The New Stars of ASEAN
Thailand and Malaysia Hit Their Stride
Southeast Asia now stands as the world's most promising market, and the brightest jewels in the crown are up-and-comers Thailand and Malaysia.
Thailand and Malaysia Hit Their StrideBy Monique Hou
From CommonWealth Magazine (vol. 517 )
While recession continues to hobble Europe and North America, and economic growth is slowing in China and India, business is still brisk in Southeast Asia. The 10-member Association of Southeast Asian Nations, the world's second largest unified market, is growing faster than any other region in the world and boasts the youngest consumers. That is why ASEAN members Thailand and Malaysia have become hugely attractive investment destinations. The countdown is on. Who will be able to cash in on lucrative business opportunities on the Thai-Malay peninsula?
Thailand, the Champion of Green Industries
On Feb. 19 the Asian Wall Street Journal's front page carried a concise, exclamatory headline shouting "18.9 Percent." That figure stood for Thailand's just announced economic growth rate for the fourth quarter of 2012. Last year the country's economic growth exceeded forecasts for four consecutive quarters, resulting in an annual GDP growth rate of 6.4 percent and a 97-percent increase in foreign direct investment (FDI). In terms of GDP and FDI growth, Thailand now holds the ASEAN crown.
Thailand's attractiveness as an investment destination was not dented at all by the disastrous floods of 2011, as domestic demand remained strong and industrial restructuring continued unaffected.
The success of Thailand's economic transformation could be attributed to a nose for green business opportunities, a Midas touch that turns anything eco-friendly into gold.
Three of the industries identified by Thailand as priority industries are related to green, eco-friendly fields of business: green vehicles, green energies, and green agriculture (food). They make for the three most sparkling jewels in Thailand's crown.
Green Jewel No. 1: Food
Thailand has been called "Asia's granary," and is the world's largest exporter for a number of agricultural and livestock products such as paddy rice, cassava, tropical fruit, tropical flowers and plants, as well as fishery products. The country accounts for US$30 billion of US$200 billion worth of worldwide fish and seafood exports.
Thailand is not satisfied with being just Asia's granary, but has set itself the higher goal of becoming "the kitchen of the world."
Rarely has a country been able to reach as much market dominance with its foodstuffs as Thailand.
American hypermarket chain Costco sources all its shrimp wonton, carved squid, and tail-on tiger shrimp from Thailand. Thai Jasmine rice, Tao Kae Noi crispy seaweed snacks, green and red curry paste, Tom Yum Soup paste – all kinds of Thai spices and condiments such as fish sauce can be found in virtually every supermarket and hypermarket across Taiwan.
Lu Hsin-he, a National Taiwan University student who spent some time in Sweden, noticed that Thai foodstuffs were the only Asian food items readily available in Swedish stores.
It is somewhat hard to imagine that a country with a population of just 60 million people can rank top worldwide in so many areas. And all these top spots are somehow related to food. Thailand boasts the world's largest livestock company and the largest fish cannery.
Aside from American fast food, Thai food can claim to be the foreign cuisine with the highest penetration rate worldwide.
Green Jewel No. 2: Energy
The second green jewel in Thailand's crown is green, renewable energies. Thailand is already Asia's largest producer of renewable energies. Energy from renewable resources accounts for 6.7 percent of the country's energy mix.
It is hard to imagine that rice straw can be used to generate electricity. Large bundles of rice straw are continuously fed into a giant incinerator. The heat of combustion turns water into steam, and the pressurized steam is used to drive a turbine for electricity generation. The remaining ash is recycled for use in fertilizer.
In addition to rice straw, Thailand uses other sources of biomass – such as cassava, wood pulp, sugarcane leaves and bagasse, oil palm frond, woodchips and sawdust – to generate power or make fertilizer. Thailand is a leading producer of all these agricultural crops, which means a never-ending supply of agricultural waste biomass.
The government strongly supports biomass-to-energy projects through tax incentives, direct subsidies and public-private joint ventures. Presently some 440 renewable energy plants are operating or under construction in Thailand.
"We need more in this sector. Investments from Taiwan are very welcome. We are targeting renewable energy ratio to 25 percent by 2020," says Duangjai Asawachintachit, deputy secretary general of the Thailand Board of Investment.
Green Jewel No. 3: Vehicles
The third green jewel in Thailand's crown is green vehicles.
During the severe flooding in 2011, nearly 1,000 factories in seven industrial zones were inundated by floodwaters.
At the time, the international media's verdict on Thailand's future was unanimous: Thailand's economy had been sunk for good, because its two major growth drivers, tourism and foreign investment, had gone under. The tourists had been scared away by the Red Shirt anti-government street protests, while the floods had swept away foreign investors.
