Asean

Southeast Asia is rich in components needed for the energy transition, including nickel, copper, and tin. International attention to the sector is growing

By Tommaso Magrini

Not just China. Southeast Asia also has a major strategic advantage on its side: the possession of a large amount of rare earth and mineral resources. These are necessary components for the global energy transition, including nickel, copper and tin, but the ASEAN area has high potential to produce more. Not only that. The rare earths in which the area is rich are also crucial for the production of batteries for electric vehicles, one of the most sensitive areas of contention in the near future.

Just think of one figure. In 2022, Indonesia's mines produced about 1.6 million tons of nickel. This figure makes the vast Southeast Asian archipelago the leading producer of nickel from mines around the world. So much so that those resources are particularly coveted by major powers such as China and the United States, which as evidenced by President Joko Widodo's recent reception at the White House are trying to reach a mining agreement.

Chinese companies are estimated to have invested something like $30 billion in Indonesia's nickel supply chain. All within a decade. On the Indonesian islands of Sulawesi and Halmahera, Beijing companies have built refineries, smelters, a new metallurgy school and even a nickel museum. A diversification of the source of investment would be functional for Jakarta, and the United States has decided to shorten the distance, but some say it may already be too late.

In an effort to increase investment in the mining sector, ASEAN mining ministers adopted an Action Plan for ASEAN Mining Cooperation for 2021-2025 (AMCAP-III) in October 2021. The goal is to "create a vibrant and competitive ASEAN mining sector for the welfare of ASEAN peoples." The AMCAP-III sets out how the ten ASEAN countries will work together to build sustainable mining development, mining investment promotion, and human and institutional capacity. AMCAP-III was implemented in recognition of the critical role of minerals of all types in ASEAN economies and sustainable development, as well as in stimulating and enhancing trade integration in ASEAN.

As a report by the Lowy Institute explains, Australia is also particularly interested in deepening relations on the subject with Southeast Asia. A new program, Australia ASEAN Futures Initiative, whose first subprogram is "Economic and Connectivity (ECON)," was launched in mid-2022. Australian companies are the largest investor in mineral exploration in Southeast Asia and the Pacific. In 2022, ASX-listed companies spent about $100 million on mineral exploration, accounting for 28 percent of all exploration investment in the region. In Southeast Asia alone, Australian companies have identified $220 billion worth of mineral reserves and invested $2.6 billion worth of capital in mining, according to an analysis based on S&P Global's mining database.

In addition to long-standing ASEAN development initiatives, Australia is implementing economic development cooperation commitments with Indonesia and other Southeast Asian countries under two trade and investment agreements. Both the Indonesia-Australia Comprehensive Economic Partnership Agreement (IA-CEPA) and the Regional Comprehensive Economic Partnership (RCEP) contain entire chapters on "economic cooperation" to help build capacity for trade and investment.

Meanwhile, Canada, Germany, Japan, Korea, the United States and China are already assisting ASEAN and its member states in implementing the Minerals Action Plan and Information System, as well as building critical minerals supply chains. For Southeast Asia, an opportunity to capitalize on an important strategic advantage.

Despite political tensions, no one wants to do without trade relations with Beijing

By Tommaso Magrini

A new survey released by HSBC showed that nearly half, 45 percent to be precise, of Southeast Asian companies plan to expand their supply chain to China in the next 12 months. Ninety-two percent of Indonesian companies expressed interest in expanding their supplier network in China in the next three years, a figure slightly higher than 89 percent of Vietnamese companies and 87 percent of Philippine companies. 

The survey results were released in conjunction with the China International Import Expo (CIIE) in Shanghai, which was attended by large delegations from Southeast Asian countries but also the largest U.S. shipment since the event's launch. This sixth edition of the survey was the first to be conducted since the lifting of Covid-19 restrictions in China in January this year, with the participation of more than 3,300 companies from 16 countries including the United States, South Korea, Canada, the United Kingdom, France and Germany. Overall, about three-quarters (73 percent) of respondents expect to increase their supply chain footprint in China in the next three years, and about 25 percent indicate that the increase will be "significant." HSBC said the survey results suggest that many of China's long-standing fundamentals, including its deeply integrated supply chain networks, continue to attract international companies. China's imports and exports to ASEAN reached 6.52 trillion yuan ($970 billion) in 2022, a significant 15 percent increase. Of these, exports accounted for 3.79 trillion yuan, an increase of 21.7 percent, and imports 2.73 trillion yuan, an increase of 6.8 percent. The data show that China's cumulative investment in South Asia reached nearly $15 billion.

