South East Asia is forming a new economic powerhouse with Singapore at its core.
When opening a European or an American newspaper, and if the subject is about Asia, one usually reads about China and India. But Asia is much more than these two countries: it is also about ASEAN, the association of ten South-East Asian nations with Singapore at its center.
In times where the cohesion of the European Union (EU) is put under scrutiny, a new powerhouse is emerging on the world stage ? both politically and economically. With more than 600 million inhabitants, the ASEAN region has a larger population than either the EU or North America. The ten ASEAN states combined represent the world's seventh-largest economy already today. Leading institutions forecast that the ASEAN nations will be the fourth-largest economy by 2050, leaving stagnant Europe far behind.
And ? perhaps most importantly ? the ASEAN region currently has the third-largest labor force in the world, right up there behind China and India. Frontier markets such as Vietnam, Cambodia or Myanmar are currently going through a remarkable transformation from being the 'extended workbench' of the West to becoming promising domestic consumer markets ? propelling the development of local industries and at the same time rapidly changing the standard of living of the broader population.
Middle class drives Asian growth
At the center of growth in ASEAN is the rise of the middle class. According to estimates of the United Nations, the Asian middle class is expected to grow six-fold by 2030. If Asia currently contributes 28% to the world's middle class, leading institutions expect this share to increase to two thirds within the next 15 years.
In terms of numbers, these are 2.7 billion additional people who will join the Asian middle class in the coming years. Notably, these individuals will have enough available income ? as well as a great interest ? to spend on higher-quality products and services. This development is in full swing today already.
However, there are as many definitions of the term 'middle class' as there are ways to describe their spending patterns. While the average new middle class member in Singapore will strive for a Swiss timepiece, the average new middle class members in a frontier market like Myanmar will probably, for the first time in their life, consider buying branded cosmetics.
From the workbench of the West to the economic powerhouse AEC
It is exactly this thirst for consumption ? paired with the relatively high economic stability of the ASEAN region in recent years ? that is a paramount opportunity for the upcoming ASEAN Economic Community (AEC). With the target of becoming a common market, the ASEAN governments have set themselves a goal of achieving more freely flowing goods, capital and labor by the end of 2015. Provided the economic actors manage to support innovation, the AEC will succeed in capturing the rising opportunities. Here again, the fundamental conditions are good: today's Asia is more focused on innovation and technology. East Asia today has the highest mobile social media access worldwide, showing how quickly the region has gained in innovative ability.
A second success factor for the AEC is how its economic actors leverage human capital. Successful inclusive growth means higher employment rates as well as more and better jobs. It also means investment in skills and training for people of different ages, as well as modernized labor markets to increase workforce efficiency.
A third AEC success factor is connectivity. Inner-regional exports in South East Asia have grown by more than 7% annually over the past six years, opening the door for more freely flowing goods. This compares to the European Union, where intra-union trade has continually declined over the last years.
Implementing the AEC fully on schedule ? by the end of this year ? is certainly a huge task. It is true that there are challenges: firstly and above all, economic development among AEC members is very different. Gross domestic product per capita in Singapore is more than 50 times higher than in Cambodia. Secondly, differences in regulations ? especially non-tariff barriers ? remain a serious obstacle to the free flow of goods and services. This is particularly striking in the healthcare industry. Thirdly, cultural differences are both an opportunity and a challenge.
Singapore at the core of the AEC
Strong recent commitment by the ASEAN bodies and its governments shows that the conditions for a successful AEC are there. The December 2015 deadline should, however, be seen more as a starting point for an exciting journey towards a successful South East Asian common market rather than a cut-off date.
Rising international trade and investments will also bring the AEC region closer together. Singapore could easily become the epicenter of the new AEC, given its key geographical location in the center of the region, its reputation as an outstanding financial center in Asia and its stable environment conducive for business.
The South East Asian common market is on the way to becoming a new economic actor on the world stage, with the Lion City at its very core.
Dr. Joerg Wolle is President & CEO of DKSH.