But one year after the devastating floods, not one of the some 1,300 companies from Japan, Thailand's largest foreign investor, has pulled out of the country.
Foreign investors are not interested in leaving Thailand, because the country has positioned itself clearly, and business remains lucrative.
In the year of the flood crisis, Japanese investment increased by 86 percent. In the first 11 months of the following year, Japanese investors poured 61 percent more funds into Thailand than during all of 2011. Total FDI inflows also increased 97 percent in 2012 over the previous year.
A closer look at Japanese production and sales in Thailand shows that green vehicles and green appliances almost doubled last year. "These two sectors surely are what Japan investors are focusing on," says Dungjai. "Toyota just opened a 100-thousand-unit ecocar assembly plant."
Under the leadership of the government, Thailand has become Asia's second largest green vehicle R&D center and manufacturer behind Japan. In 2012, almost 700,000 green vehicles rolled off Thai assembly lines. That's more than Taiwan's annual production of 640,000 vehicles of all categories combined.
Thailand produces a broad range of green vehicles including gasoline-electric hybrid cars, battery electric vehicles, natural gas-powered cars, and solar vehicles.
"We urgently need investment by Taiwanese manufacturers of automobile parts and components," laments Dungjai. "We are not able to meet demand for various parts for eco-friendly vehicles, in particular automatic transmissions, storage batteries, regenerative braking systems, electronic stability control systems and car electronics."
In 2011, Thailand ranked 14th worldwide in terms of vehicle output. Originally, the country planned to squeeze into the top ten by 2014. But unexpectedly it reached that target last year, because of soaring demand in Asia and Latin America, reveals Piengjai Kaewsuwan, president of the Thai Automobile Industry Association.
Last year, Thailand's vehicle output jumped to 2.65 million vehicles, a 105-percent increase. About one half of Thai-made vehicles are exported into more than 130 countries around the globe, making Thailand the world's sixth largest automobile exporter.
Aside from being the second largest producer of green vehicles, Thailand surpassed the United States as the largest manufacturer of 1-ton pickup trucks three years ago.
Piengjai points out that the car penetration rate in Southeast Asia stands at just 50 vehicles per 1,000 people. "The Thai auto industry can expect to post rapid double-digit growth for at least another five years," he predicts.
Thailand benefits from its geostrategic location and industrial structure. From a number of regional developments, be it the ASEAN Free Trade Area to be launched in 2015, broader regional cooperation in ASEAN Plus One (China) and ASEAN Plus Three (China, Japan, South Korea) or the political reforms in neighboring Burma, Thailand is consistently emerging as the biggest winner.
A big chunk of new Japanese investment in Thailand is due to the country's proximity to the lucrative markets of China, India and Burma, which makes it an ideal production and distribution base. On top of that, domestic economic prospects are "very bright" as well, thanks to Thailand's young, consumption-oriented population of 60 million people.
Malaysia, the Petrodollar Magnet
In late January, Malaysian prime minister Najib Razak proudly told the World Economic Forum in Davos, Switzerland, that his government believes that Malaysia can post a growth rate of above 5 percent per year and that the goal of annual per capita income of US$15,000 by 2020, which would turn Malaysia into a high-income nation, is achievable.
Malaysia's economic transformation has not really followed the government's script, which focused on the development of the biotech and electronics industries. Instead, the predominantly Muslim country rather unwittingly turned into the favored investment destination for "petrodollars" from the oil-producing Middle East thanks to its huge advantage resulting from the country's ethnic mix, dominant religion, languages and culinary tradition.
The most striking experience when visiting the Malaysian capital of Kuala Lumpur is the highly visible presence of people from the Middle East. At least five of the nine core industries that are the focus of Malaysia's Economic Transformation Program depend on the influx of petrodollars from wealthy Arab investors. So it is only natural for Malaysia to play the role of "petrodollar catcher."
The five petrodollar-hungry industries are: financial services, tourism, education and medical care, food and agricultural products processing, and fairs and exhibitions. The other four industries singled out for priority development are electrical and electronics manufacturing, petrochemicals and oleochemicals, the creative industries, and logistics.
Devout Muslims follow a distinct lifestyle that includes all areas of life including dress, diet, entertainment and travel. Products and services that do not comply with Islamic doctrine are therefore not marketable to Muslim communities.
Last year, a tour group from the Middle East nearly went without eating during a trip to Taiwan because halal restaurants and foodstuffs – certified as permissible to eat under Islamic dietary guidelines – proved hard to find.
"If they don't see a halal certification sign, Muslims won't step into a restaurant," explains Ho Yoke Ping, general manager for sales and marketing at Malaysia Convention and Exhibition Bureau.
