Southeast Asia vs. Delta

Pre COVID-19, Southeast Asia was considered a dynamic and fast-growing region. The region contributed to a significant share of global GDP, with favorable demographics and a growing consumer market. Optimism was high given inequality was declining and the key markets in the region, such as Malaysia, were on track to become a high-income country by 2024. The progress we made was sidetracked in 2020 when COVID-19 hit, and the region's economy suffered a contraction, as did most economies in the world. 

Now, as we see the developed world have reported a steadier recovery, Southeast Asia is battling our worst COVID-19 wave yet. The Nikkei recovery index ranks the region's major markets, excluding Singapore, at the bottom of the list. This recent wave may leave us at risk of undoing the progress made to close the gap with the developed countries. Financial constraints, political instability, and slow digitalization are some of the key reasons why even economic recovery to pre-pandemic levels will be difficult. 

Financial Constraints 

The developed world has had the financial horsepower to invest early in the COVID-19 vaccine supply and, in return, secured majority of the first batch of vaccine. Countries like the US invested $1 bn in Astrazeneca, an economic bill that Southeast Asia countries are unequipped to fork up. This meant that while the developed countries were progressing well with their vaccine rollouts, a significant share of Southeast Asia's population remains unvaccinated. Though through COVAX, redistribution of the vaccine has helped push supply to the region, the rate has been too slow compared to the highly transmissible delta variant. 

Additionally, as we battle the second wave of COVID-19, the Southeast Asia governments have struggled to foot the second economic relief bill. The support provided has not been sufficient to overcome increasing unemployment rates that have also fallen disproportionately on women, risk undoing the progress on gender equality in the workforce. The economic situation has also led to difficult tradeoffs on lives vs. livelihoods, causing less stringent lockdown measures to be enforced to let key economy segments operate. The painful truth is, given the current debt levels, the region has little room to maneuver if any future COVID waves were to hit.  

Political Instability

Political discontentment has been brewing in the region. But before the pandemic, the people's dependency on the government was relatively lower, and the majority of the people could still go about their daily lives, less affected by the political situation in their countries. 

Ever since COVID-19 emerged, the government's role becomes central to a country's ability to weather the pandemic. This has exposed the pre-existing vulnerabilities and driven political unrest in some markets in the region. In Thailand and Malaysia, people have even decided to take the high risk of participating in public protests to get their voices heard. If they remain prolonged, these political issues will only exacerbate the pandemic's impact on the overall region's ability to recover. 

Slow Digitalisation 

Digital adoption has improved significantly over time in the region. However, we are still lagging behind the digitalization rate in developed countries. As such, many businesses remain unequipped to handle work-from-home arrangements. For example, there have been reports that non-essential sector employees have been forced to report to work or face termination risk in Malaysia.  

Furthermore, the significant reliance on the manufacturing sector and the worsening economic situation meant that governments have had to make difficult decisions to keep some parts of the sector open. For example, in Vietnam, factories in industrial zones have been allowed to remain open after various appeals from the industry. This, in return, may have impacted the effectiveness of lockdown restrictions against the delta variant. 

The current digitalization rate in education systems also has possible long-term impacts. Many students have had subpar education experiences during the pandemic and faced delays in major school exams. In the Philippines, school shutdown and shift towards remote learning have been problematic. Experts fear that students are falling further behind, and many not return to schools in the future. This can impact the growth of the future workforce and, ultimately, the growth and productivity of the overall economy. 

What does this mean for the future of the region? 

In the worst-case scenario, if vaccine rollouts remain slow and new aggressive variants emerge, Southeast Asia could face significant difficulty in recovering to economic normalcy. 

In the best-case scenario, if vaccine rollouts accelerate, no new covid waves or aggressive variants emerge. Southeast Asia can start recovering from this recent wave and take what we would have learned from this experience to improve our financial, political, and digital standing to become more resilient in the future. 

Only time will tell which scenario will materialize.