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Southeast Asia’s Improved COVID Situation Offers a Positive Outlook For Economy Rebound

With intensive vaccine rollout and heavy restrictions, Southeast Asia has significantly improved its COVID situation towards the end of 2021. Regional governments are gradually lifting restrictions and pushing to reopen, aiming to strike a balance between virus containment and movement of people and money.

 

Tourists in Bangkok, Thailand

Southeast Asia’s COVID Cases

Southeast Asia’s top economies – Vietnam, Indonesia, the Philippines, Malaysia, and Thailand, all faced a surge in COVID cases during the summer of 2021. The number of COVID-infected citizens soared in Indonesia during June-July, making it the country with the highest rate of infections in the region. Vietnam, originally successful in preventing the disease, also suffered a severe outbreak from June of 2021.

Table showing number of confirmed COVID cases in Southeast Asia

With heavy restrictions in place, the rate of daily new COVID cases has decreased for most countries. Indonesia, once the pandemic centre of Southeast Asia, reported the lowest number of daily new cases among the top economies. Except for Thailand, other countries have reduced their daily record of infections to less than 5,000 cases.

Graph showing daily ne confirmed cases in Southeast Asia

Southeast Asia’s COVID Vaccination Progress

Making up for a slow beginning, Vietnam and Indonesia are speeding up their vaccination program with over 1 million doses administered daily in October. Thailand and the Philippines are lagging in the race, with around 5 to 6 thousand doses administered daily. Only Malaysia has fully vaccinated over 70% of its population.

Table showing vaccinations in Southeast Asia

All countries target to achieve herd immunity with at least 70% of the population fully vaccinated against COVID-19. There are several complications in reaching these deadlines. For example, shortage of doses, government and localities coordination and local anti-vaccine movement (particularly in the Philippines and Indonesia), just to name a few.

Vietnam and Indonesia both aim to achieve herd immunity by March 2022. The Philippines is set to immunize 60% of its population by the end of 2021. Malaysia has surpassed the 70% benchmark and plans to vaccinate 80% of its target population (adults aged 18 and over) by December 2021. Thailand aims to vaccinate 70% of its population within 2021, focusing on covering tourist-concentrated areas.

Countries are also introducing vaccination programs to children ahead of the new school year. In October 2021, the Philippines began a pilot program in hospitals to vaccinate minors aged 12 to 17 with underlying medical conditions. Thailand recently kicked off a vaccination program with the Pfizer vaccine, aiming for more than 5.04 million students, aged 12 to 18. Vietnam will also start vaccinating children aged 12 to 17 with the Pfizer-BioNTech vaccine, starting November 2021.

Future Outlook: GDP, FDI, Supply Chains, and Tourism

The surge in infected cases led several governments to apply COVID-zero strategies, including limited international and local movements, and halted business activities. Unsurprisingly, strict regulations carried a negative impact on the economy. After months of heavy restrictions that put the economy on the brink, countries in Southeast Asia have lifted several social curbs and, most importantly, planned to reopen.

According to Oxford Economics, Foreign Direct Investment (FDI) flowing into Southeast Asia remains strong. As the global value chains continue to adjust to higher labour costs and trade protectionism in China, Southeast Asia is likely to be the key beneficiary. London-based think tank Capital Economics projected the region’s economy to rebound strongly in the fourth quarter of 2021 as COVID cases have dramatically reduced.

Vietnam

Vietnam’s GDP declined sharply by 6.17% in Quarter 3 of 2021 – the first recorded negative growth since 2000. In the first nine months of the year, the country’s GDP has now only grown by 1.42%. The Ministry of Planning and Investment estimates the annual GDP growth of 2021 to be at 3-3.5% compared to 2.91% in the previous year.

Foreign investors remain optimistic about Vietnam’s long-term growth. Its role in the global supply chain is only expected to grow, as noted by American Chamber of Commerce in Vietnam. Information services company IHS Market also stated that Vietnam’s involvement in the global supply chains would not be diminished by the pandemic, since the costs to relocate would outweigh the costs of momentary disruptions.

The government is developing a roadmap to be fully open to international tourists by June 2022. A pilot program for fully vaccinated international visitors to Phu Quoc Island will be carried out in November 2021, before reopening Nha Trang, Ha Long, Hoi An, and Dalat in December.

Indonesia

Indonesia, Southeast Asia’s largest economy, is expected to grow by 4.5% in the third quarter of 2021, much lower than the 7.07% growth of the second quarter. Indonesia’s finance minister stated that domestic demand had improved since the second week of August as restrictions relaxed. Exports from Indonesia, the world’s largest exporter of thermal coal and palm oil, also spiked as prices reached a record high. The new official forecast for the annual GDP in 2021 is at 4%.