Arab tourists already account for 40 percent of Malaysia's foreign visitors. And 66 percent of the local population is Muslim.
A Trade and Travel Hub for 1.8 Billion Muslims
In late November last year, the Kuala Lumpur Convention Center (KLCC) hosted Intrade Malaysia, an exhibition for exporters. Almost half of the visitors wore traditional Islamic clothing – head scarves and long, flowing robes.
Aside from the Arab countries, Malaysia is the only nation in the world where the government controls Muslim affairs. Foods, cosmetics, and pharmaceuticals can only be imported into the country if they have been certified as halal by one of fifteen government-authorized institutions.
Once a product obtains certification in Malaysia, Muslim markets around the world recognize it as halal, notes Abdullah Fahim, chairman of the Islamic Food Research Center (IFRC) in Kuala Lumpur. Malaysia issues the largest number of halal certificates in the world.
Multinational food giant Nestle has chosen Malaysia as production base for its halal products. Revenue in the Muslim food segment has been growing at a double-digit rate for several years in a row.
While Arabs account for 40 percent of Malaysia's recreational tourists, more or less the same Arabic presence is found at conferences, exhibitions and in medical tourism, notes Australian Peter Brokenshire, KLCC general manager. "In these sectors, Malaysia has no competitor," he asserts.
The Face of Modern Islam
Kuala Lumpur's glitzy department stores swarm with Muslim customers wearing colorful, stylish head scarves and lavishly spend their money.
City Center Park right next to the Petronas Twin Towers is packed with Muslim families enjoying the day. Fathers take snapshots of their frolicking children, watched over by mothers in head scarves, plucking up the hems of their long flowing dresses.
"In their own countries they probably wouldn't be able to dress that way," remarks Ho Chia-chun, a Taiwanese physician living in Kuala Lumpur. Suddenly he breaks into laughter, noting that Malaysia, as a less strict Muslim society, has certain unspoken incentives for Arab visitors. Since the weather is hot in Malaysia, the local women dress lightly and fashionably. "Haven't you noticed the Arab people sitting around in department stores, watching people come and go?" Ho asks rhetorically.
KLCC communications manager Kuzalmah Idris frankly admits that Malaysian women dress differently, in a more Westernized manner. "Right, we are modern Muslims," she quips. Idris wears a short skirt and her face is carefully made up.
At the time of the reporter's visit in late November it was not yet high season in Malaysia, yet occupancy in big hotels and smaller pensions invariably exceeded 90 percent. "We are booked that full during the whole year, it's been like that for a few years now," confirms the receptionist at our hotel.
During breakfast time, children with curly black hair and full dark eyelashes run around the hotel restaurant.
In disbelief, the reporter looks at a young couple from Abu Dhabi with their seven-year-old daughter in tow when she hears that they are visiting Kuala Lumpur for the ninth time this year.
Malaysia's popularity in the Muslim world seems unchallenged. The Global Islamic Finance Report 2012, published by Edbiz Consulting in cooperation with CIMB Islamic Bank, names Malaysia, not Singapore or Indonesia, as the gateway to the world's 1.8 billion Muslims.
Islamic Banks Post Fastest Growth
U.S. ratings agency Standard and Poor's also confirms that Malaysia controls the second largest amount of Islamic financial assets, right behind Saudi Arabia, and serves as the true transaction center of the Muslim world, issuing seventy percent of Islamic bonds.
Standard and Poor's points out that global Islamic financial assets are worth US$5 trillion, about ten times Taiwan's GDP, and growing at the pace of 17 percent per year. In the past seven years, the average growth rate of the Islamic wealth management market reached 36 percent, making it the fastest growing financial service market worldwide.
Asian countries are competing for the petrodollar-based fortunes of wealthy Muslims. In addition to Singapore and Malaysia, China and Hong Kong have begun to aggressively enter the Islamic finance business. China has already designed a training program for Islamic wealth management planners.
Taiwan, however, seems to sit on the sidelines as others seize the business opportunity of Islamic finance.
Liu Tsung-sheng, president of Yuanta Securities Investment Trust Co., recently attended a seminar on Islamic finance in Kuala Lumpur. To his surprise, "the financial supervisory officials from Hong Kong and China were all there, but I didn't see anyone from Taiwan."
Mah Siew Keong, chairman of the Malaysia External Trade Development Corporation (MATRADE), notes that although Taiwan is Malaysia's eighth largest trade partner and investor, both trade and investment between the two countries have stagnated in recent years. "Taiwanese businesses should not miss out on the new direction Malaysia is going in development," Mah warns.
Translated from the Chinese by Susanne Ganz