ASEAN Girds For Growth

Southeast Asia’s rapidly expanding economy is attracting foreign investors and new commitments from global corporations. Can it challenge China in its own region?

“ASEAN is a bright spot,” says Federico Burgoni, head of Group Strategy and Transformation at Singapore’s United Overseas Bank.

Founded as a five-nation political and economic community in 1967, the Association of South-East Asian Nations today counts 10 countries and 647 million people under its umbrella, boasting a 2023 GDP of $2.9 trillion. It is also the US’s fourth-largest trading partner; thanks in part to the cooling of economic relations between Washington and Beijing, foreign direct investment into ASEAN hit $224 billion in 2022, with the US being the largest investor.

There have been growing pains; plans to create an integrated, tariff-free common market by 2025 have been hampered by domestic protectionism and, more recently, the Covid-19 pandemic. But experienced Southeast Asia hands express optimism.

“ASEAN is backed by strong fundamentals, including a young population, a dynamic labor force and rising foreign direct investment,” says Burgoni. Total FDI for the region hit $228.9 billion in 2023, almost doubling the 2015 take of $118.7 billion.

Burgoni expects growth in the region to remain strong owing to a benign combination of domestic demand, moderating inflation, and increasing inward trade and investment flows.

“Yes, there are some geopolitical risks [US sanctions from Trump, a war in Taiwan, etc.], but in Asia we think Southeast Asia is the bright spot,” he says. “ASEAN is one of the fastest-growing trade blocs and is now seen as a production base and a growing consumer market to both the West and to China.” That stands in contrast to China and many Western economies.

By 2030, 65% of a projected population of 750 million is expected to be middle class, based in part on resilient internal demand. Crucially, countries like Malaysia and Indonesia are rich in oil and minerals of all kinds.

But tech investors are eyeing the region as well.

Big Tech Players Expand Operations

“There is no ASIA—but there is, increasingly, an ASEAN,” says Bill Padfield.

Padfield is a tech veteran and founding CEO of Salamander Advisory, a consultant to early-stage tech companies. A global technology and business leader in the region for over three decades, he was formerly global senior vice president of Transformation at NTT, and before that chairman and CEO of Dimension Data Asia Pacific and CEO of SGX-listed Datacraft Asia. He also helped lead Equant, now Orange Business Services, to a successful simultaneous IPO on the New York Stock Exchange and the Paris Bourse.

“Although it’s not one trading block, ASEAN is actively learning from Europe’s errors,” says Padfield. Pressing on too quickly with regulatory and economic integration creates political opposition—national sensibilities need to be respected.

Major tech players including Google, Amazon and NTT have set up operations in the region. Global Foundries last year completed a $4 billion expansion of its microchip facilities in Singapore, and Nvidia and AMD are eyeing the region’s artificial intelligence potential.

“Notably, investment in the electric vehicle sector soared to $18.1 billion in 2022,” Padfield adds, “marking a 570% increase from 2021’s $2.7 billion.”

Federico Burgoni, Head of Group Strategy and Transformation at Singapore’s UOB.

In a sign of how the global investment community views Singapore as a financial and tech powerhouse, the London Stock Exchange now has 350 full time employees there.

“Amazingly, we calculate that there are more than 400 venture capital funds registered in Singapore with $8 billion in funds,” says Padfield, “and more than 4,000 tech startups already active.”

Collectively, Apple, Microsoft, and Invidia have committed billions of dollars in investment to the ASEAN economies, he adds, and their CEOs have all been “hobnobbing with heads of state from Indonesia to Malaysia,” he notes.

Singapore was in the spotlight last month when Amazon took over a giant venue in the city-state to unfurl a fresh $9 billion investment plan. In Malaysia’s Johor Bahru, which adjoins Singapore, Nvidia teamed up with a local operator last year to build a $4.3 billion AI data-center park. CEO Jensen Huang was been seen in Vietnam enjoying street food and is rumored to be reviewing Hanoi and Da Nang as possible centers for future investment.

Hoping to build on Big Tech’s interest, ASEAN is currently hammering out an ASEAN Digital Economic Framework Agreement (DEFA), the first of its kind worldwide, which is projected to triple the region’s digital economy from $300 billion today to almost $1 trillion by 2030. Progressive rules (like the greater deregulation, the faster the growth) in the DEFA would double this value contribution, unlocking $2 trillion to the region’s digital economy.

 “I think you can honestly say that the days of playing second fiddle to China are well and truly over,” Padfield concludes.

AI will play a big role in that shift, says consultant Kearney, which estimates that AI adoption could add $1 trillion to the ASEAN economy by 2030. A specific catalyst will be generative AI, adds Tony Nash, a long-term resident of the region and a former adviser to the Chinese government on its global Belt and Road Initiative who founded Complete Intelligence, which provides AI-driven forecasting to major companies in Asia and worldwide.

Much will depend, however, on the region’s ability to further integrate.

Tony Nash, Founder of Complete Intelligence

“ASEAN consists of about a dozen politically, culturally, and geographically disparate countries,” Nash notes. “While progress has been made, stubborn protectionist tendencies and conflicting national interests continue to impede the full realization of this ambition.”

That said, “there are continuing indications that ASEAN is benefiting from the cracks in China’s economic armor,” he adds. As tensions with the West persist and concerns over supply chain dependencies grow, multinational corporations continue to diversify their operations into Southeast Asia.

“Vietnam, in particular, has emerged as a manufacturing hub,” says Nash, “luring investments that might have previously favored the Middle Kingdom. And the tech majors are embracing the region’s low-cost but technically savvy workforce.”

Acutely exposed to climate change, ASEAN has also been forward-looking in its efforts to decarbonize its economy.

Initiatives such as the ASEAN Strategy for Carbon Neutrality, the Framework for Circular Economy, and the ASEAN Blue Economy Framework aim to help the region transition to a green economy while creating significant economic value-add. Malaysia and Thailand are pulling in renewable investments, often in partnership with leading Chinese tech suppliers seeking to escape onerous US tariffs on exports from the mainland.

As Seen From The US

From a US investor’s perspective, ASEAN’s selling points are manifold. “The region boasts a burgeoning middle class, abundant natural resources and a strategic geographic position astride vital trade routes,” says Nash. Its relative political stability and pro-business policies could prove alluring, especially as the world grapples with an increasingly fragmented economic order.

Close observers also generally agree that Singapore’s status as Southeast Asia’s preeminent financial hub is assured, at least for the foreseeable future.

“The city-state’s impressive economic dynamism, robust legal framework and business-friendly policies have solidified its position as a gateway to the region,” says Nash. But it has equally savvy neighbors.

“Upstart challengers like Jakarta and Kuala Lumpur are keen to emulate Singapore’s success,” Nash adds, “capitalizing on their own strategic advantages, which include a scale that Singapore lacks and the insatiable appetite for capital across ASEAN’s economies. Prudent due diligence, selective local partnerships and a long-term outlook are prerequisites for success in this complex yet immensely promising region.”

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