A dynamic and powerful ASEAN from the German perspective

July 04, 2020 | 09:00
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Possessing key features that represent a snapshot of one of the most diverse, fastest-growing, and competitive regions, the ASEAN is an attractive economic region for not only German enterprises but also other European ones to invest in. Marko Walde, spokesman for the German Chambers ASEAN Business Council, explains more.
1498p5 a dynamic and powerful asean from the german perspective
Marko Walde, spokesman for the German Chambers ASEAN Business Council

With a population of 650 million and economic growth of 5.4 per cent, the ASEAN is also becoming an economic superpower. Ranked as the fourth-largest exporting region in the world, the countries that constitute the ASEAN account for some 7 per cent of global exports.

Significant growth opportunities are available for German business across a range of industries and commercial sectors, including automotive, financial services, consumer goods, medical services and equipment, digital technology, green energy, and infrastructure development. The ASEAN is home to more than 3,000 German companies and the second-largest trading partner in Asia for Germany, after China.

In return, Germany is the largest EU trade partner for ASEAN countries. The ASEAN and Germany have enjoyed great trade and investment relations. Germany remains the largest EU trade partner for ASEAN countries. In 2019 the total two-way trade was €68.4 billion ($76.75 billion). Within the same year, goods exporting from the ASEAN to Germany reached €40.6 billion ($45.55 billion). Imports from Germany valued €27.8 billion ($31.2 billion).

Moreover, German investments in the region have been growing steadily and belonged to the top 10 investors in the ASEAN. Foreign direct investment (FDI) stocks from Germany to the ASEAN significantly grew and amounted to $28.1 billion in 2017. Germany has supported a number of programmes in the areas of infrastructure development, competition policy and law, small- and medium-sized enterprises (SMEs), consumer protection, initiatives for ASEAN integration within the framework of the ASEAN Single Market, and institutional strengthening and capacity development, among others.

In addition, bilateral free trade agreements (FTAs) help facilitate and support the co-operation between ASEAN member states and dialogue partners China, Japan, South Korea, India, Australia, New Zealand. Brunei, Malaysia, Singapore, and Vietnam are currently members of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).

Furthermore, Vietnam and Singapore are the two countries in the ASEAN that have signed FTAs with the EU. Moreover, apart from Singapore, Vietnam is the only country in the ASEAN that participates in all relevant free trade initiatives in the region on top of which, it boasts the lowest market entry barriers for foreign investors.

Solid outlook

Vietnam’s National Assembly voted on June 8 on the EU-Vietnam FTA after eight years of negotiations. Coming into force this summer, the agreement is of great importance for the German economy as Vietnam is Germany’s second most important trading partner in the ASEAN region. In 2019, Vietnam has a trade volume with Germany of around €14 billion ($15.7 billion), as much as the trade volume between Germany and Canada.

In times of increasing international trade conflicts and erosion of the world trade rules, the new agreement is an important sign for rules-based trade and fair competition. The EU-Vietnam Investment Protection Agreement includes a reformed dispute settlement procedure and is intended to replace bilateral investment protection agreements between EU member states. More than 4,000 German companies are already exporting to Vietnam; thereof 69 per cent are SMEs.

ASEAN markets continuously attract the attention of German investors by being a relatively stable and lucrative option. German companies are overall confident in the ASEAN, having an optimistic view on current and market positions in 2020. According to our AHK World Business Outlook 2020 with the focus on the ASEAN, the ASEAN markets continuously attract the attention of German investors by being a relatively stable and lucrative option.

German companies are overall confident regarding developments in the Southeast Asian region, with the majority of this year’s participants having an optimistic view on current and future market positions. German companies are understandably concerned about the effect of coronavirus on their business in Vietnam but still remain optimistic and have higher expectations compared with all average indicators estimated by German companies in the ASEAN. Two-thirds of respondents believed that their business situation will stabilise and even get better in 2021.

Key features

For German businesses, ASEAN markets have five key features representing a snapshot of one of the most diverse, fastest-growing and competitive regions:

Firstly, it is a growing consumer market with 650 million people. German firms see the ASEAN as an exciting consumer market, with lots of potential for growth, especially in terms of middle-class spending.

Secondly, it is ASEAN competitive wages: Competitive labour cost is a major factor attracting German companies to this region. The ASEAN offers young, motivated and skilled workforces.

Thirdly, it is the ASEAN’s status as a major foreign direct investment magnet: FDI into the ASEAN has doubled over the past decade. The manufacturing output is likely to expand, supported by an improving regulatory environment and competitive costs.

Next is improvement in regional integration: The establishment of the ASEAN Economic Community, the CPTPP, and other bilateral agreements (EU-Singapore and EU-Vietnam) are expected to enhance trade and investment flows to the ASEAN.

Finally, the ASEAN is striving for a leading role within Industry 4.0: The vision for the ASEAN in 2020 is to propel the bloc towards a digitally-enabled economy that is secure, sustainable, and transformative; and to enable an innovative, inclusive and integrated ASEAN community. Around $600 billion will need to be spent on infrastructure to support such growth.

In all, the ASEAN is the EU’s third-most important trading partner outside of Europe. From the German economy’s point of view, it would be important that the EU together with other partners in the region and particularly ASEAN countries make further steps to strengthen business relations – especially to implement the EU strategy, which is to fill the economic connection between Europe and Asia.

There are currently a lot of expansion plans by German enterprises moving from China to ASEAN nations, especially to Vietnam. They are complementing their existing Chinese operations with new activities in Vietnam regarding sourcing and investments. This trend started before the US-China trade conflict as German investors in China are looking to diversify their operations by adding another location in Asia.

Their concrete reasons for that are their diversification strategies and the reliability of Vietnamese partners, as well as rising wage costs in China. And when it comes to alternatives in the ASEAN region, German investors choose Vietnam first.

I look forward to further expansion plans from German companies in the ASEAN and to supporting German and ASEAN businesses in enhancing business relations, networking, and in experience exchange.

By Marko Walde

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