The Power of Cooperation

It’s been a rough start to 2022. Omicron hit recovering economies hard with many countries reinstituting mobility restrictions. The ensuing supply disruptions and rising energy costs have resulted in higher and more broad-based inflation than anticipated. Slower-than-expected recovery of private consumption also limited China’s growth prospects¹. The IMF expects global growth to moderate from 5.9% in 2021 to 4.4% in 2022. That’s half a percentage point lower for 2022 than in the October World Economic Outlook².

And then came the conflict in Ukraine, which has unsettled global energy markets and cast fresh uncertainty over growth forecasts. It just keeps coming.

It’s not surprising that the desire for self-sufficiency and protectionist policies has ballooned during the past two years of pandemic border controls. But it isn’t the road to take. Now more than ever, there needs to be a return to international openness and cooperation. Economic cooperation is key in securing the smoothest possible exit from the pandemic. It can also help minimise the long-term costs from the pandemic’s extraordinary legacy and maximise the benefits from national efforts to build back better. If you want a success story, just look at Southeast Asia.

Free flow is the way to go

The region has remained steadfast in its belief that economic prosperity is underpinned by the free flow of trade, investment and people. And with supply chains already pivoting to the region, continued cooperation elevates the region as the epicenter for global openness and connectivity. But things can always be better.

The latest round of lockdowns and mass vaccination protocols have increased uncertainty which is never good for recovering economies. Government engagement can offset this. For example, earlier in March, several Chinese provincial governments announced plans to more actively encourage its businesses to make use of the now-ratified Regional Comprehensive Economic Partnership agreement which provides member countries with no-tariff access to 30% of the world’s economy. Southeast Asian governments could follow this example³.

Moreover, RCEP’s Rules of Origin allow ASEAN markets to source up to 60% (in value-added terms) of parts for goods from non-RCEP economies in order to sell those goods duty-free within the bloc. This gives states ample room to diversify their supply chains with third-party states to effectively hedge against the uncertainties.

Economies seeking to stimulate manufacturing and export growth could look to opening up the flow of capital including FDI reform. Examples include revisions of negative investment lists, tax incentives for certain sectors, and processes to speed up investment approvals. Many of these changes are sitting within the respective countries’ legislatures, but there is a very strong impetus for these bills to be passed.

Southeast Asia has seen a digital economic explosion over the past two years that is unparalleled anywhere else in the world. In 2020 alone, 40 million people in Southeast Asia came online for the first time, according to a Google, Bain and Temasek report. Today, there are 400 million internet users across the region⁴.

For many businesses, the past two years was about how quickly they could adopt technology and carry out their operations online. But many of the changes were quick fixes to stay afloat. These changes need to be fortified as Southeast Asia’s consumer base structurally shifts to online. Businesses can’t do it alone.

Change begets change. Nothing propagates so fast

From a policy perspective, improving digital infrastructure, including accelerating the pace of instant payments for corporates and harmonizing of data standards, will provide extra confidence and transparency to buyers and suppliers.

With the value of global payments expected to reach US$156 trillion in 2022⁵, cross-border payments are a crucial interlocker of global connectivity. This is particularly important as the digital economy takes a more prominent role.

The successful linkage of Singapore and Thailand’s Real-Time-Payment (RTP) systems in 2021 marked not just a world first in cross-border payments, but a major milestone in realizing the potential of Southeast Asia’s digital economy. It also showed the power of a bottom-up clustered approach to creating tangible frameworks.

Examples like this enable wider participation by both the financial services sector and other Southeast Asian markets, with the end goal of making a truly regional proposition. By enabling both corporates and consumers to transact across borders, Southeast Asia is on the brink of reaping the huge potential of its digital economy.

The road ahead

It’s this sort of cooperation that supports and complements the actions of governments in a couple of ways. Coordinating the nature and timing of national measures increases the positive effects by combining impact. This is really important because it builds confidence in financial markets and among investors.

Second, sharing information and pooling resources enables the international community to find common solutions to global problems – ie Thailand/Singapore’s RTP framework. It’s easier to deliver than simply relying on market measures.

We’ve been in a constant state of change the past three years. Just look at the geopolitical and pandemic shifts the past three months. Change begets change. We’ve got to use the momentum to move forward. And it makes more sense to do it as an international community, rather than a sole market.

We’ve built the internationalism road. Let’s make full use of it.