Figure 1: SEA-6 is expected to grow by 5.1% on average annually over the next decade
Despite a slowdown in growth in Vietnam, it is still expected to lead the region growing at 6.6% GDP growth on average over the next decade. Vietnam’s export-oriented economy is well-positioned to capture “China + 1” opportunities. Its domestic ecosystem promotes healthy inter-provincial competition and cultivates a strong workforce. This combination sets Vietnam up well to attract diverse investment sources, while developing its economy.The Philippines, expected to grow at 6.1%, benefits from a pro-growth administration that is prioritising infrastructure investments, particularly with renewable energy projects garnering investor interest. It can also reap demographic dividends, unlike Singapore and Thailand which will face challenges in this area.Indonesia is expected to grow at 5.7%, but it has strong potential to exceed this forecast given the availability of resources, a growing population and workforce, and a thriving ecosystem of entrepreneurship and innovation. It needs to improve its MVA, going beyond commodities, and embrace keeping the economy open and competitive.Likewise, Malaysia, which is expected to grow at 4.5%, shows signs of doing well with recent efforts to attract FDI, leveraging its past successes in growth sectors such as semiconductors. It could also be the main beneficiary of flow through of opportunities from Singapore, particularly reflected in the sharp uptick in data centre investments. Malaysia’s data centre capacity has the potential to more than double the capacity of Singapore, which hitherto has been the leader in the region.Five opportunities to accelerate growth in SEA-6Looking ahead, to accelerate growth, SEA-6 needs to adopt strategies to redirect resources, make bold policy changes and take risks in five key areas. The report highlights five new growth opportunities for SEA-6 to raise growth beyond the expected forecasts. These include investing in emerging growth sectors, fostering TEDs, strengthening capital markets and expanding investments, accelerating green transition and embracing multilateral initiatives.1. Invest in emerging growth sectorsAs an export-oriented region, SEA-6 has the infrastructure, relationships with multinational corporations, and government support necessary to further develop emerging, high-growth sectors. The region can gain a competitive edge by prioritising next-generation sectors that fit with established clusters, workforce capabilities, and resources.Thailand has consistently led the region in EV manufacturing FDI commitments by leveraging its existing automobile manufacturing base for four-wheelers, except in 2022 where Indonesia attracted more investments than Thailand. Indonesia, on the other hand, commands over 90% of EV battery manufacturing FDI (committed between 2019-2023), largely as a result of the nation’s efforts to integrate its nickel supply with downstream operations.As global players actively diversify their semiconductor supply chains, SEA-6 has the opportunity to capture investment inflows provided the region continues to enhance its capabilities. Malaysia is currently leading the region in packaging and testing, attracting over 61% of FDI committed since 2019. It would do well to upgrade into more value-added parts of the supply chain, as other countries compete in less technologically and more labour intensive parts of the semiconductor supply chain.2. Foster TEDsAs Southeast Asia often protected its domestic services, the region’s services productivity and innovation historically lagged large domestic markets, such as the US, India, and China (even if they also offered some protection against foreign participation).Encouragingly, the advent of TEDs has sparked investment, innovation, and productivity growth in the services sector, driving higher growth rates overall. The total value of private tech investment deals in SEA-6 surpassed that of India in 2022, with Singapore and Indonesia witnessing the largest deal flows. The region also experienced a 170% increase in the number of unicorns from 2017 to 2022.“Technology transformed the US, and then China, and accounts for much of the resilience in their economies. It has also brought about deep challenges, including disruptive social networks and wasteful business practices. Southeast Asia is at an inflection point. We have the opportunity to think about leveraging tech meaningfully--to be using tech to drive more innovation in our private sector, to ensure our communities benefit from tech, and to draw more investments and capital formation to increase our living standards. It’s up to us to learn from the lessons from others and be proactive in leveraging technology,” said Peng T. Ong, Trustee of the Angsana Council and Co-Founder and Managing Partner of Monk’s Hill Ventures.3. Strengthen capital markets and expand investmentsThe report notes that it is vital for economies to develop a diverse range of financial markets, products, and participants to grow. Singapore, Malaysia and Thailand lead in this for different reasons, and in general, fare better than China and India.SEA-6 must develop its banking, insurance, private equity, hedge funds, venture capital, and microlending sectors to attract investment and ensure efficient capital allocation. Increasing household participation in financial markets is essential for utilising domestic capital effectively and achieving significant multiplier benefits. Indonesia has led in this area, with liberal banking regulations and fintech innovations improving access to financial services, especially in rural areas.As the region's capital markets develop, safeguards against corruption, fraud, and overspeculation are crucial.4. Accelerate green transitionSEA-6 is well-positioned to produce low-cost energy due to its abundance of natural resources such as having over 30,000 GW of total solar power potential and substantial offshore wind potential in The Philippines and Vietnam.It should aggressively pursue green transition to further meet its climate goals and increase renewable green energy availability and revenue pools through the pursuit of new growth emerging green sectors.The Philippines and Vietnam have substantial offshore wind potential, and the region has vast untapped solar and hydropower availability.With improved grid infrastructure, government support, and financial incentives, SEA-6 could deliver climate, economic, and energy security benefits regionally and abroad. Government policies play a crucial role in moving the needle on this, particularly by earmarking investments in grid infrastructure.5. Embrace multilateral initiativesGiven its institutional set-up and diversity, SEA-6 cannot be approached as one market. Despite this, there are multilateral initiatives that can be meaningful for the region’s collective growth. SEA-6 needs to pursue economic integration to ensure free movement of people, capital and goods, harmonise the digital landscape to boost cross-border trade and innovation and drive green transition to ensure economic growth and resilience.[1] SEA-6 refers to Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam.Access the full report here
