A shift in the economic growth model is nowhere more apparent than in the fast emerging economies of South-east Asia. Once heavily dependent on exports to advanced markets, the countries of the ASEAN region are focusing on regional trade and investment opportunities.
Broadly based on the EU economic community, the ASEAN economic area, which is to be fully integrated by 2015, has become one of the main growth drivers in emerging markets, giving both China and other BRIC countries a run for their money.
A number of bottlenecks loom large: protectionism in certain sectors, different political systems, and GDP per capita ranging from $900 to $50,000. However, faced with weaker demand in Europe and the US, the ASEAN is more focused on the greater sum of its parts and is increasingly acting as a cohesive economic block.
This relatively new trend is well appreciated by the UK business and investment community, which is working on multiple levels and through various channels to form closer ties with ASEAN member countries.
It is hard to overstate the growing strength and influence of the ASEAN region, which is benefitting from a commodity boom, rising foreign investment, strong retail demand and expansionary government spending on major infrastructure projects. According to projections from the Organisation for Economic Cooperation and Development (OECD), the ASEAN-6 countries – Indonesia, Malaysia, Philippines, Singapore, Thailand and Vietnam – will record an average annual growth rate of 6% from 2012 to 2015.
By contrast, economic growth across the OECD is projected to drop from 1.8% in 2011 to 1.6% in 2012 This virtual downgrade reflects a number of adverse economic conditions in advanced markets, including weak credit conditions, large external deficits and subdued investor confidence. And the UK is no exception. According to estimates from the European Commission, in 2012 the UK will record a GDP growth rate of 0.5%, a figure that is expected to rise to 1.7% in 2013.
Facing a continued slowdown in the domestic economy, as well as a weak demand outlook in Europe, UK policymakers and business groups are shifting their attention to high-performing emerging markets, especially in South-east Asia. This strategic shift was on display in July, when the UK acceded to the Treaty of Amity and Cooperation in South-east Asia (TAC) .
Established in 1976, the TAC was designed to promote peace in the region, as well as effective cooperation on economic, social, technical, scientific and administrative fronts. Over time, the TAC grew to include several non-ASEAN countries, including India and China in 2003, Japan and Russia in 2004, and the US in 2009. According to UK Foreign Secretary William Hague, history shows that TAC accession paves the way for greater cooperation with ASEAN members.
“The UK is committed to strengthening its engagement with the countries of ASEAN,” he noted in a statement marking the agreement. “Today’s accession is an important step towards deeper mutual understanding between the UK and ASEAN, and I look forward to greater collaboration on our joint economic and security interests in the months and years ahead.”
Another milestone in UK-ASEAN relations came in May 2011, when UK Trade and Investment (UKTI) Minister Lord Green announced that creating a UK-ASEAN Business Council (UKABC) would be an integral part of the UKTI’s new “Britain Open for Business” strategy, which places special emphasis on supporting UK firms overseas.
A few months later, the UKABC was officially launched in Jakarta by the UK’s business secretary, Vince Cable, and Sundram Pushpanathan, the deputy secretary general of ASEAN for ASEAN Economic Community (AEC). In a statement at the launch, Cable argued that the council’s formation “shows the commitment of the UK government to develop its business network particularly with small and medium enterprises to encourage them to be more active in ASEAN”.
Moving forward, the UKABC will be an independent UK-based organisation chaired by Lord Davies of Abersoch, who will work with an advisory panel of 10-12 business experts with extensive experience in ASEAN markets. Current members in the council include Tidjane Thiam, the chairman of the Association of British Insurers (ABI), and Harvey Nash, the chairman of Harvey Nash Outsourcing.
According to UKABC planning documents, the council will initially focus on providing UK firms targeting the ASEAN region with market research, networking opportunities, and access to important decision makers in business and politics. In addition, the council will work to provide UK businesses with effective channels through which they can influence bilateral negotiations, including free trade agreements.
Of course, given intensifying competition among investors interested in South-east Asian markets, there is no guarantee that UK firms will strengthen their foothold in the ASEAN economy. What is more, the ASEAN block faces a number of internal challenges that could derail regional growth, including persistent poverty and inequality, environmental degradation, and the possibility of interstate conflict arising from disputes with China over territories in the West Philippine Sea. Nonetheless, the recent flurry of deal making between the UK and ASEAN business communities bodes well for future cooperation.