Closer intra-Asean ties are vital to realise region's growth potential, hedge against external risks

Despite an increasingly fragmented global scenario, the recently concluded Asean summit in Indonesia offers a much-needed dose of optimism.

Having spent a week in Jakarta for the Asean summit and related meetings, as well as a host of other business and investments-focused gatherings in early September, I am confident that stronger cooperation among our geographically linked economies is the way forward in hedging against heightened geopolitical, climate change and future pandemic risks.

I have always been a firm believer in the Association of Southeast Asian Nations, with its 680-million population, young demographics and the potential of the integrated Asean Economic Community. When I was in the private sector managing a regional banking group, I consistently pushed for a stronger Asean footprint for businesses.

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In the last couple of years, while the attention of member states has been focused on dealing with the pandemic and its ensuing domestic challenges, Asean still gave due attention to difficult topics, such as addressing the complexities of Myanmar's political situation.

However, with most of our countries firmly on the path of recovery, the time has come for us to refocus on a stronger Aseanisation, particularly in the face of a gloomy global economic environment with high interest rates in developed economies, weak currencies in emerging markets, and inflationary pressures due to the war in Ukraine.

The grouping matters, even though some find the large number of meetings, or the "Asean group handshake photo" risible. One can argue that the latter is a gesture that matters in times of global uncertainty and chaos. Yes, Asean member states meet often - but surely the more countries engage with each other, the more trust and rapport are built. Difficult conversations can be had, avoiding potential conflicts.

There is a need to consider more than just the shortcomings of Asean. Away from the glare of geopolitics, the Asean Way has worked and is continuing to work when one considers that peace and growth in the region has largely been preserved.

This is borne out by the fact that the region has been on a remarkable journey over the past four decades, transforming from a mostly agrarian base to diverse economies with strong industry and services sectors. Post-the 1997 financial crisis, Asean grew 6 per cent in 2000. Then despite the 2008 global financial crisis and just before the pandemic started, the bloc continued to grow steadily at an average annual growth rate of 5.7 per cent from 2000 to 2019.

That commendable growth rate, coupled with a combined gross domestic product of more than US$3.7 trillion, or the fifth-largest in the world, means Asean is today acknowledged as a dynamic economic powerhouse for the sluggish global economy.

In 2022, while global growth was 3.2 per cent, Asean grew by 5.7 per cent, driven by resilient domestic consumption and thriving trade. Malaysia led the 2022 growth tables in Asean with 8.7 per cent growth.

Asean also topped foreign direct investment (FDI) flows in developing economies last year with a record US$224 billion, an increase of 5 per cent. This was amid a drop of 12 per cent in global FDI in 2022, with Asean's global FDI share increasing to a commendable 17 per cent.

Manufacturing FDI in Asean shows the most promise, rising to a record US$62 billion, with the total share of global FDI rising to 28 per cent in 2022. This suggests stronger manufacturing might and the effect of international supply chains' friend-shoring to our shores following persistent geopolitical tensions elsewhere.

While growth rates in 2023 are likely to moderate for Asean economies to around 4.5-5 per cent, reflecting weaker global demand for manufactured exports, the bloc is still projected to end the year ahead of the 3 per cent global economic growth. Recently, in Jakarta, International Monetary Fund Chief Kristalina Georgieva herself noted that Asean countries are contributing 10 per cent to global growth, roughly more than twice the proportion of their collective weight in the global economy.

Moreover, Asean has a youthful population, with almost 400 million people, or 60 per cent of our population, under the age of 35. This, coupled with a middle class that is estimated to grow by 5 per cent annually for the rest of the decade, creates a strong, growth-fuelling consumption base and should translate into strong prospects for Asean trade. The consulting firm BCG forecasts that Asean trade will average 3.5-5 per cent growth to 2031, whereas global expansion in trade is projected to grow at only 2.5 per cent a year over the same period.

With positive momentum on multiple fronts, I am optimistic that we will be able to grow stronger this decade and emerge as the world's fourth-largest economy by 2030. The challenge is for Asean policymakers to ensure that this growth translates into better lives for ordinary Southeast Asians, for which we need to focus on three things.

First, intra-Asean trade must grow commensurately. From 2012-2021, intra-Asean merchandise trade increased by just 17.3 per cent, compared to 40.2 per cent for extra-Asean trade, and its share of total trade fell from 24.4 per cent to 21.3 per cent. We can do better to tap such opportunities. On this note, I am encouraged by progress on the review of the Asean Trade in Goods Agreement whose upgrade - in key elements such as supply chain resilience, digitalisation and trade facilitation - is vital to further enhance intra-Asean trade.

Second, Asean must embrace the digital age. The launch of the negotiations on the Digital Economy Framework Agreement - the first of its kind in the world - at the 43rd Asean summit is a step in the right direction. This framework seeks to offer a comprehensive road map to empower regional businesses and stakeholders and grow trade by among others, enhancing interoperability, creating a safe online environment, harmonising policies and increasing participation of micro, small and medium-sized enterprises (MSMEs). This is set to unlock Asean's digital economy, valued at US$2 trillion by 2030.

Third, Asean must improve market inclusivity. Policymakers must work harder to convince the 70 million MSMEs across the region that their interests are best assured by a more vibrant trade ecosystem underpinned by free-trade agreements, especially in providing market access. FDI inflows into the region must be complemented by proactively building MSMEs' capacity towards their integration in the value chain of international trade. For instance, there is a need for Asean-wide equivalents to Malaysia's National Industry ESG Framework, which seeks to prepare our MSMEs for environmental, social and corporate governance-sensitive global markets.

Malaysia is committed to Asean because it is an integral part of our future. This is clearly reflected in Malaysia's recently-launched New Industrial Master Plan 2030, which specifically highlights that integrating with Asean economies will facilitate Malaysia's stronger positioning in the global value chain. Further, our National Energy Transition Roadmap also acknowledges the realisation of an Asean Power Grid as crucial to Malaysia's ambition to become a renewable energy hub.

Asean must seize the opportunity to fulfil its great promise. But globalisation - or for us, Aseanisation - will bring meaningful growth, prosperity, and stability to our region only if it is inclusive. We still have a long way to go. But if Asean policymakers can see the bigger picture, harness the critical mass that our economies offer and play the long game, I am optimistic that we will emerge as the brightest global economic spot for decades to come. Then, the forecast Asian Century could very well be an Asean one.

Tengku Zafrul Aziz is Malaysia's Minister for Investment, Trade and Industry.

This article originally appeared on the South China Morning Post (SCMP).

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