The road ahead as Asean nears 50

In two years’ time, Asean will celebrate its golden (50th) anniversary. This year, under Malaysia chairmanship, the regional bloc will fulfil the dream of becoming an Asean Economic Community (AEC).

In a world currently awash with strife and uncertainty, Asean remains the globe’s rising star. McKinsey Global Institute estimates that Asean is already the 7th largest economy in the world, and will be No 5 by 2050. It accounted for 7 per cent of world exports in 2012, surpassing all Asian economies except China (11 per cent). With a GDP of US$2.4 trillion – larger than India’s or Italy’s – and a population of 620 million – 100 million larger than the European Union’s – Asean can power global growth. Its labour force is the world’s 3rd largest and very young, with 50 per cent under 30 years old.

Travelling by local buses through Vietnam, Laos and Cambodia last month, I saw firsthand evidence of Asean’s rapid growth rate of more than 5 per cent per year. Every locale I visited seemed to be under construction, very much like China in the last decade. Cambodia, one of the poorest countries in the 1990s, has achieved over 7 per cent annual growth over an extended period. A lot of this is thanks to rapid urbanisation – cities accounted for more than half the population in 2013. According to the UN’s “World Urbanisation Prospects”, Indonesia’s urban population will nearly double to 228 million by 2050, when Asean will have over 500 million city dwellers. McKinsey estimates that 125 million of its households will join the middle-income class by 2025, an increase of 87 per cent.

 

War and water

As I sat amid the ruins of Angkor Wat, I reflected on two factors that had struck me most on my regional tour – war and water. Our tourist guide in Hanoi summarised Vietnamese history as “fighting China for a millennium, France for a century and the US for two decades” and “we beat them all”. 

The parts of Laos and Cambodia still littered with unexploded bombs and the street musicians maimed by mines are a vivid reminder that this is a region marred by war. 

I brought along Robert Kaplan’s 2014 book “Asia’s Cauldron”, about how the South China Sea could be the next flashpoint of geopolitical conflict. Born in the Vietnam War era, Asean realised that geopolitical neutrality and political stability is the anchor for peace and prosperity. The bloc is now being actively courted as a trade partner by the US, Europe, China, Japan, India and Russia as well as the Middle East. 

The trend is for geopolitical alliances, as evidenced by rival proposals for trade and investment, particularly the Trans-Pacific Partnership and the regional groupings of Asean+3 (China, Japan, South Korea) as well as Asean+6 (India, Australia, New Zealand) and its proposed Regional Comprehensive Economic Partnership (RCEP).

Unlike the European Union, the Asean is not a political integration but an economic zone focused clearly on regional peace. Its fundamental strengths are its consensual nature of agreement (which can be highly frustrating for some) and its ability to get the balance of power right, not only amongst the external powers, but also within Asean. Even though Indonesia is by far the largest of the Asean member states, accounting for 40 per cent of the population and 36 per cent of GDP, one tends to forget that the mainland, from Myanmar to Vietnam, accounts for 27 per cent of the population and constitutes the fastest growth potential. 

The problems of Asean are shared by the rest of the developing world. Inter-country income disparity is narrowing, but within each country, inequality is still rising. Growth in the six less developed countries remains far faster than in the richest four – Singapore, Brunei, Malaysia and Thailand. 

But the emerging six – Cambodia, Laos, Myanmar, Indonesia, Philippines and Vietnam – all need higher levels of spending on infrastructure, education and healthcare in order to continue growing. Already, four members have declared they cannot meet Asean’s 2015 target of a poverty headcount ratio of 0 per cent. It was clear that fast growth has dealt substantially with extreme poverty, but at the same time, the Lamborghinis I saw in Hanoi and Phnom Penh suggest the gap between the few urban rich and the poor rural masses is not being addressed. 

The good news is that the Japanese, Europeans, Asian Development Bank and the new Chinese-led Asian Infrastructure Investment Bank are more willing to fund the infrastructure. Indeed, China’s declared strategy to build a new Silk Road and Maritime Silk Road means that funding and technology for ports, railways and telecommunications will become readily available to Asean members. 

Furthermore, the fall in oil prices has meant cheaper fuel and enables Indonesia, Malaysia and Thailand to remove their energy subsidy policies, which in the last few years took up more than 30 per cent of total public budget, or 4 per cent of GDP. The subsidies’ removal frees up funds for infrastructure and dealing with social inequality.

 

Angkor – a warning from history

However, travelling through Southeast Asia’s countryside also revealed to me the importance of water in the region’s ecology. Almost all the region’s water comes from monsoon rains and the rivers that flow from the Himalayas through Yunnan in China. The Mekong River flows for over 4,800km through six countries, providing water and transport for over 80 million people.

Deforestation, global warming and changing weather patterns all threaten the fertile rice-growing areas from Myanmar to Vietnam, which depend on water availability. The region accounts for 12 per cent of global rice production. History shows that drought accelerated the fall of the Khmer Empire, responsible for the magnificent temples in Angkor. According to Vietnam authorities, drought, salination and rising sea levels due to global warming may erode 40 per cent of the Mekong Delta in the next century. 

Despite these challenges, I disagree with Kaplan that territorial disputes in the South China Sea over water and resources will be the end of a stable Pacific. First, there are just too many trigger points in the Balkans and Middle East before the East Pacific goes into armed conflict. Second, the region has too much to lose from rising trade and economic integration, not just within the region, but also with the US and Europe. Third, Asean is surrounded by nuclear powers, who understand and are wary of the fact that small skirmishes can end in total mutual destruction if not managed. 

Having survived and thrived together for nearly 50 years, Asean leaders can be trusted to have the common sense, pragmatism and moderation to understand that the regional and global future rests on clear-sighted balance of power, opportunities and risks. 

A cauldron needs an outside fire to be stoked. So far, Asean leaders have not lit their own cauldrons. Global warming already threatens to boil the world. We all have enough to do without boiling ourselves in our own cauldron. 

The founding fathers of Asean had the foresight to overcome their differences and ensure continued stability and prosperity for the region. One only hopes that outside powers have the wisdom and restraint to keep Asean growing in peace for the next 50 years.