Up-and-Coming Tiger Cubs

Charting Their Economic Course

The crisis promoted the view that closer regional cooperation was needed. Still, it was only in 2015 that the Association of Southeast Asian Nations (ASEAN) committed to the elimination of nearly all duties on the cross-border transport of goods within the region. At least ASEAN succeeded in forging a free trade agreement with China and India much earlier. Even with the European Union (EU) and ASEAN proclaiming their desire to cooperate more closely in 2022, there still has been no breakthrough. At this point, only Singapore and Vietnam have a free trade agreement with the EU, and only Singapore has one with the United States.

But in 2020, ASEAN stirred the pot. It reached an agreement with China, Japan, South Korea, Australia, and New Zealand on the Regional Comprehensive Economic Partnership (RCEP). The 15 signatory countries want to strengthen their economic cooperation, reduce customs duties, and dismantle trade barriers. If carried out systematically, the accord would create a huge regional market encompassing 30 percent of the world’s population and 30 percent of its gross domestic product. The economic integration of the ASEAN countries would continue. Some experts see RCEP as an opportunity for a more effective division of labor, with greater industrial specialization in the individual countries.

And now? In light of the unforeseeable crises of the last few years, any projections must be viewed with caution – especially with ASEAN’s realization that it is susceptible to natural catastrophes and with climate change posing yet another challenge. The tense relationship between the super powers China and the US could also weigh heavily on Southeast Asia’s economic development. Nonetheless, there is an opportunity for the workshop of the world to migrate to Southeast Asia, at least to some extent. Governments in the region also see the need – as well as the opportunity – to make greater use of technology and digitalization.

Promising Outlook

In any case, RCEP could give Vietnam, Thailand, Malaysia, Indonesia and the Philippines a sustained push to expand their economies, especially as key performance indicators send out positive signals. Based on the 2022 Global Innovation Index, all the tiger cubs, apart from Indonesia, clearly rank in the top half of the 132 countries evaluated. After the pandemic shock, economic growth in the ASEAN zone had already climbed back to 3.4 percent in 2021. The projections for the next few years exceed that percentage. And inflation increased less than in many industrialized Western countries during 2022, when the war in Ukraine began. The share of the population of working age is about 70 percent. Production costs continue to be low, and a growing middle-class promises to breathe life into the domestic economy. All the same, the infrastructure and the level of training could be expanded.

Overall, the positive signs stand out: Thailand is known for its well-developed vehicle and machine-building sector. Vietnam has evolved into an important manufacturing center for textiles, electronics and electrical devices, which has attracted international companies. Auto manufacturing could join them. Indonesia is benefiting from its mineral wealth, which is important for building batteries for electric vehicles. The government is also striving for the digital transformation of its manufacturing sector. Malaysia is also not just relying on its fossil resources – it is producing semiconductors for microchips and wants the status of a high-tech country. The Philippines are positioning themselves as a center for outsourcing services (e.g. call centers, IT and software development), while the government pours money into the large infrastructure projects. It seems the foundation has been laid for the belated pounce of the tiger cubs.