According to the UK-based Center for Economics and Business Research, five ASEAN economies are poised to become economic powerhouses within 15 years. You will be happy to know that the Philippines is included in this list despite the economic blow of the pandemic. Vietnam, Malaysia, Indonesia, and Thailand have also made it to the magic 30 of largest economies by 2035.
Vietnam, the overachiever of the last two years, is seen to make the biggest gains in the next 15 years. The socialist nation is seen to jump 18 places from the 37th largest economy today to the 19th by 2035. Malaysia follows with a 12 place leap from 40th to 28th place. The Philippines is forecast to advance by 10 places from 32nd to 22nd place. Indonesia will jump by seven places from 15th to 7th place. Thailand will move four places up from 25th to 21st place.
By the year 2035, five ASEAN nations will be part of the world’s 30 largest economies, two countries shy of the European Union. Asia, collectively, will have 12 countries represented in the magic 30, making it the world’s most robust economic bloc.
What is driving ASEAN’s growth? Each nation has a unique story to tell.
Vietnam. A package of economic reforms under the Doi Moi program transformed Vietnam from a centrally planned economy to a market-driven, socialist state rooted in manufacturing.
In just 35 years (1986-2021), Vietnam made the transition from an economy reliant on subsistence farming to one that is newly industrialized. This was done by embracing trade liberalization, domestic deregulation, the aggressive pursuit of foreign direct investments, and massive investments in infrastructure and human capital.
From the get go, Vietnam sought to be the manufacturing center of Asia since it is the fastest way to modernize the nation whilst achieving economic prosperity. Manufacturing also has the capacity to absorb the millions of workers migrating away from agriculture.
The Vietnamese government was astute by creating the ideal conditions for manufacturing enterprises to thrive. Special attention was given to infrastructure and logistics, energy, telecommunications, and easing bureaucratic red tape.
The years between 2008 to 2018 were Vietnam’s golden decade. Its economy grew by an average of 6.07%, peaking in 2018 when it clocked-in growth of 7.1%. Unemployment fell to 2.2% in 2018 due to the continued influx of factories migrating away from China.
Malaysia. In 1971, Malaysia launched its New Economic Policy (NEP) designed to eradicate poverty and unite the country’s multi-ethnic society. NEP lasted for 20 years.
The Malaysian economy grew by an impressive 7.22% from 1971 to 1990. Investors from America, Europe, and Japan flocked to Malaysia for its relatively modern infrastructure and strategic position between Singapore and Thailand. Malaysia became a hub for textile manufacturing, electronics, modular furniture, and appliances. It also became a leading exporter of palm oil, rubber, petroleum, natural gas, and hardwood.
Under the command of PM Mahathir Mohamad, the National Development Policy (NDP) was formulated and launched in 1991. Its objective was to energize Malaysian industries to climb the value chain whilst making wealth more inclusive for all. It was in this era that Malaysia became a force in electronics, machineries and computers, and chemicals.
The NDP was replaced by the National Vision Policy (NVP) in 2001. The NVP aimed to transform Malaysia into a high income economy that specialized in finance, tourism, and high technology. The NVP has been generally successful but fell short of elevating the country to a high-income economy.
Indonesia. Our neighbor to the south is the largest economy in Southeast Asia. They have done well since the turn of the century having slashed poverty rates by half since 1999 and posting an average growth rate of 4.8% in the last two decades. Its enormous population and rising wealth have attracted foreign investors in droves.
Although Indonesia’s economy has become increasingly driven by manufacturing, they are still reliant on exports of crude oil, natural gas, rubber, coffee, coca and palm oil. They have done well in the use of their natural resources.
The growth of the Indonesian economy has trailed that of Vietnam and the Philippines due to infrastructure bottlenecks. To this end, President Joko Widodo put in place a multi-billion infrastructure program since 2014. From 2020 to 2024, however, Indonesia plans to spend a whopping $412 billion to modernize its infrastructure. This will give the country the bandwidth for higher growth.
Thailand. Despite sporadic political unrest, the Thai economy has managed to grow by an average of 4.01% over the last 20 years.
From an agricultural economy, Thailand rapidly developed into a manufacturing economy in the 1970s to the ’90s specializing in textiles, light industries, and food processing. The 2000s saw Thailand migrate to big industries such as auto manufacturing and electronics. The Buddhist country aims to be a specialist in innovation and high technology in the next decade.
In 2019, Thai exports amounted to $245 billion, nearly half of its GDP. It is also the region’s tourism behemoth, having attracted 38.2 million visitors (No. 8 in the world) in 2019. Tourism revenues account for 17.7% of GDP.
Philippines. Unlike its ASEAN peers, the Philippine economy is driven by the service sector, not by manufacturing. It is among the world leaders in business process outsourcing and will continue to be so for the next 15 years, according to the Center for Economics and Business Research.
Massive infrastructure spending coupled with OFW remittances have fueled consumer spending. This, too, drives the economy.
By virtue of its young, English-speaking population, the Philippines is seen to continue its upward trajectory in the service sector all the way to 2035, albeit performing below its true potential.
Analysts believe that the Philippines can still become a player in heavy industries and technology if it is able to sort-out the impediments to attracting foreign capital. This includes an uncompetitive tax structure (the CREATE bill needs to be passed), shortage in PEZA industrial zones, bureaucratic red tape, expensive power costs, and the constitutional negative list for foreigners.
In addition, the Philippines has not leveraged on its natural resources the way its neighbors have. Despite its massive resources, the contribution of the mining industry to the economy is minuscule at only one-sixth of 1% of GDP. Ironically, the Philippines sits on the third largest cache of mineral resources in the world which includes gold, copper, nickel, limestone, marble, and chromite. All things told, its mineral resources are worth over a trillion US dollars in today’s prices. Since the massive closure of mines in 2017, the Department of Environment and Natural Resources has installed more than enough safety measures to ensure responsible mining. A presidential go signal is all it takes to unlock the potentials of the mining industry.
Also untapped is the Philippine’s maritime resources. Unknown to many, the Philippines has the fifth largest coastline at 36,289 kilometers; its maritime domain is massive at 2.2 million square kilometers; it is the world’s second largest provider of shipping crew and officers; it is (was) the fourth largest global shipbuilder (counting Hanjin); the Philippine Rise (Benham Rise) has an estimated reserve of 55.1 trillion cubic feet of natural gas and 5.4 billion barrels of oil; plus, the Philippine archipelago sits in the center of the world richest fishing grounds. These resources remain largely untapped.
With the right economic policy, the Philippines can be a significant player in international shipping, ship building and repair, ports and shipyards, logistics services, seafarers and crewing, maritime insurance, fisheries and aquaculture and offshore energy exploration, among others. Collectively, this is referred to as the “Blue Economy.”
The Philippines is by no means short of natural resources or talent to usher-in an age of rapid prosperity. What it is in shortage of is a leader with a clear vision, a plan, and the political will to realize it. Let’s hope that our next leaders in 2022 institutes reforms to make the country perform to its full potential.
Andrew J. Masigan is an economist