellulosic material, waste etc Rubber and articles thereof Salt, sulphur, earth, stone,
plaster, lime and cement Tools, implements, cutlery, etc of base metal Wood and articles of wood, wood charcoal
Source: UN COMTRADE, Standard Chartered Research
LATEX
FE
29
Cu
26
Fe
Indonesia 2013 37% 16% 11%
7% 5% OC 25% 2000 37% 12% 11%
8% 7% OC 24%
Malaysia 2013 34% 11% 10%
10% 9% OC 27% 2000 26% 17% 12%
11% 11% OC 24%
Singapore 2013 45% 12% 11%
9% 6% OC 18% 2000 29% 27% 12%
7% 4% OC 21%
Philippines 2013 29% 25% 15%
6% 4% OC 21% 2000 38% 17% 12%
11% 7% OC 15%
Thailand 2013 23% 12% 11%
11% 9% OC 34% 2000 20% 15% 15%
12% 7% OC 31%
Vietnam 2012 17% 16% 11%
7% 5% OC 44% 2000 54% 15% 11%
5% 3% OC 12%
Cambodia 2013 28% 25% 21%
9% 4% OC 13% 2000 90% 5% 2%
1% 1% OC 1%
Brunei 2012 92% 7% 0.4%
0.2% 0.1% OC 0.2% 2000 99% 0.34% 0.08%
0.07% 0.03% OC 0.07%
LATEX
LATEX
LATEX
LATEX
LATEX
LATEX
LATEX
LATEX
29
Cu
29
Cu
Special Report
5 November 2014 48
Figure 12: What does ASEAN import from China?
Imports
Aircraft, spacecraft, and parts thereof Articles of apparel, accessories, not knit or crochet Articles of iron or steel Cereals Copper and articles thereof Cotton
Edible fruit, nuts, peel of citrus fruit, melons Edible vegetables and certain roots and tubers Electrical machinery and equipment and parts thereof; sound recorders and
reproducers, television image and sound recorders and reproducers, and parts and accessories of such articles Electrical, electronic equipment Fertilizers Inorganic chemicals,
precious metal compound, isotopes Iron and steel Knitted or crocheted fabrics Machinery and mechanical appliances; parts thereof Man-made staple fibres
Mineral fuels, mineral oils and products of their distillation; bituminous substances; mineral waxes Nuclear reactors, boilers, machinery and mechanical appliances; parts thereof
Optical, photo, technical, medical, etc apparatus Optical, photographic, cinematographic, measuring, checking, precision, medical or surgical instruments and apparatus; parts and
accessories thereof Organic chemicals OC Other commodities Plastics and articles thereof Rubber and articles thereof Vehicles other than railway, tramway Zinc
and articles thereof
Source: UN COMTRADE, Standard Chartered Research
30
Zn LATEX
FE
29
Cu 26
Fe
Indonesia 2013 24% 23% 5%
4% 4% OC 41% 2000 27% 21% 16%
14% 12% OC 11%
Malaysia 2013 37% 19% 4%
3% 3% OC 34% 2000 40% 11% 8%
2% 2% OC 37%
Singapore 2013 39% 22% 9%
4% 3% OC 23% 2000 32% 28% 8%
3% 2% OC 27%
Philippines 2013 19% 14% 10%
5% 5% OC 47% 2000 15% 8% 5%
5% 5% OC 62%
Thailand 2013 30% 21% 5%
4% 4% OC 37% 2000 27% 21% 5%
4% 3% OC 40%
Vietnam 2012 30% 14% 7%
6% 3% OC 39% 2000 31% 10% 10%
8% 5% OC 37%
Cambodia 2013 30% 18% 11%
10% 6% OC 25% 2000 26% 12% 11%
9% 5% OC 37%
Brunei 2013 17% 15% 14%
8% 6% OC 39% 2000 27% 6% 5%
5% 4% OC 53%
FE
FE
FE
FE
FE
FE
FE
FE
FE
LATEX FE
FE
26
Fe
26
Fe
26
Fe
26
Fe
26
Fe
26
Fe
Special Report
5 November 2014 49
ASEAN and the world
ASEAN turns towards emerging markets
ASEAN’s key markets include the US, the EU, Japan and China. The ASEAN-China,
ASEAN-US, ASEAN-EU and ASEAN-Japan corridors accounted for 46% of ASEAN’s
total trade in 2013. These four export destinations account for about 60% of global
GDP. The ASEAN-China corridor is the largest, followed by the EU, Japan and the
US. In contrast, ASEAN countries hardly feature among the top five export
destinations within ASEAN. This is unsurprising, as ASEAN GDP accounts for only
about 3% of global GDP.
There have been two notable changes in the past few years within these four key
trade corridors. First, their dominance of ASEAN trade fell from 54% in 2000 to 46%
in 2013. Second, the ASEAN-China (including Hong Kong) corridor grew at the
expense of the other three corridors. ASEAN-US trade fell from 16% of ASEAN’s
total trade in 2000 to 8% in 2013. ASEAN-Japan trade fell from 16% to 10%, while
ASEAN-EU fell from 13% to 10%. Only ASEAN-China trade’s share rose, from 8% in
2000 to 18% in 2013.
The ASEAN-China trade corridor has surpassed ASEAN-EU, ASEAN-Japan and
ASEAN-US trade since c.2005, and is now about double each of these corridors
(Figure 16). We include Hong Kong due to its dominant re-exports to China. In 2003,
the ASEAN-China corridor was USD 105bn. It has since more than quadrupled to
USD 454bn.
The rise in South-South trade has filled the void left by the developed markets, which
have endured challenging times recently. ASEAN’s trade with the Middle East, North
Africa and Pakistan (MENAP) region rose to almost 7% of its total trade in 2013 (an
increase of about 2ppt since 2000), while trade with Latam rose to 3% from 1.3%
(Figure 16).
ASEAN is well integrated with the global supply chain
ASEAN-6 currently dominates trade within ASEAN. Of total 2013 exports of USD
1.27tn, ASEAN-6 accounted for 97%. ASEAN-6 is largely a manufacturing region,
Figure 13: Top 5 export destinations for ASEAN economies
% of total exports 2012; blue - non-ASEAN countries, green – ASEAN countries
Source: WTO, Standard Chartered Research
JP
KR
IN
AU
NZ
0
10
20
30
40
50
60
70
80
90
100
BN KH ID MY MM PH SG TH VN
US
EU
HK
SG
CA
JP
CN
EU
SG
KR
SG
CN
JP
EU
US
TH
HK
IN
CN
SG
JP
US
CN
EU
SG
MY
HK
CN
ID
EU
CN
JP
US
EU
CN
EU
US
JP
CN
KR
The ASEAN-China, ASEAN-US,
ASEAN-EU, and ASEAN-Japan trade
corridors accounted for 46% of
ASEAN’s total trade in 2013, down
from 54% in 2000
ASEAN-China trade corridor is the
most important trade corridor for
ASEAN today
ASEAN is a manufacturing hub
Special Report
5 November 2014 50
with the exception of Indonesia. In aggregate, ASEAN-6 exports consist of about
14% agriculture, 21% fuel and minerals, and 66% manufactured goods.
ASEAN, as a key manufacturing region, is well integrated with the Asian supply
chain. Exports of intermediate goods have gradually increased over the last few
years. In 1998, ASEAN-6 exports comprised about 60% intermediate goods. This
proportion had risen to close to 70% by 2012. This is partly explained by the
modularisation of production, in particular in electronics, where the supply chain is
highly fragmented. Electronics exports feature heavily in exports from ASEAN,
including the Philippines (around 40% of its total exports), Malaysia (33%), Vietnam
(24%) and Singapore (20%). ASEAN also exports fuel and oil products, which are
largely classified as intermediate products. Key exporters of fuel and oil products
include Indonesia, Malaysia, and Singapore.
On the import front, there has not been a clear trend. The relative shares of capital,
intermediate and consumer goods have been relatively stable over the past decade
or so. The proportion of consumer goods has increased slightly in recent years,
possibly reflecting the region’s rising wealth and as companies seek new consumer
markets.
Figure 14: ASEAN is a key cog in the global supply chain
ASEAN-6 exports to the world; % share of total
Figure 15: ASEAN is providing more end demand
ASEAN-6 imports from the world; % share of total
Source: UNCOMTRADE, Standard Chartered Research
Source: UNCOMTRADE , Standard Chartered Research
Figure 16: ASEAN trade share to emerging markets
increased at the expense of developed markets
% of total trade
Figure 17: Export growth to China and Hong Kong has
grown faster than export growth to the EU and the US
% annual growth; 2001-2013
Source: IMF DOTS, Standard Chartered Research Source: IMF DOTS, Standard Chartered Research
Capital goods
Consumer goods
Intermediate goods (RHS)
58
60
62
64
66
68
70
10
12
14
16
18
20
22
1998 2000 2002 2004 2006 2008 2010 2012
Capital goods
Consumer goods
Intermediate goods (RHS)
70
72
74
76
78
80
8
10
12
14
16
18
20
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
0
5
10
15
20
25
2000 2005 2010 2013
EU JP US CN & HK MENAP Latam ASEAN Others ex-ASEAN
-30
-20
-10
0
10
20
30
40
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
EU US CN & HK
ASEAN is well-integrated with the
global supply chain; intermediate
goods constitute 70% of ASEAN
exports
Special Report
5 November 2014 51
Within the ASEAN manufacturing space, Singapore exports largely high-skill and
tech-intensive manufactured products. It is followed by Malaysia and the Philippines;
close to 70% of their manufactured products are produced in high-skill and tech-
intensive sectors. This is reflected in the three countries’ large electronics production
sectors. Just over 50% of Thailand’s manufacturing exports are considered high-skill
and tech-intensive.
Vietnam is catching up in terms of the sophistication of its manufacturing exports as
more electronic companies invest in the country. Currently, about 34% of Vietnam’s
manufactured exports are considered high-skill and tech-intensive, while 55% are
considered labour- and resource-intensive. Indonesia’s manufacturing exports are
still largely labour- and resource-intensive. The diversity in technical levels provides a
platform for manufacturers, particularly in the electronics sector, to compartmentalise
their production chain across ASEAN.
Figure 18 shows ASEAN’s export profile from another angle. Electronics are among
the top three exports of most of the ASEAN countries. Vietnam has seen a sharp
Figure 18: ASEAN’s export profile to the world
Exports
Animal or vegetable fats and oils and their cleavage products; prepared edible fats; animal or vegetable waxes Articles of apparel and clothing accessories, knitted or crocheted
Articles of apparel and clothing accessories, not knitted or crocheted Articles of iron or steel Coffee, tea, mate and spices Commodities not elsewhere specified
Commodities not specified according to kind Cotton Electrical machinery and equipment and parts thereof; sound recorders and reproducers, television image and sound
recorders and reproducers, and parts and accessories of such articles Fish, crustaceans, molluscs, aquatic invertebrates Footwear, gaiters and the like; parts of such articles
Machinery and mechanical appliances; parts thereof Mineral fuels, mineral oils and products of their distillation; bituminous substances; mineral waxes Nuclear reactors, boilers,
machinery and mechanical appliances; parts thereof Optical, photographic, cinematographic, measuring, checking, precision, medical or surgical instruments and apparatus; parts and
accessories thereof Organic chemicals OC Other commodities Plastics and articles thereof Printed books, newspapers, pictures and other products of the printing industry;
manuscripts, typescripts and plans Rubber and articles thereof Ships, boats and other floating structures Vehicles other than railway or tramway rolling-stock, and parts and
accessories thereof Wood and articles of wood; wood charcoal
Source: UN COMTRADE, Standard Chartered Research
FE
Indonesia 2013 32% 11% 6%
5.1% 3.6% OC 44% 2000 25% 10% 6%
6% 5% OC 48%
Malaysia 2013 28% 22% 11%
7% 3.6% OC 30% 2000 38% 24% 10%
4% 3% OC 22%
Singapore 2013 30% 17% 14%
8.1% 4.4% OC 26% 2000 40% 28% 7%
3% 3% OC 20%
Philippines 2013 38% 12% 6%
4% 4% OC 36% 2000 54% 20% 4%
2% 2% OC 18%
Thailand 2013 16% 13% 12%
7% 6% OC 46% 2000 23% 17% 4%
4% 4% OC 49%
Vietnam 2012 20% 10% 7%
7% 6% OC 52% 2000 26% 11% 10%
10% 5% OC 38%
Cambodia 2013 51% 25% 5%
4% 3% OC 13% 2000 26% 11% 10%
10% 5% OC 38%
Brunei 2013 97% 1% 1%
OC 52% 2001 89% 2% 2%
2% 1% OC 3%
Special Report
5 November 2014 52
change in its export profile – in 2000, its top export was mineral fuel; in 2013, it was
electrical parts. Thailand and Cambodia have seen increases in exports of vehicles
and parts. Cambodia’s top five exports have increased their share of its total exports
since 2000. Clothes and shoes accounted for 58% of its total exports in 2013, versus
36% in 2000. Cambodia continues to attract investment in labour-intensive industries
due to its young and low-cost labour force.
Indonesia’s commodity exports increased between 2000 and 2013. Electrical parts
previously accounted for about 10% of Indonesia’s total exports; this dropped to 6%
in 2013. Commodities used to account for only 60% of its top five exports; this had
risen to 93% by 2013. Malaysia and Singapore have increased their exports of
mineral fuel and derivatives since 2000. This indicates their investments in the
petrochemical sector in the past decade. Both economies have similar export
profiles, with expertise in manufacturing and fuel and petrochemicals.
Vietnam is the export outperformer
Vietnam has outperformed in terms of exports over the last few years. Manufacturers
have been attracted to Vietnam’s ample and young labour market, relatively low
wages, large domestic market and good infrastructure. As such, Vietnam has gained
market share within the very competitive ASEAN region.
In 2003, Vietnam’s exports only accounted for about 4.5% of total exports out of
ASEAN-6. In 2013, Vietnam exports accounted for 11% of total ASEAN-6 exports. Its
export profile is also becoming higher value-added. Exports of phones and electronic
parts rose to 24% of total exports in 2013, up from around 6% just two years ago.
Vietnam, the Philippines and Thailand have increased exports to Korea over the last few
years, while Malaysia joins Vietnam and the Philippines in exporting more to Japan. Both
Malaysia and Indonesia are exporting more to the large economies of China and India
due to India’s energy demand. Intra-Asia trade appears set to be a dominant growth
corridor, given strong growth and the increasing linkages between Asian economies.
Figure 19: Vietnam is clear outperformer within ASEAN
% share of total ASEAN-6 export to world
Source: UNCOMTRADE, Standard Chartered Research
ID
MY
PH
SG
TH
VN
0
10
20
30
40
50
60
70
80
90
100
2000 2002 2004 2006 2008 2010 2012
Vietnam is the trade outperformer in
recent years
Special Report
5 November 2014 53
ASEAN looks beyond ASEAN
Over the longer term, ASEAN’s open attitude should allow it to benefit from global
trade and growth. One of the four key pillars of the AEC is to integrate ASEAN into
the global economy. The region understands the benefits of foreign investments and
the need to be able to compete internationally. The trade openness of the region is a
strong indicator of how much focus the region puts on external integration.
There are two major trade proposals in the works currently which affect ASEAN – the
Regional Comprehensive Economic Partnership (RCEP) and the Trans Pacific
Partnership (TPP).
The RCEP is a proposed free trade agreement between ASEAN and six other
countries with which the region has bilateral trade agreements, namely Australia,
New Zealand, China, India, Japan and Korea. This free trade agreement will
encompass 16 countries with a total GDP of about USD 21tn or 30% of global GDP,
and a population of about 3.4bn. These six countries account for about 35% of
ASEAN’s total trade. Negotiations are expected to be concluded by end-2015.
The TPP is a free trade agreement negotiated between 12 countries, out of which 4
are from ASEAN. The 12 countries include Australia, Brunei, Canada, Chile,
Malaysia, Mexico, New Zealand, Peru, Japan, Singapore, US and Vietnam. The 12
countries account for about 40% of global GDP and about one-third of global trade.
Within the region itself, progress towards establishing the ASEAN Economic
Community by end-2015 remains on target. No ‘big bang’ is expected at the end of
2015. And end-2015 is not the end of the journey, but rather a key milestone in the
process of closer regional integration. It is noteworthy that Brunei, Malaysia,
Singapore and Vietnam are included in both the RCEP and TPP negotiations.
