Infrastructure fails to bridge growth gap in Southeast Asia
While the region needs a facelift of its transport system, investing in the skills, health and education of its workforce is key to economic growth
Southeast Asia plans to spend an estimated US$7 trillion over the next 15 years upgrading infrastructure. There is a real risk the money may go to waste.
No one doubts the region needs a serious facelift. From Bangkok's crushing traffic and Manila's crumbling airports to Jakarta's floods and Yangon's power outages, Southeast Asia confronts staggering, and growing, hardware challenges amid the largest urbanisation flows humankind has ever seen. Yet an even bigger problem could be the region's software - the skills, health and education of its workforce.
"The missing link is productivity," says Oliver Tonby, a managing partner at McKinsey in Southeast Asia. "To sustain economic growth, many nations will need to more than double their historic rates of productivity improvement."
The contrast to China is instructive. For all the handwringing over rising labour costs in China, the country's annual output per manufacturing worker remains 15 times greater than Vietnam's (US$57,100 against US$3,800), four times Indonesia's and more than three times that of Filipinos.
However, higher wages may not drive as many foreign manufacturers out of China and into Southeast Asia as some have predicted. Why relocate southwards only to get less for your money?
Given all the hype about regional integration next year, those numbers should be sobering. On January 1, the Association of Southeast Asian Nations will take its most dramatic step yet towards creating a Europe-like common market for 600 million people.
McKinsey reckons a better-integrated Asean could generate as much as US$615 billion in fresh economic value annually by 2030. But it will take many years and considerable political will to unify 10 disparate economies that often compete more than they co-operate, and the progress will not necessarily be linear.
