Southeast Asia’s rapidly growing economy is attracting foreign investors and new commitments from global corporations. Can it challenge China in its region?
“ASEAN is a bright spot,” says Federico Burgoni, group head of strategy and transformation at Singapore’s United Overseas Bank.
Founded as a political and economic community of five countries in 1967, the Association of Southeast Asian Nations today has 10 countries and 647 million people under its umbrella, with a GDP of $2.9 trillion in 2023. It is also the US’s fourth largest trading partner; Thanks in part to cooling economic relations between Washington and Beijing, foreign direct investment in ASEAN reached $224 billion in 2022, with the US being the largest investor.
There were growing pains; Plans to create an integrated, duty-free common market by 2025 have been thwarted by domestic protectionism and, more recently, the Covid-19 pandemic. But Southeast Asia’s experienced hands are expressing optimism.
“ASEAN is underpinned by strong fundamentals, including a young population, a dynamic workforce and growing foreign direct investment,” says Burgoni.. The total volume of foreign direct investment in the region in 2023 reached $228.9 billion, almost double the 2015 figure ($118.7 billion).
Burgoni expects economic growth in the region to remain strong thanks to a favorable mix of domestic demand, curbed inflation and increased domestic 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 a bright spot,” he says. “ASEAN is one of the fastest growing trading blocs and is now seen as a manufacturing base and growing consumer market for both the West and China.” This contrasts with China and many Western economies.
By 2030, 65% of the projected population of 750 million is expected to be middle class, thanks in part to robust domestic demand. It is important to note that countries like Malaysia and Indonesia are rich in oil and minerals of all types.
But tech investors are also eyeing the region.
Major tech players are expanding their activities
“There is no ASIA, but increasingly there is ASEAN,” says Bill Padfield.
Padfield is a technology veteran and the founding CEO of Salamander Advisory, an advisor to early-stage technology companies. A global technology and business leader in the region for over three decades, he was previously Global Senior Vice President of Transformation at NTT, and before that was Chairman and CEO of Dimension Data Asia Pacific and CEO of SGX-listed Datacraft Asia . He also helped Equant, now Orange Business Services, conduct a successful simultaneous initial public offering on the New York Stock Exchange and the Paris Bourse.
“Although it is not a single trading bloc, ASEAN is actively learning from Europe’s mistakes,” says Padfield. Promoting normative and economic integration too quickly gives rise to political opposition – national sentiments must be respected.
Major tech players including Google, Amazon and NTT have set up operations in the region. Global Foundries completed a $4 billion expansion of its chip manufacturing capacity in Singapore last year, and Nvidia and AMD are eyeing artificial intelligence potential in the region.
“Notably, investment in the electric vehicle sector has grown to $18.1 billion in 2022,” adds Padfield, “up 570% from $2.7 billion in 2021.”
In a sign that the global investment community views Singapore as a financial and technology hub, the London Stock Exchange now employs 350 full-time staff.
“Surprisingly, we estimate 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 are already active.”
Collectively, Apple, Microsoft and Invidia have invested billions of dollars in ASEAN economies, he adds, and their executives are all “talking to heads of state from Indonesia to Malaysia,” he notes.
Singapore was in the spotlight last month when Amazon purchased a giant site in the city-state to unveil a new $9 billion investment plan. In Johor Bahru, Malaysia, which borders Singapore, Nvidia last year teamed up with a local operator to build a $4.3 billion park of artificial intelligence data centers. CEO Jensen Huang has been spotted in Vietnam enjoying street food and is rumored to be eyeing Hanoi and Da Nang as possible hubs for future investment.
Hoping to take advantage of the interest of big tech companies, ASEAN is currently developing the ASEAN Digital Economy Framework Agreement (DEFA), the first of its kind in the world, which is projected to triple the region’s digital economy from $300 billion today to nearly $1 trillion by 2030 year. Progressive rules (e.g., more deregulation, more growth) in DEFA would double this value contribution, unlocking US$2 trillion for the region’s digital economy.
“I think you can honestly say that the days of China playing second fiddle are over,” Padfield concludes.
AI will play a big role in this shift, says consultant Kearney, who estimates AI adoption could add $1 trillion to the ASEAN economy by 2030. A specific catalyst will be generative AI, adds Tony Nash.a longtime resident of the region and former adviser to the Chinese government on the global Belt and Road Initiative, who founded Complete Intelligence, which provides artificial intelligence-based forecasts to large companies in Asia and around the world.
However, much will depend on the region’s ability to integrate further.
“ASEAN is made up of about a dozen politically, culturally and geographically diverse countries,” Nash notes. “Despite progress, persistent protectionist tendencies and conflicting national interests continue to hamper the full realization of these ambitions.”
However, “there are ongoing signs that ASEAN is benefiting from cracks in China’s economic armor,” he adds. As tensions with the West persist and concerns about supply chain dependencies grow, multinationals continue to diversify into Southeast Asia.
“Vietnam, in particular, has emerged as a manufacturing hub,” says Nash, “attracting investment that might previously have favored the Middle Kingdom. And big tech companies are hiring the region’s low-cost, tech-savvy workforce.”
Acutely exposed to the impacts of climate change, ASEAN is also looking ahead in its efforts to decarbonize its economy.
Initiatives such as the ASEAN Carbon Neutrality Strategy, the Circular Economy Framework and the ASEAN Blue Economy Framework aim to help the region transition to a green economy while creating significant added economic value. Malaysia and Thailand are attracting investment in renewable energy, often in partnership with leading Chinese technology suppliers seeking to avoid onerous US tariffs on mainland exports.
As seen in the US
From the perspective of an American investor, the benefits of ASEAN are numerous. “The region boasts a growing middle class, abundant natural resources and a strategic geographic location on vital trade routes,” says Nash. Its relative political stability and pro-business policies may prove tempting, especially as the world faces an increasingly fragmented economic order.
Close observers also generally agree that Singapore’s status as Southeast Asia’s leading financial center is assured, at least for the foreseeable future.
“The city-state’s impressive economic dynamism, strong legal framework and business-friendly policies have strengthened its position as a gateway to the region,” says Nash. But he has equally smart neighbors.
“Upstart challengers such as Jakarta and Kuala Lumpur are keen to emulate Singapore’s success,” adds Nash, “capitalizing on their own strategic advantages, which include the scale that Singapore lacks and an insatiable appetite for capital across all ASEAN economies. Smart due diligence, selective local partnerships and a long-term outlook are prerequisites for success in this challenging but extremely promising region.”