Figure 20: Major free trade agreements in negotiations
Source: Standard Chartered Research
ASEAN
Trans Pacific Partnership RCEP
USA
Canada
Mexico
Peru
Chile
*Singapore, Malaysia, Vietnam and Brunei are in both TPP and RCEP negotiations
Myanmar
Thailand
Cambodia
Malaysia
Singapore
Indonesia
Brunei
Vietnam Laos
Philippines
Japan
South Korea
China
India
Australia
New Zealand
Special Report
5 November 2014 54
ASEAN is set to benefit from the RCEP and the TPP agreements. The RCEP aims to
tie up existing individual FTA arrangements between ASEAN’s six important trade
partners, namely Japan, South Korea, China, New Zealand, Australia and India. The
TPP looks to forge closer trade for ASEAN and trade partners in the other side of the
Pacific Ocean, particularly the US. In Figures 21 and 22, we outline the access or
reach that each economy will achieve in terms of their, GDP or trade sizes, if each of
the agreements is signed. ASEAN can gain access to 5 times its population, 8 times
its GDP and 3 times its trade through the RCEP, while ASEAN-4 (Singapore,
Malaysia, Brunei, Vietnam) can reach 5 times its population, 34 times its GDP and 6
times its trade via the TPP.
Figure 21: International reach if the RCEP is concluded
By FTA members’ population, GDP, and trade (in multiples of own country population, GDP and trade, respectively)
Source: CEIC, Standard Chartered Research
Figure 22: International reach if the TPP is concluded
By FTA members’ population, GDP, and trade (in multiples of own country population, GDP and trade respectively)
Source: CEIC, Standard Chartered Research
4.6
0
100
200
300
400
500
600
700
SG MY TH VN PH ID ASEAN
8.0
0
20
40
60
80
100
120
140
VN PH SG MY TH ID ASEAN
3.3
0
10
20
30
40
50
60
70
80
90
PH VN ID TH MY SG ASEAN
5.4
0
20
40
60
80
100
120
140
160
SG MY VN ASEAN-4
33.7
0
20
40
60
80
100
120
140
160
180
VN SG MY ASEAN-4
5.6
0
5
10
15
20
25
30
35
40
VN MY SG ASEAN-4
Special Report
5 November 2014 55
Figure 23: TPP and RCEP
Members Scope Timeline Issues
Regional Comprehensive
Economic Partnership (RCEP)
ASEAN, Australia, China, India, Japan, South Korea, New
Zealand
Trade in goods, services and investment
Cooperation in economic, intellectual property, competition, dispute management and other issues
Deeper than existing FTA co-operations (IEAS)
Announced on November 2011
Negotiations started in May 2013; 5 rounds since
Negotiations scheduled to conclude by end-2015
Combining all the bilateral FTAs into a regional FTA
Pay more attention to physical, institutional and people connectivity and to narrowing development gaps (production corridors; IEAS)
Trans-Pacific Partnership (TPP)
Australia, Brunei, Canada, Chile,
Japan, Malaysia, Mexico, New
Zealand, Peru, Singapore, the US,
Vietnam
Trade in goods, services and investment
Facilitation of production and supply chain development
Expanded from the P3 (Pacific Three Closer Economic Partnership) between Mexico, New Zealand, Singapore and Chile. P3 entered into force in May 2006
The initiative to expand the P3 was announced in November 2010
Negotiations started in March 2010; 20 rounds since
China and South Korea expressed interest to join the negotiations
Other economies that are interested include Taiwan, Philippines, Laos, Colombia, Indonesia
Additional areas to negotiate – intellectual property rights, labour standards, competition policy, investment rules, environment, and state-owned enterprises (IEAS)
Source: Singapore FTA, various government websites, Standard Chartered Research
IEAS perspective, 7 January 2013: RCEP and TPP: Comparisons and Concerns
Special Report
5 November 2014 56
Intra-ASEAN trade
Stable growth
With the ASEAN Economic Community scheduled to be in place in 2015, intra-
ASEAN trade is set to benefit. Intra-ASEAN trade has more than tripled since 2000 to
USD 295bn in 2013 – a CAGR of 9.3%. Growth has slowed since 2010 in line with
global trade, to a 6.8% CAGR. However, we see potential for this trade corridor to
grow further as ASEAN economies continue to register healthy economic growth. We
see several factors driving this growth: greater ASEAN economic integration, rising
wealth, economic development, urbanisation, improving infrastructure and rising
productivity (we detail our outlook for each in other sections of this report).
Stable growth since the 2000s
Intra-regional trade grew to about 26% of ASEAN’s total trade in 2013 from about
22% in 2000. This increase, while not stellar, is encouraging. Intra-ASEAN trade
accounts for about a quarter of the bloc’s total trade, even though ASEAN economies
only account for 3% of world GDP (see Figure 2). This reflects heavy trade between
ASEAN economies, despite the relatively small size of the region’s economy.
Intra-regional trade has neither outperformed nor underperformed relative to
ASEAN’s total trade. Its share of the total has remained remarkably resilient over the
past decade, and is higher than the shares of the EU, the US, Japan and China (see
Figure 2). Within ASEAN, Singapore-Malaysia and Singapore-Indonesia (outbound
trade from Singapore) are the largest trade corridors.
Intra-ASEAN trade has broadened to include more economies
Intra-ASEAN trade flows have broadened in recent years, and are now less
dominated by trade between Singapore and the rest of the region. Trade corridors
like Malaysia-Indonesia, Indonesia-Thailand and Malaysia-Thailand have grown at
about 1.5 times the pace of total ASEAN trade. Vietnam has seen the fastest growth,
albeit from a low base, overtaking the Philippines in terms of total trade size. The
Philippines has underperformed in terms of trade growth but has shown signs of
improvement in recent years.
Figure 1: Intra-ASEAN trade has been relatively stable
% of total trade
Figure 2: Heavy intra-ASEAN trade, despite the region’s
relatively small economic footprint (%)
Source: CEIC, Standard Chartered Research Source: IMF DOTS, Standard Chartered Research
EU
JN
US
CN+HK
ASEAN
0
5
10
15
20
25
30
35
40
2000 2002 2004 2006 2008 2010 2012
Exports (% ASEAN total)
GDP (% world)
0
5
10
15
20
25
30
ASEAN CN & HK EU JP US MENAP LATAM Others ex-
ASEAN
Intra-ASEAN trade has remained
broadly stable as a share of total
ASEAN trade
Intra-ASEAN trade has become
broader over the past decade
Special Report
5 November 2014 57
Our intra-Asia trade heatmap (see Figure 1 in the ‘ASEAN – Trading with the world’
section) shows that the more externally oriented ASEAN economies (Singapore,
Vietnam and Thailand) have increased exports to domestically oriented ones
(Indonesia, Malaysia and the Philippines) in recent years. Malaysia-Indonesia,
Thailand-Indonesia, Singapore-Vietnam and Vietnam-Malaysia are four of the fastest-
growing trade corridors. Vietnam-Indonesia, Vietnam-Thailand, and Philippines-
Indonesia are emerging corridors with potential for further growth, in our view.
Singapore and Thailand are net exporters to ASEAN economies
We compare export balances across ASEAN countries as a proxy for trade balances,
given differences in trade flow data between exports and imports (see Figure 3).
Based on this metric, Singapore and Thailand are the biggest sources of intra-
ASEAN exports. Singapore’s net export balances with Indonesia, Malaysia and
Vietnam are particularly large. This is unsurprising given that Singapore exports
higher-technology goods and is a key re-exporter globally. Thailand also exports
extensively to Indonesia, Cambodia, Laos and Vietnam, harnessing its central
location in the Mekong delta region. The Philippines is a particularly large importer of
ASEAN goods and has sizeable export deficits with Thailand, Indonesia and
Singapore. In contrast, Malaysia – a relatively open economy – has a more neutral
export balance with the rest of ASEAN.
As supply chains develop, we see an increasing likelihood that goods will be ‘made in
the world’ rather than in specific countries. We expect the import share of exports to
rise to 60% globally in 2030 from 40% in 2012. This also means that many goods are
likely to be ‘made in ASEAN’. Different components of the same products may be
made and assembled in different ASEAN countries, further accelerating trade growth
within the region.
Wealth effect to boost intra-ASEAN trade
As ASEAN economies grow richer, demand from within the region is becoming an
increasing focus. Infrastructure development also increases market access within
ASEAN. Continued regional integration efforts by ASEAN governments should
enhance trade ties within the region. The ASEAN Economic Community aims to
Figure 3: Export balances within ASEAN in 2013
USD mn, Blue (red) stands for a positive (negative) export balance; the darker the shade, the bigger the surplus or deficit
Exporter
Importer MM TH MY SG ID KH LA VN BN PH Total
MM 75 533 2,085 490 0 0 116 -1 0 3,298
TH -75 -129 4,248 -4,640 -3,950 -2,468 -3,961 334 -3,019 -13,660
MY -533 129 18,195 167 -106 -22 699 -530 -1,670 16,329
SG -2,085 -4,248 -18,195 -24,024 -315 -21 -8,226 -2,157 -2,714 -61,985
ID -490 4,640 -167 24,024 -301 1 53 464 -3,014 25,210
KH 0 3,950 106 315 301 4 2,818 0 -4 7,489
LA 0 2,468 22 21 -1 -4 -149 0 1 2,357
VN -116 3,961 -699 8,226 -53 -2,818 149 534 -1,171 8,015
BN 1 -334 530 2,157 -464 0 0 -534 8 1,363
PH 0 3,019 1,670 2,714 3,014 4 -1 1,171 -8 11,584
Total -3,298 13,660 -16,329 61,985 -25,210 -7,489 -2,357 -8,015 -1,363 -11,584
Source: CEIC, Standard Chartered Research
The low-hanging fruit of lowering
tariff rates has already been picked;
non-tariff barriers need to be
addressed
Special Report
5 November 2014 58
facilitate the free flow of goods within the region, among other objectives. Having said
that, the lower-hanging fruit of reducing tariff rates has already been exploited. Non-
tariff barriers to trade now need to be tackled.
The share of consumer-goods exports within ASEAN-6 trade has risen in recent years,
while the proportion of intermediate-goods exports has fallen. We believe this is partly
structural and partly cyclical. The structural increase in consumer-goods consumption is
largely due to the region’s rising wealth; ASEAN has generally outpaced average global
growth in wealth. The slowdown in intermediate-goods exports may partly reflect the
slowdown in global trade, particularly in the electronics sector.
We provide a pictorial summary of the top five types of merchandise traded within the
ASEAN region from pages 59-62.
Figure 4: Rising trade in consumer goods
Intra-ASEAN-6 exports; % share of total
Figure 5: Largely stable export profile within the region
% share of intra-ASEAN-6 exports
Source: UNCOMTRADE, Standard Chartered Research Source: UNCOMTRADE , Standard Chartered Research
Figure 6: Growing wealth to support increasing consumer power
USD per capita
Source: IMF, Standard Chartered Research
Capital goods
Consumer goods
Intermediate goods (RHS)
70
71
72
73
74
75
76
77
8
9
10
11
12
13
14
15
16
1998 2000 2002 2004 2006 2008 2010 2012
ID
MY
PH
SG
TH
VN
0
10
20
30
40
50
60
70
80
90
100
Feb-03 Sep-04 Apr-06 Nov-07 Jun-09 Jan-11 Aug-12
CN ID
MY
PH
TH
VN
0
100
200
300
400
500
600
0 2 4 6 8 10 12 14 16 18
Co
nsu
mer
go
od
s im
po
rts
per
cap
ita
(US
D)
GDP per capita (USD'000s)
Special Report
5 November 2014 59
Figure 7: Indonesia’s exports to ASEAN and the rest of the world
USD mn
Rank Singapore Malaysia Thailand Philippines Vietnam Myanmar Cambodia Brunei Laos World
1
2 Cu
3
4
5
Others
Total
ASEAN 40,629.94
World 182,551.75
Aircraft, spacecraft, and parts thereof; Animal or vegetable fats and oils and their cleavage products, prepared edible fats, animal or vegetable waxes; Articles of iron or steel
Cocoa and cocoa preparations; Copper and articles thereof; Dairy produce, birds’ eggs, natural honey, edible products of animal origin, not elsewhere specified or included;
Electrical machinery and equipment and parts thereof, sound recorders and reproducers, television image and sound recorders and reproducers, and parts and accessories of such articles;
Knitted or crocheted fabrics; Mineral fuels, mineral oils and products of their distillation, bituminous substances, mineral waxes; Miscellaneous chemical products; Miscellaneous
edible preparations; Nuclear reactors, boilers, machinery and mechanical appliances, parts thereof; Ores, slag and ash; Paper and paperboard, articles of paper pulp, of paper or of
paperboard; Pharmaceutical products; Rubber and articles thereof; Ships, boats and floating structures; Tin and articles thereof; Tobacco and manufactured tobacco
substitutes; Vehicles other than railway or tramway rolling-stock, and parts and accessories thereof
Source: UNCOMTRADE, Standard Chartered Research
Figure 8: Malaysia’s exports to ASEAN and the rest of the world
USD mn
Rank Singapore Thailand Indonesia Vietnam Philippines Brunei Myanmar Cambodia Laos World
1
2
3
4
5
Others
Total
ASEAN 64,057
World 228,516
Aircraft, spacecraft, and parts thereof; Animal or vegetable fats and oils and their cleavage products, prepared edible fats, animal or vegetable waxes; Articles of iron or steel;
Beverages, spirits and vinegar; Electrical machinery and equipment and parts thereof, sound recorders and reproducers, television image and sound recorders and reproducers, and parts and
accessories of such articles; Explosives, pyrotechnic products, matches, pyrophoric alloys, certain combustible preparations; Knitted or crocheted fabrics; Man-made staple fibres;
Mineral fuels, mineral oils and products of their distillation, bituminous substances, mineral waxes; Miscellaneous articles of base metal; Miscellaneous edible preparations;
Nuclear reactors, boilers, machinery and mechanical appliances, parts thereof; Optical, photographic, cinematographic, measuring, checking, precision, medical or surgical instruments and
apparatus, parts and accessories thereof; Organic chemicals; Plastics and articles thereof; Preparations of cereals, flour, starch or milk, pastry cooks' products; Rubber and
articles thereof; Vehicles other than railway or tramway rolling-stock, and parts and accessories thereof
Source: UNCOMTRADE, Standard Chartered Research
4,885
780
1,145
1,272
2,281
6,323
4,055
433
433
568
630
4,547
1,979
333
403
734
785
1,828
1,553
217
223
250
548
1,026
1,532
133
150
160
171
256
117
16
30
59
80
255
43
7
8
13
22
219
50
8
10
16
19
20
1.33
0.42
0.67
0.81
1.25
1.36
79,537
6,544
9,394
10,438
19,225
57,413
16,686.24
10,666.61
6,061.87 3,816.96 2,400.88
556.37 312.46 122.70 5.85
7,991
774
796
3,217
9,069
10,025
3,831
593
701
2,023
2,540
2,988
3,416
466
689
802
1,004
4,135
1,627
316
419
469
534
868
1,297
225
240
253
262
690
376
30
44
53
135
183
194
20
29
41
210
224
111
12
18
19
24
51
4
2
3
4
5
5
68,684
8,295
15,895
24,116
50,788
60,737
31,872
12,675 10,512 4,232 2,966 822 718 236 23
26
Fe
26
Fe
26
Fe
50
Sn
29
Cu
26
Fe
26 Fe
29 Cu
29 Cu
50 Sn
26 Fe
Special Report
5 November 2014 60
Figure 9: Singapore’s exports to ASEAN and the rest of the world
USD mn
Rank Indonesia Malaysia Thailand Vietnam Philippines Myanmar Brunei Cambodia Laos World
1
2
3
4
5
Others
Total
ASEAN 118,504
World 410,250
Aircraft, spacecraft, and parts thereof; Beverages, spirits and vinegar; Commodities not specified according to kind; Electrical machinery and equipment and parts thereof, sound
recorders and reproducers, television image and sound recorders and reproducers, and parts and accessories of such articles; Essential oils and resinoids, perfumery, cosmetic or toilet
preparations; Furniture, bedding, mattresses, mattress supports, cushions and similar stuffed furnishings, lamps and lighting fittings, not elsewhere specified or included, illuminated signs,
illuminated name-plates and the like, prefabricated buildings; Mineral fuels, mineral oils and products of their distillation, bituminous substances, mineral waxes; Nuclear reactors, boilers,
machinery and mechanical appliances, parts thereof; Optical, photographic, cinematographic, measuring, checking, precision, medical or surgical instruments and apparatus, parts and
accessories thereof; Organic chemicals; Plastics and articles thereof; Printed books, newspapers, pictures and other products of the printing industry, manuscripts, typescripts and
