CHINA’S announcement of a US$41-billion railway project across Asean’s largest markets presents significant opportunities for international corporates.
It can sometimes be hard to recognise just how big the economic potential of Southeast Asia is.
The Association of Southeast Asia Nations (Asean) – with its 10 member countries as diverse as Singapore and Myanmar – has a combined GDP the size of the UK and 625 million people whose consumer spending power is expected to hit US$2.3 trillion by 2020.
For the past six months, a flurry of activities is underway building the region’s railway network, sparked in part by China’s Belt and Road Initiative (BRI). It offers a handy reminder that Asean is an economic powerhouse in the making and that it presents business opportunities for companies from far beyond Asia. China’s plan, under BRI, seeks to support the construction of more than 3000 kilometres of rail lines between it and some of its largest Asean supply chains - Laos, Cambodia, Thailand, Malaysia, Singapore and Indonesia.
Many of the projects have started to take shape.
In August 2017, the Thai government approved $5.5 billion for the construction of a 252-kilometre line connecting Bangkok to its northeast border.
Of Malaysia’s expected $85 billion transport investment to 2020, $75 billion is dedicated to railway development, including a double tracking project running from north to south.
In April 2017, China and Indonesia agreed to the terms on the building of a high-speed rail link between Jakarta and Indonesia’s fourth largest city, Bandung. And towards the end of 2017, the Singapore and Malaysian governments are expected to announce the tender arrangements for their respective legs of the $15 billion 350 kilometre Kuala Lumpur (KL)-Singapore high-speed railway (HSR).
The linkages of the Southeast Asian railway network will be a paradigm shift for the region. Apart from removing bottlenecks in the flow of goods between China and Southeast Asia, it has the potential to increase intra-regional trade.
Whilst the primary contracting for the construction of these projects will largely go to Chinese firms, engineering firms from across the world are already active in Asean and the upcoming projects present renewed opportunities.
In Thailand, for example, French company Thales has secured a contract to supply an automatic fare collection system for Bangkok Metro’s Blue Line extension.
Apart from their investment into Southeast Asia, each of these international firms have a swathe of suppliers and supply chain partners from their home markets who are being swept into supporting these projects.
When seen from these perspective, the sheer international connection of the Southeast Asian railway network becomes clearer.
Naturally, with projects of this scale, it’s not always going to be smooth sailing. Differences in construction standards, general project disputes, rivalries between contractors, and financing and environmental concerns are among the issues that can beset any project – and especially projects that involve multiple jurisdictions and take years, or even decades, to complete.
Despite the economic improvements in Asean, these challenges show that international firms still need to go into the projects with their eyes wide open. Many have gone into partnership arrangements.
It is also important for them to establish frameworks designed to quickly identified and iron out any differences that arise.
That said, at the end of the day, the flurry of activity around the Southeast Asian railway network shows that the long-term benefits of closer physical ties both between Asean’s 10 member countries and with neighbouring China have been well and truly recognised – and it solidifies the economic narrative of one of the world’s most dynamic economic regions.
For international firms looking for commercial certainty and a steady pipeline of activity, there are few better regions and markets than Asean’s transportation sector.
Contributed by SUNIL HIRANANDANI, Head of Belt and Road Initiative, HSBC Commercial Banking