The Indonesian Investment Ministry disclosed that the rate of foreign investment in Indonesia in the third quarter of 2021 decreased by 2.8% quarter-to-quarter, but increased by 3.7% year-on-year (YoY). With 13% of total foreign investment, the housing sector, industrial estates, and offices received the most attention. The transportation, warehouse, and telecommunications sectors received around 12.3%. The government is targeting 900 trillion rupiahs in total investment in 2021. By September, Indonesia has reached 73.3% of the target.

Indonesia is bracing itself for the year-end holidays, as nearly 20 million people are forecasted to travel to Java and Bali. The government has implemented several protocols for reopening tourist sites and hospitality services.

Philippines

Capital Economics projected an uptick in the Philippines’ GDP in the third quarter of 2021 from the second one. The second-quarter GDP was equivalent to an 11.8% growth YoY. Capital Economics also expects the fourth-quarter GDP to grow by over 4% compared to the third-quarter result and the annual GDP to grow 4.5% in 2021. The government set a target of 4-5% growth this year.

In the first half of 2021, FDIs to the Philippines amounted to US$4.3 billion, a 40.7% increase from the previous year’s level. The approved foreign investment reached a 45.5% increase YoY in the second quarter. The major investors to the Philippines in the quarter include the United Kingdom, which accounted for 55.6% of the total approved foreign investments, followed by South Korea (10%) and the United States (9.5%). 55.7% of the total foreign investment pledges are in the Information and Communication Industry (ICT). Construction came in second with a 16.1% share of total foreign investment commitments, while manufacturing came third with a 10.1% share.

The Philippines currently permits fully vaccinated international travellers from low-risk areas to arrive without quarantine. Most businesses in Metro Manila are allowed to operate at full capacity, while casinos, bars, and indoor tourist attractions can reopen at 30% capacity.

Malaysia

According to the Malaysian Institute of Economic Research (MIER), Malaysia’s economy is on the path of a V-shaped recovery. The GDP growth for 2021 is projected to be at 4.0%, slightly less than the average 4.9% growth of the pre-COVID period. Considering the improved COVID situation in Malaysia, Fitch Solutions has also revised the GDP growth forecast for Malaysia from 0.0% to 1.5% in 2021. Fitch Solutions’ forecast for 2022 remains at 5.5% growth in GDP.

In the first half of 2021, FDIs in Malaysia surged 223.1% YoY amid the pandemic, as stated by Malaysian International Trade and Industry Minister. FDI and domestic direct investment (DDI) have played a significant part in growing the company. FDI inflows in Malaysia targeted the manufacturing sector, which accounts for 79.9% of the total investment flow in the second quarter of 2021.

Archipelago Langkawi has reopened in October 2021 as part of the government’s Tourism Recovery Plan; however, the destination is only available for vaccinated domestic visitors.  The government plans to welcome domestic visitors to Tioman Island, Johor, Melaka, and the state of Sabah on the island of Borneo. International travelers will be welcomed after inter-state travel and tourism are running run smoothly.

Thailand

Thailand’s economy is set to grow at a slower pace than previously expected. The Finance Ministry lowered its forecast to 1% growth in annual GDP, from 1.3% predicted in July. The ministry expects the economy to have declined by 3.5% YoY in the third quarter. As a reopening plan is rolling, the ministry forecasts a 3% growth YoY in the fourth-quarter GDP. Thailand’s trade performance was higher than expected, with a 17.1% growth in exports YoY for the first three quarters of 2021.

In the January-September period, Thailand’s investment pledges climbed to a 140% growth from the year before. Japan, the United States, and China were the top three sources of FDI applications. Industries that saw significant inflows of foreign investments include electrical and electronics, medical and chemical sectors.

With tourism representing 18% of its GDP, Thailand has been the most eager country to reopen its doors to international travelers. Since the last week of October 2021, Thailand has welcomed vaccinated travelers from more than 40 countries. Beginning November 1, travelers from 6 more countries and territories that Thailand considers “low risk” will be able to enter without quarantine. The government anticipates 1 million tourists to enter Thailand by March 2022.

After a long battle with the pandemic surge, Southeast Asia has been able to relax its stringent social restrictions. The intensive vaccination programs have played an important role in curbing the daily infection rates. While the road to rebound to pre-pandemic levels might have prolonged, the region’s top economies have made multiple measures to balance its pandemic control and economic recovery. The short-term disruption in supply chains did not diminish Southeast Asia’s growing importance in the global supply chains, as foreign investors are still keen to enter the region.