plans; Tobacco and manufactured tobacco substitutes; Vehicles other than railway or tramway rolling-stock, and parts and accessories thereof;
Source: UNCOMTRADE, Standard Chartered Research
Figure 10: Philippines exports to ASEAN and the rest of the world
USD mn
Rank Singapore Thailand Malaysia Indonesia Vietnam Myanmar Cambodia Brunei Laos World
1
2
3
4
5
Others
Total
ASEAN 8,615
World 53,978
Aluminum and articles thereof; Articles of iron or steel; Copper and articles thereof; Edible fruit and nuts, peel of citrus fruit or melons; Electrical machinery and equipment
and parts thereof, sound recorders and reproducers, television image and sound recorders and reproducers, and parts and accessories of such articles; Essential oils and resinoids, perfumery,
cosmetic or toilet preparations; Fertilizers; Machinery and mechanical appliances, parts thereof; Mineral fuels, mineral oils and products of their distillation; Optical, photographic,
cinematographic, measuring, checking, precision, medical or surgical instruments and apparatus, parts and accessories thereof; Ores, slag and ash; Other made up textile articles, sets,
worn clothing and worn textile; Paper and paperboard, articles of paper pulp, of paper or of paperboard; Pharmaceutical products; Plastics and articles thereof; Preparations of
vegetables, fruit or nuts; Residues and waste from the food industries; Sugars and sugar confectionery; Tobacco and manufactured tobacco substitutes; Vehicles other than
railway or tramway rolling stock; Wood and articles of wood, wood charcoal;
Source: UNCOMTRADE, Standard Chartered Research
10,022
1,440
1,700
6,146
7,298
13,941
10,277
1,143
1,967
5,762
12,217
18,546
4,381
826
884
895
3,260
4,928
3,062
592
704
1,242
2,371
2,898
1,792
204
454
1,051
1,147
2,047
637
82
215
273
296
743
549
62
98
168
267
1,062
173
58
66
110
122
578
5
2
2
2
7
8
107,689
18,038
33,135
56,068
71,405
123,915
40,547 39,635
15,172 10,870 6,696
2,245 2,206 1,106 26
282
70
122
408
421
2,712
414
89
122
299
339
673
379
74
111
150
213
371
363
73
83
87
87
110
174
20
27
36
100
167
3.99
0.95
0.96
1.28
2.55
12.96
2.15
0.88
0.92
1.20
1.97
2.52
3.2
0.6
0.6
0.7
1.4
2.0
0.01
0.01
0.01
0.01
0.16
0.61
19,323
2,127
2,341
3,210
6,678
20,299
4,014
1,936 1,297 803 524 23 10 9 1
29
Cu 26
Fe 13
Al
26
Fe 29
Cu
13
Al
Special Report
5 November 2014 61
Figure 11: Thailand’s exports to ASEAN and the rest of the world
USD mn
Rank Malaysia Singapore Indonesia Vietnam Philippines Cambodia Myanmar Laos Brunei World
1
2
3
4
5
Others
Total
ASEAN 59,318
World 228,527
Articles of iron or steel; Beverages, spirits and vinegar; Cereals; Electrical machinery and equipment and parts thereof, sound recorders and reproducers, television image and sound
recorders and reproducers, and parts and accessories of such articles; Iron and steel; Meat and edible meat offal; Mineral fuels, mineral oils and products of their distillation,
bituminous substances, mineral waxes; Natural or cultured pearls, precious or semi-precious stones, precious metals, metals clad with precious metal, and articles thereof, imitation jewellery, coin;
Nuclear reactors, boilers, machinery and mechanical appliances, parts thereof; Organic chemicals; Rubber and articles thereof; Ships, boats and floating structures;
Sugars and sugar confectionery; Vehicles other than railway or tramway rolling-stock, and parts and accessories thereof;
Source: UNCOMTRADE, Standard Chartered Research
Figure 12: Vietnam’s exports to ASEAN and the rest of the world
USD mn
Rank Malaysia Cambodia Thailand Singapore Indonesia Philippines Laos Myanmar Brunei World
1
2
3
4
5
Others
Total
ASEAN 17,427
World 114,529
Articles of apparel and clothing accessories, knitted or crocheted; Articles of apparel and clothing accessories, not knitted or crocheted; Articles of iron or steel; Cereals;
Coffee, tea, maté and spices; Electrical machinery and equipment and parts thereof, sound recorders and reproducers, television image and sound recorders and reproducers, and parts and
accessories of such articles; Fertilisers; Fish and crustaceans, molluscs and other aquatic invertebrates; Footwear, gaiters and the like, parts of such articles; Furniture, bedding,
mattresses, mattress supports, cushions and similar stuffed furnishings, lamps and lighting fittings, not elsewhere specified or included, illuminated signs, illuminated name-plates and the like,
prefabricated buildings; Glass and glassware; Iron and steel; Mineral fuels, mineral oils and products of their distillation, bituminous substances, mineral waxes; Nuclear reactors,
boilers, machinery and mechanical appliances, parts thereof; Plastics and articles thereof; Rubber and articles thereof; Salt, sulphur, earths and stone, plastering materials, lime and
cement; Ships, boats and floating structures; Vehicles other than railway or tramway rolling-stock, and parts and accessories thereof;
Source: UNCOMTRADE, Standard Chartered Research
3,806
1,532
1,606
1,711
2,157
2,204
2,905
900
1,006
1,448
1,452
3,525
3,954
634
681
1,074
1,892
2,638
3,787
452
549
605
700
1,090
1,674
335
475
535
751
1,272
2,170
282
283
307
323
891
2,089
212
269
317
387
515
1,482
156
184
318
583
1,035
43
8
12
20
20
63
104,310
14,317
16,960
26,170
29,532
37,239
13,015 11,236 10,873
7,182 5,042 4,256 3,789 3,758
166
1,017
159
403
596
1,094
1,232
1,231
113
131
213
388
854
1,098
167
171
183
515
698
828
147
265
309
355
464
914
142
149
290
405
458
671
76
86
196
367
475
148
17
17
31
108
112
60
8
11
11
13
14
2.8
0.3
0.5
1.8
2.7
8.7
59,186
6,640
7,439
7,515
11,353
22,396
4,500 2,930 2,832
2,368 2,358 1,871
433 118 17
FE
26
Fe
FE
FE
FE FE FE
26
Fe FE FE
FE
26
Fe
FE
26
Fe
Special Report
5 November 2014 62
Figure 13: Cambodia’s exports to ASEAN and the rest of the world
USD mn
Rank Singapore Vietnam Thailand Malaysia Indonesia Philippines Laos Myanmar Brunei World
1
2
3
4
5
Others
Total
ASEAN 1,006
World 7,838
Animal or vegetable fats and oils and their cleavage products, prepared edible fats, animal or vegetable waxes; Articles of apparel and clothing accessories, knitted or crocheted;
Articles of apparel and clothing accessories, not knitted or crocheted; Beverages, spirits and vinegar; Cereals; Commodities not specified according to kind; Electrical machinery
and equipment and parts thereof, sound recorders and reproducers, television image and sound recorders and reproducers, and parts and accessories of such articles; Footwear, gaiters and
the like, parts of such articles; Furniture, bedding, mattresses, mattress supports, cushions and similar stuffed furnishings, lamps and lighting fittings, not elsewhere specified or included,
illuminated signs, illuminated name-plates and the like, prefabricated buildings; Live animals, animal products; Man-made filaments, strip and the like of man-made textile materials; Man-
made staple fibres; Miscellaneous articles of base metal; Natural or cultured pearls, precious or semi-precious stones, precious metals, metals cladwith precious metal, and articles thereof,
imitation jewellery, coin; Nuclear reactors, boilers, machinery and mechanical appliances, parts thereof; Plastics and articles thereof; Printed books, newspapers, pictures and other
products of the printing industry, manuscripts, typescripts and plans; Rubber and articles thereof; Tobacco and manufactured tobacco substitutes; Vehicles other than railway or
tramway rolling-stock, and parts and accessories thereof;
Source: UNCOMTRADE, Standard Chartered Research
Figure 14: Brunei’s exports to ASEAN and the rest of the world
USD
Rank Vietnam Thailand Indonesia Singapore Malaysia Philippines Myanmar Cambodia Laos World (mn)
1
2
3
4
5
Others
Total
ASEAN (mn) 1,908
World (mn) 13,001
Aircraft, spacecraft, and parts thereof; Articles of apparel and clothing accessories, knitted or crocheted; Articles of apparel and clothing accessories, not knitted or crocheted;
Articles of iron or steel; Commodities not specified according to kind; Electrical machinery and equipment and parts thereof, sound recorders and reproducers, television image and
sound recorders and reproducers, and parts and accessories of such articles; Fish and crustaceans, molluscs and other acquatic invertebrates; Footwear, gaiters and the like, parts of such
articles; Iron and steel; Mineral fuels, mineral oils and products of their distillation, bituminous substances, mineral waxes; Nuclear reactors, boilers, machinery and mechanical
appliances, parts thereof; Optical, photographic, cinematographic, measuring, checking, precision, medical or surgical instruments and apparatus, parts and accessories thereof; Organic
chemicals; Rubber and articles thereof; Tools, implements, cutlery, spoons and forks, of base metal, parts thereof of base metal; Vehicles other than railway or tramway rolling-stock,
and parts and accessories thereof;
Source: UNCOMTRADE, Standard Chartered Research
16
4
4
5
9
645
18
3
4
4
10
76
17
4
4
22
27
28
5
2
10
11
22
39
1.1
0.4
0.6
0.7
0.8
4.5
0.35
0.10
0.10
0.12
0.23
1.49
0.07
0.02
0.04
0.05
0.35
1.54
0.01
0.07
0.007
0.012
684
219
293
299
2,283
4,059
685
116 102 90 8 2 2 0 0
201,002
89,131
215,048
232,238
21,125,271
570,463,185
617,890
149,706
200,374
813,040
36,374,810
434,873,384
515,987
245,428
329,289
450,852
7,218,802
451,113,917
61,737,143
25,787,753
29,768,249
36,388,759
38,479,890
41,038,379
28,803,419
5,569,920
9,710,938
11,530,981
14,104,736
19,487,806
372,538
150,064
162,948
1,254,415
12,819,135
45,820,291
473
380
978
1,214
8,015
15,994
7,702 561
153
36
59
62
244
12,448
592,325,875 473,029,204 459,874,275
233,200,173 89,207,800 60,579,391 27,054 7,702 561
FE
26
Fe
FE FE
26
Fe 26
Fe
Special Report
5 November 2014 63
Reform
Seeking sustainable growth
ASEAN’s rising role in global markets has prompted countries in the region to
address their structural issues to achieve better integration with the rest of the region
and improve their own competitiveness. However, there are wide divergences within
the region in the quality of regulation, institutions and the business climate.
Compounding these economic differences are stark differences in history, culture,
geography, population and political systems. Levels of economic development
among the 10 ASEAN countries vary widely, with Myanmar ranking 134th out of 143
world economies and Singapore ranking second, according to the 2014-2015 Global
Competitiveness index (GCI).
There are also points of convergence across ASEAN countries. A high degree of
integration with the global economy stands out. Since the 1980s, most ASEAN
countries have been liberalising trade and FDI. Six of the 10 ASEAN nations have
trade-to-GDP ratios of around 100% or above. ASEAN has also become a regional
production hub for parts and components in the global manufacturing supply chain.
This has created ever-closer trade and production linkages between ASEAN and
Northeast Asia, including China.
Structural reforms in key areas such as infrastructure, education and institutions will
help ASEAN economies to move up the value curve, but all countries will not follow a
uniform path to growth. Economic development across ASEAN countries can be
seen as a pyramid. While Singapore is at the top of the pyramid, more than half of
the ASEAN countries are near, or at, the bottom. Singapore’s economic success and
its strong performance as an international business and financial centre demonstrate
the benefits of pursuing competitiveness and engaging in longer-term strategic
planning. Malaysia and Thailand have faced strong competitive threats from China
and have focused on structural reforms to climb up the value chain. At the bottom of
the pyramid are the low-cost economies, which have recently attracted investor
interest and optimism. They include Vietnam, the Philippines and Myanmar.
Growth matters
Most ASEAN countries have grown faster than the global economy in the past
decade. But the region’s per-capita income remains low compared with developed
markets. ASEAN countries need further growth to raise incomes and absorb labour
supply. Providing jobs and opportunities for young populations is important. Even for
Figure 1: Diverse development within ASEAN
Figure 2: Rural population
Rural population as % of total population
2014-2015 GCI 2014 Ease of Doing
Business
Singapore 2 1
Malaysia 20 6
Thailand 31 18
Indonesia 34 120
Vietnam 68 99
Laos 93 159
Cambodia 95 137
Myanmar 134 182
Brunei N/A 59
Source: Global Competitiveness Index, World Bank, Standard Chartered Research Source: OECD, Standard Chartered Research
0
10
20
30
40
50
60
70
80
90
SG MY TH ID PH VN MM CA LA Brunei
Reforms are needed to sustain
growth in ASEAN countries,
boosting per-capita and providing
job opportunities
Reforms will help countries in the
region to integrate with each other
and accelerate their own economic
development
Reforms will provide a good
opportunity to move up the value
curve
Special Report
5 November 2014 64
economies where population growth is slowing, there is a pressing need to create
jobs for people displaced from rural areas as agricultural productivity rises. Many
ASEAN countries have relatively high rural populations and large populations of
under-employed people.
We identify three broad areas in need of reform in ASEAN:
1. Infrastructure. ASEAN is currently undergoing a hard infrastructure boom.
Investing in hard infrastructure is expensive and time-consuming, but should be
affordable if countries can channel their high domestic savings into this area.
Improved infrastructure can also attract and absorb inflows from overseas. One
popular way for ASEAN countries to invest in infrastructure construction is through
the Public-Private Partnership (PPP) model. The governments of Thailand,
Indonesia, the Philippines and Vietnam have made good use of PPP projects to
attract private investment, and share costs and responsibility to upgrade domestic
infrastructure. Myanmar has also initiated several PPP projects in the past year.
2. Education. This should be focused on primary and secondary education and
vocational training, in our view. Such reforms are crucial to improving labour
productivity and skills in less developed ASEAN countries. Basic education
increases the efficiency of each individual worker; workers with little formal
education can carry out only simple manual tasks and will have difficulty
adapting to more advanced production processes and techniques. A lack of
basic education can also constrain business development, making it harder for
companies to move up the value chain by producing more sophisticated or
value-intensive products. Primary enrolment is relatively high in most developing
ASEAN countries, except for Myanmar and the Philippines, according to the
GCI. However, the quality of primary education is generally low across the board
(except in Singapore and Malaysia), suggesting a need for reform. Vocational
and staff training are also important in ASEAN countries, most of which have low
tertiary education enrolment. The inadequacy of vocational training systems in
responding to economic challenges has attracted criticism and acts as a
constraint on attracting FDI. Easy access to vocational training is also important
to poverty reduction, economic growth and sustainable development.
3. Institutions. This goes beyond the legal framework. The quality of institutions
(both public and private) has a strong bearing on countries’ competitiveness and
growth, and also influences investment decisions. The rule of law, the
importance of contracts and institutional independence are taken for granted in
developed countries. The degree of institutional strength in ASEAN is not
uniform. While generally supportive of growth, more can be done. In addition to
rule of law, areas that can be improved include excessive bureaucracy, the
enforceability of public contracts, lack of transparency, and the political
dependence of the judicial system. In the Global Competitiveness Index,
Singapore, Malaysia, Indonesia and Laos received generally good scores. In
contrast, Myanmar, Cambodia and Vietnam have room for improvement.
Below, we look at four ASEAN countries at varying levels of economic development
to assess the reforms required and the challenges they face.
