Swift actions, difficult decisions, and putting people above the economy have been the frontline strategy for ASEAN countries navigating through COVID-19. After a year of crisis management, governments and companies are now turning towards recovery and growth to support the vibrant and ever-promising ASEAN bloc. In this article, we take a development view of economic activities that will help in building a more robust tomorrow supporting jobs and economies.
What will be some of the key investment themes arising out in the new normal? History is evidence of new opportunities arising out of any crisis. We strongly believe that the COVID-19 pandemic has already led to tectonic shifts for significant number of businesses, economies, and trade and will lead to even more significant opportunities in specific vital industries that are well placed for change today.
Shift in the Supply Chain
The ASEAN region is in the leading position to benefit from the current trade rivalry between the United States and China. The low-cost labor base with the relatively low land cost is a critical strategic advantage for companies mulling to de-risk their businesses out of China. The impetus to diversify the supply chain base was further provided by the pandemic when China shut down its factories to control it. As a result, businesses began looking for options to establishing new supply chains in ASEAN countries in addition to their existing ones.
An ASEAN country that has benefited the most from the changed circumstances is Vietnam (usually referred to as the China +1 strategy). It has absorbed many manufacturing projects that relocated from China. With labor costs up to 50 percent less than that of China, Vietnam is an attractive destination for companies looking to diversify away from China. For over a decade, Vietnam has been investing heavily in industrial infrastructure. It has also signed a host of international trade deals with other countries, all of which make it an attractive destination for investors.
But Vietnam is not the only Asian economy wooing China-based manufacturers. While Indonesia is developing more special economic zones to market the country as a prime destination for manufacturing firms looking to move out of China, Thailand, as part of its 4.0 economic strategy, is attempting to move the country towards an economy driven by high-tech and innovation. In this respect, it is offering several incentives for companies to come and invest in the country.
Japanese firms heavily depend on China for their logistics and manufacturing needs. But with China shutting down, Japanese companies were in trouble. To help domestic companies’ tide over the economic fallout from the pandemic, the Japanese government has issued a 23.5billion yen (US$220 million) program that will strengthen local production and reduce the dependency on China. The package will help Japanese firms study ASEAN markets and allow them to diversify their supply chains.
New ways of learning
With a young and aspiring population, education was already a key focus area for most ASEAN countries. The pandemic has further strengthened the resolve of the bloc towards using education as a way of rebuilding post-crisis. The countries have agreed to build a post-2020 education work plan anchored on the concept of lifelong learning. They have also included education-focused initiatives in the ASEAN Comprehensive Recovery Framework (ACRF) to build out of the pandemic. If the adoption of e-learning apps during the pandemic is any indicator, the time for the EdTech industry has arrived.
The ASEAN member countries are no longer resisting or putting e-learning and distance education on the back burner. However, for the first time, it is at the forefront of their plans to revive the economy and educate the masses. A part of the plan is to provide access to the internet and digital devices to specific groups that will further enable the proliferation of technology-based education services.
61% of the ~660 Million ASEAN population is below the age of 35 years. Ed-tech companies targeting students and younger working professionals are eyeing this slice of ASEAN’s population with optimism and hope. With good government support and Covid-19 generated need for technology, this sector is currently among the hottest for VCs and angel investors looking at ASEAN-based investments. An excellent example of the government supporting EdTech based initiatives is the Singapore-based EdTech accelerator EduSpaze set up in Nov 2019. The first dedicated EdTech accelerator in the country is supported by Enterprise Singapore.
Channeling your ASEAN investments
More than ever, prioritization and focus are two critical elements for any foray to be made into the ASEAN market. The countries remain vibrant, with specific sectors now ripe for investment. Well-planned strategies and execution on the ground remain key to success. However, with the pandemic still sustaining – a local partnership on this basis has also become a more significant part of the strategy and execution.