ASEAN’s growing supply chain connectivity is attracting many international companies to invest. However, worker skills, inflation and currency volatility remain areas of concern for improvement.
JAKARTA, KOMPAS — Southeast Asia has become a magnet for foreign investors. Even though the domestic market is large, they view this region more in terms of supply chain connectivity.
HSBC Global Connection research reveals that international companies view the Southeast Asia region, especially ASEAN, in terms of supply chain connectivity compared to consumer markets. As the region with the fastest economic growth, ASEAN provides promising trade opportunities.
Macroeconomic and financial market researcher at the Institute for Economic and Community Research, Faculty of Economics and Business, University of Indonesia (LPEM FEB UI), Teuku Riefky, said that consumer factors are only dominated by Indonesia. Because, from the ASEAN economic structure, Indonesia’s population is the largest. The difference is far compared to other countries in ASEAN with a population of more than 200 million people.
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“When we talk about supply chains, connectivity (that) has the potential to be built. “In ASEAN, there are several countries that are the main rights or main producers at the global level,” said Riefky when contacted in Jakarta, Tuesday (26/9/2023).
In terms of production, Vietnam, Thailand, Indonesia and Malaysia excel in several products. The trade sector was strengthened by Malaysia, Indonesia and Singapore. This collaboration is more equal from the supply chain and trade side compared to the consumer side.
Previously, Head of Commercial Banking, South and Southeast Asia HSBC Amanda Murphy stated, ASEAN is the largest export market. Connectivity is considered very important. In his research, foreign companies are not that worried about supply chains.
“Businesses from Hong Kong, China, India and Australia see more (investment) opportunities in this region to develop supply chains and grow organically,” said Murphy.
Other European countries, namely England, France and Germany, are also targeting the same opportunity. However, the movement is not as fast as countries around the Southeast Asia region.
In HSBC research, almost a quarter of total companies in North America, Europe and Asia expect to expand their businesses to the ASEAN region. The hope is that the business can grow organically by up to 23 percent in 2023, higher than last year’s 20 percent.
Nearly a quarter of the companies surveyed said they would increase their mergers and acquisitions this year. The main countries are still focused on Singapore, Malaysia and Thailand. However, the new markets are Indonesia and the Philippines.
HSBC Commercial Banking captured 3,509 companies based in the markets of China, India, England, France, Germany, United States, Australia, Hong Kong, United Arab Emirates, Saudi Arabia, Bahrain, Qatar, Oman and Kuwait. Respondents are decision holders from companies with an annual turnover of at least 5 million US dollars. They have done business in Southeast Asia or are considering doing so. The survey will take place July 25-August 2 2023.
Deputy for Investment Cooperation at the Ministry of Investment, Riyatno, said that foreign direct investment (FDI) continues to grow in ASEAN. The amount reaches 224 billion US dollars, up 5 percent annually in 2022.
The sectors that are mostly worked on are manufacturing, finance, retail trade, transportation, and information and communications. All these sectors contribute to 86 percent of total direct investment into ASEAN in 2022.
“The increase in FDI in ASEAN shows positive investor sentiment towards this region. “Because this region has proven strong economic recovery and stable growth,” said Riyatno (Kompas.id, 16/8/2023).
Influenced by global issues
The Southeast Asia region is the target of many international companies. However, matters regarding employment, inflation and currency volatility are still a matter of concern.
According to Riefky, the capabilities of the workforce in ASEAN are relatively different. The skills of Singapore and Vietnam workers are different from those of Indonesia, Thailand and Malaysia. A solution needs to be found so that workers from ASEAN countries can work productively.
Meanwhile, the issue of inflation and currency volatility is not only a problem for ASEAN, but also globally. However, for Indonesia itself, inflation is no longer the main issue faced by other countries.
“Inflation in Indonesia has returned to the target of 2-4 percent. So it’s relatively manageable. “Inflation in other countries is still an issue that affects purchasing power and production capacity,” said Riefky.
Bank Indonesia noted that inflation in August 2023 increased to 3.27 percent from July 2023 which was 3.08 percent. The inflation rate is still within the target range of the government and BI.
Changing exchange rates are influenced by the policies of developed countries, such as the US and the European Union. ASEAN countries are affected because of their high dependence on the US dollar currency. Riefky predicts that currency volatility will still be high on a global scale.
Efforts by countries to establish local currency settlement or settlement of bilateral transactions carried out in each country’s currency still cannot eliminate exposure to the US dollar. At the ASEAN level, this effort can be reduced, but its use is still affected by other currencies.