Special Report
5 November 2014 65
Singapore
Singapore is the region’s most advanced economy, and has enjoyed high and
sustained growth since World War II. The country is highly open to external trade and
investment and actively seeks foreign investment and know-how; its leadership is
pragmatic and strongly committed to growth, and invests heavily and encourages
savings. The government facilitates market allocation of resources and strives to
provide a stable and favourable macroeconomic environment for businesses and
investors. From 2000-11, Singapore managed 5.7% y/y average growth per quarter,
despite a highly volatile external climate that witnessed the dot-com crash and the
global financial crisis. However, it is becoming more difficult to maintain high growth
rates now that the economy is developed. Data on total factor productivity (TFP)
released by the Ministry of Trade and Industry shows that labour productivity has
become more volatile in the past few years. Singapore has constantly reformed its
economic structure to achieve sustained growth. The biomedical sector has been
instrumental in supporting GDP growth as the manufacturing sector has faced
tougher global competition. The services sector also needs to catch up in order to
support GDP growth, in our view. Spurring creativity and innovation and raising
productivity will be key to sustaining economic growth as labour input slows in the
years ahead.
Thailand
Thailand’s economy grew more than 7% p.a. on average during the period from 1960
to 1997, putting it in our ‘7% Club’ and earning it a place in the Growth Commission’s
high-growth group. Thailand now appears to be caught in the ‘middle-income trap’
after recovering strongly from the Asian financial crisis in 1997. Although the Thai
economy has rebuilt its economic fundamentals and achieved sound external
finances since the crisis, its growth momentum is relatively low. GDP growth
averaged only 3.1% p.a. from 1996-2010, just one-third of the 9.9% rate from 1987-
95. Recurrent political tensions in recent years have added to the difficulty of
achieving fast growth. We see three key areas where further economic reforms
would help Thailand to achieve a sustainable growth trend and position itself better
for regional integration.
1. Labour reform. We see an increasing need for Thailand to address labour-
market constraints arising from an ageing population, slowing labour productivity
growth, and a mismatch between labour supply and demand. Improving labour
productivity, increasing labour mobility into more productive sectors, and
promoting capital investment would be key to addressing these issues.
2. Upgrading public infrastructure. The government will need to take the lead in
boosting private investment and attracting more FDI flows by upgrading public
infrastructure and logistics networks. Transportation infrastructure is the most
crucial area in need of development; better infrastructure would improve cost
effectiveness domestically and achieve better connectivity with other Mekong
Region economies. Thailand’s large-scale public investment plan worth THB 2tn
(USD 65bn) will be key in driving infrastructure development out to 2020.
3. Repositioning the supply side. Thailand needs to reposition its manufacturing
sector by adding value to agricultural products, strengthening the SME supply
chain and leveraging its geographic advantage. This will help it better adapt to
changes in global demographics, climate, technology and consumer behaviour
amid regional economic integration.
Labour, infrastructure and supply-
side reforms are crucial for Thailand
Spurring innovation and raising
productivity will be key to
sustaining Singapore’s growth
Special Report
5 November 2014 66
Vietnam
Under the ‘Doi Moi’ reform in 1986, Vietnam started to liberalise its domestic markets.
Economic growth has accelerated since 1992; annual GDP growth for the period
between 1992 and 2007 averaged 7.5%, higher than the broader region’s 6.2%
growth. However, the economy has slowed since 2008, when the real-estate asset
bubble burst. We identify three key areas in need of reform in order to revive
economic momentum and drive sustainable growth: (1) the banking sector, where the
focus on addressing the high level of NPLs; (2) SOEs, where efficiency and
productivity need to be enhanced; (3) and the real-estate sector, which has bottomed
out, in our view.
Vietnam’s NPL issue came to the fore when the central bank sharply tightened
monetary policy in 2011. A large number of borrowers had trouble repaying their
loans, especially in the property sector. Previous accommodative fiscal and monetary
policy had made cheap credit easily available to SOEs, which got involved in non-
core businesses such as property. The tightening of liquidity ultimately led to a
deterioration in the asset quality of local banks. Weak risk management in the
banking system (lending decisions may have been based on non-economic factors)
exacerbated this decline. The country has established an asset management
company to help banks digest bad debts.
In the SOE sector, low efficiency, high leverage, poor performance, weak
governance, and cross-shareholdings are the key problems, in our view. Although
the state sector has shrunk in the past two decades, the number of SOEs remains
high, and state influence over the economy is still strong. In 2012, the government
introduced a decree to decentralise the ownership rights of SOEs in order to improve
the sector’s efficiency. The government is also currently working on plans to facilitate
the process of privatising SOEs.
The property market, the key driver of the economic slowdown, has bottomed out
since the asset bubble burst. The government has pledged to revive the market, and
we see tentative signs of a recovery in demand, particularly for low-end to-mid-
market housing. More concrete plans are needed to accelerate progress on structural
reforms.
Myanmar
After decades of political isolation, the country is going through profound changes. Its
government has embarked on an ambitious programme of reforms to improve the
country’s economic prospects. Some 30 crucial proposed bills – including a special
economic zone law, mining regulations and a revamp of the foreign investment law –
are expected to better utilise the country’s natural resources, favourable
demographics, and strategic location in Asia. However, challenges to achieving
prosperity are daunting, and the country’s development has been the slowest among
all ASEAN countries. Poor infrastructure and inefficient and under-developed
institutions are obvious hurdles. Human resources are another significant constraint
on Myanmar’s reform process. Low primary education enrolment puts the country at
a disadvantage in attracting FDI and improving its competitiveness.
Vietnam needs to focus on banking-
sector, SOE and property market
reforms
Improving institutions and
strengthening human capital will
help to sustain Myanmar’s growth
boom
Special Report
5 November 2014 67
Productivity
Capital stock is key
Economic growth boils down to three factors: capital, labour, and how they are used
– i.e., productivity. Productivity is important for long-term growth, and vital to drive
wealth creation and build a successful and sustainable economy. ASEAN has
experienced positive, consistent and constructive productivity growth over the past
decade particularly on reforms after the Asian financial crisis. However, most of
ASEAN reports productivity levels about a third to half of those of the US. The
exception is Singapore, whose productivity levels lead the rest of Asia’s. Given that
most of ASEAN is at a relatively early stage of development, productivity growth
requires supportive input from capital and labour force growth.
ASEAN’s productivity and overall economic growth story remains bright, although the
region still requires capital intensity to boost growth rates. We think ASEAN can
bridge the productivity gap partially simply by investing more in capital stock for its
labour force. Efforts by governments to develop infrastructure will be key in
facilitating capital accumulation. ASEAN is also likely to benefit from a shift towards
manufacturing and services, as the global nature of such sectors provides the
competition necessary to boost productivity levels.
ASEAN will also benefit from increases in labour force, particularly in urbanised
cities. Most of ASEAN is still relatively rural, with significant potential growth likely to
accrue simply from urbanisation, which provides the infrastructure and skill sets
necessary to boost productivity and income levels. In addition, although parts of Asia
are likely to experience a shortfall in labour supply, ASEAN’s working-age population
is estimated to grow. The issue is how to minimise idle labour resources and resolve
unemployment and underemployment issues. ASEAN also needs to enhance training
and human capital development so as to benefit from a higher quality of labour.
For more information on the methodology and our full report on productivity in Asia,
see SCout, 6 May 2014, ‘Asia’s productivity: The new story’.
Figure 1: A snapshot of ASEAN productivity, 2013
Source: IMF, Penn World Tables, Standard Chartered Research
US
CN
PH
ID TH
MY
SG
0
10
20
30
40
50
60
70
80
0 20 40 60 80 100 120
GD
P p
er c
apit
a (P
PP
, US
D '0
00)
Productivity index (US 2005 = 100)
The size of the bubble represents the relative size of the economy
Special Report
5 November 2014 68
Productivity growth in ASEAN has been positive
ASEAN is in a work-in-progress phase in terms of productivity and economic
development. The exception is Singapore, which boasts a developed economy and
relatively high GDP per capita matching its high productivity levels. The correlation
between productivity and income levels is clearly positive (see Figure 1). We think
productivity levels in ASEAN (except in Singapore) are still some way away from those
of higher-income economies but are catching up. Productivity levels in ASEAN are
about a third to half of the US’ (widely viewed as the global leader in productivity), but
comparable to China’s. Malaysia leads the rest of the region (ex-Singapore) in terms of
productivity and income levels, with government policy aimed at moving the economy
towards high-income status by the end of this decade. The Philippines lags the region.
Productivity growth has, however, been improving in ASEAN since the 2000s (see
Figure 2). Indonesia, Malaysia, and Thailand suffered sharp drops in productivity
growth during the Asian financial crisis, but the region faced less of an impact during
the global financial crisis of 2008-09 (Indonesia was the least affected).
Nevertheless, productivity growth has been volatile, particularly in Singapore and
Thailand, although the trend has not been unique to ASEAN. Global productivity
growth has historically underperformed during periods of weak global growth, and we
believe the rebalancing of the global economy and the transition from externally
oriented to domestic market-oriented growth has contributed to the slowdown.
ASEAN growth – Driven by capital and productivity growth
ASEAN reported above-trend capital growth during the 1990s that resulted in the
Asian financial crisis. Before the crisis, Indonesia, Malaysia and Thailand registered
strong GDP growth, owing mainly to the higher contribution of capital to growth.
ASEAN’s capital growth (excluding Singapore’s) grew at an average of 9.6% over
1990-97, higher than GDP growth of 6.9% during the period. Since the crisis, growth
in ASEAN has come from capital, productivity and labour force growth. Capital
growth in ASEAN (excluding in Singapore) eased to 4.4% on average over 2000-10,
but GDP growth also slowed to 4.9% during this period. China and India registered
stronger growth, driven by faster capital accumulation (see Figure 3). Growth in
China and India is now slowing, and they are in need of longer-term reforms; we
therefore believe ASEAN has potential to grow and is well placed to push ahead.
Figure 2: Productivity growth in ASEAN has been volatile, but improving versus previous decades (%)
Source: World Penn Tables, Standard Chartered Research
ID MY PH
SG TH
-10
-8
-6
-4
-2
0
2
4
6
8
10
1980 1990 2000 2010 1980 1990 2000 2010 1980 1990 2000 2010 1980 1990 2000 2010 1980 1990 2000 2010
-16.8
Productivity levels in ASEAN
(except in Singapore) are lower than
the US’ but comparable to China’s
Productivity growth has been
trending up since the 2000s
Productivity growth has been
volatile amid an unstable global
economy
ASEAN growth has come from
capital, productivity and labour
force growth since the 2000s
Special Report
5 November 2014 69
Within ASEAN, productivity growth has been slower in Singapore over the past
decade, partly because Singapore is already a highly productive economy, almost on
par with the US, and is currently undergoing reforms to enhance productivity in the
medium term. In contrast, productivity growth in Indonesia and Thailand has
surpassed labour force growth there. This is particularly impressive in Indonesia’s
case given its favourable demographics and young population. Growth in human
capital is relatively uniform across ASEAN, although the Philippines lags the region.
Productivity growth is the difference between input and output growth. We now
analyse the other inputs – capital, labour and human capital – to explore the likely
future trend in ASEAN productivity growth.
Productivity growth requires supportive inputs
We believe ASEAN is well placed to outperform the rest of the world in terms of
growth in the coming decades. Capital, labour and productivity growth is favourable,
and given that most of ASEAN is in the lower-income group, we believe growth in a
number of areas will improve productivity growth over the next two decades. These
areas include infrastructure development, capital stock, favourable demographics,
urbanisation, and education. The exception in ASEAN is Singapore, which maintains
its target of 2-3% productivity growth in the medium term, owing to its already-high
level of productivity and unfavourable demographics.
Capital growth will boost ASEAN growth and productivity
In the early stages of economic development, capital investment is the main
contributor to GDP growth. Infrastructure plays an important role as a growth enabler,
and this explains why China’s growth rate has been much higher than India’s.
Although capital intensity as a share of GDP starts to fall after a point as income per
capita increases, we believe that ASEAN (except Singapore and maybe Malaysia)
has not crossed that point as yet. With most of ASEAN still focusing on infrastructure
development to boost growth, we believe there is upside to ASEAN’s
growth potential.
We also believe that ASEAN can partially bridge the productivity gap between the
region and more productive economies such as Japan and Australia simply by
Figure 3: Slower capital growth was the main reason for ASEAN growth lagging China’s and India’s in the past decade
Ppt contributions to GDP growth, 2001-13 average
Source: IMF, Penn World Tables, Standard Chartered Research
Capital
Productivity
Labour
Human capital
GDP growth (%)
0
1
2
3
4
5
6
7
8
9
10
CN IN ID SG PH MY TH
Within ASEAN, productivity growth
has been faster in Indonesia and
Thailand, and slower in the
Philippines
ASEAN growth is likely set to
benefit from positive growth in
capital, labour and productivity
Capital investment, particularly in
infrastructure, will boost
productivity
ASEAN could improve productivity
levels simply by investing more in
quality capital stock
Special Report
5 November 2014 70
increasing the quantity and quality of capital stock per worker (see Figure 4). We
define productive investment as gross fixed capital formation excluding residential
investment. We believe that investment in transport equipment, machinery, roads
and factories enhances productivity more than investment in residential property.
Across Asia and ASEAN, Indonesia and Thailand appear better equipped in capital
terms for stronger growth, although China continues to lead in terms of productive
investment to GDP.
A critical factor is the efficiency of ASEAN governments in implementing
infrastructure projects. Malaysia has successfully implemented infrastructure
development projects under its Economic Transformation Programme. Investment
growth has surpassed solid GDP growth in recent years. We estimated that the
Philippine government’s flagship infrastructure programme (the Public Private
Partnership) could make a difference of about 1.5ppt to annual GDP growth in 2013.
We also remain watchful of how the new Jokowi administration plans to develop
infrastructure in Indonesia. The administration’s plans to cut fuel subsidies will likely
free up resources for productivity-enhancing spending. Thailand’s interim
Figure 4: Increased capital stock is a key enabler of productivity
Economy size (bubble area)
Source: IMF, Penn World Tables, Standard Chartered Research
Figure 5: Productivity typically rises with higher manufacturing input
% of GDP by industry (Y axis); ranking of productivity index relative to the US’ (2005 = 100)(X axis)
Source: Penn World Tables, Standard Chartered Research
US
CN
JP
KR
PH
ID
TH MY
IN
AU
SG
HK
TW
-50
0
50
100
150
200
250
300
350
400
0 20 40 60 80 100 120
Cap
ital
sto
ck p
er w
ork
er (U
SD
'000
)
Productivity index (US 2005 = 100)
The size of the bubble represents the relative size of the economy
Agriculture
Manufacturing
Services
0
10
20
30
40
50
60
70
80
90
100
PH CN ID TH IN MY KR JP AU SG HK TW
ASEAN has had mixed results in
infrastructure development in
recent years
Special Report
5 November 2014 71
administration recently announced that it would implement a public investment plan
worth THB 2.4tn from 2015-22, encompassing rail, mass-transit system, road
construction and water management programmes.
We see no optimal level of manufacturing and services that leads to stronger
productivity (see Figure 5). Broadly speaking, productivity levels improve as
manufacturing and, subsequently, services become more important to an economy.
Manufacturing is a key enabler of productivity growth at lower levels. We also believe
that an industry exposed to competition is ultimately more likely to be more
productive than one that is not. Based on labour productivity data across different
sectors from the Groningen Growth and Development Centre, increasing
manufacturing leads to higher productivity growth than does increasing construction.
We think the global nature of manufacturing encourages competition, while
construction is more domestic market-oriented and therefore less conducive to
productivity growth.
At present, Malaysia, the Philippines and Vietnam appear to be the best placed to
benefit from productivity growth via manufacturing. Malaysia remains export-oriented
and already has strong manufacturing capacity in various sectors, such as
electronics. Its Economic Transformation Programme plans to develop National Key
Economic Areas (NKEAs) further and invest in higher-technology production of oil,
gas and energy; palm oil and rubber; and electronics. Export growth in Vietnam and
the Philippines has outpaced that in other ASEAN economies, helped by a shift
towards higher-technology products. Companies looking for low-cost manufacturing
are now considering the Mekong region (Cambodia, Laos, Myanmar and Vietnam in
particular) as labour costs in China continue to rise. At the same time, Thailand
remains an important regional production hub for consumer products and
automobiles.