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    by Asia Perspective Asia Perspective No Comments

    Asia-Pacific Nations Form World’s Largest Trading Pact

    After eight years of negotiation, 15 nations formally signed one of the world’s largest free trade agreements on the 15th of November 2020. The Regional Comprehensive Economic Partnership (RCEP) includes the 10 ASEAN nations as well as their close partners China, Japan, South Korea, New Zealand and Australia. The agreement stands as a symbol of China’s growing economic impact in Southeast Asia, at a time when the US places itself in an uncertain position in the region.

     

    RCEP map

     

    The RCEP shows that the world won’t wait around for the US, but instead engage in aggressive trade negotiations without it. The European Union are currently pursuing several free trade agreements at a high pace. As a result, many American exporters might lose their global market shares.

    The RCEP is expected to abolish a range of tariffs on imports over a 20-year period. It also includes regulations on intellectual property, telecommunications, financial services, e-commerce, and professional services. However, as the new trade agreement eliminates tariffs mainly on goods that are already eligible for duty-free treatment, it is expected to formalize, rather than remake, the business among the involved nations. Moreover, the pact introduces so-called “rules of origin”, which will set common standard for how much of a product needs to be produced within the region to qualify for duty-free treatment. As an effect, international enterprises will have an easier task of setting up cross-border supply chains that span several countries.

    Due to the ongoing global pandemic, the signing of the free trade agreement was a bit unusual as The whole process was conducted virtually. Each country’s trade minister took turn signing the deal, while his or her head of state or government stood nearby and watched the signing take place.

    The agreement is the biggest of its kind in relation to the massive population it affects. The pact covers 2,2 billion people, more than any previous free trade agreement has ever covered. Moreover, the deal could increase global national income by 186 billion USD annually by 2030. It is believed that the pact will benefit China, Japan and South Korea the most.


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      by Asia Perspective Asia Perspective No Comments

      Countries in Southeast Asia impose VAT on cross-border e-services

      Singapore and Malaysia were the first countries in Southeast Asia to levy value-added-tax (VAT) on digital services provided by non-residents to consumers. In May 2020, Indonesia introduced a 10% VAT on digital service providers. Following that, the Philippines and Vietnam also set plans for imposing this type of VAT in their countries, starting from 1st of January 2021.

       

      Man using a credit card to shop online

       

      International digital businesses have long been able to monetize their customers from any country across the globe without being physically present in those places; instead, they are often located in countries with lower tax rates and record their revenues there. Amid the COVID-19 pandemic, millions of people started to work from home and thereby increased their use of digital products, resulting in governments losing their revenue from these foreign e-services. In such context, Indonesia, Vietnam and the Philippines have taken action to secure the public revenue from taxes by introducing the taxes on e-services provided by non-residents. The change is expected to create a fair business environment for the local e-service companies to compete with the foreign counterparts as well as to support the economy as it battles the pandemic’s impact.

      Indonesia, for example, applies the tax to foreign companies that have ‘significant economic presence’ in the country and in such sectors as big data, multimedia and software. Since June 2020, Netflix, Spotify, Google, and Amazon have been subject to 10% VAT, and later in August, Facebook, TikTok and Disney Plus – to name some – have been added to the list.

      In Vietnam, the National Assembly has approved a new law to collect 10% VAT from cross-border e-commerce traders and digital platform-based service providers. Non-residents are now required to register with the Vietnamese tax authority to enable tax declaration and payment. The implementation was scheduled to start in July 2020, but then delayed to 1st January 2021 in order for the government to establish a mechanism and to provide detailed guidance for implementation of the law, including setting up an online system for tax registration and declaration. The Philippines also plans the same timeline for implementing the tax setup.

      Despite being the later to join the taxation of foreign digital services, Thailand’s Cabinet also approved a draft bill in June to impose VAT of 7% on digital services of foreign providers, including streaming and downloading media and apps, as well as advertising on social media platforms. The measure is being accelerated to help ease the financial impact of the COVID-19 crisis. It is expected to contribute 3 billion Baht (about EUR 100 million) to the public revenue annually.

      Southeast Asia is a fast-growing digital market with about 400 million internet users as of today, and a total market value of more than 100 billion USD. The internet economies of Malaysia, the Philippines, Singapore, and Thailand are growing between 20% and 30% yearly, while the growth rate in Indonesia and Vietnam is above 40%. As the region’s attractiveness to digital businesses will remain vigorous in a near future, companies which have already operated or are planning to make a move into this market should stay updated to the changes. In the latest wave of VAT imposition in Southeast Asia, companies are motivated to collect more information on their users, in order to determine if they are able to raise the prices. Companies that are dominant in a market will have a higher possibility to pursue that director. In contrast, if a business is constrained by a fixed pricing with the customers, or it is in a highly competitive market with the local service providers, it may be forced to stay at the same pricing level towards their customers.

