PHNOM PENH – Going by the sometimes breathless reports about how well Vietnam has done out of the US-China tariff joust, a reader would be forgiven for thinking that an authoritarian single-party state where farmers make up 40% of the workforce has been transformed into a kind of scaled-up Singapore, which despite its small size usually sucks in around half the annual foreign investment bound for Southeast Asia. The numbers in so far suggest that Vietnam’s trade war triumph is indeed nigh. Its economy grew by just over 7% in 2018 – though that has dipped a notch, according to government statistics, to around 6.7% so far this year. But even that slight fall-off will nonetheless make for high growth – due in part to record levels of foreign investment, including some business seemingly diverted to Vietnam as American tariffs add to the cost of exporting to the US from China. “Following the US-China trade tensions, there is evidence of companies making adjustments to avoid the high tariffs situation,” said Bansi Madhavani, economist at ANZ Research, part of Australia and New Zealand Banking Group. According to Madhavani’s counterparts at Maybank Kim Eng, part of Malaysia’s Maybank, Vietnam “is emerging as the biggest beneficiary” of those adjustments, “with FDI [foreign direct investment] registration up by +86% in the first quarter of 2019”.
PHNOM PENH — With no end in sight to the so-called trade war between the US and China, the European Union (EU) sees a chance to act as the guardian of free trade and hold its own against the two giants. But as the bloc gets increasingly bogged down in spats with individual Southeast Asian countries, prospects for a wider regional trade relationship look increasingly precarious. With Cambodia’s eligibility for preferential market access to the EU coming under question and with the likelihood growing that Myanmar could be put under similar scrutiny, the EU appears to be hedging against any consequent damage to its relations with Southeast Asia by seeking free trade agreements and closer defence ties with some of the region’s countries. While for now Cambodia can export duty-free to the 28-country, 513 million-population European Union market, this week saw the end of the “monitoring and engagement” phase of a review of that access, potentially putting $5 billion worth of Cambodian garment exports at risk. A European Commission spokesperson said in an August 12 email that “over the next six months, the Commission and the European External Action Service will analyse all the evidence collected”.
KWANGKO, SUMBAWA ISLAND — As afternoon turns to evening and the high and blinding sun sinks slowly toward the horizon, Zubaidi still keeps the peak of his cap tilted slightly down, all the better to run an eye over the sky-blue paint job on the small skiff he and his small team are putting the finishing touches to. Behind Zubaidi’s seaside house, set about three feet up on stilts to keep the floor above any high tide, the whine of the electric saws and planes readies another batch of precision-cut timber for the next boat, each one to be sold to eager local fishermen at 1.5 million Indonesian Rupiah (US$106) a pop. Less than two years before, Zubaidi and team had to saw the planks by hand. It was only a year and a half ago that his tiny village of Kwangko on the coast of the island of Sumbawa was connected to the national electricity supply. “I can do three times as much now, more than I had before we got power,” Zubaidi says. “Now you have to pre-order if you want a boat.”
PHNOM PENH – Tax And Spend has rarely been part of the Southeast Asian governance lexicon. And judging by the region’s dismal tax-to-gross domestic product (GDP) ratios, it doesn’t look like that will be changing anytime soon. Newly published revenue statistics compiled by the Paris-based Organisation for Economic Co-operation and Development (OECD) show that the five biggest Southeast Asian economies have ratios of half or less than the 2017 OECD average of 34.2%, though most countries in the region showed small increases in revenues compared with the previous year. The OECD defines the tax-to-GDP ratio as “total tax revenue, including social security contributions, as a percentage of GDP”. While more prosperous countries in Southeast Asia’s vicinity such as Australia, Japan and New Zealand all come in around the 30% mark, Southeast Asia’s own numbers were much lower, with Indonesia at 11.5%, Malaysia on 13.6 and Singapore only slightly above on 14.1. This last number in particular seems surprisingly low given that Singapore’s economy more resembles higher-tax Western counterparts than its neighbours in Southeast Asia.
PHNOM PENH – Cambodia appears to be the latest beneficiary of the US-China trade war, joining the already exhaustively profiled Vietnam among the countries enjoying increased exports to the US as tariffed Chinese goods open the door for other cheap suppliers. Latest US government data show annual imports from Cambodia rising significantly since the start of the year, with the US$1.8 billion registered from January-May a roughly 20% increase on the same period last year. Like Vietnam, Cambodia has duty-free access to American markets under the Generalized System of Preferences, a trade program designed to promote economic growth in the developing world. Trade represented 125% of Cambodia’s gross domestic product (GDP) in 2017, according to the World Bank. In 2018, the bulk of Cambodia’s goods exports to the US were clothing and footwear, with the Office of the US Trade Representative listing the top four sectors as knit apparel ($1.8 billion), woven apparel ($628 million), leather products ($390 million), and footwear ($329 million). Cambodia’s 2018 trade surplus with the US was $3.4 billion — which, though relatively-small compared with Vietnam’s near-$40 billion for the same year — will continue to rise this year as Cambodia’s exports to the US surge. Parsing the numbers for a direct trade war link is not as clear-cut as it may seem, however, with both Vietnam – where trade represented 188% of GDP in 2018 – and Cambodia expanding their commerce with the US since before the start of the tariff war.
