Published on 6 November 2020
Writer: Imran Shamsunahar, Research Associate, CARI
Editors: Eleen Ooi Yi Ling, Research Manager, CAR & Jukhee Hong, Executive Director, CARI

CARI Viewpoint: ASEAN must not simply bounce back but forward through collaboration on greater intra-regional connectivity, leveraging e-commerce to ensure business continuity, supporting MSMEs through digitalization, and embedding sustainability into the recovery process

CIMB ASEAN Research Institute (CARI) hosted a CARI Briefings webinar under its COVID-19 Economic Recovery Plan Series, titled ‘How Can ASEAN Bounce Back: A US Perspective’, on 14 October 2020. The session featured Ambassador Michael W. Michalak, Senior Vice President and Regional Managing Director of the US-ASEAN Business Council, and Kawal Preet, President of the Asia Pacific, Middle East, and Africa (AMEA) region at FedEx Express.

The session was moderated by Tan Sri Dr. Munir Majid, Chairman of CARI, and the discussion centred on ASEAN’s post-COVID economic recovery from an American perspective, touching on issues such as promoting a more integrated ASEAN through greater connectivity, the importance of e-commerce in ensuring business continuity and economic recovery, strengthening the competitiveness of MSMEs through digitalization, and ensuring sustainability is embedded in the ultimate recovery process.

During the briefing, among the key insights shared were:

1. ASEAN must not bounce back, but bounce forward

Tan Sri Dr. Munir opened the session by observing that prior to the pandemic ASEAN had grown complacent due to being in a ‘sweet spot’ in terms of being a major investment destination. This attitude thus became a problem once ASEAN was plunged into a crisis. Tan Sri Dr. Munir notes that ASEAN cannot depend indefinitely on its status as an investment hub, as investments have become increasingly mobile. As the IMF notes, investment flows have been decreasing during this pandemic, and what investment comes into ASEAN is often not distributed equally. He stressed that: ‘It cannot be business as usual’; and that ASEAN must thus hasten its institutional decision making process to become more responsive.

Pathway 225 developed by the ASEAN private sector to help guide ASEAN recovery

Tan Sri Dr. Munir commended the ‘Pathway Towards Recovery and Hope for Asean’ proposals (also known as Pathway 225 proposals), over 30 business councils, industry groups and partners from all ten ASEAN member states, dialogue partner countries and regions (including the US-ASEAN Business Council) to help provide proposals for expeditious policies to help ASEAN recovery efforts. Among the proposals included in Pathway 225 are those dealing with digitalization, healthcare issues, and connectivity and transport. Ambassador Michalak added that US-ABC was a participant and is a strong supporter of Pathway 225.

US-ABC’s three pillars and two enablers for ASEAN recovery

Coming from an American perspective, Ambassador Michalak provided his own three pillars (and two enablers) concerning ASEAN’s economic recovery. The three pillars Ambassador Michalak listed included:

1. how to restore confidence in the consumer economy,
2. how to improve health outcomes within ASEAN,
3. how to ensure recovery is done in a sustainable and resilient manner.

He also listed digital transformation and sustainable financing as two enablers to the recovery process.

Intra-ASEAN trade and helping MSMEs important for ASEAN recovery

Kawal Preet stated that COVID-19 has been an enormous disruptor not just in terms of the immediate economic pact but also in the management of global supply chains and the global movement of goods and peoples. She believes that COVID-19 will provide a catalyst for innovation for years to come, with ASEAN at the centre of this potential.

The company’s blueprint for economic recovery focused heavily on the benefits of connectivity, and fell into three main areas:

1. a focus on intra-ASEAN trade,
2. going all-in on cross-border e-commerce,
3. protecting small and medium enterprises and helping them become more competitive.

2. Greater intra-ASEAN connectivity

Kawal argues that intra-ASEAN fundamentals remain strong despite global headwinds; and described ASEAN as both a ‘compass and driver’ of regionalism . She argues that intra-ASEAN trade will not only prove resilient but also grow and that trade agreements like RCEP and individual FTAs will be important enabling a much larger market within ASEAN and with other regional partners. Ambassador Michalak concurred about the opportunities presented by an integrated ASEAN, granting the 650 million strong population of ASEAN one voice when negotiating agreements with China and the United States.

She also points out that businesses are currently looking for greater supply chain resilience, diversification, and regionalization in the wake of COVID-19. She notes the example of one customer which constructs medical devices and operates supply chains in ASEAN and China, and who is now working to ensure more than one country can assemble their devices.

Logistical industry vital for business continuity

Kawal noted that as an essential service, the necessity of the logistical industry became more apparent in 2020 as a way to keep businesses afloat. She argues that custom authorities hold the key to trade facilitation to ensure the safe and efficient flow of goods across borders, and that additional trade facilitation measures will be required moving forward; including more flexibility in duty collection methods and electronic versions of documents.

