South-east Asia's emergence as a consumption powerhouse

DON'T underestimate the Asean consumer.

Yes, there are only about half as many of them as there are in China or India. And the typical shopper in the 10-member Association of South-east Asian Nations is not as wealthy as Mr or Ms Europe.

This year (in fact, this week) marks the 49th anniversary of Asean Day (when the Asean Declaration was signed). We have witnessed the collective efforts of these 10 countries in building a community with 620-plus million inhabitants who are an increasingly powerful source of global demand, and a potential game-changer for companies that are looking for growth in a tough and uncertain global environment.

In short, Mr and Ms Asean have come a long way in a short time.

Spanning countries as diverse as Singapore, Vietnam and the Philippines, the region has gone from being primarily a hub for manufacturing cars, electronics and other goods to being a market for those very goods. Much like "Made in China" became "Made for China", "Made in Asean" is rapidly becoming "Sold in Asean".

Visit the airports in Bangkok, Manila and Jakarta and you'll find them bustling with Malaysians, Indonesians, Thais and Filipinos who just a decade or two ago could not have dreamed of enjoying an international holiday.

There are three Louis Vuitton stores in Kuala Lumpur alone, and one each in Ho Chi Minh City, Hanoi, Manila and Surabaya.

Gross domestic product (GDP) per capita, which as recently as 2007 was little more than US$2,300, has grown by about 78 per cent and now tops US$4,100.

Clearly that remains well below the US$55,000 in the United States or the nearly US$48,000 in Germany, but it compares favourably to India (US$1,580) and approaches China (US$7,590). Three Asean countries already have a per capita GDP exceeding China's.

BREATHTAKING DIVERSITY

Asean is not an easy market to tap. Companies need to adapt their business models to the region's breathtaking diversity: Asean spans a wide array of religions, cultures and languages, multiple political systems, and vastly varying levels of economic development. GDP per capita in Singapore, for example, is roughly 50 times that of Cambodia and 16 times that of Indonesia. Internet penetration in Singapore is excellent; in Myanmar, it is almost non-existent. A one-size-fits-all business approach is not a recipe for success.

At the same time, the region is sprawling and physically disjointed: the 250 million inhabitants of Indonesia alone are spread out over thousands of islands. Infrastructure links in many parts of South-east Asia remain underdeveloped or overloaded.

All this means that Asean's enormous potential - and Mr and Ms Asean's consumption power - is often still not fully appreciated.

Yet the region's economy - US$2.6 trillion in total - is already the seventh-largest in the world; by 2050, it could be the fourth-largest. Accenture estimates that annual consumer spending will rise to US$2.3 trillion by 2020, roughly 80 per cent more than the 2012 level.

The number of middle class households in Asean will top 120 million by 2025, roughly doubling the figure in 2010. This will help boost spending on anything from white and brown goods to travel and entertainment, to insurance and education.

A number of factors support Asean's growth prospects. Infrastructure links are improving. China's Belt and Road initiative, for one, is expected to inject political momentum and financing into many projects in the coming years.

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The recently-formed Asean Economic Community is gradually liberalising the flow of goods, services and capital, smoothing cross-border activities for companies doing business within this dynamic region. Full implementation of the liberalisation reforms envisaged under the AEC could lift regional GDP by 5 per cent and Singapore's GDP by 9.5 per cent by 2030, by our estimates.

Meanwhile, Mr and Ms Asean are not just growing in numbers but also becoming more urbanised and wired. Some 100 million more people are forecast to migrate from the countryside to cities across South-east Asia over the next 15 years while the number of Internet users is expected to soar from 260 million now to 480 million by 2020 - meaning 3.8 million new users per month - according to recent research by Google and Temasek.

This increasing connectivity is making it possible for large swathes of South-east Asia's population to access goods and services that were once beyond their financial and physical grasp.

Take financial services. The World Bank estimates that about two-thirds of people in Indonesia, the Philippines and Vietnam, and about 20 per cent of those in Malaysia and Thailand, currently have no banking relationships. Improving Internet connectivity and the introduction of digital banking technologies (mobile banking, virtual teller machines, voice biometrics, thumbprint identification, etc) will in the coming years allow tens of millions of people to access savings, loans, investment and insurance services for the first time - enabling consumption, and putting a vast consumer base within the e-commerce reach of companies around the world.

Asean is not an easy market, and like many economies in the world right now, its more immediate economic outlook is challenged by slowing growth in China, Brexit and general uncertainty in Europe, and volatility in the commodities markets. But Mr and Ms Asean and their physical and virtual wallets represent a rare bright spot in the global economy - and a prize worth going for.