- COVID-19, climate change, and other challenges have placed Southeast Asia's participation in global and regional value chains under enormous strain. Watch out for the new ADB report.
- One in four Southeast Asia jobs are linked to GVCs; and rebound of GVCs partly explains income and jobs recovery.
- GVCs provide stability and improve the quality of jobs somewhat in the ASEAN labor market.
Southeast Asia has become one of the most important regional hubs for GVCs—the cross-border networks that separate production stages from concept to consumption. By participating in GVCs, most Southeast Asia economies have grown strongly and reduced poverty. GVCs have created a strong manufacturing and export base, more and better-quality jobs, and spread knowledge, innovation and technology. However, their social and environmental impact can also lead to inequality and increased greenhouse gas emissions. This book aims to shed light on the disruptive effects of COVID-19 on ASEAN’s GVC participation and also review the many challenges and opportunities facing GVCs in the region as they build greater resilience and promote sustainable, green development for the region and its people.
Transcript
ASEAN remains among the world’s most resilient economic subregions.
In 2022, it expanded a strong 5.6% after contracting 3.2% in 2020.
This is not surprising given ASEAN’s record for riding out economic crisis with strong exports, manufacturing, and Global Value Chain or GVC linkages.
Also helping the region is its solid economic fundamentals, large fiscal and foreign exchange buffers, and a young and vibrant workforce. Strong regional integration built on solid FDI inflows and trade agreements also help.
Nonetheless, the pandemic still upended the region’s trade and GVC system.
Observers pinned the blame for these GVC problems on overreliance on a few suppliers, transport issues, and volatile demand. These factors led to supply shortages.
In 2020, ASEAN’s GVC trade fell 9%, exacerbating the trade slowdown triggered in 2019 by continuing geopolitical trade tensions.
Yet, ASEAN’s GVC linkages proved resilient to COVID-induced shocks as many businesses started to shift from “just-in-time” to “just-in-case” inventories.
They developed alternative suppliers and delivery routes.
And by 2021, GVC participation had rebounded, topping 2019 levels.
Among the greatest emerging risks and challenges for GVCs is the need to forge a sustainable and green recovery.
Asian including ASEAN emits more greenhouse gases during production than anywhere in the world.
An ADB study on the economics of climate change estimates losses ranging from 30% of GDP annually by 2100.
Meanwhile, geopolitical tensions have raised the influence of power-politics over rule of law on trade and investment policies.
And competition for resources has pushed up energy prices.
GVCs urgently need to decarbonize and diversify to build resilience, than just optimize based on costs.
To reduce its emissions, ASEAN needs to introduce economic incentives favoring renewable energy, eliminate fossil fuels subsidies, and set a realistic carbon price.
It should reduce trading costs for goods that are climate-friendly and it must accelerate digitalization.
Yet, shocks and geopolitical tensions will continue. ASEAN needs to strengthen trade and investment connectivity with many partners—including itself—to expand opportunities. And its policies should focus on reducing all barriers in the renewable supply chain to ease transition to net zero.
To learn more, read the ASEAN and Global Value Chains Report.
