Conference Presentation, Fireside Chat, Panel
Southeast Asia: A Compelling Case for Investment
Milken InstituteCecilia Mazzeca, Kirk Wagger, Cesar Purisima, Kasim Sid Patumsok, Richard Lee, Dina Jalal, AJ Gandhi, Carl Harris, Ben Rosen Manning, Nate Pierce
- ASEAN is projected to evolve into the fifth-largest global economy by 2015 and maintain high growth rates through the next 30 years, driven by demographic advantages where 65% of the population is under 35 and a consuming class expanding to approximately 125 million people.
- The region is expected to transition into a single market and production base by January 1, 2016, necessitating approximately $1.2 trillion in infrastructure investment over the subsequent decade to connect nations via new rail, highways, and 4D ports.
- Economic growth forecasts include 5% in Indonesia, 6% or above in the Philippines, 8% in Cambodia, 7% in Laos, and 7.6% in Myanmar, with Indonesia's government targeting 7% growth over the next three years alongside significant expansions in electricity, housing, and exports.
- US business strategy is shifting from "China plus one" to "China plus two and three," with US FDI into Singapore reaching $204 billion (of which $155 billion flows through Singapore), positioning Vietnam, Thailand, Malaysia, and Indonesia as primary beneficiaries of diversification efforts.
- The middle class in Asia is expected to comprise two-thirds of the global total by 2030, with ASEAN accounting for 20%, creating massive demand for services including healthcare, insurance, education, and retail products ranging from candy bars to automobiles.
- Technological connectivity is anticipated to leapfrog traditional development stages, with high mobile adoption rates illustrated by Jakarta generating 2% of global daily tweets, enabling businesses to reach consumers directly via phones and fostering a shift toward meritocracy and transparency.
- Infrastructure development will spur the emergence of new urban centers along transportation arteries, creating immediate demand for power, water, and services, while the Philippines is expected to triple its education investment to address workforce needs compared to the labor shortages in Thailand, Malaysia, and Singapore.
- Market valuation concerns exist due to expectations of seven to eight years of uninterrupted single-digit growth, suggesting the market may be "priced in" and presenting execution risks or local partner risks if assets become too expensive to acquire.
- Risks include political friction, narrow nationalism potentially leading to protectionist non-tariff barriers such as Indonesian content laws, and the challenge of harmonizing rules and standards, with tariffs potentially varying up to 5% despite integration goals.
- Governance and institutional frameworks are trending toward improvement, exemplified by Singapore's developing commercial court and Thailand's business sector remaining robust despite political transitions, though challenges remain in eliminating corruption and achieving a unified ASEAN class of financial instruments.
- Trade integration faces hurdles from differing tariffs and the absence of a common customs border, with the TPP expected to raise IP standards that may force countries like Thailand and Indonesia to adapt or risk investment flows to other nations.
- China remains a critical economic partner and future superpower, with relations expected to grow in trade and tourism despite territorial disagreements, as its continued growth of 7% is anticipated to benefit the broader region through population flows.
- Future stability relies on addressing productivity challenges through education initiatives and government commitments, while the "all boats rise" ethos is expected to mitigate risks from political changes, even as some areas experience temporary growth slowdowns from projected highs.