The failure of hinterland strategies, and what ASEAN should really be doing together

Batam, Indonesia: more than just pretty beach resorts. ProjectManhattan/Wikimedia Commons

By Alex Lew

Singapore’s economic growth story needs a twist.

No longer can the city-state grow by attracting more industrial projects – something that its Economic Development Board (EDB) has been good at doing since the 1960s. There is a limit to the land Singapore can offer for industrial use, for instance.

Since the late 1990s, Singapore had been developing “hinterland strategies”, in which Singapore was regarded the location for hi-tech investments, research and company headquarters, while Malaysia and Indonesia were seen locations for less technology-intensive projects.

Over the years, both Malaysia and Indonesia emerged as strong competitors for manufacturing in Southeast Asia. In south Malaysia, the Iskandar Malaysia project has created 605,000 jobs since 2007. This is an amazing feat for a region with arguably less amenities and global recognition than Singapore.

In the same vein, the Indonesian island of Batam has also been aggressively pursuing technology projects. The Batam Free Trade Zone Authority built its Information Technology Center on an area of 7,320 square metres.

Today, Batam has become one of Asia’s largest industrial development, specialising in catering for data centres and disaster recovery centres.

Unlike traditional steel fabrication employment, jobs in manufacturing and in data and data security continue to be crucial for Singapore.

Some industry leaders in Singapore have shared how Singaporeans can work overseas, overseeing regional processes. Yet the truth can be quite different.

A Singaporean manager overseeing an entirely different Indonesia plant is not a competitive solution. It makes sense to simply deploy a local Indonesian manager, at lower costs, to replace that costly Singapore expatriate.

Clearly, there is a need for Singapore to rethink its hinterland strategy. Perhaps the win-lose strategy is the constraint for regional economic growth.

The better economic growth model for Singapore and its regional counterparts would be to grow the economic pie together. The perspective that Singapore will always be technologically superior must be dispelled.

One way is for Singapore and its ASEAN counterparts to pursue global projects together. Potentially, ASEAN can be the most attractive centre for economic growth. ASEAN is one of the cheapest locations for business and talent – think Myanmar, Vietnam and Indonesia – and also one of the most international of locations for management.

Kuala Lumpur and Singapore offer international companies the most diversified capital choices comprising traditional capital instruments and alternative choices, for instance, that involving Islamic banking.

ASEAN is made up of nations with a mix of growth stages, not a mix of first- and second-class members. For Singapore to grow sustainably, Singapore needs to see its ASEAN peers as partners on the global arena. Similarly, other nations such as Malaysia and Indonesia should agree to healthier trade agreements allowing the ASEAN community to compete effectively.

Coming together once a year to edit and tweak the ASEAN Economic Community (AEC) document is no longer sufficient to help the ASEAN region process together. ASEAN has one of the best chances in decades to catch up. China’s growth based on debt and rapid industrial expansion has a limited. Global companies are on the lookout for cheaper manufacturing locations with future ready skill sets for technology and management.

ASEAN is poised to take the lead for economic growth in the next decade. The race is ASEAN’s to lose.