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ASEAN is set to be the region to be situated in in 2013. After
an estimated growth of 5.2 percent purchasing power parity (PPP)-weighted
basis, we project the region to grow by 5.3 percent in 2013, outpacing the
International Monetary Fund’s (IMF) global growth estimate of 3.6 percent.
The region is expected to see economies such as Indonesia, the Philippines
and Malaysia matching or exceeding their 10-year average rates.
And more is
expected from Myanmar in 2013, which has been making international
headlines for the right reasons in 2012. Confidence is high, not just
domestically but also among foreign investors, where the region attracted
7.6 percent of global foreign direct investment (FDI) in 2011 versus 4.3
percent in 2006. Indeed, since 2000, following the crippling financial
crisis, the ASEAN region has outgrown the world by an average of 1.5 PPP.
So, can the region keep running at this pace?
Nothing
runs in a straight line. Business cycles still exist. But there is
certainly still a lot of room to grow. Despite the world-beating growth
rates registered over the last decade or so, the region can still achieve
more. The region is hardly at the stage where the factors for growth have
become complicated. At a most basic level, the continued process of
urbanization will help to drive “easy” growth.
This is the
economics of agglomeration. Urbanization helps to improve the overall
well-being of an individual by improving access to services and housing.
This can boost productivity and consumption. Urbanization helps to increase
efficiency as distances are shortened. This lowers costs of businesses or
for government to provide infrastructure and necessities. Jobs and supply of
labor are concentrated rather than dispersed.
The benefits of
clustering together, for individuals and firms, are reflected in the growth
activity being concentrated in cities, even if the size of the city is
small relative to the whole country. For example, Jakarta accounts for
about 17 percent of Indonesia’s gross domestic product (GDP) but only
constitutes 0.04 percent of the country’s land mass and 4.2 percent of the
population.
According to
the World Bank, the world passed the 50 percent mark for urbanization in
2007. As of 2012, there are still six countries in ASEAN that have not
passed the 50 percent point — Cambodia, Laos, Myanmar, the Philippines,
Thailand and Vietnam. Indonesia just crossed the mid-point at 51.4 percent.
Singapore, Malaysia and Brunei are largely urbanized. As a region on the
whole, we still have some low hurdles that we can cross to keep growth
sustained.
Urbanization is
typically associated with growing wealth. Measuring this by GDP per capita
and using the world’s experience with urbanization as an example, every
percentage point increase in urbanization raises GDP per capita by about
US$ 500. Granted, every country’s experience will be different. How well
urbanization is planned and implemented could affect the benefits accrued
to the process. Or the productivity levels of agriculture, for example,
could play a part in determining how much GDP per capita can increase
relative to urbanization.
In fact,
improper urbanization can result in diseconomies. Indeed, nowadays, when we
think of a city, negative connotations such as congestion and pollution
come to mind. But the fault does not lie with urbanization, but rather the
way it is being carried out. Urbanization facilitates economic growth. And,
given the relatively low levels of urbanization across ASEAN, the law of
diminishing returns is not likely to be in play yet in any significant
manner.
The low hurdles
to growth can also be seen in the GDP per capita of countries in ASEAN.
Compared to the world’s GDP per capita of $10,000 in 2011, only two
countries (Singapore and Brunei) exceed this level (using World Bank data).
Malaysia is nearly on par (based on 2011 numbers) but the next nearest
country, Thailand, is only about half of the world’s GDP per capita.
At this level
of growth, simple improvements to factors of production should help to
support growth. According to the World Economic Forum Global
Competitiveness Report 2012-2013, Cambodia and Vietnam are still at the
most basic stage of economic development — the factor-driven stage. Myanmar
and Laos are not included in this report, but would likely be categorized
as such, too. Brunei and the Philippines are in the transition stage to
efficiency-driven and Thailand and Indonesia are in the efficiency-driven
stage.
At the earlier
stages of development, adoption of existing technology and practices,
investing in infrastructure, provision of basic institutional framework,
and health and education facilities, should help to drive growth. In the
region, only Singapore is considered to be in the stage of economic
development that is innovation-driven. Malaysia is in the transition stage
from efficiency-driven to innovation-driven. Hence, the region still has a
lot of room for “easy” growth.
While this
article highlights the growth potential of the region, growth is not
granted. A right mix of fundamentals, policies and confidence is needed. At
the moment, there is certainly a nice mix of these ingredients. Confidence
is high, and even more so if it is seen in the context of the current weak
global environment. Fundamentals are good and policies have been supportive
of growth. But nothing stays constant and policies will need to stay relevant and forward
looking. ●
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