Urbanisation and favourable demographic trends
While productivity growth via capital accumulation will continue to be a potential
swing factor for ASEAN, we believe productivity growth via increases in the labour
force is more certain. ASEAN has significant potential to boost productivity growth as
Figure 6: Urbanisation appears to be positively correlated with productivity levels
Urbanisation (%), by decade; productivity data is available only for Malaysia (MY), Indonesia (ID), the Philippines (PH) and
Thailand (TH)
Source: UN, Penn World Tables, Standard Chartered Research
1990
2000
2010
2020 2030
Productivity (2010)
0
10
20
30
40
50
60
70
80
90
BN MY ID PH LA MM TH VN KH
Expanding manufacturing sectors
can boost ASEAN productivity
Production is shifting towards the
Mekong region, the Philippines, and
other parts of ASEAN
Urbanisation and industrialisation
will boost ASEAN productivity
Special Report
5 November 2014 72
it becomes more urbanised and industrialised. Urbanised cities usually offer
significant infrastructure and specialised skill sets to migrants who come from a life of
subsistence, boosting their productivity and income. Although many other factors
also need to be in place, we believe the process of moving workers from rural areas
to urban centres and the expansion of urban centres are key ways to increase
productivity and income levels.
Urbanisation is particularly relevant for ASEAN, as many economies are still rural.
Singapore (100% urbanised), Brunei and Malaysia are relatively urbanised, and we
categorise them as urbanised economies (see Figure 6). We categorise Indonesia
and the Philippines as developing – nearly 50% urbanised in 2010. The rest of
ASEAN (rural) was 20-33% urbanised in 2010 but will likely see faster urbanisation
between now and 2030, particularly Laos, Myanmar and Vietnam. With relatively
urbanised economies reporting higher productivity levels, we believe the less
urbanised ones will likely experience faster GDP and income growth.
ASEAN is set to benefit from favourable demographics. Of all potential growth drivers
in the coming decades, we have the most clarity on demographics. ASEAN has a
sizeable population of 611mn, almost half that of China, but almost twice that of the
US. The majority live in economies that have the potential to develop – Indonesia
(248mn), the Philippines (99mn), Vietnam (90mn), and Myanmar (51mn).
While Japan’s shrinking working-age population has dragged growth and China’s
working-age population is set to decline, ASEAN’s is set to grow. Notable exceptions
are Singapore and Thailand. Figure 7 shows the expected changes in working-age
population in various Asian economies. Those with unfavourable demographics will
need extra capital or productivity growth to make up for the shortfall in labour force
growth. In contrast, labour force growth will continue to boost growth in economies
with young populations (such as Indonesia and the Philippines). Indonesia and the
Philippines are estimated to add a combined 35mn to their working-age population
between now and 2025, according to the UN. This is equivalent to half of Thailand’s
population, or the estimated decrease in China’s working-age population between
now and 2030. In large economies such as Indonesia and China, the trend is unlikely
to deviate much even with regional or international migration.
Figure 7: ASEAN benefits from still-positive labour force contributions to growth
Average annual labour contributions to GDP growth vs. trend growth, ppt
Note: We use UN working-age population data for our projections for 2011-30, while actual numbers on employed personnel for 2001-10 are from Penn World Tables. The key assumption
here is that labour growth is equal to working-age population growth; Source: UN, Penn World Tables, CEIC, Standard Chartered Research
Trend growth
-2
-1
0
1
2
3
4
5
6
7
8
ID PH MY TH SG CN IN HK TW KR
2001-05 2006-10 2011-15P 2016-20P 2021-25P 2026-30P
Many ASEAN economies are still
rural
ASEAN has a large population –
almost half that of China, but almost
twice that of the US
ASEAN’s working-age population
will likely increase in the coming
decades
Special Report
5 November 2014 73
The key challenge is to provide gainful employment for new entrants to the labour
force. Indonesia’s unemployment rate has hovered around 6.0-6.5% for the past
three years, while the Philippines faces a similar situation (about 7%). These levels
are lower than those of relatively more developed Malaysia (about 3%) and Thailand
(less than 1%). Underemployment in the Philippines is almost 20%, representing a
fifth of the labour force. Many Filipinos (roughly 10% of the population) work
overseas; overseas workers’ remittances reached c.8% of GDP in 2013. Productivity
levels can be boosted by lowering underemployment and unemployment rates.
Human capital, or the quality of labour, is also an enabler of productivity growth.
Training and education boosted Asia’s average annual growth by 0.3-0.5ppt from
2001-13. In Thailand, training and skills development contributed strongly to
economic growth. The Philippines was the exception to this positive trend, registering
only a 0.17ppt contribution in the past decade – comparable to the US’ but lower than
Japan’. The Philippines therefore has room to catch up with the rest of ASEAN and
Asia in terms of training and development.
Boosting gainful employment is
important for productivity
Productivity in ASEAN can be
improved by increasing the quality
of the workforce
Special Report
5 November 2014 74
Productivity charts for selected economies
Figure 8: Indonesia
Ppt contributions to GDP growth
Figure 9: Malaysia
Ppt contributions to GDP growth
Source: Penn World Tables, Standard Chartered Research Source: Penn World Tables, Standard Chartered Research
Figure 10: The Philippines
Ppt contributions to GDP growth
Figure 11: Singapore
Ppt contributions to GDP growth
Source: Penn World Tables, Standard Chartered Research Source: Penn World Tables, Standard Chartered Research
-10
-5
0
5
10
15
20
1966 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010
Labour Human capital Physical capital Productivity
-16.8 -10
-5
0
5
10
15
20
1966 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010
Labour Human capital Physical capital Productivity 21.9
-10
-5
0
5
10
15
20
1966 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010
Labour Human capital Physical capital Productivity
-10
-5
0
5
10
15
20
1966 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010
Labour Human capital Physical capital Productivity
Figure 12: Thailand
Ppt contributions to GDP growth
Figure 13: China
Ppt contributions to GDP growth
Source: Penn World Tables, Standard Chartered Research Source: Penn World Tables, Standard Chartered Research
-10
-5
0
5
10
15
20
1966 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010
Labour Human capital Physical capital Productivity 36
-10
-5
0
5
10
15
20
1966 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010
Labour Human capital Physical capital Productivity
Special Report
5 November 2014 75
Infrastructure
A critical growth driver
Without better infrastructure, ASEAN economies cannot achieve their potential as an
Asian economic bloc to rival China and India. The long-term shift in economic power
to the East from the West requires both hard and soft infrastructure to succeed. For
less developed economies, building hard infrastructure, removing bottlenecks and
creating the right conditions to encourage foreign direct investment are key.
Seamless transport infrastructure across ASEAN is needed in the longer term,
although the important question of who will pay for infrastructure development
remains. We discuss country-by-country issues here, given that plenty of
improvement is needed at the country level before more complicated cross-border
issues are addressed. Many countries in the region have room to raise their capital
stock per worker to boost incomes. In all cases, infrastructure development is a
critical part of this.
Among the geographically larger countries, we find that Malaysia’s infrastructure is
better than that of Thailand, Indonesia and Vietnam. ASEAN economies in general
are relatively advanced in terms of telecommunications and access to electricity.
There is more variability in transport infrastructure and investment. Urbanisation will
support infrastructure development in countries such as Thailand, Indonesia and the
Philippines. Countries’ differing geographical structures (island, archipelago or
peninsula) are also a factor in infrastructure discrepancies across ASEAN.
We conduct case studies of infrastructure in Indonesia, the Philippines and Thailand.
More infrastructure spending is needed in all three economies to improve GDP
growth. In Indonesia, an impending fuel subsidy cut could free up resources to boost
infrastructure spending. Thailand plans to spend THB 2.4tn (c. USD 75bn) in 2015-22
to upgrade its transport and logistics infrastructure. In the Philippines, the
government is trying to accelerate progress on existing Public-Private
Partnership projects.
Special Report
5 November 2014 76
Uneven infrastructure development across ASEAN
ASEAN needs further infrastructure development to build on the significant strides it
has made in economic growth and development since the 2000s. The Asian
Development Bank estimates that ASEAN countries spend only 4% of GDP on
infrastructure, down from an average of 6% from 1980-2009. Although there is no
specific optimal level of infrastructure spending, we think 5-10% of GDP is conducive
to higher long-term growth.
ASEAN-5 (Indonesia, Malaysia, the Philippines, Thailand and Vietnam) averaged
5.1% GDP growth from 2000-13, higher than Latin America (3.4%) and MENAP
(Middle East, North Africa and Pakistan, 5%). Growth was higher in economies with
lower GDP per capita, such as Cambodia, Myanmar and Laos. Per-capita incomes
for ASEAN as a whole have more than doubled since 2000, outperforming Latin
America, MENAP and even Sub-Saharan Africa.
Despite this, ASEAN’s capital stock per worker (with the exception of Singapore) is
only about 10-40% that of the US. As infrastructure constitutes a significant
proportion of capital stock, this suggests that ASEAN can achieve further growth
through infrastructure development. Infrastructure development also attracts more
FDI (see Figure 11).
In this section, we compare ASEAN economies’ progress on, and prospects for,
infrastructure development. We exclude Singapore, Malaysia and Brunei from our
analysis given their relatively advanced infrastructure. We find that Indonesia,
Thailand, the Philippines and Vietnam have respective strengths in infrastructure but
need to address weaknesses in certain areas. Myanmar, Laos and Cambodia require
more broad-based improvements.
Our comparison of infrastructure across ASEAN
We examine infrastructure in ASEAN using six indices from various international and
local sources (see Figure 1). The indices track the following: (1) urbanisation, (2)
transport, (3) energy, (4) telecommunications, (5) investment, and (6) institutions.
Singapore (9.4 out of 10), Malaysia (7.9) and Brunei (7.1) receive the highest
Figure 1: Singapore and Malaysia have the highest infrastructure scores; Myanmar, Cambodia and Laos the lowest
Scores on a scale of 1 to 10; calculated using international and local data
Source: Global Competitiveness Report, UN, CEIC, Standard Chartered Research
Acronyms stand for: Urbanisation (UBN), transport (TPT), electricity access (ELA), telecommunications (TCN), investments (INV), and institutions (INS)
MY
MM
TH 0
5
10 UBN
TPT
ELA
TCN
INV
INS
KH
LA
VN
0
5
10 UBN
TPT
ELA
TCN
INV
INS BN
ID
PH
SG
0
5
10 UBN
TPT
ELA
TCN
INV
INS
Infrastructure development can
boost growth, productivity, income
and FDI
Island & archipelago economies Mekong Delta Region and peninsular economies
Special Report
5 November 2014 77
infrastructure scores; this is unsurprising given their strong economic positions within
ASEAN. They are followed by Thailand (6.5), Indonesia (6.1), Vietnam (5.5) and the
Philippines (5.3). Laos (4.6), Cambodia (4.6) and Myanmar (2.9) lag the region in
infrastructure development.
Urbanisation: Urbanisation will become a stronger driver of infrastructure
development in the region. Countries with investment-focused policies and still-low
urbanisation levels stand to benefit from the urbanisation process. Thailand,
Indonesia, and the Philippines have the most potential in this regard, in our view.
They are fairly urbanised but have potential for further urbanisation. These
economies stand to benefit from a decentralisation of economic core centres and
infrastructure development in secondary cores. Urbanisation and infrastructure go
hand-in-hand as cities expand and towns develop into cities. Brunei and Malaysia are
relatively urbanised, while Cambodia, Vietnam, Myanmar and Laos are rural. These
four economies will require more investment to support urbanisation. This suggests
that the region’s more urbanised economies have less to gain, while the less
urbanised ones have yet to reach ‘escape velocity’. Singapore is an anomaly given
that it is a city-state.
Transport: The region’s air transport is generally more developed, while rail transport
has room to improve, according to the Global Competitiveness Report 2014-2015.
Across ASEAN, the archipelago nations (Indonesia and the Philippines) face greater
challenges than island (Singapore) or peninsula economies in implementing efficient
transport systems; this is reflected in their scores. Indonesia scores better than the
Philippines on transport, while Malaysia’s transport system ranks higher than those of
Thailand and Vietnam. The scores tend to track the Ease of Doing Business Index,
particularly the sub-index for trading across barriers (see Figure 10).
ASEAN agreements on transport – the ASEAN Framework Agreement on Multimodal
Transport and the ASEAN Framework Agreement on the Facilitation of Goods in
Transit – are in progress. A proposed ASEAN Single Shipping Market should
facilitate seaborne trade, according to the ASEAN 2030 report.
Electricity access: We use access to electricity as a proxy for utility infrastructure.
The more developed ASEAN economies (Singapore, Malaysia and Thailand) have
better electricity scores in the Global Competitiveness Report 2014-2015. As the less
developed economies have higher economic growth rates, developing utility
infrastructure will be particularly important to sustaining their growth in the future. The
September 2013 World Energy Outlook report by the International Energy Agency
projected that the region’s energy demand will rise by over 80% between now and
2035, or more than 2.7% a year, to support economic activity and population growth.
All ASEAN economies have policies and targets aimed at improving their energy
sectors, concentrated on production capacity, cost of power, increased efficiencies,
and diversification into renewable sources, according to the report.
The implementation of the ASEAN Power Grid and the Trans-ASEAN Gas Pipeline
should improve energy security and supply. Other priorities under the ASEAN Plan of
Action on Energy Cooperation 2010–2015 include clean coal technology, renewable
energy, civilian nuclear energy, and energy efficiency and conservation. However, the
ASEAN 2030 report pointed out that progress in these areas has been limited so far.
Urbanisation can boost
infrastructure development, as
ASEAN is still relatively rural
Island economies tend to score the
highest, while archipelagoes are
more constrained
Electricity access is better in
economies with higher per-capita
incomes
Special Report
5 November 2014 78
Telecommunications: ASEAN is relatively advanced in terms of
telecommunications. Singapore, Malaysia, Thailand and Cambodia achieve perfect
scores, with at least one mobile phone per person. Indonesia and the Philippines
have lower scores, reflecting their larger populations. Myanmar and Laos lag the
region in terms of telecommunications. The
Investment: We rate the ASEAN investment environment using two metrics: the
investment-to-GDP ratio and investment per capita. Singapore, Brunei and Malaysia
rank the highest in the region, while Cambodia, Myanmar, Laos and the Philippines
have room to catch up. We find that infrastructure attracts investment, and a robust
investment environment also supports the infrastructure development (see Figure 11).
An assessment of both of these metrics provides an accurate picture of investment
across economies, Indonesia appears to be investing more, both as a percentage of
GDP and per capita, than the Philippines, Vietnam and Cambodia (see Figures 3
and 4). Vietnam has had a healthy investment-to-GDP ratio as it attracts
manufacturing companies. Indonesia’s investment is concentrated in structural
infrastructure (residential and non-residential), while Thailand’s is currently focused
on equipment (transport, machinery, etc.) as government infrastructure plans remain
in the planning phase (see Figures 5 and 6).
As economies develop, private investment is required to drive investment growth. In
Malaysia, private investment accounts for a higher share of overall investment than in
Thailand and Indonesia (see Figure 2). However, public investment is important in
providing an initial boost, particularly for Vietnam, the Philippines, Laos, Cambodia
and Myanmar.
Institutions: Government institutions in ASEAN are generally supportive of
infrastructure development. Singapore and Malaysia rank the highest in the region in
institutional strength, according to the Global Competitiveness Report 2014-2015
(see Figure 9). The Philippines is catching up from a lower ranking. In contrast, we
see potential downside to Thailand’s and Indonesia’s relatively high rankings if
implementation of government-led infrastructure programmes is below expectations.
Figure 2: Higher private investment and per-capita income go hand-in-hand
Source: CEIC, Standard Chartered Research
ID
MY
TH
0
5,000
10,000
15,000
20,000
25,000
10 20 30 40 50 60 as a percentage of total investment (%)
Pri
vate
; GD
P p
er c
apit
a b
ased
on
p
urc
has
ing
-po
wer
-par
ity
Myanmar and Laos lag behind the
rest of ASEAN in
telecommunications
The Philippines still lags the region
in terms of investment
The Philippines has received higher
international ratings for its
institutions lately
Special Report
5 November 2014 79
Malaysia has successfully implemented infrastructure development via its Economic
Transformation Programme. Investment growth has surpassed solid GDP growth
rates in recent years. The Philippines plans to approve more Public-Private
Partnership projects in the next few years, building on the progress made in the past
few years. In Indonesia, we will watch closely the infrastructure development plans of
the new Jokowi administration. Its plan to cut fuel subsidies is likely to free up
resources for productivity-enhancing spending. Thailand’s interim administration
recently announced that it would implement a public investment plan worth THB 2.4tn
(c.3% of GDP per annum) from 2015-22, encompassing rail, mass-transit systems,
road construction and water management programmes.
