Building on the pillars of growth in Asia Pacific
Head of Treasury and Trade Solutions, ASEAN, Citi
The growth potential for corporates in Asia Pacific is dominated by three key markets: China, India and ASEAN. Each is unique, presenting opportunities and challenges in equal measure. We consider the treasury perspective, exploring the latest developments and trends in each.
The ten members of ASEAN have a combined GDP of circa US$2.6trn. This makes it the world’s fifth largest economy, a position that is expected to improve by one place by 2050, according to World Bank estimates. It boasts consistent growth over the past six years of around 5%. These figures meet ASEAN’s youthful demographic (more than 50% of its 550m people are under 30), and growing middle-class, head-on, presenting an exciting opportunity for businesses.
Consumption and wealth is expected to continue growing, with the overall expectation for ASEAN’s expanding middle-class and youth segments to raise aspirational consumption and online activity, says Debopama Sen, Head of TTS, ASEAN.
There is also noteworthy traction for ASEAN FDI, with Europe and the US showing increasing interest in the financial sector, for example, China ploughing a lot into finance, and the retail and wholesale trades, and Korea developing its manufacturing interests.
Intra-regional investment is conspicuously increasing too. It now represents around 25% of all ASEAN FDI. With 2016 setting a record intra-regional high of US$24bn, Sen notes that many regional corporates are making concerted ASEAN growth plans.
It is noteworthy that corporates from all regions do not typically see their ASEAN investment through a single lens of, for example, cost arbitrage or consumer-market access, says Sen. Instead, it is commonly approached with multiple drivers in mind. This, she comments, makes for sustainable regional growth in what remains a highly changeable market.
At a government level, ASEAN is driven by different themes. Infrastructure spend, attracting foreign investment, improving business facilitation rankings, and encouraging innovation are, in varied combinations, part of the region’s growth plans. Singapore, for instance, continues to boost its status as a global liquidity centre, Vietnam as a manufacturing hub.
However, in all cases, there is a proactive regional-level agenda, says Sen. Almost every corporate today, whether it is a digital native or a traditional company, has a digital transformation strategy because this is seen as the only way to sustain growth. “This is a key place where we partner with these businesses, helping them on their digital transformation journey,” says Sen.
With several clients benefiting from Citi’s expertise in navigating the rapidly changing payments landscape in ASEAN, Sen says the process is about educating clients as to what is possible, helping them to understand the benefits of technology in their unique circumstances, and then making that happen.
A recent case in point is Citi’s work with an e-commerce retail client in Singapore. This business was struggling to provide immediate online confirmations to customers that their payments had been successful. “We worked to leverage the FAST [Fast and Secure Transactions] network in Singapore to give them instant reconciliations,” says Sen. This has helped the client process thousands of payments per month with instant confirmations for every end-customer.
As well as the efforts of Citi with its own clients, digital progress across the region is helped by determined knowledge-sharing amongst ASEAN members. There is a collective will to progress. With most members now driving a payments digitisation agenda, Sen believes that by 2020 all will have 24/7 real-time payments mechanisms, facilitating, amongst other benefits, rapid e-commerce growth.
It is vital now for treasurers to harness this evolving digital payments landscape. It is especially important to grasp what is happening in the real-time payments space, advises Sen, “as this may eventually impact how your customers do business with you”.
This means fully understanding how technology can impact end-customer relationships, channel management and, ultimately, liquidity planning. “If your business is using instant payments on both sides of your working capital cycle, then how you manage liquidity may also change,” she explains.
Similarly, treasurers must be proactively involved in sales and procurement cycles to optimise working capital, constantly investigating supplier and customer sides of the value chain to understand how the business can be more efficient on the balance sheet.
At the same time, of course, treasurers must be equipped to navigate the frequent regulatory changes that are typically issued by the developing members because here too there may be opportunities to leverage ASEAN’s developing trade environment.
At the corporate level, there are few, if any, serious impediments to market entry, says Sen. However, complexity and opportunity can present in equal measures. As such, Citi, as a global yet local partner, has the footprint and experience to steer clients through the ASEAN maze. Regardless of how progress is achieved, ignoring what could soon be the world’s fourth largest economy is surely not an option.