ASEAN remains a region of huge opportunities despite a slow pace of economic integration and headwinds such as a China slowdown, high household debt levels in Malaysia and Thailand, and geopolitical tensions.
Kicking off HICAP Update in Singapore last Wednesday with an overview of the region, Fraser Thompson, director of AlphaBeta based in Singapore and Sydney, said major new trade deals such as the ASEAN Economic Integration, the Regional Comprehensive Economic Partnership and the Trans-Pacific Partnership would reshape the region, even if progress is mixed to-date.
Thompson pointed out a few positives for the industry, including travel and tourism now being the second most liberalised sector for FDI in ASEAN after logistics, albeit there remain constraints in some countries such as Thailand. Visa requirements for short-term travel in most member states by ASEAN citizens have also been removed, while open-sky policies have encouraged the birth of new airlines in routes previously dominated by national carriers.
On the other hand, progress on a single ASEAN visa is limited, and ASEAN countries still impose visa requirements for short business trips. As well, there remain restrictions on domestic airline competition, with domestic routes only open to national carriers.
Progress on tourism-related labour mobility in ASEAN has also been limited despite mutual recognition agreements for tourism professionals in the region.
In the face of this “hodge podge” bag of results, he urged the audience to disband skepticism, pointing out that tourism is booming in ASEAN, in particular by ASEAN visitors themselves.
Fraser Thompson, director of AlphaBeta
And the biggest driver of growth for the longterm is urbanisation, which will grow the intra-ASEAN pie, currently constituting half of travel in ASEAN. More than 90 million people are expected to move from agriculture to urban jobs by 2030 and the “middleweights” – cities with 750,000 to five million people – will be where they go to. These cities are where investors should be looking at for the longterm, he said.
Supporting urbanisation, infrastructure investment is on the uptick, albeit at levels below the global financial crisis. A real momentum to build infrastructure, such as in Indonesia, and a “political race” to support infrastructure investment projects in ASEAN – as seen in the Asian Infrastructure Investment Bank, Silk Road Fund, Japan’s fund to support quality and innovative infrastructure, etc. – will mobilise huge amounts of funds for projects, Thompson said.
On headwinds such as a slowdown in China, he said the impact would vary. The likes of Malaysia would significantly be affected by China as it’s directly linked to the supply chain in China, unlike countries such as Indonesia or the Philippines, which have bigger domestic-driven economies, he said.
Household debts in Malaysia and Thailand, which stand out as among the highest in the world, may start to crimp consumer demand in the near term and thus the industry is not likely to see the growth rates as in the last four to five years coming out of those countries.
Investors also must have their geopolitical radar on ASEAN be more “finely attuned” as there are a number of important issues such as the South China Sea dispute, the haze problem, elections in Myanmar and Thailand and the 1MDB scandal in Malaysia, among others, said Thompson.
Jesper Palmqvist, area director Asia-Pacific, STR Global, delivering a hotel performance & outlook, also stressed that while there are negatives in the region, the market is growing with new travellers across Asia-Pacific and infrastructure spending by government and private sector to support the growth.
On Thailand and Singapore, which are on the radar due to their recent performances, the verdict from HICAP Update sessions is as follows:
- Thailand: Stop discussing its recovery. It has recovered and is really growing. It leads the region with arrivals growth. But although occupancy is high, rates are low.
- Singapore: Performance is likely to be flat or better than flat this year. Spending is down due to fewer corporate and MICE business but on the bright side, the country always has something new to offer and some hotels are delaying their opening. The South Beach for instance is said to have opened only 250 rooms or so, out of 651. Upscale and luxury segment is faring better than other segments.