Vietnam and tech-enabled disruptors to turbocharge Asean growth over next decade

SOUTH-EAST Asia’s traditional growth drivers are being turbocharged by a vibrant, technology-enabled entrepreneurial sector and a “China dividend” as the mainland grows and companies diversify their supply chains.

In a new report titled “Southeast Asia’s Pursuit of the Emerging Markets Growth Crown”, Bain & Company and Monk’s Hill Ventures’ Angsana Council examined four growth drivers for the region.

South-east Asia is projected to grow by 4 to 5 per cent annually over the next 10 years. Vietnam will lead the charge at a projected growth rate of 5 to 7 per cent, compared with 5.6 per cent from 2011 to 2021. It is best positioned to benefit from China’s growth and supply-chain diversification.

Thailand is a concern, with growth over the next decade projected at 2 to 3 per cent – not much higher than the 2.3 per cent for 2011-2021. A tourism rebound should help, but Thailand has become a less dynamic and less productive society.

Singapore is projected to grow at 3 to 5 per cent in the next decade, compared with 3.2 per cent in the preceding 10 years. The city-state is expected to benefit from a reassessment of Hong Kong and a relocation of China technology firms, as well as a repositioning to growth sectors including gaming, professional services and biopharmaceuticals.

Indonesia is expected to grow 4 to 5 per cent, compared with 4.3 per cent in the last decade, as its booming technology-enabled disruptors sector is offset by the loss of manufacturing value-added and low foreign direct investment per capita.

Growth for the Philippines in the next 10 years is projected at 4 to 5 per cent, compared with 4.8 per cent the past decade. The country has shown steady improvement, but continues to lag “the potential of its educated and dynamic population”.

Malaysia is seen growing at 3 to 5 per cent, compared with 3.7 per cent. “Foreign direct investment attractiveness has declined with populism and political squabbling,” the report said.

Charles Ormiston, the author and a Bain adviser, said the projections should be interpreted as a “rosy scenario”, relative to the growth headwinds faced by Europe, Japan, China and the emerging regions of Latin America and eastern Europe.

The region will be a beneficiary of the “China dividend” – growing as China grows and enjoying the “spillover” from companies moving their operations from China into the region on the back of rising wage costs, supply-chain diversification, East-West tension, and concerns over China’s policies.

In a media briefing on Tuesday (Oct 18), Ormiston acknowledged the presence of new sources of potential instability, such as US-China trade tensions, but was sanguine about the impact.

“Our view is pretty strong that South-east Asia, with the exception of countries very dependent on aid, (is) in a very strong position to resist having to single up on any one of the countries, China or the US. They have always traded with all the major regions in the world and they can just continue to.”

Ormiston also emphasised the role of “tech enabled disruptors” as a force for progress in South-east Asia; these disruptors will raise productivity and innovation levels, and move consumers from the informal economy to the formal one by facilitating payments.

Yet, many tech companies now face a harsher funding environment in the face of inflation and rising interest rates. Peng Ong, co-founder and managing partner of Monk’s Hill Ventures, noted that venture capitalists are now more cautious.

He said: “In the last two years during Covid, with the quantitative easing that happened globally, you saw an almost risk-unadjusted appetite from the private equity folks… We, as VCs, were having a tough time trying to figure out whether we should invest at such crazy valuations.

“We pulled back from the market when the bubble was quite significant. Recently, in the last few months, the bubble has imploded.”

But he said VCs are still sitting on plenty of undeployed capital: “I think we’re getting into a time when there’s enough dry powder in the region. It’s (about) being very sensible and thoughtful on how this dry powder is going to be deployed.”