As 2020 draws to a close and we take stock of the year, we ought to move away from the traditional powerhouses of the regional startup ecosystem and analyse the impact of the year on emerging markets within the region.
Less glamorous than the regional giants of Singapore, Indonesia and Vietnam, emerging markets in Southeast Asia play an equally important role in the development of the region as they represent the potential growth.
Investors have recognised they remain an unpolished gem and thus have taken the lead in providing them with the resources to succeed.
Singapore-based private equity firm Ascent Capital announced in November that it closed a US$88 million Myanmar-focused fund to invest into companies across a variety of sectors, including consumer, education and healthcare.
While COVID-19 has wreaked havoc on the region, with 1.38 million confirmed cases in Southeast Asia as of December 2020, emerging markets — Cambodia, Laos and Myanmar — have remained relatively unscathed, with Myanmar suffering the greatest impact among the three.
Despite making up 11.8 per cent of the regional population, the trio from the Mekong sub-region accounted for only 8.3 per cent of COVID-19 cases regionally.
As of December 2020 and according to official statistics from respective health ministries, Cambodia and Laos collectively accounted for only 400 confirmed cases, with no deaths reported. Myanmar has over 122,000 cases and reported close to 2,700 deaths, making it the fifth worst-hit country in the region – by the number of cases per million residents.
Despite escaping the wrath of the pandemic, emerging economies have been negatively impacted by the effects of an ensuing economic downturn.
Cambodia
According to a World Bank report, the Cambodian economy contracted by 2 percentage points in 2020.
The same report shared a rebound is anticipated and the Kingdom’s economy is projected to grow by 4 per cent in 2021 due to increased domestic activity, spurred on by the relaxation of social distancing measures and stimulus packages handed out by the government.
The local government has spent close to 5 per cent of its GDP on income assistance schemes and tax relief to help both workers and corporates tide over the downturn.
Foreign direct investment (FDI) into the country is also increasing, driven by a free trade agreement signed between Cambodia and China in October 2020. The country’s inaugural bilateral free trade agreement is expected to boost trade between the two countries to US$10 billion by 2023.
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However, challenges persist within the Kingdom.
Despite the partial recovery of the travel and tourism industry by domestic tourists, the sector remains negatively affected as international travel restrictions remain in place.
The share of respondents of a World Bank survey who were working declined from 82 per cent before the COVID-19 outbreak to 71 per cent in May 2020 — a number that remained relatively unchanged in August 2020.
This has led to a decline in household income and more will fall into poverty. The government has attempted to stem this by launching a cash transfer programme to assist the poor and vulnerable.
However, the efficacy and sustainability of such an initiative remain to be seen.
While China continues to account for the majority of FDI, there has been a shift to finance non-garment manufacturing sectors at the expense of the tourism sector. (Photo credit: World Bank)
Laos
Despite having avoided a health crisis with only 41 total cases — as of writing this piece — Laos has not escaped the worldwide economic downturn.
The country’s economy is projected to contract by up to 1.8 per cent in 2020, with the downturn particularly affecting the services sector. Similar to Cambodia, the Laotian economy is expected to rebound by close to 4.5 per cent within the next two years.
Despite the seemingly minute contraction in growth this year, it comes at a period where Laos can ill-afford a slow down of its economy due to structural macroeconomic vulnerabilities stemming from its high public debt levels and low reserves buffers.
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In a country where 11 per cent of total employment is in service industries such as travel, tourism and hospitality, the pandemic has had far-reaching economic and social consequences on Laotians. Up to 214,000 additional people are projected to fall into poverty due to the loss in jobs and a decline in income.
Labour migration remains an important livelihood option for the Lao workforce. However, many migrant workers have returned home amidst lockdowns worldwide.
It is estimated that the reverse in labour migration has resulted in a loss of US$125 million in rural household income.
Myanmar
Despite having the most number of COVID-19 cases among the three emerging markets, the Burmese economy grew by 1.7 per cent in 2020.
Although this represented a slowdown from its 6.8 per cent growth in 2019, it remains one of few in the region who have stayed in the green.
Domestically, growth in manufacturing, construction and service sectors have slowed due to a platitude of reasons including disruptions in supply chains, lockdowns and reduced demand.
However, it was observed internet-based businesses were better positioned to weather the downturn and reported increased earnings during the year.
Also Read: How understanding culture can drive the digitalisation of payments in Myanmar
Despite economists expecting Myanmar’s economy to grow by 2 per cent in 2021, concerns over the coronavirus outbreak remain. The country is experiencing a new surge in cases with over 900 daily cases reported last week.
While the government’s immediate priority should be stemming the rise of cases, it has diverted efforts to rejuvenate the economy for future growth, announcing fresh financing to support the development of industrial and urban development projects.
The future
Despite a slowdown in the growth of regional emerging markets in 2020, the outlook for these three countries remains positive. However, the projected recoveries in these economies are contingent on a successful containment of the virus.
As vaccines begin to be distributed worldwide, these countries must secure access to them — a difficult task given many wealthier countries are also vying for access.
When they do secure contracts with vaccine manufacturers, the mammoth task of vaccinating the population would be the next challenge. With a significant part of the population in these countries still residing in rural areas, local governments must have plans in place to reach these parts of the population.
Only then can the virus be contained and the emerging markets of Southeast Asia will continue on its path to economic growth.
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Image Credit: Photo by Jesse Schoff on Unsplash
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