Special Report
5 November 2014 80
Figure 3: Indonesia has the highest investment ratio…
Investment as a % of GDP, 2010-13 average
Figure 4: … but Malaysia has the highest per-capita
investment (excluding Singapore and Brunei)
Investment per capita, USD thousands, 2010-13 average
Source: CEIC, Standard Chartered Research Source: CEIC, Standard Chartered Research
Figure 5: Indonesia’s investment is focused on
structures, while Thailand’s is focused on equipment
Investment components as a % of GDP, 2010-13 average
Figure 6: Thailand’s megastructure projects have yet to
take off
Investment per capita, USD thousands, 2010-13 average
Source: CEIC, Standard Chartered Research Source: CEIC, Standard Chartered Research
Figure 7: Indonesia and the Philippines have higher
construction spending than Thailand
Construction spending as % of GDP, 2010-13 average
Figure 8: Singapore has the highest construction spend
per capita
Construction spending per capita, USD thousands, 2010-13
average
Source: CEIC, Standard Chartered Research Source: CEIC, IMF, Standard Chartered Research
0
5
10
15
20
25
30
35
ID VN TH SG MY MM PH KH BN
0
1
2
3
4
5
6
7
13
14
SG BN MY TH ID PH VN KH
0
5
10
15
20
25
30
ID TH MY PH KH BN ID TH MY PH KH BN
Structure Equipment & others
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
BN MY TH ID PH KH BN MY TH ID PH KH
Structure Equipment & others
0
2
4
6
8
10
12
ID KH LA PH VN MM SG MY BN TH
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1.0
1.1
1.2
2.3
2.4
SG BN MY ID PH TH VN LA KH
Special Report
5 November 2014 81
Figure 9: Global Competitiveness Index 2014-2015
Scores are on a scale of 1 to 7; economies ranked according to overall score
Overall score Institutions score Infrastructure
score Overall rank in 2014-15 (1-144)
Overall rank in 2013-14 (1-148)
Singapore 5.65 5.98 6.54 2 2
Malaysia 5.16 5.11 5.46 20 24
Brunei 4.95* 4.96* 4.29* - 26
Thailand 4.66 3.66 4.58 31 37
Indonesia 4.57 4.11 4.37 34 38
The Philippines 4.40 3.86 3.49 52 59
Vietnam 4.23 3.51 3.74 68 70
Laos 3.91 3.92 3.38 93 81
Cambodia 3.89 3.25 3.05 95 88
Myanmar 3.24 2.80 2.05 134 139
Source: The Global Competitiveness Report 2014-2015 (World Economic Forum), Standard Chartered Research
Note: Brunei numbers from 2013-2014 Report
Figure 10: World Bank Doing Business ranking, 2015
Table shows world rankings (1-189) in main index and selected sub-indices
Ease of doing business
Starting a business
Dealing with construction
permits Getting electricity
Trading across barriers
Singapore 1 6 2 11 1
Malaysia 18 13 28 27 11
Thailand 26 75 6 12 36
Vietnam 78 125 122 135 75
The Philippines 95 161 124 16 65
Brunei 101 179 53 42 46
Indonesia 114 155 153 78 62
Cambodia 135 184 183 139 124
Laos 148 154 107 128 156
Myanmar 177 189 130 121 103
Source: Doing Business (World Bank), Standard Chartered Research
Figure 11: Infrastructure development attracts more FDI
Value of FDI inflows (2011-13), USD bn, ranked by 3-year average (3YA)
Source: World Investment report, Standard Chartered Research
2011
2012 2013
3YA
0
10
20
30
40
50
60
70
SG ID MY TH VN PH MM KH BN LA
Special Report
5 November 2014 82
Philippines – Work in progress
Summary
Infrastructure upgrades will improve the Philippines’ trend growth in the medium
term, in our view. Existing infrastructure is concentrated in Metro Manila and sparser
outside of Metro Manila. The Philippines lags behind its ASEAN neighbours in
investment and construction spending; this may explain its depressed international
rankings. Public-Private Partnerships are a key component of government plans to
increase infrastructure spending and development. Implementation is a key factor.
Challenges include the country’s archipelago geography and damage to existing
infrastructure from natural disasters.
Current state of infrastructure
Infrastructure will continue to be an important driver of economic growth in the
Philippines. The economy’s growth outperformance in 2012-13 (7% on average) has
stretched the limits of current infrastructure.
Transportation: We divide transport infrastructure into three geographical
categories: (1) within Metro Manila and immediate surrounding areas, (2) between
Metro Manila and other parts of the Philippines, and (3) between areas outside of
Metro Manila. A sizeable share of the economy is concentrated in Metro Manila
(c.40% of 2013 GDP). As a result, transport systems within Metro Manila are as
important as transport systems across the rest of the country.
Road density and quality are lower in the Philippines than in neighbouring ASEAN
countries. The Philippines has a road transportation network of 32,226km, with 83%
of it concrete- or asphalt-paved. Meanwhile, the road transport system
accommodates 7.46mn motor vehicles; most of them (55%) are motorcycles or
tricycles. Existing road transport infrastructure in Metro Manila is strained. The New
York Times reported on 3 August that workers can spend up to five hours a day
commuting between the suburbs and the city centre.
Metro Manila is the hub of the Philippines’ sea and air transport networks. The
country has numerous international, regional and private ports across the
archipelago, with the Port of Manila handling the majority of the containerised cargo.
There are 12 officially classified international airports; Manila’s Ninoy Aquino
International Airport is the busiest by far. The government is moving to decentralise
its sea and air network, particularly after a truck ban in Manila crippled the Port of
Manila this year. Ships were being redirected to the Batangas and Subic ports, to the
south and north of Metro Manila.
Public utilities: Most of the population has access to electricity and water. However,
rapid economic growth has increased demand for resources. Regular blackouts,
which affect many parts of the Philippines, have recently affected Manila. Electricity
tariffs are also higher than in neighbouring countries. Other challenges facing the
Philippines include access to sanitation, pollution and water quality.
The Philippines lags behind its ASEAN neighbours in terms of investment – its
investment-to-GDP ratio and investment per capita in USD terms are lower than
those of Malaysia, Indonesia and Thailand. The country’s investment is relatively
evenly balanced between structures and equipment. The local construction industry
is bigger as a percentage of GDP and per capita than those of other ASEAN
Long-term growth will depend on
near-term infrastructure
development
There is scope for further
development of land transport
infrastructure
The Philippines is developing and
decentralising its sea and air
transport networks
The Philippines has a lower capital
formation size than the rest of
ASEAN
Special Report
5 November 2014 83
countries. However, it is likely to be skewed towards residential construction,
meaning that a lower proportion of investment goes towards construction of
productive capacity.
Low investment spending has depressed foreign investment sentiment, although the
trend is reversing. The Philippines ranks relatively low on infrastructure in the Global
Competitiveness Index, coming in 8th
out of the 10 ASEAN economies. In terms of
the ease of doing business, it ranks 5h, with higher scores for electricity and trading
across barriers.
Government plans for infrastructure development
The Aquino administration (2010-16) has put into place significant plans for
infrastructure development. It aims to increase infrastructure spending to 5% of GDP
by 2016 from c.3% in 2014. Implementation is critical. We previously projected that
successful implementation of infrastructure projects would add 1.5ppt to trend growth
(see On the Ground, 17 June 2013, ‘Philippines – Infrastructure boom to
boost growth’).
The government’s Development Plan 2011-2016 emphasises inclusive growth, and
accelerating infrastructure development is one of the key drivers. The report includes
plans to develop an integrated and coordinated transport network, strategic transport
infrastructure, and a multimodal logistics and transport system. It aims to ensure
energy security through renewable energy and the diversification of energy sources.
Economic Secretary Arsenio Balisacan reiterated the government’s commitment to
increasing infrastructure spending in the Philippine Development Plan midterm
update in April 2014. Figure 1 shows that infrastructure has increased as a
percentage of GDP in recent years.
The government’s flagship PPP programme is an important component of
infrastructure development. The Aquino administration plans to roll out 18 major PPP
projects worth PHP 602.2bn before June 2015, according to a Philippines Star report
citing a government official with the PPP Centre. Eight PPP projects amounting to
PHP 127.5bn have been awarded since 2010. Figure 2 shows the list of PPP
Figure 1: Infrastructure and other capital outlays (as a % GDP)
Source: CEIC, Standard Chartered Research
0.0
0.5
1.0
1.5
2.0
2.5
3.0
2011 2012 2013 H1-2013 H1-2014
Lower investment levels have
weighed on international
perceptions
We estimate that infrastructure
development can increase trend
growth by 1.5ppt
The government is in the midst of
implementing its Development Plan
2011-2016
The government plans to award
more PPP projects in the next six to
nine months
Special Report
5 November 2014 84
projects that have been approved, with many others in the pipeline. PPP projects
also aim to increase private investment, which will become more important as the
economy develops.
The PPP Centre, the government agency that coordinates these projects, selects
projects based on project readiness/preparation, responsiveness to the sector’s
needs and high implementability, according to its website. Depending on the project
nature, winning bidders have the right to build, lease, contract, rehabilitate, transfer,
and/or operate it, usually for a few decades. The projects are focused on the
following areas:
Transport: more expressways, expansion of international airport capacity,
integrated transport systems
Water supply infrastructure
Education and health infrastructure
Geography poses challenges
We acknowledge the difficulty of developing infrastructure in the Philippines. The
country is an archipelago consisting of 7,107 islands that are broadly categorised into
three areas: Luzon, Visayas and Mindanao. Sea and air transport systems are crucial
in linking the islands.
Figure 2: List of PPP projects that are at least approved by National Economic and Development Authority (NEDA)
PPP project Stage
Estimated cost
(PHP bn) Status Description of project
Daang Hari-SLEX Link Road Project
Awarded 2.01 52% completed To build expressway and improve connectivity between Cavite and southern Luzon
PPP for School Infrastructure Project (PSIP) Phase I
Awarded 16.28 60% completed To build classrooms and reduce shortage
NAIA Expressway (Phase II) Project
Awarded 15.52 10% completed To build expressway and improve connectivity to the three NAIA Airport Terminals, link the South Luzon Expressway with the Manila-Cavite Toll Expressway
PPP for School Infrastructure Project (PSIP) Phase II
Awarded 3.86 Ongoing construction To build classrooms and reduce shortage
Modernisation of the Philippine Orthopedic Center
Awarded 5.69 Contract signed on
6 March 2014 To construct a new hospital facility in Metro Manila
Automatic Fare Collection System (AFCS)
Awarded 1.72 Pre-operation To provide automated fare collection for both Metro Rail Transit and Light Rail Transit
Mactan-Cebu International Airport Passenger Terminal Building
Awarded 17.52 Pre-construction To increase passenger capacity for the Mactan-Cebu international Airport
LRT Line 1 Cavite Extension and O&M
Awarded 64.9 Awaiting Notice of
Award To build an LRT line and improve connectivity between Baclaran Terminal and Bacoor Cavite
Cavite - Laguna (CALA) Expressway
Approved 35.40 Submitted bid under
evaluation To build expressway and improve connectivity between the Manila-Cavite Expressway and South Luzon Expressway
Integrated Transport System - Southwest Terminal Project
Approved 2.50 Ongoing bidder due
diligence
To build a terminal connecting Cavite to other transport systems such as the future LRT Line 1 South Extension, city bus, taxi
Bulacan Bulk Water Supply Project Approved 24.40 Ongoing pre-
qualification of bidders To construct water supply facilities
Integrated Transport System - South Terminal Project
Approved 4.50 Ongoing bidding To build a terminal connecting Laguna/Batangas to other transport systems such as the future North-South Commuter Rail, city bus, taxi
Laguna Lakeshore Expressway Dike Project
Approved 122.80 Ongoing pre-
qualification of bidders To build and expressway and dike along the shoreline of Laguna Lake
Operation & Maintenance of LRT Line-2
Approved No capex Issued invitation to
prequalify to bid To build an LRT line
New Centennial Water Supply Source-Kaliwa Dam Project
Approved 18.72 Issued invitation to
prequalify to bid To build a dam and water supply facilities
Enhanced Operation and Maintenance of the New Bohol (Panglao) Airport
Approved 2.34 To issue bidding
invitation Expansion, construction and operation of new passenger terminal in Bohol, Visayas
Operation and Maintenance of the Laguindingan Airport
Approved 15.92 To issue bidding
invitation Expansion, construction and operation of new passenger terminal in Northern Mindanao
Source: Public-Private Partnership Center, Standard Chartered Research
Emphasis has been on transport,
water, education and health
Geographical constrains make it
comparative more difficult to
develop infrastructure
Special Report
5 November 2014 85
The Philippines is also regularly hit by natural disasters. Typhoon Haiyan was the
worst of the 25 typhoons that the country faced last year. It gets 19-20 typhoons a
year on average. Lying on Eurasian Plate and the Philippine Sea Plate, the
Philippines is also regularly hit by volcanic eruptions and earthquakes. Natural
disasters have damaged and destroyed existing infrastructure in the past.
The Aquino administration continues to emphasise infrastructure spending, although
government spending recently plateaued (see Figure 3). The budget deficit came in
at 1.4% of GDP in 2013, below the target of 2.0%, as government spending was
below initially budgeted amounts. Spending growth moderated due to flat growth in
operating expenditure and capital outlays. Infrastructure spending makes up the bulk
of capital outlays (70-80%).
Figure 3: The government aims to increase infrastructure spending
Government spending, PHP bn
Source: CEIC, Standard Chartered Research
0
50
100
150
200
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300
Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14
Capital outlay: infrastructure Capital outlay: others Operating
Special Report
5 November 2014 86
Thailand – Further vital steps towards infrastructure reform
Summary
Infrastructure development in Thailand has so far been in line with economic
development in the country, and accessibility to infrastructure is therefore no longer
an issue. The next steps for infrastructure development will thus relate to upgrading
the quality of service delivery and increasing cost effectiveness, in order to capitalise
on opportunities arising from regional economic integration. However, we believe
Thailand needs to establish a strong policy framework to ensure the commitment
necessary to sustain infrastructure development.
Ready access to infrastructure
The availability and accessibility of infrastructure are crucial for economic
development. Access to infrastructure and public utilities is no longer an issue in
Thailand, as it has been developing infrastructure in line with economic development
and its improving investment climate. Ready access to transport infrastructure and
public utilities may be summarised as follows:
Transportation: Thailand is widely acknowledged as having the most extensive road
transportation network in Southeast Asia (more than 390,026km). Of this, 384,176km
(98.5%) are concrete- or asphalt-paved. It also has more than 6,700km of national
highway and 350km of motorway connecting each region. Road transport is therefore
the country’s main method of transportation.
Thailand’s rail network has 3,763km of single tracks but only 280km of double and
triple tracks. It had c.82km of the Mass Rapid Transit (MRT) network in operation in
Bangkok and another 80km under construction as of October 2013. This network’s
coverage is therefore still limited.
Thailand has seven international airports and 31 domestic airports. Bangkok’s
Suvarnabhumi Airport can accommodate 100mn passengers per year and 112 flights
per hour. It boasts the world’s longest runway – 60 metres wide by 4,000 metres long.
The country also has 3,219km of coastline, over 4,000km of waterways, six deep-sea
ports and two international river ports that can accommodate container ships, tankers
and liquid jetties. These provide total cargo capacity of upto 10mn twenty-foot
equivalent units (TEUs) per year.
Public utilities: Thailand’s electricity, water, and telephone service supply is currently
adequate to meet domestic demand. The manufacturing sector is the country’s largest
electricity consumer (37%), followed by the transportation sector, resident customers,
business customers, and the agricultural sector. The Electricity Generating Authority of
Thailand (EGAT) installed 15,000 megawatts (MW) of capacity in 2012, which meets
46% of the country’s power requirement. Smaller independent power producers (IPPs)
are allowed to produce and sell power to the EGAT; these meet about 47% of demand.
The remaining 7% is purchased from neighbouring countries.
Thailand has the capacity to meet demand of about 5.3mn cubic meters of water per
day. It also boasts sufficient fixed lines, mobile telephones, and broadband and
internet services that meet international standards. The fixed-line network has a
capacity of over 8mn lines, while broadband services are expanding across
the country.
Access to infrastructure and public
utilities is no longer an issue in
Thailand
Road transport is the country’s
main method of transportation
Electricity, water, and telephone
service supply is currently adequate
to meet domestic demand
Special Report
5 November 2014 87
Next steps and opportunities
Given the availability of basic infrastructure, we believe the next steps for
infrastructure development in Thailand will relate to upgrading the quality of service
delivery and increasing cost effectiveness. Thailand’s logistics costs per GDP was
relatively high at 14.3% as of 2012, and it therefore ranks below Singapore and
Malaysia in the World Bank’s Logistics Performance Index (Figure 2).
