Asia: Economic Year in Review 2020
20 Dec 2020
Closely linked both geographically and economically to China, the epicentre of the novel coronavirus outbreak, emerging markets in Asia were among the first to feel the effects of Covid-19 in 2020.
The year has undoubtedly been a difficult one, with the virus disrupting both daily life and the economy for months. However, the largely successful containment of the virus in most countries, the development of new digital solutions and the move to diversify supply chains away from China have left the region well positioned to capitalise on the post-pandemic changes in the global economic landscape.
Using OBG Advisory’s “4R” matrix for analysing national Covid-19 responses – encompassing Resilience, Response, Recovery and Reinvention – we highlight success stories and lessons from the region over the year, and look ahead to 2021.
Asian countries’ levels of resilience to the pandemic varied in line with their respective levels of economic development.
More developed economies with strong health care systems and financial reserves, such as Japan and South Korea, were naturally better prepared to manage the health and economic effects of the crisis.
Others with weaker infrastructure and lower average disposable incomes faced a more challenging proposition.
Generally speaking, more diverse and digitalised economies were better able to withstand the challenges accompanying Covid-19.
For example, Malaysia, with its high-tech industry and strong services sector, has a more diversified base than some of its Asean neighbours, and was thus better prepared to absorb the losses associated with the economic downturn. Nevertheless, the economy is still forecast to contract by six per cent in 2020 before rebounding to 7.8 per cent growth in 2021 – the fastest rate among the Asean-5 countries.
Elsewhere, Thailand’s key industries were badly affected by the pandemic. Heavily reliant on tourism and exports, the country was hit particularly hard by the closure of international travel and the drop in global demand for goods, with GDP falling by 12.1 per cent and 6.4 per cent year-on-year (y-o-y) in the second and third quarters, respectively.
Similarly, the Philippines continues to face challenges. The country imposed strict lockdown measures, with considerable restrictions in place until the end of the year.
Moreover, the economy is heavily reliant on overseas remittances, which account for around nine per cent of GDP, and – with some 250,000 of the country’s 12 million overseas foreign workers sent home over the course of the year as a result of the pandemic – remittances fells by 2.6 per cent y-o-y in the first eight months of 2020.
As the virus nonetheless spread to other countries in the following weeks and months, governments across Asia implemented lockdowns and restrictions on the movement of people and goods.
While most strategies consisted of broadly similar measures, some were stricter than others. Among those with tighter restrictions was the Philippines, whose enhanced community quarantine – imposed on the island of Luzon – severely restricted the movement of people, except for essential work and health purposes, and led to the closure of all businesses deemed non-essential.
Digital solutions were essential in enabling businesses to adapt to the new normal.
Given the restrictions on movement and social distancing guidelines, the expansion of online platforms offering payment, food delivery and medical advice was not only key to providing basic goods and services to the general public, but also a necessity for companies looking to adapt to rapidly changing demand.
“While e-commerce was just an option before Covid-19, it is now essential for retailers and producers to sell their products through e-commerce platforms in order to survive,” Kusumo Martanto, CEO of Indonesian e-commerce platform Blibli, told OBG in April. “The long-term impact will be positive for online shopping, as it will start to become habitual for consumers.”
Such a phenomenon was clearly evident in Indonesia, South-east Asia’s largest digital economy and home to five of the region’s 11 unicorns.
In addition to online platforms Gojek (Indonesia) and Grab (Singapore) adopting contactless delivery payment methods, innovations were made in other areas.
For example, in March local company Halodoc teamed up with Gojek to launch a telemedicine service called Check Covid-19, which allows Gojek users to remotely check their symptoms with the 20,000 doctors in the Halodoc system, helping to reduce the risk of further transmission.
Elsewhere, educational technology firm Ruangguru launched the Ruangguru Online School Programme, offering daily virtual classes to students of all grades via the company’s platform.
For Asia, the region’s ability to control infections has been key to facilitating economic recovery.
Stands to gain
Notwithstanding the challenges associated with coronavirus, the region stands to benefit from post-pandemic opportunities.
With much of the world’s production capacity based in China, virus-related restrictions on trade laid bare the risks associated with highly concentrated supply chains. This has in turn encouraged many companies to diversify their industrial and logistical operations.
As OBG has detailed, this process, known as China +1, was already under way before the outbreak of Covid-19, as rising labour costs and tariffs associated with the US-China trade war saw some companies relocate business operations.
Given their proximity to China, developed industrial sectors and low labour costs, a number of emerging markets in the region have become frontrunners in the race to attract industrial activity.
For example, in May regional media reported that US tech giant Apple was set to shift the production of around 30% of its AirPods from China to Vietnam. This was followed by a report from international media in November that plans were also in motion to relocate iPad and MacBook production to the country.
Elsewhere, in late November the Philippines’ Senate approved a bill that will immediately slash corporate tax from 30 to 25 per cent and offer a series of incentives to major projects.
Similarly, in October Indonesia’s Omnibus Bill on Job Creation – aimed at reducing red tape and incentivising investment – was passed into law.
In Thailand, meanwhile, the Eastern Economic Corridor special economic zone is set to play a key part in the government’s goal to transform the country into a regional centre for high-tech manufacturing and digital innovation.
With a series of incentives for potential investors and ongoing efforts to update logistical and industrial infrastructure, the zone also represents a major attraction for companies looking to diversify industrial production away from China.
Moving forward, this broader shift away from China, coupled with the incentives offered by governments in Asean, could see the region become a major producer of next-generation industrial products.
This Asian economic piece was produced by the Oxford Business Group. The
Source: Borneo Post