Daily Times

THE Association of Southeast Asian Nations’ (Asean) secondary population centers are getting a significant growth spike from connectivity upgrades that are bringing markets closer and gradually reducing the economic clout of megacities. A study of 10 consumer categories by performance management company Nielsen NV and strategic advisors AlphaBeta issued earlier this month predicts that the sprawling metropolises of Jakarta, Manila, Bangkok, Ho Chi Minh City and Singapore will continue to drive total consumption through to 2030, but will steadily lose ground to smaller cities.

Regional hubs like Nakhon Ratchasima and Chiang Mai (Thailand), Dong Nai and Da Nang (Vietnam), Cebu and Negros Occidental (Philippines), and Bandung, Bogor and Surabaya (Indonesia), which have populations of 500,000 to 5 million, will see faster demand for most of the surveyed goods: an eclectic mix ranging from detergent to chocolate and instant noodles. “Across seven of the product categories examined, the fastest growth is likely to happen in either small (500,000 to 1 million people) or large (one to 5 million people) middleweight regions,” the Nielsen/AlphaBeta report noted.

About 31% of the new consumer markets are located in Indonesia, 25% in the Philippines, 21% in Thailand and 12% in Vietnam, though Myanmar and Malaysia have recorded some of the fastest growth in specific consumer items since 2010. The United Nations has predicted that 18% of people Asean will live in cities of more than one million by 2025. There will be 122 million urban inhabitants, a net gain of 87 million from 2015. Four cities will register growth of more than 50% up to 2025:

g Samut Prakan (Thailand), situated to the south of Bangkok, will expand by 62.3% from 2015 levels to 2.9 million.

g Batam (Indonesia) is forecast to grow to 2.2 million, a gain of 60.8%.

g Vientiane (Laos) will grow by 54.5% to 1.6 million.

g Denpasar (Indonesia) is likely to expand by 51.9% to 1.7 million.

In the same period, the population of Ho Chi Minh City is expected to grow by 27.4%, Kuala Lumpur by 27.3%, Jakarta by 22%, Bangkok by 18% and Manila by 17.4%.Rural migration to cities is hardly new, but in Southeast Asia it is increasingly driven by structural reforms linked to the Asean Economic Community (AEC), which is still a work in progress but has nonetheless improved connectivity and produced a clutch of trade and investment reforms since it was launched in 2015.

Asean’s connectivity master plan aims to achieve a seamless movement of goods, services and labor between the 10 countries through a mix of “soft” regulatory tinkering like harmonized customs rules and physical infrastructure upgrades. Rule changes won’t be an easy sell, but road, rail, aviation and energy programs are enabling market linkages between dispersed communities that will diversify output and draw in investment.

Implemented by Asean and China’s seemingly bottomless investment funds, the strategy will create trade corridors from the southern city of Kunming to Singapore via Laos, Thailand and Malaysia, with offshoots to Vietnam and Myanmar. Secondary centers like Mandalay, Chiang Mai, Siem Reap, Mae Sot, Danang, Thilawa, Penang, Johor, Medan, Pelambang, Bandar Seri Begawan and Sarawak will also benefit.

China’s New Silk roads, if conceived as envisaged, will give them access to markets in China, India, Bangladesh, Hong Kong and – theoretically at least – a big slice of Europe. Much of the impact is literally up in the air. An ‘Open Skies’ agreement that deregulated aviation markets in May last year has triggered investment in airports at secondary destinations in Vietnam, Cambodia, Myanmar and Laos, and attracted scheduled services from discount carriers like Air Asia and VietJet Air.

According to the Pacific Asia Travel Association, a non-profit travel trade group, Asean now has 28,600 scheduled regional daily flights, up from 22,000 in 2012. Flights through Vietnam rose by 75% in 2016, while Cambodia recorded 52% growth and Indonesia 47.%. As budget airlines begin to fly direct to destinations and bypass traditional hubs, megacity airports are losing their dominance of passenger and freight movements.

The northern Thai city of Chiang Mai is evolving as a gateway to Cambodia and Kunming, while Da Nang will serve central Vietnam and Penang north-west Malaysia. Indonesia’s regional aviation hubs include Medan, Surabaya and Denpasar. Secondary centers will not be sustainable unless they can create employment for their expanding populations, as Japan discovered in the late 1990s. Most of the 100 Japanese cities chosen for a revitalization program were unable to reverse economic declines caused by the loss of manufacturing jobs and aging populations.

However, those cities didn’t have economic corridors to China and India, which are throwing money at low-cost countries like Laos and Myanmar in a frenetic regional rivalry. China’s transport package incorporates special economic zones that will house the garment and electronics factories it is relocating to Asean bases. China will also be bringing many of its own workers, a long-term debt pile and lots of political baggage. But for now at least these are purely secondary issues for Asean’s emerging economic hubs.

Published in Daily Times, July 30^th , 2017.