Thailand also stands to benefit from the improvement in logistics connectivity in
ASEAN, considered to be a crucial determinant of FDI. Efficient logistics networks
facilitate not only the flow of goods and services but also the creation of a production
network by providing access to cheaper labour and resources.
We believe its strategic location will enable Thailand to become a regional production
hub if it can provide cost-effective access via transportation connectivity to untapped
demand, cheaper labour, and natural resources in the CLMV countries.
Figure 1: Thailand’s existing infrastructure and public utilities
Road transportation Road
National highways Motorways and expressways
390,026km 6,794 km 353.9 km
Rail network Single track
Double-track/triple-track MRT network
3,763 km 280 km 82km
Airport International airports
Domestic airports 7 airports 31 airports
Seaports Deep-sea ports
International river ports Cargo capacity
6 ports 2 ports
10mn TEU per year
Electricity Supplied by the EGAT
Supplied by smaller IPPs Purchased from neighbouring counties
15,000MW 15,326MW 2,283MW
Water supply Production capacity 6.1mn cubic meters per day
Telecommunication services Fixed-line network Broadband service
8mn lines Throughout the county
Source: MoT, BoI, World Bank
Figure 2: Global Logistics Performance Index 2012 for
selected Asian countries (Rank)
Figure 3: Planned infrastructure projects, 2015-22
THB bn
Source: World Bank Source: Ministry of Transportation, Standard Chartered Research
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SG HK CN MY TH IN PH VN ID KH LA MM
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Double-track rail
High-speed rail
MRT network in BKK
Highways Water and air transportation
The next steps for infrastructure
development will relate to
upgrading the quality of service
delivery and increasing cost
effectiveness
Special Report
5 November 2014 88
Thailand plans to spend THB 2.4tn from 2015-22 on upgrading its transportation
infrastructure and establishing logistics connectivity to the CLMV countries, to
capitalise on potential opportunities arising from regional economic integration. It has
planned investment projects for (1) revamping the provincial rail network, (2) easing
traffic congestion in Bangkok, 3) boosting highway capacity, so as to connect with
rural areas and neighbouring countries, and 4) improving the efficiency of water and
air transport systems. Details of these priority projects are summarised below:
1. Double-track and high-speed rail networks: Thailand plans to add a further
887km of double-track rail capacity and increase cargo-train speed to 60km/hour
from 29km/hour and express passenger-train speed to 100km/hour from
50km/hour. It expects this expansion to increase the share of rail freight to 5.0%
of the country’s transportation system from just 1.5% at present. It also plans to
establish a high-speed rail network between Nong-Khai and Map Ta Phut (the
deep-sea port) and between Chaing Khong and Ban Phachi. This will be
compatible with the extension of rail network from southern China to Laos,
Cambodia and Vietnam, and increase cargo-train speed to 120km/hour and
express passenger-train speed to 160km/hour.
2. Expansion of the MRT network in Bangkok: Thailand plans to develop 10
additional routes from the heart of Bangkok to the suburbs, to ease traffic
congestion in Bangkok. These project will increase network capacity by
c.410km.
3. Expansion of highways: This project aims to link main production bases with
major cities in Thailand and neighbouring countries, and to provide better
multimodal transport facilities at border-crossing points and truck terminals.
4. Water and air transportation: This project aims to improve the efficiency of
water transportation and increase the service capacities of sea ports and air
transport to meet increasing demand.
Thailand also plans to increase the service capacities of public utilities to meet long-
term demand. It plans to increase power-plant capacity by 55,000MW by 2030 and
the use of renewable energy to 25,000 thousand tonnes of oil equivalent (ktoe) in
2021 from 7,413ktoe in 2012. Further, on completion of the third phase of
construction at the Laem Chabang deep-sea port, capacity there will increase to the
maximum allowable capacity of 18mn TEU by 2019.
Joint development of the Dawei Special Economic Zone
Thailand and Myanmar signed a memorandum of understanding (MoU) on the
Comprehensive Development of the Dawei Special Economic Zone (SEZ) in July
2012. Planned investment projects in the zone include the development of a deep-
sea port, industrial estates, and road and rail links to Thailand. The Dawei SEZ is
located in southern Myanmar, only about 340km from Bangkok. The projects should
further boost trade and investment between the two countries. Representatives from
the two countries met in Myanmar in September 2014 to assess progress, and the
terms of reference for first-phase bidding for the SEZ are scheduled to be drafted in
the coming months.
Special Report
5 November 2014 89
We believe the completion of these projects will make Thailand a regional production
hub and help it attract more FDI and boost its cross-border trade, particularly with the
CLMV countries.
Challenges
Sustaining infrastructure development has been a challenge for Thailand. While
policy makers have acknowledged the need for efficient infrastructure to enhance the
country’s competitiveness and improve the investment climate, and introduced large-
scale public investment to this end, project execution has stalled, owing to prolonged
political instability as a result of short-lived governments.
The current interim government led by Prime Minister Prayuth Chan-ocha has
approved execution of the eight-year infrastructure projects worth THB 2.4tn, starting
from FY15 (starting 1 October 2015). It will be in power until Thailand has an elected
government in early 2016, and we therefore believe the country needs to establish a
strong policy framework to ensure the commitment necessary to sustain
infrastructure development.
We also think private-sector participation in infrastructure financing and service
provision are needed to ensure the success of infrastructure development. Such
participation would help the government maintain fiscal discipline and also ensure the
efficiency of service delivery and cost effectiveness. However, to facilitate this,
Thailand would need to establish a legal framework that sets out clear guidelines for
private-public partnerships.
Thailand needs to establish a
strong policy framework to ensure
the commitment necessary to
sustain infrastructure development
Special Report
5 November 2014 90
Indonesia – Infrastructure bottlenecks
Fifteen years ago, investors in Indonesia’s real economy would have identified legal
uncertainty and corruption as the biggest hurdles to investment, followed by the
chaotic transition to regional autonomy, weak infrastructure, unfriendly labour laws,
and tax and customs issues. Today, all six of these hurdles remain. But while former
President Yudhoyono’s anti-corruption drive helped to address corruption and
excessive red tape, weak infrastructure has become the biggest impediment to FDI,
particularly the lack of trans-Java and trans-Sumatra highways, inadequate power
supply and insufficient seaport facilities in the world’s biggest archipelago.
Under the IMF programme from 1998-2004, Yudhoyono’s predecessors focused
primarily on fiscal prudence at the expense of maintaining the quality of existing
infrastructure, let alone building new projects. While this cut public debt to 27% of
GDP in 2010 from 80% in 2000, we believe weak infrastructure is preventing
Indonesia’s GDP growth from reaching its potential rate of 7%.
Partly as a result of infrastructure bottlenecks, real GDP growth has averaged only
5.5% over the past 13 years. Household consumption accounted for the biggest
share of GDP (around 58%) and contributed 2.7ppt to GDP growth over the period.
Investment (24% of GDP) contributed 1.7ppt, while the remaining was generated by
net exports and government consumption. The investment growth rate therefore
needs to double in order for GDP growth to reach its potential.
The government has repeatedly said that Indonesia needs around USD 30bn
annually (4% of nominal GDP) in infrastructure investment in the next five years. We
believe the economic benefits will exceed the amount invested, as better
infrastructure stimulates both household spending and private investment.
In our Special Report, 6 November 2013, ‘The super-cycle lives: EM growth is key’,
we forecast that Indonesia could potentially become the world’s ninth-largest
economy by 2030 given its population and ample natural resources. This was based
on an assumption of average real GDP growth of 7% between 2014 and 2030.
However, this will be difficult to achieve if infrastructure bottlenecks are not resolved
quickly, which is crucial for reducing inflation to a more moderate level and facilitating
a more even distribution of economic growth across the country.
Special Report
5 November 2014 91
Land infrastructure
As the largest country in Southeast Asia, Indonesia has the region’s largest road and
railway networks (see Figure 1). However, the mere length of a network may be a
misleading measure of the adequacy of a country’s transport infrastructure, for the
following reasons: (1) each country has different criteria for road classification; (2)
this measure ignores differences in road and rail quality; and (3) it ignores differences
in geographical conditions and population distribution.
Indonesia’s ratio of road per square kilometre (sq km) of land area is one of the
lowest in the region, indicating that its road system is inadequate to cover the
country’s land area of almost 2mn sq km. The road and railroad systems are
concentrated in Java, which accounts for only about 7% of Indonesia’s total land
area, while bigger islands such as Kalimantan and Papua still have limited land
transport infrastructure.
Roads
Indonesia’s current road system does not provide optimum support for economic
growth. Since 2000, road construction by the central government, typically of roads
that cross provinces, has been negligible (Figure 2). This has been due to the
introduction of regional autonomy following the fall of President Suharto in 1998 and
the resulting extra responsibility of road construction placed on local governments.
The biggest hurdle to road construction is land clearance. Despite the law on land
clearance for public interest (UU No. 2/2012) that sets a maximum limit of 88 working
days within which land owners should settle disputes on compensation, it is often
difficult for the government to execute land clearance. Moreover, the government’s
infrastructure blueprints are often accessible to politically connected land speculators
who buy the land from farmers and then sell it to the government for a much higher
price. Thus, even if 90% of the land for a planned road has been acquired, the un-
cleared 10% can prevent the project from being built.
In addition to hurdles to project implementation, there is a mismatch between the
distribution of roads and the concentration of economic activity. About 77% of
Indonesia’s roads are in Java and Sumatra, which together contribute around 81% of
GDP. Sumatra is larger than Java in terms of land area (25% of Indonesia’s total land
area versus 7%) and has more roadway (35% of the total versus Java’s 22%).
Figure 1: Land area, length of roads, and length of railways in the ASEAN-10 countries and Japan, 2012
Land area (000 km
2)
Road length*: paved and unpaved (000 km)
Road density (km of total road per 100 km
2 land area)
Railway length (km)
Indonesia 1,811.6 504.2 27.8 4,861
Vietnam (2013) 310.1 206.6 66.6 2,554
Thailand 510.9 231.6 46.2 4.043
Malaysia 328.7 182.7 55.6 1,641
Myanmar 653.5 151.3 23.2 5,844
Cambodia 176.5 51.4 29.1 652
Lao PDR 230.8 43.6 18.9 4
Philippines 298.2 31.6 10.6 112
Singapore 0.7 3.4 46.8 178
Brunei 5.3 2.9 50.3 N/A
Subtotal ASEAN-10 4,326.3 1,528.8 35.3 19,888
Japan 364.5 1,212.7 332.7 27,604
*Including toll roads and expressways;
Source: ASEAN-Japan Transport Partnership (AJTP), CIA World Factbook, Standard Chartered Research
Road and railroad systems are
overstretched in a country with
almost 2mn sq km of land area
Indonesia’s road network has
hardly expanded in the past decade,
owing to land-clearance difficulties
Special Report
5 November 2014 92
However, Java is home to about 59% of Indonesia’s population and contributes 58%
of national GDP, while Sumatra contributes only 24%. Meanwhile, the lack of proper
road systems on other resource-rich but less populated islands (such as Kalimantan,
Sulawesi and Papua) prevents their gross regional domestic product (GRDP) from
reaching potential growth.
Toll roads
The government aims to expedite toll-road development to promote broader
economic development, as having toll roads will cut time for intra-city transport and
average transport costs, facilitating the smoother distribution of goods and more
economic activity. Indonesia had about 774km of toll road as of end-2013. The
government plans to complete the trans-Java toll-road system before it starts
constructing the trans-Sumatra and trans-Sulawesi toll-road systems.
However, the government does not have sufficient funds for all this construction and
is therefore inviting private investors to participate in construction, via the public-
private partnership (PPP) scheme. Private investors are first required to bid for a toll-
road concession from the government (known as a PPJT).
Railroads
Trains are a popular mode of transport in Indonesia for passengers and cargo,
because of the speed at which they travel. However, the poor condition of existing
railroads and the slow pace of new railroad construction have resulted in low-quality
service (including delays and, in extreme cases, accidents). We believe the
Figure 2: Road development by level of government authority
Excluding expressways and toll roads (000 km)
Source: Ministry of Public Works, BPS
Figure 3: Toll-road development in Indonesia (as of November 2013)
Status
Number of routes
Length (km) Investment cost
(IDR tn)
Operating 33 784.1 --
PPJT* granted 24 874.8 113.2
In the process of obtaining a PPJT 7 395.2 52.1
In preparation for bidding 8 159.7 51.8
Total 72 2,213.8 217.1
*Toll-road concession agreement with the government; Source: BPS
0
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Bef
ore
1968
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National (central government) Provincial Municipal and regency
Passenger rail transport is heavily
concentrated in Java, while cargo
traffic is more in Sumatra
Ideally, Indonesia needs to extend
its road network by almost 2,400km
(by three times its current capacity)
Special Report
5 November 2014 93
construction of new railroads will expedite economic growth, especially if trans-island
networks can be built on resource-rich islands outside Java, such as Sumatra and
Kalimantan. The government has identified railroad construction as a priority in its
transport infrastructure development programme.
Train transport is heavily concentrated in Java, home to about 59% of Indonesia’s
population. 98% of Indonesia’s train passengers were in Java as of 2013, while the
number of train passengers in Sumatra was very low. Most train passengers in Java
are commuters living in Jakarta and surrounding cities (the ‘Jabotabek’ area, which
accounted for 33% of all Java’s train passengers in 2012). This is understandable
given the larger population in Java than in Sumatra. However, Sumatra accounted for
about 78% of all goods transported by train in Indonesia in 2012.
The government and parliament passed a law in 2007 to privatise the country’s
railroad network and abolish the monopoly of state-owned PT Kereta Api Indonesia
(KAI), but the company remains Indonesia’s sole railroad operator and continues to
receive subsidies from the government for low-income passengers under the
budget’s public service obligation (PSO).
Indonesia’s railroad network totalled 4,861km, compared to 504,184km of
conventional roads, as of 2012. The government completed construction of double-
track railways across the northern part of Java in 2013 to replace the single-track
lines, and now plans to construct a double-track line in the southern part of Java by
end-2017.
Construction on the new railway network is relatively slow (as opposed to replacing a
single-track line with a double-track line): the network grew by only 0.2% per year on
average from 2009-14, versus the road network expanding by 1.1%. The government
plans to construct railway systems in Sulawesi and Kalimatan through the PPP
scheme as early as 2015.
Figure 4: Number of train passengers
mn
Figure 5: Goods transported by train
000 tonnes
Source: BPS, PT KAI
Source: BPS, PT KAI
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2006 2007 2008 2009 2010 2011 2012
Java Jabotabek Java non-Jabotabek Sumatra
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2006 2007 2008 2009 2010 2011 2012 2013
Sumatra Java
Special Report
5 November 2014 94
Seaports
Indonesia is an archipelago, with total sea area of about 3mn sq km and 13,466
islands, and sea transport is therefore critical from both an economic and a defence
point of view. However, we think Indonesia lacks sufficient seaports to efficiently
cater to inter-island and international trade. Indonesia’s existing seaports are smaller
and outdated compared with those in the rest of Southeast Asia. Improving and
upgrading these seaports will accelerate economic growth, especially in the central
and eastern parts of Indonesia, where land-transport infrastructure is limited.
The Ministry of Transportation (MoT) is responsible for co-ordinating sea transport
and managing non-commercial ports, but the commercial ports are managed by
state-owned companies Pelindo I, II, III, and IV (which are under the jurisdiction of
the Ministry of State-Owned Enterprises). Indonesia’s shipping sector is considered
to be a competitive market, with domestic and foreign shipping companies free to
enter. The number of shipping companies operating in Indonesia, transporting both
passengers and cargo, rose to 2,256 in 2012 from 1,269 in 2005.
The number of passengers using sea transport fluctuates sharply from year to year in
response to factors such as domestic GDP growth, crude oil prices, and airfare.
