Long periods of COVID-19 lockdowns and factory closures resulted in heavy congestion at ports in Vietnam, Malaysia, and Singapore. Long shipping lines and docks stacked with containers illustrated Southeast Asia’s central importance to global supply chains.
Omicron arrived in late November 2021, just as Singapore, Thailand, and Vietnam were scaling up the reopening of their travel economies. Cambodia, the Philippines, Malaysia, and Laos were also poised to welcome back travelers.
Despite these impacts, positive strides were made towards building the long-term expansion of ASEAN economies. Innovative progress was made in diverse areas, ranging from cybersecurity, fintech, and digital banking integration to gene decoding, agritech, biotechnology, recycling, renewable energy, waste management, mixed reality applications, and autonomous vehicles.
Inbound investment continues to flow, particularly into high-tech value chains, eCommerce, digital finance, infrastructure, and transport development. A string of high-profile public listings by regional unicorns sets the scene for more blockbuster initial public offerings in 2022.
In 2022, the hoped-for return of regional business travel and tourism should boost consumer value chains across the region. As we look ahead, four key factors are set to drive the next generation of ASEAN growth and prosperity will create new opportunities for governments, investors, companies, and consumers.
1. New Era of Economic Expansion
Southeast Asia is poised for a new phase of diversified growth. The 2021 ASEAN Leaders' Summit in October, which took place by videoconference, focused on two central themes: enhancing ASEAN’s economic competitiveness as a region, and narrowing the development gap within and among the 10 member markets.
Optimizing the opportunities afforded by new trade and investment agreements will drive ASEAN’s long-term economic development. In 2021, ASEAN leaders noted progress in implementing free trade agreements with Australia, New Zealand, China, Hong Kong, India, Japan, and South Korea.
Overarching these agreements is the era-defining Regional Comprehensive Economic Partnership (RCEP). Signed in November 2020, the RCEP will eliminate most tariffs on goods traded between the 15 markets. It will also harmonize regulations in areas such as food safety and packaging and is expected to bolster intra-regional growth in services and cross-border eCommerce. The RCEP is intended “to be ASEAN-led and driven,” and enters into force on January 1, 2022.
Takeaways:
- The RCEP has the potential to reshape the trading landscape across the Asia Pacific
- ASEAN is positioned as a crucible for regional trade growth and diversification
- Narrowing the development gap between ASEAN nations will strengthen regional competitiveness
2. Stronger Global Voice
Southeast Asia’s strategic geography and potential for sustained economic growth are improving its leverage in international trade and diplomacy. The 2021 ASEAN Leaders Meeting confirmed that the region will assert its influence in reshaping the global economy for a highly digitized era.
In December 2021, ASEAN representatives attended the G7 Foreign Ministers meeting for the first time. Priority agenda items included “developing a pipeline of projects in partnership with the private sector to meet vital infrastructure needs in ASEAN member markets.”
As current president of the G20, Indonesia will host the 2022 G20 Heads of Government Summit in November in Bali. This gathering of the leaders of the world’s 20 largest economies will upgrade the international profile of Indonesia and ASEAN, and enable key regional issues to be discussed in unprecedented detail.
Takeaways:
- The ASEAN region will exert a greater influence on key global economic issues
- Bali’s hosting of the 2022 G20 Summit will place a spotlight on Southeast Asia
- More sources of finance will become available for critical infrastructure projects
3. Improving Overland Connectivity
The past decade saw an impressive expansion of air routes across ASEAN, but overland connectivity lagged. Correcting this imbalance will define the 2020s. Huge investments will be channeled into rail networks to transport passengers and products within and across borders.
On December 3, 2021, the eagerly awaited China-Laos railway was opened. Costing nearly USD 6 billion and taking five years to construct, it connects China’s southwestern city of Kunming with the Lao capital of Vientiane. The 414km stretch from Boten on the China-Lao border to Vientiane on the Lao-Thai border is the kickstart of China’s pan-ASEAN railway. The goal is to connect Southeast Asia’s major cities with China’s high-speed rail network.
Other projects are underway. Thailand is constructing phase one of a high-speed railway from Bangkok-Nakhon Ratchasima. Ultimately, it will extend to Nong Khai, on the Thai-Lao border, where it will connect with the China-Laos railway later this decade.
Indonesia is building a high-speed line between Jakarta and Bandung as it plans to design and manufacture its bullet trains. In late 2021, Vietnam revealed plans for a North-South high-speed railway linking Hanoi and Ho Chi Minh City with cities along the east coast.
Takeaways:
- The 2020s will see vast investments in national and cross-border rail networks
- Rail expansion will improve connectivity between cities, coastal, and interior regions
- High-speed trains will enhance the transport of products and travelers across ASEAN
4. Digital Economic Diversity
Digital transformation is a hot topic where the internet economy in the region is forecast to reach a value of USD 1 trillion by 2030. The ASEAN Digital Masterplan 2025 sets out a blueprint to make the region “a leading digital community and economic bloc, powered by secure and transformative digital services, technologies, and ecosystems.”
Developing robust digital financial infrastructure is a vital part of the plan, and big strides are being made. New online-only banks are emerging in Singapore, Vietnam, and the Philippines. Indonesia issued new banking regulations in 2021 to support digital bank development, and Malaysia will award its first digital banking licenses in early 2022.
Meanwhile, Cambodia is the first ASEAN market to introduce a Central Bank Digital Currency (CBDC), called Bakong. Other markets are developing their own CBDCs, while cross-border digital transaction formats are being tested between central banks throughout Southeast Asia and Northeast Asia.
Takeaways:
- Southeast Asia’s online economy is forecast to expand at express speed
- The region’s vibrant start-up sector will continue to attract investors
- Expect significant new digital financial infrastructure developments in 2022
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