By John Richardson
SOUTHEAST (SEA) polyolefins demand grew by 15-20% last year in some of the region’s emerging countries, such as Indonesia, according to a source with a major global producer.
Confidence is high as overseas money pours into super-hot property markets in Indonesia and Thailand. In Indonesia, property prices have risen by as much as 300% in the last few years in US dollar terms (yes, that’s not a typo – 300%!), according to the same source and in certain parts of Bangkok, condos have reportedly doubled in value over the past three years.
Several polyolefin industry contacts we spoke to talked about plastic converters who bought land years ago and have since subdivided that land and sold it to property developers at vast profits.
But whilst stronger polyolefin volumes in SEA are good news for producers seeking to compensate for flat or even negative growth in China this year, as a source with a second producer pointed out, “Southeast Asia is no China as its total volumes are relatively small.”
And the other concern, of course, is that events in SEA remind many people of the build-up to the 1997-1998 Asian Financial Crisis, when overheated economies suddenly collapsed. Capital flows can so easily be reserved.
This excellent article from the Christian Science Monitor is worth reading on the subject of parallels with the pre-crisis era.
Much of the advances of the 1990s were lost because of failures to tackle corruption, improve education and invest in infrastructure, says the article.
HSBC wrote in a recent report on the Philippines: “The country faces considerable challenges. Infrastructure in much of the country remains poor and corruption is widespread, despite progress under Mr. Aquino’s [the president’s] administration. Growth has generated pockets of urban prosperity surrounded by vast areas of grinding poverty and few jobs.”
An IMF report, released earlier this week, suggested four ways in which Asia’s emerging economies, which they categorise as China, India, Indonesia, Malaysia, the Philippines, Thailand and Vietnam, can avoid the middle-income trap.
They are:
• Invest in infrastructure. IMF analysis suggests that subpar infrastructure is a key factor that can check an emerging economy’s growth. India, the Philippines and Thailand are particularly exposed in this area and should focus on building new and upgrading existing public transit systems, freight channels, ports and energy infrastructure.
• Guard against excessive capital inflows. Money flows from abroad can energise an economy and give domestic consumption a boost, but can send an economy south if investors retreat in a hurry. Policy makers should have macro-prudential controls in place to mitigate potential rapid outflows.
• Boost spending on research and development and post-secondary education. Both are needed to foster the innovation that’s a hallmark of advanced economies. Malaysia and Thailand have the highest college enrollment rates among emerging Asian economies, but China is rapidly catching up, according to IMF data. China far outstrips other developing Asian countries on R&D, with 2009 spending at more than 1.5% of GDP.
• Get more women into the workforce and raise the retirement age. Ageing populations are a problem in much of Asia. Governments can take steps to reduce “dependency ratios” by raising the age when workers are eligible for pensions and encouraging girls to enter university and vocational training.