Asean: Next 50 years

SINGAPORE (The Straits Times/ANN) - Religious extremism is just one problem the grouping faces, but on balance, the future is bright

These days, with Britain poised to exit the European Union, and fear that other nations may take a cue from its go-it-alone ways, the EU is not the preferred template for regional integration. Yet it cannot be denied that this has been the most successful regional organisation in modern history, even though the 28-member union doesn't yet include Ukraine, the biggest European nation whose landmass is entirely on the continent.

Who's in second place as a model for regional integration? Asean, surely.

As a body set up at the height of the Cold War, meant to ensure that Indonesia, the Philippines, Thailand, Malaysia and Singapore weren't dominoes that could be knocked down by Communism's iron ball, it has evolved spectacularly. From five members at its founding in 1967 to six in 1984 when Brunei signed on, and eventually 10 as Cambodia, Laos, Vietnam, and finally Myanmar, came on board, the group has only expanded.

And it's not done growing: Timor Leste could be next on board. While once-role model the EU is straining at the seams, Asean's hemlines are getting broader. What's more, every major power on earth, from the United States to Russia and Australia, sees value in snuggling up closer to this outfit, the reason they make it a point to attend the East Asia Summit held on the sidelines of Asean's annual gathering of leaders.

Indeed, people from outside the region sometimes tend to see its significance more clearly than those within.

In January, in a major foreign policy speech in the US, Australian Foreign Minister Julie Bishop declared Asean not only "the geographic centre of the Indo-Pacific (but) also its diplomatic centre". Asean, she went on to say, "has an influence throughout Asia that is not always well-understood".

Fifty years after its founding as a political bloc that would quickly also turn its attention to economic relations, it is interesting to ponder what lies ahead for Asean. In that, there is as much to cheer as to ponder.

The creation of the Asean Economic Community is no doubt a remarkable achievement, especially given the varying levels of development in the region, from first-world Singapore to least developed nations such as Laos. This has helped Asean become a major manufacturing and investment destination. Indeed, foreign direct investment inflows to Asean have outpaced flows to China since 2013.

Yet, it cannot be denied that most of the economic integration through slashed tariffs and so on has been in the low-hanging fruit. Serious matters such as harmonisation of standards, free movement of labour, and the financial industry's access to markets in the region remain work in progress. Air carriers within the 10-nation grouping do not fly the Asean flag, even as their liveries announce their allegiance to Star Alliance, OneWorld or other aviation groupings. A shared visa policy, as in the Schengen countries, would give a boost to inter-regional travel and tourism. But that is a long way off. Indeed, Asean itself has moderated its ambitions for an economic union; from aspirations of a single market and production base, the talk, increasingly, is of a "highly integrated economy".

Politically, Asean could be said to have made haste slowly. More and more nations in the group - including the largest, Indonesia - are steadily building democratic societies after initial decades spent defending "Asian values" to explain why they couldn't have political liberalisation sooner.

The latest to join that fold is Myanmar, a nation of some 55 million people, which, following Indonesia's lead, is looking for ways to keep its military in the barracks. Some other Asean states still operate under strongmen or military dictators. But the trend is clear, and for now, seemingly irreversible, especially as the digital world democratises thought and opportunity.

Beyond lie megatrends whose influence is hard to map at this stage. The melting of the polar ice cap and the consequent opening of the Northern Sea Route for container shipping could potentially give a second wind to East Asian manufacturing to the detriment of South-east Asia, and its pole position in the fairways of global commerce and the waterway that hosts more than US$5 trillion (S$7 trillion) of global commerce. At the same time, new rail connections to mainland China that are being planned or implemented add healthy opportunities for many nations, particularly those in mainland Asean but also peninsular ones such as Malaysia.

Meanwhile, Mr Narendra Modi's rise as India's leader and the likelihood that he will hold power for a while, have added to India's allure. Foreign investment in 2016 surged to US$46 billion from US$28 billion the year before and is accelerating. For Asean, India's rise at a time when Chinese growth is moderating is therefore both a huge opportunity and challenge.