Figure 6: Number of passengers using sea transport
Mn
Figure 7: Loaded sea cargo
Mn tonnes
Source: BPS, Port Administration Office
Source: BPS, Port Administration Office
Figure 8: Distribution of seaports* in Indonesia by class
2012
Figure 9: Distribution of commercial seaports in Indonesia
by island
2012
*Includes commercial and government-managed seaports;
Source: Ministry of Transportation
Source: Ministry of Transportation
Number of passengers
Growth (RHS)
-30
-15
0
15
30
45
0
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Inter-island International
0.5% 2.6%
4.6%
20.7%
0.8%
70.9%
Prime
Class I
Class II
Class III
Class IV
Under supervision of the Ministry of Transport
16%
38% 20%
8%
10%
3%
5% Java
Sumatra
Kalimantan
Sulawesi and Gorontalo
Bali, NTB, and NTT
Maluku and North Maluku
Papua and West Papua
Indonesia’s seaport capacity still
lags ASEAN peers’, but
development is crucial, considering
the more-than 17,000 islands that
the country encompasses
Special Report
5 November 2014 95
A study we conducted revealed that the number of passengers using sea transport is
negatively correlated with oil prices and the number of passengers using air transport
(which implies that some passengers readily substitute sea transport for air
transport). However, it has a positive correlation with domestic GDP growth. We
noted that cargo transport by sea has been increasing.
Seaports serve both passengers and cargo along inter-island routes. They play a
particularly vital role in eastern Indonesia, and in Papua in particular, where the road
system does not connect all cities and towns. However, Kalimantan (especially South
Kalimantan and East Kalimantan provinces) is the country’s most active hub for sea
cargo activity. Most of the cargo transported through South Kalimantan and East
Kalimantan is of natural resources such as coal and timber.
The MoT plans to upgrade the country’s 25 strategic seaports in the medium term by
enhancing their ability to service international trade, thereby reducing Indonesia’s
dependence on international ports in neighbouring countries. It also plans to
strengthen 123 feeder ports to support the 25 strategic seaports and facilitate inter-
island trade. However, capacity additions are not the only improvements needed at
Indonesia’s seaports: operational efficiency and service quality also need to be
enhanced.
To modernise and increase the capacity of existing seaports, the government and
parliament passed a law in 2008 that encourages private investors, local
governments and co-operatives to participate in seaport development. Investors can
choose to invest through the PPP model, establish joint-venture companies with
Pelindo or buy shares in Pelindo when it lists on the stock exchange. The
government has also taken measures to improve the efficiency and service quality of
the country’s strategic seaports, including directing that all Prime and Class I
seaports operate 24 hours a day, seven days a week (the directive started with the
four Prime seaports in 2010), and introducing the National Single Window for
processing export-import documents electronically in January 2010.
Special Report
5 November 2014 96
Airports
Air transport is a faster but more expensive alternative to sea transport along inter-
island and international routes. Following the government’s deregulation of air
transport in 1999, the passenger transport business grew significantly, particularly
domestic air travel. According to the MoT, Indonesia currently has 17 airlines operating
scheduled flights and 45 charter airlines.
Indonesia’s air cargo-transport business is more volatile than its passenger-transport
business. It currently has two scheduled cargo carriers (one domestic and one
international) and three domestic non-scheduled (charter) cargo carriers in operation.
As Figure 10 shows, fluctuations in air cargo volumes are determined more by the
amount of domestic cargo than by the amount of international cargo, which is
relatively stable. Growth in loaded air cargo is driven by factors such as oil prices
(negatively correlated with the amount of loaded cargo) and domestic GDP growth
(positively correlated with the amount of loaded cargo).
Air transport (both passenger and cargo) is concentrated in Java, given that it is
home to 59% of Indonesia’s population and the country’s two biggest airports,
Sukarno-Hatta and Juanda. These airports accounted for about 51% of Indonesia’s
domestic air passenger “production” (i.e., departures and arrivals), 62% of
international air passenger departures, 47% of domestic air cargo “production”
(loading and unloading), and 56% of international air cargo departures in 2012.
Indonesia reported 27 international airports and 151 domestic airports as of 2012,
ranging from Class I (the highest) to Class V (the lowest) and including special-
purpose privately operated airports under the supervision of the MoT (see Figures 12
and 13). All commercial public airports are currently operated by state-owned PT
Angkasa Pura I and Angkasa Pura II. Non-commercial public airports are operated
by the MoT, non-public special-purpose airports are operated by state-owned and
private companies, and military airports are operated by the air force.
About 56% of Indonesia’s airports are located in the eastern part of the country,
particularly in Papua (36% of all airports), where air transport is the only way to reach
the interior of the island. The airports in Papua and neighbouring Maluku are small,
mostly Class IV or below. As air is the only way to transport goods, cities and towns
in Papua tend to have higher food prices (particularly for rice, spices and vegetables)
than in western Indonesia.
Figure 10: Number of passengers choosing air transport
Mn
Figure 11: Amount of loaded air cargo
000 tonnes
Source: PT Angkasa Pura I and II, Ministry of Transportation Source: BPS, PT Angkasa Pura I and II, Ministry of Transportation
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Faster income growth will result in a
surge in demand for domestic and
international air transport in the
coming years
Air passenger- and cargo-transport
activity is still concentrated in Java
Airports play a crucial role in inter-
and intra-island transport in eastern
Indonesia
Special Report
5 November 2014 97
Most of the country’s main airports are already overloaded in terms of passenger and
handling, so capacity expansion is badly needed. PT Angkasa Pura expanded
capacity at existing airports (such as at the Sukarno-Hatta International Airport in
Banten province, the Juanda International Airport in East Java province, and the
Ngurah Rai International Airport in Bali province) and built new airports to cater to
more passengers and cargo (such as the Kuala Namu Airport in North Sumatra
province and the Sultan Aji Muhammad Sulaiman International/Sepinggan
International Airport in East Kalimantan province) in 2011-14.
Financing and land-clearance issues are the two main hurdles PT Angkasa Pura
faces in upgrading and expanding existing commercial airports and building new
ones. The government sees private-sector investment in airports as one solution to
the financing problem. To facilitate such investment, the government and parliament
passed a law in 2009 that allows private investors to invest in airport development,
either through PT Angkasa Pura (via a joint venture or by buying shares once PT
Angkasa Pura I and II are listed on the stock exchange) or by directly developing new
airports under the PPP scheme.
Given slow progress in upgrading the Sukarno-Hatta and other international airports,
we believe that Indonesia is less prepared to implement the ASEAN open-skies
agreement, which will take effect by 2015. The MoT has stated that Indonesia will
open only its five key international airports to ASEAN member carriers in 2015, and
will keep its other airports closed until they are ready. The country’s five international
airports are the Sukarno-Hatta, Juanda, Kuala Namu, Ngurah Rai and Hasanuddin
airports.
Figure 12: Distribution of airports in Indonesia by class*
2012
Figure 13: Distribution of airports in Indonesia by island
2012
*Includes commercial and government-run airports;
Source: Ministry of Transportation
Source: Ministry of Transportation
11%
10%
20%
28%
7%
24%
Class I
Class II
Class III
Class IV
Class V
Under supervision by the Ministry of Transportation
7%
15%
13%
10%
10%
9%
36%
Java
Sumatra
Kalimantan
Sulawesi
Bali, NTB, and NTT
Maluku
Papua
Most of Indonesia’s main airports
are already overloaded in terms of
passenger and cargo handling
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5 November 2014 98
Box C: ASEAN leverage
Investment in infrastructure is primarily driven either by foreign investment or by the government raising debt. A government
already stretched on the leverage front would find it significantly harder to invest in infrastructure. ASEAN countries are,
however, very comfortably placed with respect to government debt, providing most ASEAN governments sufficient leeway to
borrow more, if necessary. Overall, however, leverage in the ASEAN is a mixed picture. We divide the ASEAN economies into
the three broad categories as we did in our initial report on this subject – areas of concern (shown in red in the tables below),
those with moderate risk (yellow), and those with low risk and room for further leverage (green). Malaysia and Singapore stand
out as regions with relatively high leverage; we place Vietnam and Thailand in the second rung of concern (slightly elevated
leverage) and the Philippines, Laos, Indonesia, Myanmar and Cambodia in the low-risk category, with scope to increase
leverage over the longer term to enable their economies to withstand shocks and grow faster.
Malaysian households and Singapore’s corporate sector flash red in our heatmap (see Figure 5). Malaysia’s household debt,
which we have flagged as a concern since our March 2014 update, remains stretched. While household leverage has not
deteriorated since our July 2014 update, neither has it improved significantly. The authorities have implemented property-
market-cooling measures, but household leverage has continued to climb, albeit slower than in 2011. Growth in residential
property transactions fell 8.1% y/y (on a four-quarter moving average, 4QMA) in Q1-2014 from a peak of 19% y/y (4QMA) in
Q4-2011. The credit-to-household income gap remained flat at 6.5ppt from December 2013 to March 2014, but we expect it to
narrow further on a slowdown in household credit growth given that our metric uses a five-year average of excess credit
growth.
Vietnam and Thailand only just make it into the medium-risk category. Thailand’s household debt-to-income ratio is slightly
elevated, and while household credit growth has slowed since the period of rapid leverage growth driven by the recent
property-market recovery, it is still rising faster than income. The interest burden remains elevated and needs to be watched
closely. We expect the Bank of Thailand to gradually normalise its policy stance in 2015, starting with a hike of 25bps in Q1-
2015. Vietnam’s overall debt amounts to only 153% of GDP and therefore flashes yellow in our heatmap. Credit growth has
also slowed recently as domestic banks have become more prudent in lending as they clean up bad debt.
We place most of the ASEAN economies in the low-risk category, as we are comfortable with their headline leverage and
recent credit growth. Myanmar and Indonesia have the lowest debt-to-GDP ratios of the ASEAN countries, indicating plenty of
room over the longer term to increase leverage to withstand shocks. The Philippines, Cambodia and Laos report leverage of
less than 100% of GDP. In addition, private-sector debt in all these countries is still low. While recent private-sector credit
growth in Cambodia and Laos has been high, it has been from low levels.
Figure 1: Malaysia’s household leverage is high
Y/y; % of GDP (RHS)
Figure 2: Malaysia’s household lending remains sticky
Bank lending; y/y
Source: CEIC, Standard Chartered Research Source: CEIC, Standard Chartered Research
Housing prices
Household debt to GDP
(RHS)
50%
55%
60%
65%
70%
75%
80%
85%
90%
0%
2%
4%
6%
8%
10%
12%
14%
Mar-05 Mar-07 Mar-09 Mar-11 Mar-13
Household
Total minus household
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
2007 2008 2009 2010 2011 2012 2013 2014
Special Report
5 November 2014 99
Leverage in ASEAN is less of a concern than leverage in the rest of Asia. Private-sector debt is still well within comfortable
levels and below that in the rest of Asia. In addition, most of ASEAN’s debt is concentrated in ASEAN-5, with Singapore,
Malaysia, Indonesia and Thailand alone accounting for 83% of all ASEAN debt. We therefore believe that leverage in ASEAN is
more a story of opportunity than risk. We note isolated warning signals, particularly of rising household leverage, in Malaysia
and Singapore.
For more details on our detailed Asia leverage tracker, see On the Ground, 10 October 2014, ‘Asia macro trackers- Introducing
our new indicators’ (the tracker was first introduced in SCout, 1 July 2013, ‘Asia leverage uncovered’).
Figure 3: ASEAN is less leveraged than the rest of Asia
Weighted average debt-to-GDP ratio
Figure 4: ASEAN-5 accounts for almost all debt in ASEAN
Debt, USD bn
*AXJCA = Asia ex-Japan, China and Australia; Source: BIS, CEIC, IMF, Standard Chartered Research
Source: BIS IMF, Standard Chartered Research
AXJCA Pvt. sector
AXJCA - Government
ASEAN - Pvt. sector
ASEAN - Government
30%
40%
50%
60%
70%
80%
90%
100%
110%
120%
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
ASEAN-9 - Pvt. sector
ASEAN-9 - Government
ASEAN-5 - Pvt. sector
ASEAN-5 - Government
0
500
1,000
1,500
2,000
2,500
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Special Report
5 November 2014 100
Figure 5: Leverage and credit growth: A summary across countries, sectors and individual metrics
(%, unless otherwise indicated)
Colours indicate leverage and potential stress: red = high, yellow = moderate/sustainable, green = low
Mar 14 ID MY PH SG TH KH LA MM VN
Economy
Total credit/GDP 66% 191% 84% 261% 175% 75% 100% 42% 153%
Credit-GDP gap (bps)2 227 403 56 218 505 853 803 -694 395
(Credit growth-µ)/10-yr σ 3 1.1 -0.2 -0.1 -0.3 0.9
> Private non-
financial
Total borrowings/GDP 39% 134% 43% 154% 127% 47% 40% 0% 97%
Credit-GDP gap (bps)3,5
801 337 290 269 534 1572 3212
225
Credit growth less LT average (ppt)3,5
-2.1 -0.4 3.6 -3.1 -1.2 -1.7 -1.7
-0.4
DSR 6
4%
– Corporates
Business borrowings/GDP 22% 47% 36% 79% 54%
Credit growth less LT average (ppt)3,5
20.2 7.0
6.2 10.0
Debt/equity1 61% 58%
56% 76%
Debt/EBITDA
1 2.1x 3.5x
4.7x 3.1x
EBITDA/interest expense
1 6.1x 6.8x
7.5x 7.4x
DSR
1 36% 43%
52% 40%
– Household
Household borrowing/GDP 18% 87% 6% 76% 72%
Credit-HH income gap (ppt)7 9.6 6.5 11.8 4.6 9.1
Credit growth less LT average (ppt)
3,5 -6.1 3.0 1.1 1.4 -1.4
Borrowing/household income 28% 196% 13% 152% 101%
Interest burden ratio 4% 13% 2% 4% 8%
Debt service ratio 5% 24% 2% 14% 13%
> Government4
Government debt/GDP 27% 57% 41% 107% 48% 29% 60% 42% 56%
Int. payments/govt. revenue^ 8% 2% 18% 5% 6%
Debt-service ratio
^ 4% 1% 8%
12%
↑ moderate increase ↑↑ fast increase ↓ decrease
Source: Bloomberg, BIS, IMF, Standard Chartered Research estimates
We have defined these ratios in Figure 5 as ‘high’, ‘moderate’ and ‘low’ using findings from Cecchetti et al, ‘The real effects of debt’, BIS September 2011, which gives estimates of thresholds beyond which GDP growth slows. 1 For listed corporates (excluding financial institutions), debt/equity, debt/EBITDA and DSR are calculated for publicly listed non-financial corporations. 2 Difference between annualised five-year average credit growth and GDP growth. 3 Annual credit and GDP growth for the latest period. 4 Debt numbers are in gross terms. 5 Credit-GDP growth gap and credit growth versus the long-term average is calculated based on real GDP and real private-sector credit. 6 Debt-service ratio is calculated with GDP as the denominator. 7 Malaysian government debt as per IMF estimates
Special Report
5 November 2014 101
Figure 6: Change in leverage metrics since March 2013
Red = high, yellow = moderate/sustainable, green = low
YoY Δ ID MY PH SG TH KH LA MM VN
Economy
Δ Total credit/GDP (ppt) 5 5 3 -2 13 6 4 -4 7
Δ Credit-GDP gap (bps) 309.3 34 -1350 -215 94 117 45 235 65
Δ (Credit growth-µ)/10-yr σ 0.3 -0.2 0.1 -1.1 -0.2
> Private non-
financial
Δ Total borrowings/GDP (ppt) 3 4 4 3 9 6 4 0 2
Δ Credit-GDP gap (bps) -231 314 244 38 1 1572 3212
225
Δ Credit growth less LT average (ppt) -14.6 0.8 -0.4 -8.1 -7.0 -1.7 -1.7
-0.4
Δ Debt-service ratio (bps)
25
– Corporates
Δ Business borrowings/GDP (ppt) 3 0 3 5 4 -40 -36 0 -95
Δ Debt/equity (bps) 425 72
120 385
Δ Debt/EBITDA 0.3x 0.3x
0.4x 0.2x
Δ EBITDA/interest expense -1 -0.2x
-0.1x -0.4x
Δ Debt-service ratio (bps) 559 386
444 283
– Household
Δ Household borrowing/GDP (ppt) 0 4 0 -1 4
Δ Borrowing/household income (bps) 121 1181 142 151 510
Δ Interest burden ratio (bps) 5 95 17 3 61
Δ Debt-service ratio (bps) 10 172 23 9 76
> Government Δ Government debt/GDP (ppt) 1 1 -1 -5 4 0 0 -4 5
Source: BIS, IMF, Standard Chartered Research
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5 November 2014 103
Disclosures appendix
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Document approved by
David Mann Head, Macro Research, Asia
Document is released at
10:50 GMT 05 November 2014