JAKARTA — While global foreign direct investment (FDI) dipped in 2018 for a third consecutive year, Asia bucked the global trend with rises nearly across the board, including record inflows to Southeast Asia’s booming economies. New United Nations Conference on Trade and Development (UNCTAD) data released today (June 12) shows total worldwide FDI fell 13% to US$1.3 trillion in 2018, as global economic uncertainties grew over the US and China’s increasingly antagonistic trade and investment policies, particularly in strategic sectors such as digital and mobile technology. But “developing Asia”, a region encompassing most of the continent aside from wealthy countries such as Japan, saw a 4% rise in foreign direct investment to $512 billion, representing 39% of the global total, according to UNCTAD’s 2018 World Investment Report.
JAKARTA — Rising incomes mean that Asians are increasingly likely to get drunk at least once a month, according to new data underpinning a report on global drinking habits published this week in The Lancet, a British medical journal. Since 1990, so-called “heavy episodic drinking” has increased significantly in China, Thailand, Timor Leste and Vietnam. Tiny Bhutan, source of the concept of “gross national happiness,” coined by the country’s king in 1972 as an alternative to the standard economic yardsticks of gross national product or income per capita, is more often drowning its sorrows.
JAKARTA — As oil prices fluctuate and markets brace for the impact of the end of a US sanctions waiver on fuel purchases from Iran, Asia’s energy companies are making deals closer to home as bigger global players pull away from the region. Southeast Asia has already seen up to US$2.8 billion in mergers and acquisition (M&A) deals so far this year, according to Wood Mackenzie, a United Kingdom-based consultancy. Those deals have been led by US-based Murphy Oil selling its Malaysia operations to PTTEP, a subsidiary of Thailand’s national energy company, for $2.1 billion. Wood Mackenzie predicts that up to $14 billion of energy assets could change hands in the region this year if, as expected, more M&A deals like the Murphy-PTTEP deal are completed. Big deals such as the Murphy-PTTEP sale represent a significant jump, given that a typical Southeast Asian oil and gas M&A deal over the past five years has been worth a mere $111.6 million, according to S&P Global Market Intelligence data. Total annual energy deal values in Asia have ranged between $5.4 billion and $8.7 billion in the past four years, according to Wood Mackenzie data. Wood Mackenzie’s Andrew Harwood said that he expects buyers to be “Southeast Asian NOCs [national oil companies] and smaller regional players” with back-up from “some of the mid-tier IOCs [international oil companies] that retain Southeast Asian ambitions.”
KUALA LUMPUR — New economic data shows that foreign remittances sent to Asian countries hit US$300 billion for the first time last year, underscoring the ever-rising importance overseas work for the region’s laborers despite world-beating economic growth rates. Freshly released World Bank statistics put the total amount of remittances for 2018 to countries in South Asia, Central Asia, Southeast Asia, East Asia and the Pacific at $299.6 billion, a sum that does not include what are believed to be substantial informal flows of money sent home by regional migrants. Globally and in Asia, remittance figures are growing year by year, despite heady 6-7% gross domestic product (GDP) growth in countries such as the Philippines, a nation which has around 10 million of its citizens working abroad across various vocations. The 2018 amount of regional remittances was around $25 billion greater than in 2017 and $125 billion more than in 2008. Worldwide, remittance flows now account for more than foreign direct investment to middle and low income countries excluding China, the World Bank data shows.
JAKARTA — As hundreds of millions of Asians enjoy higher living standards in the move from lower to middle class, a warning of the trend’s sustainability came this month from Europe, where middle class expansion has stalled. The Organization for Economic Co-operation and Development (OECD), a Paris-based club that includes most of the world’s wealthiest nations, reported that many of its member states have “seen their standard of living stagnate or decline, while higher income groups have continued to accumulate income and wealth.” The middle class crisis in the West means disappointment for those who hoped that standards of living would continue to improve, as was the case for their forbears during the four or five decades after World II. But more recent times have seen the top 10% of earners’ share of total wealth rocket to nearly half the national average — findings contained in a new OECD report, Under Pressure: The Squeezed Middle Class, that in turn paints a grim picture for the third of member state populations described as “economically vulnerable.”