ASEAN Summit 2023: The Epicentrum of Growth

The Association of Southeast Asian Nations, also known as ASEAN, was established in 1967 with the signing of the Bangkok Declaration by the Founding Fathers of ASEAN: Indonesia, Malaysia, the Philippines, Singapore, and Thailand to foster regional solidarity and cooperation and to contribute towards peace, progress, and prosperity among its member states.

ASEAN, currently the fifth-largest economy and the fourth-largest exporter in the world, recorded a combined GDP of USD 3.66 trillion in 2022. The region is on track to be the fourth-largest economy by 2030. Young demographics with median age of 30 years, growing consumptions, increased urbanization rate, investment boom, and rapid technology development are some of the key growth drivers for ASEAN.

Fast forward to 2023, Indonesia recently hosted the 43rd ASEAN Summit in Jakarta, achieving success not only in terms of running a smooth and well-executed Summit, but also delivering policies and agreements to be implemented regionally and beyond. The 2023 ASEAN Summit was chaired by Indonesia’s President, H.E. Joko Widodo, as part of Indonesia’s ASEAN Chairmanship with the theme of “ASEAN Matters: Epicentrum of Growth”. One of the key deliverables from the Summit was the ASEAN Economic Community, including successful delivery of 11 Priority Economic Deliverables (with the five remaining to be completed by the end of the year). The focus is clear, ASEAN is to rebuild regional growth and sustainable economic growth through connected markets, new competitiveness, and inclusive digital economy transformation.

In addition to the participation of ten ASEAN leaders, the Summit was also attended by government leaders from the United States, Canada, the European Union, France, the Netherlands, the UAE, Australia, China, Japan, Republic of Korea “ROK”, India, among other ASEAN-partner countries. The Summit successfully brought investments to the region across the Green Infrastructure and Resilient Supply Chain, Sustainable and Innovative Financing, and Inclusive Digital Transformation sectors.

The Dynamics of Economic and Investment Opportunities for ASEAN

In 2023, despite global economic challenges, ASEAN remains a resilient region, with projected growth rates of 4.6% in 2023 and 4.9% in 2024. Trade and investments surged, with total merchandise trade at USD 3.8 trillion (+14.9% growth y-o-y) and direct investment inflows at USD 224.4 billion (+5.5% growth y-o-y) in 2022. Last year, the ASEAN region was also the world’s second-largest destination for foreign direct investment (FDI).

The ASEAN Summit highlighted the progress of the Regional Comprehensive Economic Partnership “RCEP” implementation, including the creation of the RCEP Support Unit (RSU), set to be operational by 2024. The urgency of effective RCEP implementation for post-pandemic economic recovery, rule-based trade, investment promotion, and regional supply chain strengthening was emphasized.

Furthermore, ASEAN has also committed to develop a regional electric vehicle ecosystem to reduce greenhouse gas emissions, accelerate the energy transition, and achieve a zero-emission target in the transportation sector. The region also aims to create an integrated ASEAN economy that supports sustainable growth and resilience, aligning with the 2025 ASEAN Economic Community Blueprint. One initiative is through cross-border payment services designed to be faster, cheaper, safer, more transparent, and inclusive in promoting economic development in the region. In the healthcare sector, ASEAN will strengthen multi-sectoral collaboration and coordination to address primary health threats to humans, animals, plants, and the environment, with a focus on preventing outbreaks and potential pandemics.?

The Summit delivered 93 collaborative projects between ASEAN countries and partner countries, worth USD 38.2 billion and there were 73 potential projects worth USD 17.8 billion. The potential projects had been further grouped based on the priority scale and potential for realization.

