Inequality within ASEAN

Multi-lateral forums and organizations tend to take a lot of nations together which may not in the same socio-politico-economic conditions. Since the beginning of the century, ASEAN nations have seen a lot of economic development partly because of the shifting of manufacturing from East Asia and partly because of the increased regional stability and shifting of world supply chains. Considering the success of ASEAN and economic surge, we know that there is a stark development differential among the South East Asian nations.

These different levels of development and similar levels of financial market maturity might create hurdles for financial market integration, and with the COVID-19 situation, the differential is only going to increase which might widen the gap further. Although it is quite evident that there are varying levels of development among the member nations, it is also true that the gap has existed historically between the peninsular and island nations in the region. This brief will focus on the economic inequalities among the ASEAN countries & why is it problematic for the region going ahead.

Statistical evidence and the developmental imbalance

The scale of economic disparity among ASEAN member states is best illustrated by the GPD per capita levels, Singapore with $55,182.50, Brunei with $39,678.70 whereas Cambodia has $1036.70 and Myanmar just has a per capita GDP of $887.80. This is only widened with the COVID-19 affecting different nations at varying scale, the latest GDP growth predictions for 2020 give flesh to the fears. The comparison of GDP growth numbers of 2019 with the 2020 predictions provide us with the severity of the situation. The GDP numbers of Malaysia is down from 4.3% to 0.5%, Thailand is at -4.8% from 2.4%, Indonesia is at 2.5% from 5.0% and a similar downward trend is visible for other member countries.

Kuala Lumpur, Malaysia/ Image source: Shutterstock

As per Asian Development Outlook 2020 “All economies in the subregion will endure a growth slowdown in 2020 because of COVID-19 and a consequent global slump, especially given their strong trade and investment ties with a slowing PRC” decelerating to 1% average growth this year. These numbers with the already existing economic disparity within the region may well work in a way to opening up the region for further divisions and thus in the foreseeable future threatening even the existence of the ASEAN grouping as it exists now.

Apparent Division

The two groups of countries in ASEAN represent the two different economic are, ASEAN 6 comprising of the Philippines, Brunei, Malaysia, Indonesia, Singapore and Thailand and CLMB group of countries comprising of Cambodia, Laos, Myanmar and Vietnam. As must be obvious, this division is based on the levels of income, with ASEAN 6 belonging to higher income & the CLMB (newer members) belonging to the lower-income states. The sub-grouping may be old but with Viet Nam as an exception, the division still stands true to its definition.

Although other factors come into play as well and comparison based just on GDP (nominal) per capita is not justifiable, still, it gives us a slight insight into the differences of the living standards as well as countries being at different stages of development making the task of equitable growth much more difficult.

Socio-Economic Indicators and stark reality

As we know nominal per capita GDP can be very inaccurate as well as very puzzling so we will look at the socio-economic indicators to showcase the levels of inequality and why is it hard to make the region economically integrated.

Image source: UNDP Lao

Socio Demography

The parameters like access to safe drinking water and sanitation give us a perspective; percentage-wise Brunei & Singapore are at top of the list with 100% and at the bottom of the spectrum is Cambodia with 64.8% of its population having access to safe drinking water. For access to improved sanitation, Singapore and Malaysia had 100% & 96% respectively and the worst performer is Indonesia with 69.3%.

Another indicator being the Infant mortality rate is the lowest in Singapore 2.2 and highest in Lao PDR (Laos) 38. This showcases the stark difference in the availability of basic amenities among the member nations. However, if one looks at it, the social realities among South-East Asian nations will be a big obstacle in the future of the nations would want to keep the stock together.

Economy & Trade

Social parameter differentials are bad for economic integration, one can be the devil’s advocate here and state Joseph Incalcaterra, an economist at HSBC in Hong Kong who says “In theory, trade prospers the most when you have big differences in economic development because that precisely accrues benefit. When one country is labor abundant and another country us capital abundant, that creates the perfect condition for trade.”

The above condition may be helpful for trade numbers for some member nations but as a whole, this economic disparity will jeopardize the multilateral forum and thus, the situation is consciously being looked after. One of the economic parameters which provide us proof for the headways or the intent for the same among the high-income members of ASEAN are their share of intra-ASEAN FDI for Indonesia, Cambodia, Myanmar, Laos and Viet Nam is 53.9%, 25.4%, 59.4%, 15.3% and 18.4% respectively. If we look at these numbers in combination with the rate of growth of FDI inflows which are 22.2%, 13.6% and 11.2% for Laos, Cambodia and Myanmar respectively. This showcases a real effort from within the organization to bring the disparity to a commendable equilibrium.

Image source: Reuters

COVID-19: finding opportunity in crisis

The ASEAN economic documents quite often talk about narrowing the development gap and differential treatments to create a solid economically integrated block. However, the COVID-19 scenario has led to unpredictable trajectories for the future. The Asian Development Bank’s report says that the quick recovery of ASEAN will depend on the health of large economies and their consumer markets being in good health. However, if we look at the intra-ASEAN trade, the picture looks less grim as the consumer demand and the local trade is still keeping up with the requirements and things have not turned out to be the worst.

While, if we look at its largest trading partner ‘China’ the demand has decreased, seriously effecting the exports from the region which will for a short term adversely affect manufacturing. Even this has a bright side, which being, the economic downturn and the overall foreign policy of People’s Republic of China (PRC) has made many countries seriously think about moving their manufacturing out of China and ASEAN can very well fill that gap and become the next manufacturer of the world.

Marching Ahead

As we can see, there are disparities and need for equitable growth not only inside the countries but among the countries as well. There are a lot of divisions within South East Asia ranging from ethnicity, religion, region, peninsula-island divide, language, culture, haves & have nots, etc. As is visible in the case of the USA, the inability of the state to provide economic growth and making people part of that growth story has widened the cracks in society. The ASEAN states have been able to avoid instability because of the large part of the region was able to provide a hope of economic growth. The prospects for growth are higher than ever, and even though this pandemic has made pessimists out of the most optimistic people, the only region about which analysts are optimistic is ASEAN.

The region needs to work together and be considerate of its less developed members as they can be swayed by the Chinese and the region can go too deep into the debt trap that whole multilateral experiment will be jeopardized. The international consumer market may not be available to South East Asia, it is a good time to focus on the local market as well as to spur the ASEAN’s internal consumption, supply and demand, it will take time, but it is the need of the hour.


Asia Development Outlook 2020:

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The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of The Kootneeti Team

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Abhyoday Sisodia

Abhyoday Sisodia is a Research Intern at The Kootneeti

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