The big nations of Asia - China, India and Indonesia - are also fervently lengthening their domestic supply chains. Mr Donald Trump's ascendancy in the US has added legitimacy to power elites in the big markets of Asia who insist that more be done on their home territories by companies seeking to tap their markets. This works against the concept of a grid system of manufacturing where primary goods, equipment parts and finished products move easily back and forth between nations.

Meanwhile, automation and robotisation are adding scale and efficiency to markets where labour costs were once considered prohibitively high, depriving low-wage Asia of trickle-down investment important to find jobs for the millions entering the workforce every year.

Geopolitically, Asean is heading for a fraught period as China's increasing assertiveness in its neighbourhood fetches a response from Japan and India, the strategic bookends of Asia.

In the past, Asean's fault lines were reckoned to be between mainland states and maritime ones such as Indonesia, Brunei and the Philippines. But China's willingness to flex its muscle is proving to be a strain on Asean unity. Some, like the Philippines under President Rodrigo Duterte and Cambodia under Prime Minister Hun Sen, have caved in. Others, such as Indonesia, are nervously watching Beijing's every move and pondering how to balance the interests of feeding off China's growth while staying independent of its strategic grasp.

New worry points are emerging too. Militant Islam is fracturing societies and weighing on regional ties. Buddhist-majority states are under scrutiny over their treatment of Muslim minorities. Investors are aware that much of this is driven by politics, and make allowances for it. At the same time, any indication that things are going too far will raise concern, and influence their decisions.

There's no question that on balance, Asean's future is undoubtedly bright. Incomes are steadily expanding. According to the United Nations Population Division, its population will increase from 633 million in 2015 to 717 million in 2030 and 741 million in 2035. With the exception of Singapore, every Asean state has miles to go before completing its urbanisation process - thus ensuring a long pipeline for headline growth. It helps too that most of Asean has a young and vibrant population and old-age support ratios are at still-healthy levels.

According to the consultancy firm McKinsey, almost 60 per cent of total Asean growth since 1990 has come from productivity gains as sectors such as manufacturing, retail, telecommunications and transportation grow more efficient. Vietnam has shown that industrial employment can still expand in the era of robotics and automation.

That said, much of what lies ahead depends on how it manages a few tracks. The first is for Asean nations to be able to grasp the sweeping changes in the technology landscape and build skills to match the times.

Second, it needs to turn its diversity - Indonesia is 90 per cent Muslim, the Philippines is dominantly Roman Catholic and Myanmar is mostly Buddhist, for instance - into advantage. This can be done only by clamping down on extremism, ensuring the flintier edges of faith are dulled by deft handling.

Third, by not pushing the pace of political integration too quickly - indeed, it may not even be possible - it is improving the chances of common roots going deeper.

There is a final point, and that is Indonesia. If Asean is indeed the epicentre of the Asian continent, Indonesia is the epicentre of Asean. Keeping Jakarta fully engaged in Asean and open to the world therefore is critical. An inward-looking Indonesia makes for an orphaned Asean.

The last 50 years have shown Asean members that the whole is greater than the sum of their parts. They now need to convince themselves that in steady, measured integration lies salvation.

Seven interesting things about Asean

Asean is expected to experience robust economic growth throughout the next decade, with some predicting it could overtake the European Union within a generation. Whether or not that happens, there is consensus that the region will grow rapidly, both in terms of its economic might and its influence on world trade.

1 1 If Asean were a single country, it would be the seventh-largest economy in the world.

2 Asean is the fourth-largest exporting region in the world, trailing only the European Union, North America and China/Hong Kong.

3 The number of consumer households in Asean is expected to almost double by 2025.

4 Asean is home to 227 of the world's largest companies.

5 Asean is an exceptionally culturally diverse market

6 Asean is unique in terms of biodiversity.

7 Asean countries account for a quarter of global fish production.