Across key partner countries/regions for ASEAN, we summarized major projects or opportunities derived from the Summit:

• Intra-ASEAN. Super critical regional partnership and wider collaboration is required. From trade perspective, Intra-ASEAN accounted for 22.3% of the total ASEAN trade in 2022, which was the largest. Intra-ASEAN remained the primary export destination for the region. Beyond the regional electric vehicle ecosystem, future areas for wider collaboration include infrastructure, logistics, and renewable energy. For instances, projects related to infrastructure development in Nusantara, Indonesia’s new capital city. The Philippines also invited Indonesia to build a railway in their country.
• China. Excluding Intra-ASEAN, China is the region’s biggest trading partner. Post RCEP implementation, total trade between ASEAN and China reached USD grew to USD 722 billion. China also emerged as the largest importer for ASEAN. Some concrete deliverables/projects from the Summit includes waste recycling, industrial parks, toll road development, and solar PV farm. China has also committed two key funds i.e., China – ASEAN Cooperation Fund (USD 3 billion fund) and China – ASEAN Common Development Special Loan Project (USD 15 billion fund); they signified ASEAN’s importance to China, and vice versa.
• USA. Right behind China, USA is a significant trading partner for ASEAN. It accounted for 10.9% of the total ASEAN trade in 2022 and the USA contributed 16.3% of FDI flow to ASEAN last year (the largest). From the Summit, there are tangible projects focusing on copper and gold smelter construction, solar infrastructure development, and renewable energy initiatives as part of JETP. USA also plans to establish substantial solar panel and module facilities by 2024, launch the USAID Sustainable Energy for Indonesia’s Advancing Resilience (SINAR) program, and enhance communication infrastructure.
• EU. EU trade and investment to ASEAN is also significant. Excluding Intra-ASEAN, EU ranked #3 in terms of total trade and FDI contribution to ASEAN. Extending the gold standard, particularly on renewable energy and sustainable development, EU will support ASEAN in numerous critical projects. To name a few, (i) EU active involvement on public funding side in JETP program in Indonesia and Vietnam, (ii) France is active on various infrastructure and climate change projects, (iii) Netherlands to promote the replacement of single-use plastics with eco-friendly materials, (iv) urban transportation projects, (v) eco-fishing ports, and (vi) digital connectivity.
• Japan. With USD 26.7 billion FDI inflow to ASEAN and a total trade with ASEAN amounting USD 268.5 billion in 2022, Japan is a steady partner growth to the region. In the Summit, Japan called for wider and deeper trade and investment with ASEAN through RCEP optimization and ASEAN-Japan Comprehensive Economic Partnership “AJCEP”. ASEAN also appreciated Japan’s ongoing cooperation in various emerging areas such as digital trade, green infrastructure, connectivity, science and technology, energy transition, and many more. The region welcomed Japan’s support in agriculture, forestry, fisheries, and food security.
• Republic of Korea. ROK was ASEAN’s fifth largest trading partner and the sixth largest source of FDI in 2022. Similar to Japan, the optimization of RCEP and ASEAN-Korea Free Trade Area “AKFTA” will stimulate expansion on bilateral trade and investment in the future. There are few initiatives that will support ASEAN’s future growth such as e-mobility ecosystem, digital economy, and the Fourth Industry Revolution “4IR”, including smart infrastructure and technology innovation.
• The United Arab Emirates “UAE”. The UAE and ASEAN corridor presents attractive growth opportunities. As highlighted by the UAE’s Minister of State for Foreign Trade, there are many key areas to be developed such as agriculture, renewable energy, advanced technology, logistics, travel, and tourism. Furthermore, the UAE and Indonesia agreed to work together to achieve USD 10 billion in bilateral non-oil trade within five years. During the Summit, it was also highlighted that a joint project between Indonesia and UAE (Masdar), the largest solar power plant in ASEAN, will be operational by the end of October 2023. Free Trade Agreement with ASEAN countries is a focus area for UAE to expand the bilateral trade and investment volume. ??
• Australia. Similar with the UAE, there is huge untapped trade and investment potential between Australia and ASEAN. Existing and potential future areas of collaboration span across renewable energy, carbon capture, healthcare, tourism, digital infrastructure, and education. In Cambodia, for instances, Australia supports cold storage, solar infrastructure, and water security improvement projects. In Vietnam, Australia invests in wind farms and a lithium battery manufacturing facility. In Indonesia, Australia will support Indonesia in Nickel Cobalt project, in addition to further collaboration in healthcare (including hospital) and education.

ASEAN as a Force of Regional Economic Stability – Partnership rather than Competition

Throughout the ASEAN Summit, there was one major point that being emphasized repetitively i.e., a holistic regional partnership/collaboration. To unlock its full potentials, ASEAN needs to operate as a united bloc, rather than a collection of individual markets, that sometimes compete against one another.

