ASEAN is set to become the world’s fourth largest economy by 2030. But getting there will require an unprecedented team effort.
50 years after its founding, is the Association of Southeast Asian Nations – better known as ASEAN – emerging as the new European Union?
A group of 10 Asia-Pacific countries excluding China and Japan. It is poised to become the world’s fourth-largest economic group by 2030, according to forecasts by various institutions, including the Asian Development Bank, the World Economic Forum and ASEAN itself.
In the Economic Integration Brief published a month before the Jakarta Summit, ASEAN It predicted that by 2030 GDP would be behind the US, China and India. The brief explains that the reason for this growth is the region’s youth: 61 percent of the 670 million people are currently under the age of 35, and half of them are expected to join the middle class by 2030.
Other factors that inform such predictions include ASEAN’s position at the crossroads of major trade routes – $3.4 trillion of global trade passes through the region every year – high flows of foreign direct investment, international and regional; Accelerating the adoption of digital technologies included in the consolidated strategy for the Fourth Industrial Revolution for ASEAN, the blueprint for the union adopted in 2021. Economic alignment of members with the goals of the Paris Climate Agreement and Sustainable Development Goals and the resulting public-private partnerships. Add to this the increasing importance of Southeast Asia to global supply chains as globalization intensifies, and it is not difficult to see how ASEAN could be pushed into the number-four.
Big Block Party
One key tool could be the Regional Comprehensive Economic Policy (RCEP), led by ASEAN, which is currently the world’s largest regional free trade agreement, covering more than 30% of global GDP and the world’s population, and is expected to liberate. Trade, investment and services between the members, as well as regional supply and value chains. Significantly, China is a member of the RCEP, and Chinese investment is expected to be a major driver of growth in ASEAN. Beijing is involved in the extraction of minerals needed for clean batteries, bauxite, copper and nickel. These could help it build regional supply chains in its bid to dominate the global electric vehicle market and as companies shift production capacity and emissions to ASEAN to address emissions at home.
Wong, Sustainable Finance Institute: Multi-level development banks are aiming to de-risk.
Chinese companies mine rare earth minerals in Myanmar, process battery materials in Indonesia, build EV automobiles in Thailand, and manufacture solar panels in Malaysia. As such, ASEAN is actually helping China dominate these markets, paving the way for the People’s Republic to control all of the world’s solar module supply and 90% of battery supply by 2030, according to a report published this year by S&P Global.
Robert Ojeda-Sierra, director of economics-sovereigns at Fitch Ratings in London, said: “Multinationals will become a popular destination for foreign direct investment as they adjust their supply chains and adjust to geopolitical risk.” For example, Indonesia, as well as Thailand and Vietnam, aim to become key players in the electric vehicle supply chain by leveraging their large nickel reserves to attract investment.
Foreign direct investment and green goals
According to Ojeda Sierra, among the challenges facing ASEAN are “development gaps between members in terms of income, human capital, institutions and infrastructure, as well as differences in good governance and the rule of law.”
Chinese companies mine rare earth minerals in Myanmar, process battery materials in Indonesia, build EV automobiles in Thailand, and manufacture solar panels in Malaysia. As such, ASEAN is actually helping China dominate these markets, paving the way for the People’s Republic to control all of the world’s solar module supply and 90% of battery supply by 2030, according to a report published this year by S&P Global.
Robert Ojeda-Sierra, director of economics-sovereigns at Fitch Ratings in London, said: “Multinationals will become a popular destination for foreign direct investment as they adjust their supply chains and adjust to geopolitical risk.” For example, Indonesia, as well as Thailand and Vietnam, aim to become key players in the electric vehicle supply chain by leveraging their large nickel reserves to attract investment.
Foreign direct investment and green goals
According to Ojeda Sierra, among the challenges facing ASEAN are “development gaps between members in terms of income, human capital, institutions and infrastructure, as well as differences in good governance and the rule of law.”
ASEAN needs to do better in attracting collective capital, said Eugene Wong, founder and CEO of the Kuala Lumpur-based Sustainable Finance Institute Asia (SFIA). “At one end you have Singapore, a triple-A sovereign state, and at the other end you have Laos and Indonesia, and these are just examples of the different lending propositions involved in the region.” The member states should collectively lower their cost of capital, he added, adding, “This includes de-risking and leveraging concessional capital in public and private finance.”
