McKinsey identifies 3 catalysts for further growth of Asean

Naypyitaw, Myanmar

ASEAN must double its productivity growth to make the most of globalisation, urbanisation and digital technology to lift its growth to a new level, said a study issued on the eve of the meeting of the leaders of the economic grouping here.

The study, released on Tuesday by the McKinsey Global Institute and titled "South-east Asia at the Crossroads: Three Paths to Prosperity", noted that economic development in the 10-member grouping has so far been backed largely by an expanding labour force, in particular, the shift of workers from agriculture to industry.

But the drying up of Asean's pool of workers will expose the economic grouping's underlying weakness in productivity, an issue which needs to be dealt with urgently.

The McKinsey study predicts that when the Asean Economic Community becomes a reality next year, Asean's productivity would get a boost with greater integration; the removal of inefficiencies related to export and improved logistics networks should shorten time to market and produce productivity gains of up to 20 per cent of the cost base in many sectors.

However, tangled custom procedures, differing standards of regulation and issues of investment and ownership remain big hurdles to greater integration, it said.

Asean stands to capture a bigger share of trade and investment flows, especially by providing an alternative manufacturing hub, now that multi-national corporations have been hit by rising labour costs in China.

But turning Asean into a unified powerhouse of manufacturing and trade will require both public and private efforts.

The first step is to raise awareness of Asean and the Asean Economic Community among the business community and members of the public.

The study said: "If the region hopes to maximise the benefits of integration by expanding manufacturing, it will need to maintain macroeconomic and political stability, build world-class infrastructure and intensify its focus on workforce skills."

Tapping fully the opportunities from globalisation could yield US$280 billion to US$615 billion more in annual economic value for Asean by 2030.

Increasing urbanisation will also drive Asean's economic growth. "No country has ever climbed from low-income to middle-income status without a significant population shift into cities," the study said. "As people leave behind farms for urban jobs, they become more productive."

However, to reap the benefits of urbanisation, Asean will have to invest US$7 trillion in infrastructure, housing and community space, and beef up its education system to facilitate that shift of people to the cities.

The study has calculated that urbanisation could add US$520 billion to US$930 billion to Asean's annual Gross Domestic Product by 2030.

Then there is technology. The study noted that many Asean nations are starting from a relatively low base in terms of digital infrastructure, adoption and innovation, though the number of Internet users is growing fast.

"If the region can put the necessary backbone infrastructure in place, it could harness the power of technology to drive productivity improvements," said the study.

Asean's starting point suggests it has a bigger chance of making quick progress than more developed regions, "with possibilities for digital leapfrogging in multiple areas".

The study identified five related digital technologies poised to create substantial economic growth for Asean: the mobile Internet, big data, the Internet of Things, the automation of knowledge work and cloud technology. These disruptive technologies can unleash US$220 billion to US$625 billion in annual economic impact by 2030, the study said.

The study identified five related digital technologies poised to create substantial economic growth for Asean: the mobile Internet, big data, the Internet of Things, the automation of knowledge work and cloud technology. These disruptive technologies can unleash US$220 billion to US$625 billion in annual economic impact by 2030.