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Southeast Asia’s tech industry goes from a gallop to a canter



The ASEAN emblem is seen on a smartphone screen in front of the ASEAN flag. (Photo: Pavlo Gonchar/Reuters)

Author: Giulia Ajmone Marsan, ERIA

After a couple of years of spectacular growth, tech start-ups and tech giants alike are now facing a less optimistic outlook. During the third quarter of 2022, venture capital (VC) investments and deals globally fell to levels not seen since the beginning of the COVID-19 pandemic. This slowdown in investment is hitting North America and Europe particularly hard — but Asia is being affected too.

During 2022, the slowdown in investments hit both high-income and emerging Asia, with Asia’s largest economies, India and China, being heavily affected. Layoffs of tech workers are becoming increasingly common.

The negative outlook is the result of a complex combination of factors: the largely hawkish policies of central banks, developed economies attempting to curb post-COVID-19 inflation (primarily the rate hikes by the Federal Reserve resulting in a very strong US dollar), Russia’s invasion of Ukraine and the subsequent volatility in food and energy prices. While 2021 was an ideal year to be an early-stage tech entrepreneur and investor, the same cannot be said for 2022.

Trends across ASEAN exhibit, to some extent, a similar evolution. A fast acceleration of deals and investments in the lead up to 2022, followed by a recent slowdown, inevitably accompanied by layoffs by many tech giants. According to the ASEAN Investment Report 2022, VC investments continued to grow from the mid-2010s, to reach more than US$66 billion in mid-2022. VC investment in the region rose by a factor of 2.6 between 2015 and 2020, outperforming both China and India.

This phenomenon shows the great innovation potential of ASEAN. The significant growth of VC investments has helped the region to give origin to more than 40 ‘unicorns’ — start-ups valued at over US$1 billion. The now famous post-initial public offering (IPO) digital giants, the large majority of which operate in the digital economy sector, can also be credited to this growth. VC investments in ASEAN remain primarily concentrated in Singapore, ASEAN’s leading innovation hub, and Indonesia, ASEAN’s biggest market. But the proportion of investments going to other countries like Vietnam, Thailand, Malaysia or the Philippines has recently been growing.

In 2022, these investments have begun to slow down. The amounts raised by ASEAN start-ups were down by around 40 per cent during the second quarter of 2022 compared to the previous year. The digital economy so far appears to have remained resilient. Start-ups and deals related to tech and internet sectors were affected by smaller declines, if any. But investors are now more cautious, especially vis-a-vis late-stage investments, as IPO gains are becoming less likely in the current macroeconomic scenario.

Global conditions are currently far from ideal for investors and early-stage entrepreneurs and the global economic outlook remains extremely volatile and very difficult to predict for the medium to long term. But there is no reason to be overly pessimistic when looking at ASEAN.

The region is characterised by a strong macroeconomic performance. ASEAN’s economic growth is projected to be above 5 per cent in 2022 and 2023, outperforming China for the first time. This very favourable macroeconomic outlook will certainly be appreciated by international and regional investors.

ASEAN is still perceived by international investors as a high-growth potential and less known Asian market when compared not only to developed Asian economies, like Japan or South Korea, but also to large emerging ones, like China and India. There is also room to expand the role of regional investors. ASEAN-based private equity and VC firms are a growing source of funding for start-ups and for cross-border activities, but in 2021 they accounted for less than a quarter of investment into ASEAN-focused venture capital funds.

A vast majority of leading ASEAN venture capital firms and funds are headquartered in Singapore, but there is an opportunity for an expansion of activities in other ASEAN countries. Policies to support the emergence and consolidation of innovation ecosystems both in individual ASEAN member states and on a regional level could significantly accelerate this process.

Such policies include boosting investments in research and development in both public and private organisations and strengthening connections with leading innovation hubs in Asia to increase the quality of research and higher education institutions. Examples of initiatives going in this direction exist in both more and less advanced…

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Fixing fragmentation in the settlement of international trade disputes



Fragmentation in global trade due to the lack of development in multilateral trade rules at the WTO has led to an increase in FTAs. The Appellate Body impasse has further exacerbated fragmentation, requiring a multilateral approach for reform.