ASEAN members have recently adopted the Blue Economy Framework to coordinate the sustainable exploitation of marine resources. The sea is a vital resource, but it rests on a delicate balance. Environmental... and political.

The sea plays an essential role in the history of Southeast Asia. Fishing and maritime trade have been key activities in the regional economy for centuries. All ASEAN countries, except Laos, have coastlines. People, goods, and ideas circulating by ship have made the region much more than a mere geographical expression, creating cultural and political ties among its countries. In recent decades, in addition to unprecedented growth in maritime trade, new forms of economic use of the sea have emerged – tourism, but also the extraction of resources such as oil and natural gas. At the same time, due to climate change and rising sea levels, the sea has also become a threat. Densely populated areas and cities like Jakarta are at risk of being submerged in the coming decades, with immense social and economic costs. Not surprisingly, the Indonesian government pushed for the approval of the Blue Economy Framework during its ASEAN presidency with the aim of making the use of marine resources more sustainable and effective. 

But what is the blue economy? The World Bank defines it as ‘sustainable use of ocean resources for economic growth, improved livelihoods, and jobs, and ocean ecosystem health’. The concept of ‘sustainability’ must be understood in a tripartite manner, uniting economic, social, and environmental sustainability. In practical terms, the blue economy model urges governments to design their policies in an integrated manner, acting on different economic sectors. For example, the ASEAN Framework includes interventions to achieve carbon neutrality in maritime activities, improve disaster response capabilities, promote the development of new technologies for the involved sectors, facilitate cooperation and coordination between national governments to monitor resource consumption. Initiatives to reduce waste pollution and develop sustainable tourism related to the landscape heritage are also included. 

One of the main innovations of the Framework is the inclusion of inland water resources, namely rivers, lakes, and artificial reservoirs. After all, the region is crossed by large rivers – such as the Mekong, the Irrawaddy, and the Chao Phraya – which have shaped its history and continue to support the lives of millions of people. In light of this innovation, the blue economy is also useful for a landlocked state like Laos. Another point of interest is that the ASEAN is the second bloc of countries, after the European Union, to begin coordinating its policies toward aquatic resources above the national level. Cooperation in this field is necessary, as the choices of individual states have a limited impact on the health of the oceans. Negotiating at the multilateral level is more complicated, as demonstrated by the World Trade Organization (WTO) agreement on fishing subsidies that lead to the depletion of fishery. Reaching an agreement among so many countries, with very different interests, required difficult negotiations and 21 years of talks – the time between the fourth WTO Ministerial Conference in Doha in 2001 and the twelfth held in Geneva in 2022, where the agreement was concluded.

Reaching an agreement among ASEAN members may be easier, but it can still be challenging to implement. First of all, the Framework is not binding and establishes broad strategies that will then need to be implemented in numerous regional and national policies. These policies require know-how, administrative resources, and agreement among various interest groups. ASEAN states already have a good network of international cooperation from which they can receive support in defining and implement such policies: the EU could be an essential partner, as it is the international actor most similar to the ASEAN and has already developed its approach to the blue economy. Furthermore, states that share the same sea must respect the interests and sovereignty of their neighbors. A delicate issue for ASEAN members facing the South China Sea, whose waters are also claimed by China and Taiwan. Not surprisingly, the Framework emphasizes with persistence that the UNCLOS, the United Nations Convention on the Law of the Sea establishing the boundaries of territorial waters, constitutes one of its essential legal bases. To cooperate in the protection of the seas, ASEAN states must first set aside any residual rivalries over their control.

Plastic pollution is a crucial challenge for the future of the ASEAN region, with more than 31 million tons of plastic waste generated annually in 6 out of 10 countries. But there is potential to solve the problem

By Tommaso Magrini

Plastics are a major problem in Southeast Asia and one of the main obstacles to the region's transition to a green economy. Of the ten most polluting countries, six are in Southeast Asia, according to data from the World Economic Forum. The Philippines alone dumped 356,371 metric tons of plastic waste into the ocean in one year, about 35 percent of the global figure. It is followed by Malaysia (73,098), Indonesia (56,333), Myanmar (40,000), Vietnam (28,221) and Thailand (22,806). Together, these countries are responsible for more than half of the plastic pollution in the oceans.

However, ASEAN seems determined to tackle the problem head-on. Member states recognized their duty to work together to protect their coasts, seas and livelihoods from marine plastic pollution back in 2019 when they adopted the Bangkok Declaration on Combating Marine Debris in the ASEAN Region. Based on this commitment, they launched the Regional Action Plan for Combating Marine Debris in 2021. This five-year plan aims to support regional policies and improve coordination in three main areas: reducing plastic use and production, improving collection and recycling, and promoting reuse.

