Indonesia and Vietnam race ahead!

INDONESIAN President Joko Widodo, who visited Manila recently, is the first foreign leader to meet President Ferdinand Marcos Jr. in 2024. President Marcos also prioritized visits to Asean neighbors, with the first foreign visits to Indonesia and Singapore when he took office, and these remain the most frequently visited nations, signaling the importance of inter-Asean relations.

Indeed, Asean is poised to be the fourth largest economy in 2030, with a young population and digitalizing economy.

The Philippines, so far, is managing its economic indicators reasonably, with the latest softening inflation for the third straight month easing to 3.9 percent in December. GDP growth for 2023 was at 5.9 percent, driven by growth in the services sector at 6.8 percent, industry at 5.5 percent and agriculture at 0.9 percent (November BSP data).

While many countries are experiencing stagnating post-pandemic growth, many of our Asean neighbors are capitalizing on the global economic changes taking place and, to some extent, not only navigating the US-China rivalry but benefiting greatly, like Indonesia and Vietnam.

Regional competition for billions of investments heightens

In 2022, Indonesia received almost $22 billion in foreign direct investment, communist Vietnam $18 billion, Malaysia $10 billion, and the Philippines $9 billion.

Indonesia successfully hosted the 2022 G20 summit, visited Russia and Ukraine at the height of the conflict (Widodo becoming the first Asian leader to do so), and launched Southeast Asia’s first high-speed rail “Whoosh” in 2023, funded through a concessional loan from China. The number of investors in Indonesia’s capital markets has grown from 1.1 million in 2017 to 12 million at the end of 2023 — a 10-fold increase in just six years, according to a Financial Times report.

Vietnam has not added US military bases yet. US President Biden made a 24-hour stop to Vietnam after the G20 Summit in September to elevate their bilateral relations. In March 2023, more than 50 US companies, including Boeing, SpaceX, Netflix, Pfizer, Johnson & Johnson, and other consumer giants, banks, defense and tech firms, participated in a business mission to Vietnam.

Vietnam had encounters with China but also courted business assiduously. Hanoi’s first metro rail was completed in cooperation with the Chinese. China’s Xi Jinping also visited Hanoi in December 2023, the first since 2017, when both countries signed deals on rails and telecom and agreed to deepen ties on security efforts.

China continues to be the largest trade partner of the Philippines, providing affordable imports for our people and a burgeoning market for our exports, becoming the biggest buyer of our agricultural products also, like bananas, pineapples, durian, etc.

In several years in the Asean-China Expo and China International Import Expo, the Philippine exporters reported that all the stocks they had brought were sold out in just a few days. Indonesia, Vietnam, Malaysia and our other Asean neighbors are capitalizing on proximity with China, successfully courted actual vs. promised, friendly investment envisions, and even with ongoing maritime issues.

The Philippines amid RCEP

RCEP is the first free trade agreement among the largest economies in Asia, including China, Indonesia, Japan and South Korea, and Asean. The 15 member countries account for about 30 percent of the world’s population (2.2 billion people) and 30 percent of global GDP ($29.7 trillion), forming the world’s largest trade bloc in history. It is expected to eliminate about 90 percent of the tariffs on imports between its signatories within 20 years of coming into force and establish common rules for e-commerce, trade, investment, intellectual property and environment protection, among others.

Studies indicate that RCEP has the potential to add over $500 billion to world trade in a few years and lift 27 million additional people to middle-class status by 2035. It is seen boosting the GDPs of member-states by as much as 2.7 percent for economies like Japan and 2.0 percent for the Philippines, according to a 2022 PIDS study.

RCEP was signed in November 2020, and the Philippines was the last country to ratify it in February 2023, which shows our politicians have the ability to insulate important economic developments from political considerations.

While tangible data on the direct contributions of RCEP are still forthcoming, there has been a reinvigorated excitement on Asean and regional development, including in the Philippines.

The reality, however, is that the Philippines is an import-consumer-driven economy. To be considered in the terms of the agreement, the Philippines continues to have a growing trade deficit with the majority of the 15 RCEP countries. How to reposition and restructure the Philippine economy to provide for the needs of its 110 million people and upgrade to exporting higher-value goods and services will be a key challenge for our political and economic leaders. Addressing these realities must be prioritized relative to other focuses, or we will not have a strengthened economic foundation balancing manufacturing with services and growth through consumption without improving our low-performing education, which is the basis of success or even survival in the next 30 years.

Ongoing harsh realities

Our trade deficit with our Asean neighbors as a region almost doubled from $13.5 billion to over $26.5 billion from 2020 to 2022, and our deficit with Indonesia and South Korea more than doubled. With Australia, it grew more than five times.

China bought around $3 billion worth of durian from Thailand and $2 billion from Vietnam. The Philippines started exporting durian to China in January this year, after President Marcos’s state visit, and a total of $150 million worth is expected to be sold in 2023. However, DTI has reported that supply constraints limit Philippine fruit exports to China. Undersecretary Ceferino Rodolfo said stakeholders have to work on addressing the low productivity of local fruit farmers to tap the demand from overseas markets (PNA).

In another article, we will look at how our Asean neighbors are repackaging and upgrading the quality of their traditional export products to capture a bigger and higher value market as East Asian markets become richer and more discerning. They are also attracting multiple times more investments and tourism from the US, China, Japan and other markets, even when our Asean neighbors themselves who’ve traveled to the Philippines would say that the Philippines have far more pristine and beautiful beaches!

What are doable practical steps for the short, medium and long term? Would love to hear your thoughts at [email protected]!