Meet the New Asian Tigers. Why is South Asia Booming?
While economies worldwide are experiencing slowdowns and setbacks, South Asia has defied this trend by achieving sustainable growth and leading the global economic recovery. Despite the disruptions in global supply chains caused by the pandemic, the Asian Development Bank has upgraded its economic forecast for the region from 4.9% to 5.1%.
The Association of Southeast Asian Nations (ASEAN), consisting of ten member states, boasts a combined population of 670 million and a GDP exceeding $11 trillion. Together, they form one of the most dynamic markets in the world today.
Following in the footsteps of Japan, South Korea, Singapore, and Hong Kong, which experienced rapid economic development over three decades ago, this second generation of “Asian Tigers” has brought South Asia into global focus.
So, what is the secret behind South Asia’s economic success, and what can other nations learn from it? The driver of the region’s economic success can be attributed to three main factors.
The region benefits from strong demographic fundamentals. With a median age of just under 29, compared to China’s 36 and Japan’s 47, the region enjoys a vibrant, young, and expanding workforce that is available to both domestic and international businesses. Moreover, the workforce is increasingly skilled. While tertiary education enrollment has historically been low, ASEAN countries now boast around 7,000 higher education institutions and ASEAN has relaunched the ASEAN Quality Assurance Network in partnership with several European universities. This network aims to promote and maintain best practices, resulting in valuable human capital that is attracting international interest.
Governments in the region have focused on creating an attractive environment for international business. This includes investing in high-quality infrastructure, maintaining stable governance, and establishing clear and consistent legal regimes.
Singapore, often regarded as the region’s unicorn, stands out with its openness to business, cleanliness, and stability. Singapore’s remarkable growth story began in 1960 when its GDP per capita was approximately half that of the UK. Lee Kuan Yew, its former prime minister, transformed the city-state into a gateway for international business by developing world-class infrastructure, fostering an educated populace, and establishing a consistent investment environment based on common law principles. Today, Singapore’s economy is twice that of the UK and continues to grow.
Neighboring countries are also driving growth based on the same foundations. They have taken bilateral and multilateral steps to welcome businesses and encourage investment. Notably, Indonesia, the region’s second-largest recipient of foreign direct investment after Singapore, has spent the last two decades improving its investment environment. The country has invested heavily in infrastructure, liberalized private investment rules in various sectors, and integrated its supply chains with neighboring countries to reduce food and energy costs.
These efforts are yielding positive results. A recent report found that six out of the top ten countries with the cheapest manufacturing costs were in South Asia. Additionally, a survey by HSBC revealed that 90% of foreign businesses operating in the region planned to expand their presence over the next two years.
Finally, the region has embraced commercial opportunities presented by digital development. The region has the world’s largest digitally enabled population, with the value of its e-commerce projected to reach $88 billion by 2025. As recently as 2020, 40 million people in South Asia accessed the Internet for the first time. High-quality Internet access not only makes the region more attractive to international investors but also offers clear benefits to the local population.
Widespread Internet access enables small businesses to explore new markets abroad and creates opportunities for digital nomads. It also leads to more efficient government, reduces time-consuming bureaucracy and allows businesses to focus more on generating profits.
Indonesia’s government, for example, has partnered with the International Labour Organisation to leverage the opportunities of digitization for small and medium-sized businesses and the financial services sector. The result of these efforts is evident in Indonesia’s improved ranking on the global ease of doing business index, rising from 129th in 2012 to 73rd in 2020, with its transparent and streamlined online business registration system receiving specific recognition. Malaysia has experienced a similar upward trend, climbing from 23rd to 12th in the rankings since 2017.
While not all of these lessons can be directly applied elsewhere, South Asia’s vast pool of human capital is difficult to replicate overnight, and its prime location at the crossroads of Asia-Europe trade is a unique advantage. Nevertheless, the region’s emergence onto the global stage is one of the most exciting stories of the 21st century. Everyone must take a keen interest in this often-neglected region.