Risks, opportunities differ widely in Asean


BMI Research tags PH as ‘left in the dust’

The Association of Southeast Asian Nations (Asean) is expected to become the world’s fourth largest economy in less than a decade but its 10 members vary substantially in terms of risks and opportunities, a Fitch Group unit said.

“Given its bright growth prospects and huge market potential, we believe that Southeast Asia will increasingly feature on investors’ radar. However, with uneven growth and development across the region, each country in the region is unique…,” BMI Research said in the final note in a two-part series exploring the region’s attractiveness.

Many of Asean’s member-economies were lauded for progress in reforms but the research firm was also scathing in parts, for example describing the Philippines as “left in the dust as attention turns to war on drugs”. The country, however, was not at the “bottom of the pack”—this tag was attached to Myanmar.

Focusing on the ease of doing business, political risks and operational challenges, BMI said Singapore retained its top spot in the region with “significantly above average” scores.

With key strengths such as a very stable political system, a large English-speaking and skilled labor force, and few economic imbalances, this “gateway to Asean” is expected to gain more prominence under the work in progress that is the Asean Economic Community.

Malaysia, meanwhile, was described as a credible competitor to Singapore given advantages such as cheaper labor and logistics costs. The country, however, has made it more difficult to start a business, ranking 111th out of 190 countries.

Thailand was cited for its reform momentum—seen boosting its strong manufacturing sector. The country was also said to have become a strong contender for foreign direct investments with BMI citing Austria-based Lenzing Group’s decision in June to cancel plans to locate in Indonesia in favor of Thailand.

The country’s demographic profile, however, “is deteriorating and wages are rising quickly, meaning that
productivity growth will have to rise significantly for Thailand to retain its competitive advantage.

Oil-rich Brunei was cited for its “all-round improvement” in economic diversification, particularly with regard to bid to become an Islamic financing hub. But cumbersome property and trading rules, along with its small and expensive labor force, will see the country “struggle to become a regional heavyweight in terms of manufacturing,” BMI said.

Vietnam, for its part, was described as an “up and coming manufacturing hub with pro-business reforms” that have extended to retail, which has attracted firms such as South Korea’s Lotte Group, Japan’s Aeon and Takashimaya, Singapore’s Charles & Keith and Spain’s Zara.

Indonesia, meanwhile, was said to be lagging in terms of competitiveness due to poor infrastructure connectivity and red tape “but further acceleration in reform momentum should provide a boost to investment,” BMI said. As the country is the region’s largest market, businesses could find it “worthwhile … to navigate regulatory and logistical bottlenecks.”

BMI’s observations about the Philippines were already raised in the first part of its report, including the country’s 14-spot slide in the latest ease of doing business rankings and an apparent backtracking in reforms.

“Although the Philippine economy will continue to be buoyed by strong demographic trends supporting savings as well as increased trade and investment links with China and Japan, risks are increasingly weighted to the downside as the business environment deteriorates,” BMI said.

Cambodia was also criticized, with investors urged to consider an increasingly challenging political climate with the 2018 elections approaching. Prevalent corruption also “weighs on everyday business operations, which poses a threat to the country’s otherwise strong economic potential.”

Macroeconomic stability, meanwhile, was said to be a key risk for Laos given its rising public debt, overvalued exchange rate and low foreign reserves. Near bottom rankings with respect to ease of doing business also “presents massive challenges for private investors,” BMI said.

“Bottom of the pack” Myanmar, lastly, was described as having the worst business environment in the region given factors such as a highly volatile political environment. BMI noted, however, that approved reforms should improve the country’s regulatory environment.

“There are high risks involved in doing business in Myanmar, but this will likely be accompanied by high rewards, particularly from gaining first mover advantage in a country of more than 60 million people,” the research firm said.


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