Fragmentation in Global Trade

Fragmentation in global trade is not new. With the slow development of multilateral trade rules at the World Trade Organization (WTO), governments have turned to free trade agreements (FTAs). As of 2023, almost 600 bilateral and regional trade agreements have been notified to the WTO, leading to growing fragmentation in trade rules, business activities, and international relations. But until recently, trade dispute settlements have predominantly remained within the WTO.

Challenges with WTO Dispute Settlement

The demise of the Appellate Body increased fragmentation in both the interpretation and enforcement of trade law. A small number of WTO Members created the Multi-Party Interim Appeal Arbitration Arrangement (MPIA) as a temporary solution, but in its current form, it cannot properly address fragmentation. Since its creation in 2020, the MPIA has only attracted 26 parties, and its rulings have not been consistent with previous decisions made by the Appellate Body, rendering WTO case law increasingly fragmented.

The Path Forward for Global Trade

Maintaining the integrity and predictability of the global trading system while reducing fragmentation requires restoring the WTO’s authority. At the 12th WTO Ministerial Conference in 2022, governments agreed to re-establish a functional dispute settlement system by 2024. Reaching a consensus will be difficult, and negotiations will take time. A critical mass-based, open plurilateral approach provides a viable alternative way to reform the appellate mechanism, as WTO Members are committed to reforming the dispute settlement system.

Source : Fixing fragmentation in the settlement of international trade disputes

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WTO ministerial trading in low expectations and high stakes



The WTO’s 13th Ministerial Conference is set to focus on e-commerce transparency, investment facilitation, and admitting new members. However, progress may be hindered by disputes, especially regarding fisheries subsidies.

The World Trade Organisation’s 13th Ministerial Conference

The World Trade Organisation’s (WTO) 13th Ministerial Conference is set to take place in Abu Dhabi on 26–29 February, with expectations of deals on electronic commerce transparency, investment facilitation for development, and the admission of Timor Leste and the Comoros as WTO members. Despite these positive developments, the expectations are relatively modest compared to promises made at the 12th Ministerial Conference, which included addressing fisheries subsidies and restoring a fully functioning dispute settlement mechanism by 2024.

Challenges in Dispute Settlement and Agricultural Trade Reform

However, challenges remain, especially in the deadlock of dispute settlement since December 2019 due to a US veto on the appointment of Appellate Body judges. Progress in restoring the dispute settlement mechanism has stalled, and discord continues regarding India’s grain stockholding policy as a potential illegal subsidy. Restoring a fully functioning dispute settlement mechanism hinges on addressing US concerns about perceived bias against trade remedies in relation to China’s state subsidies.

Geopolitical Tensions and the Future of Trade Relations

The likelihood of reaching agreements amid geopolitical tensions between Western democracies and China appears slim, with issues surrounding subsidies and global supply chains causing rifts in trade relations. As nations focus on self-reliance within the global value chain, opportunities for trading face obstacles. Advocacy for open markets and addressing protectionist sentiments remains crucial for fostering resilience to external shocks and promoting economic growth.

Source : WTO ministerial trading in low expectations and high stakes

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Getting Vietnam’s economic growth back on track



Vietnam’s economy grew 8% in 2022 but slowed in 2023 due to falling exports and delays in public investments. The economy’s future depends on structural reforms and reducing dependency on foreign investment.

Vietnam’s Economic Roller Coaster

After emerging from COVID-19 with an 8 per cent annual growth rate, Vietnam’s economy took a downturn in the first half of 2023. The drop was attributed to falling exports due to monetary tightening in developed countries and a slow post-pandemic recovery in China.

Trade Performance and Monetary Policy

Exports were down 12 per cent on-year, with the industrial production index showing negative growth early in 2023 but ended with an increase of approximately 1 per cent for the year. Monetary policy was loosened throughout the year, with bank credit growing by 13.5 per cent overall and 1.7 per cent in the last 20 days of 2023.

Challenges and Prospects

Vietnam’s economy suffered from delayed public investments, electricity shortages, and a declining domestic private sector in the last two years. Looking ahead to 2024, economic growth is expected to be in the range of 5.5–6 per cent, but the country faces uncertainties due to geopolitical tensions and global economic conditions.

Source : Getting Vietnam’s economic growth back on track

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