In the new COVID-19 status quo, many countries are receiving devastating blows both socially and economically. Western governments were caught wholly unprepared by the novel Coronavirus. Yet many countries in Asia – having dealt with more pandemics throughout the years due to higher population densities – were well prepared. Through a mixture of luck, positioning, and early strategic moves, Southeast Asia is set to outperform many other regions in this new state of affairs and gain a more important role on the world’s investment map.
The particular reasons for it are wrapped into 5 bullet points:
- Good management of damages
- Before-vaccine convenience
- Strong internal growth
- Cost effectiveness
- Sustained economic growth
#1 Good management of damages
Much like an immune system, prolonged exposure to noxious influences has led Southeast Asian countries to develop operational protocols for dealing with contagious diseases.
As such, while many states in the West were still debating whether there was an issue at all, governments in Southeast Asia countries have already activated their plans and taken early actions. That being said, most Southeast Asia countries have applied proper and suitable measures to slow down the spread of COVID-19 right from the beginning. They learned from their past experiences, like SARS in 2003, that no pandemic should be overlooked and needed to be “catered” right when it is just a newborn. Nation-wide lockdowns, travel ban and preventive measures are put into effect, along with active communication about the seriousness of COVID-19. These countries also created mobile apps for health monitoring and tracing contact history of reported cases to reduce the contagion.
Even without government intervention, businesses and individuals have also been aware of the situation by themselves and begun abiding to social distancing rules and started to use facemasks more commonly while in public (partly attributed from the Spanish flu normalizing wearing facemasks in Asia for a long time).
In case you need more information on how each country is outperforming in terms of COVID-19 controllation, here are some bulletins:
In spite of only a few cases being detected so far, Brunei has enacted tough measures early on, including banning foreign visitors, prohibiting mass gatherings, and restricting religious-related activities. The government has also announced economic measures to assist companies and individuals affected by COVID-19 and has begun offering testing kits to neighboring countries.
After initially downplaying the pandemic, Cambodia has taken some belated steps including suspending foreign visas, declaring a state of emergency, and canceling new year celebrations. With the country officially registering a few dozen cases as of now, it has also begun allocating more economic resources to the health sector amid concerns about the country’s health system and its ability to handle rising cases.
The Indonesian government has enacted some limited restrictions, including banning foreign travel and closing some land borders. In addition to three stimulus packages, Jakarta is coordinating aid from various countries and development banks to shore up the economy. Indonesia has also been an important voice in calling for a greater regional and international response to COVID-19, including within ASEAN.
Though Laos has recorded just a few cases thus far, the government has taken some aggressive steps, including border closures, restricting mass gatherings, canceling celebratory events, and a partial lockdown. It also has been receiving assistance from China since March.
After an initially slow reaction, Malaysia has taken some aggressive steps, including border closures and as well as a partial lockdown that has been enforced by the military. It has also been quick to manage economic impacts, with three economic stimulus packages already announced since the end of February.
The government has enacted some limited measures, including suspending visas on arrival and international flights and canceling national celebrations. It has also been working with other governments to increase capacity in areas such as testing in light of the severe constraints of Myanmar’s health system.
After some delay, the Philippines has enacted some restrictions, including canceling fights, banning the entry of foreigners, and nixing key military exercises. The country also announced an economic stimulus package and social protection program.
Singapore’s early detection and quick response – with restrictions and support packages announced starting in February – not only enabled it to initially contain the virus, but also served as an early warning of the virus’ spread in Southeast Asia at a time when underreporting had been suspected. Singapore’s response has served as an example globally and the country has also been contributing to assistance in the region and sharing its experiences with the world.
After some delay, Thailand closed its borders, banned foreign visitors, and imposed a partial curfew. The government has also passed three stimulus packages covering a range of areas, including loans, worker aid, and tax benefits.
In spite of only a few cases being detected so far, Timor-Leste has been attentive to the pandemic and has begun implementing some limited measures including a state of emergency, a $250 million fund to combat the virus, and selective quarantine and surveillance.
Vietnam’s early and quick response – including travel restrictions in late January and a quarantine in mid-February – allowed it to contain the virus initially despite its high vulnerability as a country that borders China. Vietnam has also been providing assistance to lesser developed mainland Southeast Asian states and pushing for more of a regional response as this year’s holder of the annually rotating ASEAN chairmanship. As of July, Vietnam has turned back to complete normality without having any new deaths.
All in all, Southeast Asia has managed to keep confirmed COVID-19 cases within a reasonable range compared to Europe, the US, Latin America, and even East Asia. Countries like Vietnam, Cambodia, Myanmar, Brunei, Timor Leste and Laos, each has under 500 confirmed cases as of July 16.
This, in turn, means that unlike its Western counterparts, its industrial and social fabric is relatively unscathed during the Great Lockdown.
#2 Before-vaccine convenience
Epidemiologists have suggested that in the Coronavirus world, it may be possible to create trade and travel corridors between places that share similar infection rates and policies. The reason behind this is that until there is a viable vaccine distributed cheaply to the wider public, the risk of infection is too great to return world travel to its pre-COVID state; at least for the foreseeable future.