      Graph showing number of internet users in South East Asia

      In conclusion, countries in Southeast Asia are imposing a VAT on international providers of e-services, such as streaming platforms. The tax is supposed to help foster a sustainably business environment between domestic and international providers, while also increasing the tax revenue. Singapore, Malaysia and Indonesia have introduced it already, while Vietnam, Malaysia and The Philippines are planning to do it at the start of 2021.


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        by Asia Perspective Asia Perspective No Comments

        The best market for FinTech right now is Southeast Asia

        According to a study about FinTech companies, the ASEAN market is representing the greatest opportunities for FinTech development in the nearest future. The report made by Deloitte and Robocash, in which more than 60 private FinTech firms were surveyed, states that Fintech investments in Southeast Asia in 2018 have exceeded the US$5.7 billion investments in 2017 by up to 20-30%.

         

        Paying for goods with a mobile phone

         

        Looking at the Southeast Asian market we have been seeing some successful ride-hailing startups, digital payment startups and some money remittance startups over the last couple of years. Right now, you could say that all eyes are on Southeast Asia and all the FinTech developments going on over here.

        The most promising areas in FinTech right now are the online lenders and FinTech firms that facilitate access to credit.

        What contributed to this continued growth is the insufficient financial inclusion that has opened up these opportunities for the entire FinTech industry. And the robust growth in the ASEAN market is set to continue as the FinTech market is expected to grow at CAGR of 72.5% from 2015 to 2020, reaching US$72 billion by 2020, according to Frost & Sullivan’s annual Fintech Outlook.

        The Southeast Asian region has around 266 million people living there, with limited access to basic financial services. There are also over 30 million small-to-medium sized enterprises underserved by the financial system in this region, together facing a collective credit shortfall of around US$175 billion.

        We can safely say that the potential market for FinTech in the ASEAN region is significant.

        Distribution of Fintech Companies in ASEAN

        Looking at the Southeast Asian market we have been seeing some successful ride-hailing startups, digital payment startups and some money remittance startups over the last couple of years. Right now, you could say that all eyes are on Southeast Asia and all the FinTech developments going on over here.

        Southeast Asia´s Internet Economy Market Size

        Mobile Payment

        What contributed to the success of Mobile Payment startups in this region is mainly due to two factors, huge population with no access to basic financial services and the rise of mobile payment usage. The region is home to over 350 million daily internet users, with 90% of them using their mobile phones. With this kind of gap to financial services, there has become a significant demand for mobile payment apps and mobile banking.

        Money Remittance

        Along with mobile payment, the people in Southeast Asia are also using services for money remittance in a quite wide extent. The market in Southeast Asia for money remittance services is booming right now.

        According to a recent study, the remittance market in ASEAN region were valued at US$70 billion in 2017, and have since kept growing. Contributing to this growing market are a large group of migrant workers in countries like Indonesia, Vietnam and the Philippines, who are looking for an easy low-cost remittance service.

        Ride Hailing

        Looking at the ride hailing market it has become one of the most successful markets in Southeast Asia and has grown four-fold since 2015 and will be a US$20.1 billion market by 2025.

        There are over 35 million Southeast Asians using ride hailing services every month and 9 million daily rides across 500 cities. The top players in these markets are GO-JEK, Uber and Grab, who are all contributing to the economies by creating full-time jobs within these markets. In 2017 these three players engaged more than 2.5 million SEA drivers.

        As more and more sectors of Southeast Asia’s economy are transformed by the internet, the opportunities for tech startups to deliver the enabling digital financial services will multiply. We are now seeing a large number of firms investing in startups in the region or launching FinTech incentives to tap into this growing market.

        Looking forward, we expect to see continued growth in the FinTech funding, both in terms of size and deal numbers in the ASEAN region.


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          by Asia Perspective Asia Perspective No Comments

          Uncover sourcing trends in Asia with our 2018 survey

          This year’s report on the sourcing trends in Asia and the world is now published.

          Asia sourcing survey 2018

          Each year Asia Perspective surveys the perceptions of sourcing professionals around the world to discover the newest trends in sourcing and to assess what future developments we should be expecting.

          Download our 2018 report to get an insight into the compounded opinions of over 1000 sourcing professionals around the world.

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