When growth hot spots connect
Asean, South Asia need better connectivity which will cut inefficiencies and cement 20 years of growth
Through the 1997-98 Asian Financial Crisis, regional stock markets lost more than 60 per cent of their value.
Already fragile government reserves ran dry. By May 1998, Indonesia's sovereign rating had fallen to CCC+.
As this year draws to a close, let us reflect on the last two decades and envision what the next 20 years could be like.
The recovery that followed the Asian Financial Crisis had been driven largely by domestic policy reforms, demographics in Asean and South Asia, and infrastructure investment in China. Corrective measures and market-friendly policies by governments strengthened economic foundations.
From 1997 to last year, gross domestic product (GDP) per capita across Asean-6 countries had grown by 155 per cent. Indonesia's sovereign rating is now investment grade.
To sustain growth, economies need to be more connected than they are now. For a region as diverse as Asean and South Asia, integration is hardly an easy process though.
Within Asean alone, the difference between GDP per capita in Singapore and Cambodia is as big as 55 times.
The Asian Development Bank estimates that South Asia and South-east Asia will need at least US$3.6 trillion (S$4.9 trillion) from 2010 to 2020 in infrastructure investment to meet the needs of the growing populations in the two regions.
Countries are also more focused on building national digital payment systems than enabling cross-border points of connectivity.
To overcome these challenges, governments need to implement the right policies to encourage physical and digital build-outs that will spur flows of trade, investment, information and people.
Over the next 20 years, the region's economic transformation will be much more fundamental than the change seen over the last 20.
Besides favourable demographics, we will see an unprecedented level of infrastructure investment. And not just the obvious infrastructure such as bridges, railroads, ports but also, perhaps more excitingly, digital infrastructure.
Demographic lift plus physical and digital infrastructure will catapult the region to a new level of productivity and prosperity - if the risks can be managed.
First, physical infrastructure. On the back of China's One Belt, One Road (Obor) initiative, the region is planning to build - and starting to construct - at an unprecedented pace.
It is estimated that US$4 trillion to US$8 trillion of cumulative infrastructure investment will flow on the back of Obor over the long-term. Although ambition has been there historically, governments are now putting their money and actions where their mouths are.
Linked by the ancient Silk Road, the Obor can create a bigger network of markets and new opportunities for Asean and South Asia.
Second, digital infrastructure. When India announced Aadhaar, a unique identity number issued to all residents, in 2009, few understood that digital identities were clearly the first step in digitising economies.
Today, with over one billion Indians with Aadhaar digital identity, India has been able to move the unbanked into the banking system en masse and then digitise payments in one big leap on the back of demonetisation.
Other governments have been sending teams to India to study this transformation, believing economic efficiencies and higher tax takes on the back of greater transparency will quickly follow.
If executed right, these efforts will truly connect Asean and South Asia by 2037. From manufacturing to payments to delivery, the supply chain will be only a click away. This connectivity will decrease inefficiencies and ultimately cement two decades of strong growth.
But first, risks need to be managed. National tensions - most clearly on the back of Obor between India and China - exist. The ability to move seamlessly across digital and physical spaces can also create security challenges, of both the real and cyber varieties.
Greater competition may ensue too. In the years to 2037, the well-travelled economic development path for emerging markets that once relied on competitive labour costs to thrive will be challenged by innovative technology. Despite these risks, the rewards will be worth it.
Companies positioned to capitalise on the infrastructure and digital booms will thrive. And the economic growth that follows will lift both individuals and countries to new levels of prosperity.
Over the past 20 years, the region has gone from crisis to growth hot spot. In the coming two decades, the growth hot spots will connect, creating a brighter and more sustainable future across the region.
The writer is CEO of Standard Chartered Bank's Asean and South Asia region. This is an edited version of an article that was published in The Business Times yesterday.