In the best-case scenario, a vaccine is at least a year and a half away. So for now, the world has become larger, and crossing vast distances has also become rather unlikely, unless absolutely necessary. Hence, the sensible move is to limit the potential damage by only allowing travel between states with lower infection levels.
As it so happens though, Southeast Asia has similar infection rates across the board; as well as cultural ties with each other. It is also part of a cohesive trading bloc, known as ASEAN, which unifies economic policies between the different countries. Open travel, common policies, lower infection rates, and limited economic damage have all combined to give Southeast Asia an edge that will allow it to thrive under the new normal brought on by COVID-19.
#3 Strong internal growth
Southeast Asia has eclipsed China as the region most likely to produce the best investment returns, according to a survey at the Asian Financial Forum 2019.
The reason for that was that Southeast Asia, or Vietnam in specific, enjoys strong demographic fundamentals. The majority of countries in the region have a low average age, growing middle class, and high urbanization rates. If the Southeast Asia region were a single country, its GDP would be the fifth-largest in the world, behind Germany and ahead of India. Each of those factors have historically primed countries for increased, prolonged economic growth.
These Southeast Asia countries are also a neutral party in the US-China rivalry and stand to benefit from any trade war or bellicose action of either party. This is because of how both rivals would try to offset any economic damage done by either party by tapping into Southeast Asia’s offerings.
In other words, even as the rest of the world may enter into a COVID-19-induced recession, Southeast Asia has the structural advantages to not only survive but thrive in this new rapidly emerging world order.
#4 Sustained economic growth
Southeast Asia countries maintain a stable growth, which secures the returns for foreign investors. Macroeconomic policies pursued by Southeast Asia countries – or ASEAN Member States specifically, and cooperation initiatives at the regional level strengthen the region’s strong economic credentials. Southeast Asia is able to sustain its GDP growth at over 5% since 2013. Its GDP rose from US$8.7 trillion in 2018 to US$9.3 trillion in 2011, 2 times higher than that of China. Inflation was eased at 2.6% in 2019.
Along with the positive trends in GDP is multinational companies’ improved perception on ASEAN countries. In UNCTAD’s Investment Report, Indonesia, Thailand, Viet Nam, and Malaysia are ranked as among the top 20 most desirable destination economies in the world. In addition, in the panel discussion “Global investment in the new economy” taking place in Hong Kong, about 39% of respondents viewed Southeast Asia as having the best investment returns, while 35% voted for China and 16% for the US.
“We surveyed CEOs across the region where they wanted to put their money in the next 12 months. For 2 years in a row, Vietnam has come out on top. This has much to do with what is happening around the world, and that some CEOs are making adjustments to their supply chain in response to the current environment” – said Raymond Chao, Asia-Pacific and Greater China chairman at PwC.
Also, HSBC, one of the largest banks in the world, predicted the Philippines and Indonesia to be the 16th and 17th largest economies in the world by 2050 based on fundamentals such as current income per capita, rule of law, education, and demographic change. Malaysia, Thailand, Viet Nam, and Singapore were included in the top 50 economies predicted to dominate the world.
These statistics come to prove the sustained economic growth of Southeast Asian countries during the past years – and imply a positive future for investors.
#5 Cost effectiveness
One area where Southeast Asian countries are primed to greatly benefit is from the recent trend of divestment from China. The reason behind this development is because China has enacted the largest quarantines in human history, which caused the world’s economy to be grounded to a halt.
A single pandemic originated from China was able to totally stop global trade, interrupt supply chains, as well as provoke various shortages across the world.
The commonly accepted wisdom in the investing landscape had been to concentrate economic resources. However, due to economies of scale, investors are now reassessing those principles. The concentration of financial resources and capital for the sake of economies of scale makes sense when times are good. But it offers very poor protection from any supply shocks – a single point of failure can topple the whole house of cards by itself.
What is more, many of the reasons that created the benefits of concentrating resources in China have been disappearing as of late.
For decades, China had attracted foreign investments due to its cheap labor and rapid industrialization rates, yet this is no longer the case. China can no longer compete just on pricing, despite keeping the exchange rate of the renminbi artificially low. Instead, other countries in Southeast Asia members are far better candidates.
One good example is Vietnam. If you/your business want to invest money to outsource from Vietnam, the cost of doing such is about 50% less than the rivals from China. Anderson Vietnam also estimates that outsourcing per person in Vietnam is only $20,000 per person a year compared to $40,000 per person in India. Tax incentives in Vietnam is also favorable, resulted in the government has issued uplifting terms in Preferential Corporate Income Tax treatment for investment:
- Exemption for the first 4 years of operation.
- At 50% of the preferential rate thereafter.
- Preferential rate of 10% and 20% (while the generally applicable rate is 25%).
By investing in Southeast Asia countries such as Vietnam, you find not only a good alternative to China, but also save money from investment to focus on the continuity of your business after the COVID-19.
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