Hitting the Paris Agreement targets will require a concerted effort, says Wong. This means defining common objectives on four environmental objectives and how ASEAN intends to attract the capital needed to support new sustainable infrastructure. Key sectors include renewable energy, green buildings, sustainable transport and water, waste and land management.
A number of countries – Indonesia, the Philippines, Singapore, Thailand and Vietnam – have already developed or are developing their own taxonomies to align with ASEAN’s common taxonomy. Version 2, published in March, classifies economic activities as “green”, which contribute to or enable the prevention of climate change, “amber”, those which contribute to carbonation and “red”, which do not contribute to or enable the mitigation of climate change. Facilitating a gradual transition to greener, “Level 1” regional economic taxonomy is an objective and has no clear short- to medium-term timeline—achieving net zero carbon emissions by 2050 is the ultimate long-term goal.
Sustainable Finance 2 aims to provide a “comprehensive framework for the region” based on order and fair transition, said Nurfidah Sulaiman, chairman of the 40-member ASEAN Taxonomy Board, set up by the region’s central bank. Regulators, capital markets and insurance regulators and finance ministers have been tasked with developing a regional plan along the lines of the EU 2020 Green Taxonomy and are ready to work with it. Subsequent iterations of the ASEAN Taxonomy for Sustainable Finance will be produced as a result of the ATB’s ongoing discussions.
In a region heavily dependent on fossil fuels and carbon-intensive activities, agreeing on a single, ambitious development plan, including green-tech mining, is challenging. “Multi-level development banks aim to guarantee the supply of credit, to eliminate risk,” Wong pointed out, and is talking about reducing foreign exchange risk, which is one of the main risks faced when investing foreign capital. Infrastructure projects in the region.
“Multi-trillion-dollar savings are still not well matched to multi-trillion-dollar demand,” said Zhang Ping Tia, manager of the economics department at the Asian Infrastructure Investment Bank in Beijing. “The gap must be closed from all sides.” The AIIB has approved nearly $45 billion in projects, and all AIIB projects are Paris-aligned as of the middle of this year, but it remains to help members and clients shift another gear on climate finance and avoid slipping on net zero targets. ” says Tia.
Focus on Vietnam
To establish itself as the world’s fourth largest economic group, ASEAN needs GDP growth in all its member states, but the opportunity lies with Vietnam – the region’s strongest GDP growth of 8.02% last year – to make the most powerful and transformative contribution.
Ross, Dragon Capital: Vietnam may prove that the way out of the middle-income trap doesn’t always have to be in dirty industry.
Still, “Vietnam should be more than ‘China+1’ or Disney’s ‘Last Dragon,'” says Will Ross, head of marketing at London-listed Dragon Capital, a $4 billion Vietnam-focused venture capital fund in Ho Chi Minh City. “There are two drivers of indirect growth, and they form a virtuous circle. First, it is necessary to increase the value chain of the production capacity through research and development, and to capture the margin by moving from being an original equipment manufacturer to direct to consumer. The products are sold by another company under the company’s name. Second, for Vietnam” in ASEAN. and to increase the accessible market for its products and services in other areas. In the year Given Vietnam’s commitment to net-zero by 2050, it can ensure that its path to the middle-income trap never ends in a dirtier industry. In other words, it is green while building a strong market for its products within ASEAN itself.
But this highlights the potential holes in the ASEAN script. Poised to produce 60% of the world’s nickel by 2030, Indonesia’s nickel industry is experiencing stratospheric growth. President Joko Widodo has imposed a ban on nickel ore exports to encourage production to go to high-value domestic industries. including melting. Nickel is a key component in electric vehicle batteries, but nickel mining is highly carbon intensive.
Brunei Darussalam is another ASEAN champion in the decarbonisation story. With the second-highest per capita GDP in the bloc after Singapore, the International Monetary Fund estimates that 70% of the sultanate’s national income comes from hydrocarbon exports. This is in line with the objective of establishing a final, enforceable ASEAN taxonomy of fossil fuels, whereby Brunei’s “amber” activities must “sunset” its economy to “fully green”. And it’s not just Bruni; With the Paris Agreement, many countries face similar challenges.