Despite occasional political volatilities in the ten-member bloc of the Association of Southeast Asian nations (Asean), the strengthening of middle-class purchasing power is unstoppable and the number of households in the “consuming class” is set to double across the region, according to a new study by US-based consultancy McKinsey.
This, in turn, opens a large number of opportunities for investors, especially in retail, personal mobility, telecommunication and other consumer segments, and it will also have an impact on energy consumption to the benefit of GCC hydrocarbon exporters.
The McKinsey study named ‘Understanding Asean: Seven things you need to know’ says that Asean has dramatically outpaced the rest of the world in terms of GDP growth per capita over the past decades, and extreme poverty in most member states has been receding significantly.
Presently, some 67mn households in Asean nations are part of what McKinsey calls the “consuming class,” with incomes exceeding the level at which they can begin to make significant discretionary purchases.
“That number could almost double to 125mn households by 2025, making Asean a pivotal consumer market of the future,” the consultants say.
Indeed, when talking a stroll, for example, across downtown Ho Chi Minh City nowadays, we can see that so many things have changed. In the early 1990s, the place was rather desolate, with beggars and war victims with missing limbs roaming around, the houses dilapidated and the sidewalks full of potholes. Today, the city is literally glittering from new, shiny office buildings such as the dominant Bitexco Financial Tower, the streets are clean, the beggars are mostly gone, the stylish sidewalk restaurants offer haute cuisine to well-dressed young office workers at prices that come close to European levels.
Downtown Jakarta in the 1990s was a dangerous, sometimes god-forsaken place where most foreigners didn’t dare to go out after dark. Today, while still a little bit dodgy at certain places, the 10mn-city has emerged into a metropolis with glitzy shopping malls, world-class hotels and lots of young, educated people that like to spend money on brands and entertainment.
However, McKinsey points out that there is “no typical Asean consumer”, but some broad trends have emerged such as a greater focus on leisure activities, a growing preference for modern retail formats, as well as increasing brand awareness. Indonesian consumers, for example, are exceptionally loyal to their favourite brands, the consultants say.
Two trends will make this new consumer class more streamlined and monolithic in the mid-term. One trend is the rapidly growing urbanisation in megacities as well as in second-tier cities of the region. As of today, 22% of Asean’s population lives in cities of more than 200,000 inhabitants, but these urban areas account for more than 54% of the region’s GDP.
But until 2025, nearly 40% of Asean’s GDP growth is expected to come from 142 cities with populations between 200,000 and 5mn people, McKinsey predicts.
The second trend is digitalisation of the masses, meaning the fast increasing use of smartphones and Internet. Some Asean countries are already among the world’s busiest Facebook and Twitter users, and the prospects for e-commerce are more than rosy in a region of 620mn people and a combined GDP of no less than $2.2tn. –Arno Maierbrugger/Gulf Times Correspondent/Bangkok
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