The ever growing diverse consumer market of ASEAN with a combined GDP of US$ 2.4 trillion will be the fourth largest economic region in the world by 2050, according to research conducted by McKinsey&Company (McKinsey Global Institute analysis). The growth of the Region’s various economies and its rising middle class speak volumes for the future as companies can tap into expanding opportunities.
The report said that about 54% of the region’s GDP is generated from 142 cities, which will be home to about 54 million more people by 2025, creating an even larger consumer market. The economic expansion of the region has also helped in many parts of the Region lower the extreme poverty level, with 67 million households in ASEAN now enjoying income levels that allow them to make discretionary purchases.
By 2025, McKinsey expects the size of this consumer-driven market to almost double to 125 million households.
This is the reason why we are promoting the growing consumer market in Europe and are encouraging European companies to trade and invest with the Philippines and ASEAN now, taking part in the projected expansion of the consumer markets.
Actually, we are seeing the expansion already for a few years; subsequently, we are requesting the Philippine lawmakers to reduce the barriers to retail entry from the present US$ 2.5 million to the standard US$ 200,000. This will be good for local competition, benefiting Juan de la Cruz, and it will support the growing tourism industry (tourists love to shop).
ASEAN already has the third-largest labor force in the world following China and India. With the rise of the younger generations, labor productivity is sure to increase if education and skills training are properly adjusted to labor market needs. The availability of skilled labor and the ease of doing business and getting investments going will be crucial for European companies to invest in the Philippines and ASEAN (or produce in the Philippines for ASEAN).
Foreign direct investment last year in the five largest ASEAN economies – Indonesia, Malaysia, Philippines, Singapore and Thailand – totaled US$ 128 billion, exceeding China’s FDI of US$ 117 billion (but take note that of US$ 128 billion FDI in the five economies, the Philippines got just under US$ 4 billion – I know the reasons why but that will be part of another story).
When compared with the European Union, ASEAN has had less volatile economic growth since 2000, and government debt ratios are below 50% of GDP, against 90% in the UK and 105% in the US.
However, McKinsey cautioned that investors as well as analysts need to take into account the differing characteristics of each of the 10 ASEAN member states, including culture, language and religion, as well as economic output, GDP per capita and the market dominance of large conglomerates in most of the ASEAN countries. Given the great range in average incomes, investment incentives offered and logistics infrastructure in place (or not), investors have the option to choose the country where they see the best opportunities and apply appropriate market strategies to meet their goals.
As for exports, from automobiles and parts to natural resources, the variety and quality of products and services traded has made ASEAN the fourth largest export region in the world. Even more so, the launch of export processing zones across ASEAN has increased interaction internally and externally. Further advances are expected once the ASEAN Economic Community in 2016 allows for free movement of goods, services, skilled labor, and investment. However, improvements are still needed to help interregional trade reach its full potential, since some countries still have some tariff and non-tariff barriers.
The 10 states of ASEAN have more to offer than many investors realize, the McKinsey report says. With the emergence of a newly affluent population, the ASEAN market is now embracing more leisure activities, modern retail formats, and higher brand awareness. Investors – especially from Europe – should take advantage of the distinct differences that each economy has.