A further step was taken in recent weeks, to be precise at the September ASEAN summit in Indonesia, at the end of which came the publication of the ASEAN Blue Economy Framework. Bans on single-use plastic products are an example of national policies being developed by an increasing number of countries in the region. 

Another policy tool being introduced is "extended producer responsibility" (EPR) schemes. These require producers to rethink the way they design and develop products, taking responsibility for the entire life cycle, including disposal and recycling. Manufacturers are required to meet waste reduction targets and pay fees that will finance the plastic waste collection and recycling system.

In 2022, Vietnam became the first Southeast Asian country to issue a decree imposing packaging, recycling, and waste treatment obligations on producers and importers. The Philippines followed, enacting the EPR law in July 2022. In many cases, the initiatives are only voluntary, as in the case of Thailand. Companies are also urged to develop reusable products, reduce virgin plastic use on the one hand and contribute to post-consumer collection and recycling on the other. For the goals to be ambitious and achievable, it is important to consider the local context, ensuring that all actors in the plastics value chain are able to meet them.

Regional collaboration, as the World Economic Forum always emphasizes, becomes key to developing better policies. Facilitating dialogue between countries is beneficial for governments and businesses. It provides an opportunity to share lessons learned from pilot projects and to disseminate successful solutions developed locally. Strong integrated action to combat plastic pollution can pave the way for a new era for ASEAN: from being known as the region most affected by plastic pollution in the oceans, it can become the region with the boldest green ambitions.

Expansion of metro networks is a key factor in combating urban traffic and emissions in urban areas of ASEAN countries

By Carola Frattini

As Southeast Asia's urban population grows, the region's urban centers are becoming increasingly important transportation and logistics hubs. But while this development is a symptom of rapid economic growth, it has also led to serious problems of traffic congestion and air pollution. In order to reduce travel time, traffic, and consequently emissions, the expansion of metropolitan networks therefore appears to be a key investment for Southeast Asian governments. 

Currently, among ASEAN countries, Malaysia and Indonesia stand out as leaders in sustainable urban transportation; however, the Thai government's latest significant investments in rail infrastructure are bringing Thailand closer to these two industry pioneers. The recent debut of the Yellow Line in Bangkok has attracted a great deal of attention, as during the trial period in June 2023, it recorded an impressive turnout of about 680,000 passengers in just over two weeks. The monorail spans 23 stations over a distance of 30 kilometers and connects the outskirts of Bangkok to the neighboring province of Samut Prakan. Prime Minister Prayuth Chan-ocha also praised the service, calling it "comfortable" and encouraged citizens to use this new link. 

Traffic congestion has also been a serious problem in Manila, Philippines, for a long time: already in 2017, traffic-related economic losses amounted to approximately 3.5 billion pesos per day. In order to solve this problem, the Philippines is also focusing on new metro lines. The Metro Rail Transit network in the Manila metropolitan area is expanding with the construction of Line 7, financed by the San Miguel Corporation, one of the country's largest multinational corporations. This 22-kilometer elevated rail line will reduce the travel time from North Avenue, Quezon City, to San Jose del Monte, Bulacan, from the current two to three hours to about 35 minutes. Vietnam is also trying to upgrade its public rail transportation system. The Vietnamese government has declared that work on Ho Chi Minh City's first subway line will be completed in 2024. This project will result in Vietnam having 33 kilometers of subway lines next year, after the first subway service in Hanoi was only inaugurated in November 2021.

The metro infrastructure sector in ASEAN countries has become an important market for rail infrastructure companies especially from Japan and Europe. With more than 300 kilometers of subway lines in Tokyo, Japanese companies are eager to share their expertise with the region. One such company, Shimizu, has already won a contract in Indonesia to build a railway line that is scheduled to open in 2029. Meanwhile, French train supplier Alstom has also entered the Southeast Asian market, supplying new cars for Singapore's north-south and east-west lines. Deliveries have already begun, with 16 sets of trains, and Alstom plans to deliver a total of 106 sets by the end of 2026. As demand for rail infrastructure in the region grows, it seems likely that other companies will follow suit in the coming years. 

However, these companies will most likely have to compete with an increasing role of Chinese companies, which although they have had limited success in Southeast Asian rail markets for now, have led in recent times the construction of the high-speed railway connecting Laos to China's Yunnan province, which opened in December 2021, and Indonesia's high-speed rail line, which opened on October 2. Thus, it cannot be ruled out that China will use this experience to compete with Japanese and European suppliers in metro line projects in ASEAN countries.