What Threats Does Brexit Have in Store for ASEAN Countries?
The recent referendum on Britain’s exit from the EU has caused concern around the world, including the countries of Southeast Asia. This is not surprising, given the high level of their integration into the world economy, which was stirred up by the results of the last vote. This prompted ASEAN countries to evaluate the possible consequences of this event from the point of view of their national and regional security interests, while maintaining caution in predicting the development of the situation.
Indonesian experts are of the opinion that Brexit will not have a direct impact on the country’s economy in the near future, taking into account the small volume of trade turnover between the countries, which amounted to USD 2.35 billion in 2015 compared to USD 31 billion with Japan and USD 24 billion with the United States. Indonesian exports to the UK in the same year were not higher than 1% (USD 1.5 billion) of their total exports, which amounted to USD 150 billion. That same year, British investments in the country amounted to USD 503.2 million. However, the protracted political crisis in Europe can have a serious impact on Indonesia’s economy, particularly in terms of reducing the export of raw materials to the EU and the inflow of foreign investment. Possible risks for the stock market are also being evaluated. According to the country’s Minister of Foreign Affairs Retno LP Marsudi, much will depend on the outcome of the pending agreement between the UK and the EU, including the fulfillment of a number of agreements relating to Indonesia, such as the Comprehensive Economic Partnership Agreement (CEPA), Forest Law Enforcement, and Governance and Trade Action Plan. Indonesian economist Winarno Zain believes that the forecasts made in the country’s budget with regards to the growth of GDP, currency exchange rates and oil prices will require adjustments given new political realities in the world.
The Prime Minister of Singapore Lee Hsien Loong called the vote in the UK “a turning point” and urged the government to closely monitor the development of the situation, since nobody can currently imagine all the implications of the decision made by the people of the UK. Singapore’s greater focus on Brexit is due to the fact that it is linked to the UK economy to a much greater extent than the other ASEAN countries. The exports to the UK, mainly services, generate 2% of GDP. Singapore is the largest trading partner of the UK in Southeast Asia, ranking fifth in the list of the countries that are not members of the European Union, and the fifth largest market of service exports outside the EU.
The impact of Brexit on its economy may manifest itself in a reduction in the cost of the local currency, a slowdown in exports to Europe, and a loss of profitability of local companies. The UK accounted for three quarters of Singaporean investments into the European Union, mainly in property, infrastructure and regulated assets. However, in general, the loss of Singapore will depend on the damage inflicted on the European market by a British exit from the European Union.
Recognizing the importance of economic and trade relations with Singapore, British High Commissioner Scott Wightman tried to put local businessmen at ease, assuring them that both countries will remain important business partners. He stated that “there is no reason to think that the decision made by the people of the UK would affect the country’s attractiveness for Singaporean investments, as well as the attractiveness of Singapore for English investments.” Currently, 1000 UK companies are operating on the Singaporean market.
And yet the attitude of Singapore towards the referendum is not unequivocal, as evidenced by the comment made by Prime Minister Lee on Facebook: “We all live in a globalized, interdependent world. The desire to disengage, to be less constrained by one’s partners, to be free to do things entirely as one chooses, is entirely understandable. And yet in reality for many countries disengaging and turning inwards will likely lead to less security, less prosperity, and a dimmer future.”
The position of the Philippines regarding Brexit was clearly formulated and announced by Sergio Ortiz-Luis, President of the Chamber of Commerce: “If Brexit affects the US, it will affect the Philippines.”
The Prime Minister of Malaysia Najib Razak made an official statement following the results of the referendum held in the UK, having called the decision “historic”, but with “unpredictable consequences”, and assured the business community that relations between the countries would not be changed. Malaysian economists believe that the national market is able to adapt to changing external economic and political situation, but the long-term consequences of Brexit today are difficult to be assessed in their entirety, despite the fact that Malaysia trade turnover to the UK accounts for only 1%. According to the Minister of Trade Mustapa Mohamed, Malaysia, which has been conducting free trade negotiations with the European Union for a long time, might use the situation in its own interests and expedite the signing of the corresponding Treaty with the UK. What entrepreneurs in Malaysia fear the most is a possible split from the European Union and reduction in the rate of economic growth should other European countries follow the UK’s example. The consequence could be a reduction in Malaysian exports by 10.1%.
In Thailand, experts believe that Brexit may lead to a reduction in the number of tourists from the UK and European countries as a whole within the next three months in connection with the change in the exchange rates. Last year, Thailand was visited by 5.6 million Europeans, of which 946,000 were residents of the UK. As for a decline in the value of securities and the exchange rate of the baht, according to Veerathai Santiprabhob, Head of the Bank of Thailand, this process will be stabilized in the near future, and the government is keeping the situation under its full control. Experts do not foresee major changes in the field of foreign trade, since the UK share in the trade turnover of Thailand amounts to only 2%.
For Vietnam, which is an active trade partner of the European countries (the second largest export market after the United States), the British exit from the EU could lead to a decrease in its exports. The reason being the change in the exchange rates and reduction in the competitiveness of Vietnamese exports. The volume of exports made to the UK could decrease by 10%, or by USD 460 million (in 2014, it amounted to USD 4.6 billion). Vietnam’s foreign economic position may be worse off should Brexit bring about a deterioration of the financial market of China, which the economy of Vietnam is strongly tied to. In this case, as noted in the report prepared by Vietcombank following the results of Brexit, the Central Bank may not have enough funds to maintain the exchange rate of the Dong. As a result, Brexit may damage the country’s investment and stock markets.
However, according to some experts in the region, the British exit from the European Union may provide the ASEAN countries with a number of advantages in terms of creating favorable conditions for the conclusion of agreements on free trade and attracting investments from the UK that will strengthen economic and trade relations. Even today, most Southeast Asian countries consider the UK as their strategic partner. Nevertheless, it is currently only possible to give rough estimates of the impact of Brexit on the economy of the Southeast Asian countries, which will be adjusted to reflect the new relationship between the EU and the UK.
Natalya Rogozhina, Ph.D. in Political Science, senior research fellow at the Institute of World Economy and International Relations, the Russian Academy of Sciences, exclusively for the online magazine “New Eastern Outlook“.