With abundant natural resources (supply-side) and massive consumptions (demand-side) – the region is well-positioned to develop downstream industries and position ASEAN as a major player in the global supply chain. Take into example, how ASEAN should dominate the Global EV Supply Chain as ASEAN (Indonesia and Philippines) controls 27% of global Nickel reserves. In addition, Indonesia and Thailand are key production hub for automotive industry where we expect acceleration in EV adoption. Hyundai, SAIC, BYD, GWM have set up EV production lines in both markets. VinFast also plans to setup EV manufacturing facility in Indonesia. Clearly big opportunities for ASEAN and an area that the region must focus on, including the policies and incentives element. The ASEAN EV market size is expected to grow from less than USD 1 billion in 2023 to USD 3.54 billion in 2028, a CAGR of over 32% during the period. Another great example is on Malaysia’s 45% global market share in semiconductor subsector. ASEAN needs to climb up the value chain and FDI will be a key driver.

Let’s also cover the digital economy opportunities in ASEAN. With projected GMV of USD 330bn by 2025, the region can significantly increase the contribution of digital economy sector against its total GDP. The large unbanked population, high internet penetration, young population, and growth of digital payment are key drivers for this sector. The launch and endorsement of the Digital Economy Framework Agreement “DEFA” negotiating framework was key highlight of the Summit. This will be the world’s first regional digital economy agreement and the first meeting is set to take place before the end of 2023. DEFA is expected to double the value of digital economy in ASEAN by 2030. In the meantime, there is already greater collaboration in QR payments and local currency settlement across ASEAN markets. Furthermore, as the digital economy flourishes, their ecosystem such as cloud service provider and data center business, will prosper. Indonesia’s data center industry, for instances, is expected to grow from USD 2bn in 2023 to USD 4bn in 2028.

The release of ASEAN Blue Economy Framework is also worth mentioning and it is designed to support the ongoing work on the ASEAN Carbon Neutrality Strategy and establishing a carbon credit market. JETP program launched in Indonesia and Vietnam will also be relevant as the region works its way to transition to net-zero and decarbonize their power sector.

Closing: Impacts of Indonesia’s ASEAN Chairmanship and what to expect as Laos to assume the 2024 Chairmanship.

Indonesia’s role as the ASEAN Chair in 2023 showcased the county’s strategic leadership in the region, that contributes not only to the regional growth but also attracts wider economic and investment partnership with ASEAN’s partner countries. Indonesia leveraged its position as the largest market in ASEAN (41% of the region population, 36% of the region GDP, and the only ASEAN country in the G20) to promote the massive growth potentials that ASEAN market has. The delivery of 93 collaborative projects worth USD 38.2 billion with potential upsize by another USD 17.8 billion, is a clear testament on the success of Indonesia’s ASEAN Chairmanship in 2023.

On a lighter note, Indonesia’s ASEAN Chairmanship did contribute to the local economy given the scale of the Summit and series of events held leading to the Summit. It also allows Indonesia to showcase itself to the world; from major tourism destination (Jakarta, Bali, Labuan Bajo, and many more) to its diverse culture, vibrant market, resilient economy, and an attractive foreign investment destination.

With the Chairmanship baton in 2024 now passed to Laos, Laos’ Prime Minister had pledged to continue Indonesia’s legacy in building a more connected and resilient ASEAN. Laos will carry forward the ASEAN Chairmanship 2024 under the theme "Enhancing Connectivity and Resilience." The incoming chairmanship will focus on strengthening the ASEAN community, addressing geopolitical and geo-economic challenges, and expanding external relations. The priorities include enhancing connectivity, reducing development disparities among member states, promoting carbon neutrality, and advancing digital transformation in the region.

Jakarta, 23 October 2023

Charles Kho & Affan Hibaturrahman

References: asean.org, asean2023.id, aseanbacindonesia.id, Ministry of Foreign Affairs – Republic of Indonesia, BKPM/Ministry of Investment – Republic of Indonesia, HSBC Global Research, e-Conomy SEA 2023, ASEANFocus.