Intra-regional connectivity crucial for disseminating COVID-19 vaccine

Kawal points out that strong intra-regional connectivity will be crucial in disseminating a COVID-19 vaccine once it comes out. ‘If ever there was a time to take a leadership role in trade facilitation,’ she stresses, ‘it is now, to ensure that the vaccines and other supplies can move unimpeded throughout the region.’ Ambassador Michalak similarly suggested that in the long term ASEAN policymakers should focus on improving the supply chains of personal protection equipment (PPE) to improve future public health resilience.

Digital and educational economy structure vital to attract investments

When asked if the American government is actively providing support to American companies to shift their production out of China, Ambassador Michalak frankly provided an answer in the negative. However, he references Tan Sri Dr. Munir’s earlier statement about investments today being very mobile. He believes that how ASEAN governments structure their digital and educational economy will be critical in attracting investments.

3. Going all-in on E-commerce

Kawal observes that e-commerce was projected to be the fastest growing sector of ASEAN’s Internet economy prior to COVID-19. Indeed, she referenced research by CARI which found a 20% growth in global digital revenues quarter-by-quarter in the first quarter of 2020, as compared to 12% growth in the same quarter in 2019. Under the present circumstances, she argues that e-commerce must be further leveraged to ensure business continuity and sustainable growth.

Trade facilitation must also be informed by digital and financial inclusion

Kawal believes that the booming e-commerce sector booming in ASEAN provides the bloc with a huge opportunity to demonstrate leadership in innovation. She points to ongoing regional trade facilitation initiatives such as the ASEAN Single Window and efforts to use paperless trade to facilitate e-commerce and stresses that this sort of innovation must be allowed to continue at a faster pace. Such innovation will be key in helping MSMEs recover and become more competitive. While Ambassador Michalak concurred that trade facilitation is indeed important, he warned that it must also be informed by issues of digital and financial inclusion to ensure benefits of the digital economy can reach a wide swath of society.

4. Supporting MSMEs through digitalization

Ambassador Michalak noted that while digitalization has long been talked about in academic and business circles, he argues that digital literacy is no longer an ‘enhancement’ that might help companies streamline their businesses, but an essential component to allow people to stay healthy and go out and interact. He believes that contactless payments will contribute to the new normal, while financial inclusion can help people digitally receive support payments instead of having to wait in lines.

MSMEs should take advantage of current digitization programs

Ambassador Michalak urges MSMEs interested in digitizing their operations to take advantage of programs currently available, such as the US-ASEAN Business Council’s SME Academy, an online platform which provides courses on how to construct business plans and set up websites. He lists initiatives by American companies to help ASEAN MSMEs scale up digitally, such as efforts by Google and Microsoft to teach coding to people.

Digital infrastructure vital for MSME transformation

Kawal agreed that this is the perfect time to accelerate digitalization. She argues that digitalization has transformed MSMEs by reducing the complexities of trading processes and enabling cross-border commerce. She argues that ASEAN policymakers can help support this trend of digital transformation by making export processes easier, simplifying customs documents, and increasing transparency on taxes, duties, and permit applications. ‘What was once nice things to have, have become necessities’, she argues.

Kawal argues that even prior to the pandemic it had become clear that outdated infrastructure including some existing digital infrastructures presented a clear barrier to growth. She stresses that the benefits of digital transformation are substantial, pointing to data which suggested that it could add up to US$2.8 trillion to Indonesia’s economy by 2040, while wider digital adoption would also help boost GDP growth by 1% in Malaysia.

5. Promoting a sustainable recovery

Ambassador Michalak argues that environmental challenges will be as much a part of our future as a future pandemic, and that ASEAN’s recovery will have to focus on job and wealth creation without perpetuating the problems of the past. He recommends that companies should use this opportunity to create more green supply chains.

Kawal concurs, stating that sustainability makes economic recovery ‘stronger, more balanced, and future ready’. For instance, FedEx Express ultimately has an overarching strategy towards sustainability, which she refers to as ‘reduce, reuse, and revolutionize’. One example of this in practice is its facility in the Malaysian state of Johor, powered by solar energy, thereby helping save between 15 to 20% in monthly energy consumption. Globally, the company is focusing on reducing aircraft emissions, vehicle fuel emissions, packaging, and autonomous robots.
The private sector must collaborate with ASEAN policymakers to facilitate sustainable recovery

Kawal stresses however that ultimately the private sector will not be able to go it alone, and must work with ASEAN policymakers to have the infrastructure in place to support alternative, more sustainable, modes of urban and last mile-delivery.