62nd LBR LBO CEO Forum – “Asia Rising: Emerging Opportunities for Sri Lankan Business” – 20th May 2015

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Asia Rising & Middle Class is Swelling

Brookings Institution estimates that by 2030 - due to rapid growth in China, India, Indonesia, Vietnam, Thailand, and Malaysia - Asia will host 64% of the global middle class and account for over 40% of global middle-class consumption. The European and American middle classes will shrink from 50 percent of the total to just 22 percent. Per capita GDP in emerging and developing Asia too has recorded high growth rates during the past three decades. It increased from US$ 411 to US$ 5,227 over the period 1980-2010. The rising middle class is expected to bring about higher expenditure and consumption patterns. Lee Jong-Wha, Professor of Economics and Director of the Asiatic Research Institute at Korea University observed that the rapid emergence of Asia’s middle class will bring far-reaching economic change, creating new market opportunities for domestic and international companies. He furthers observed that as Asia’s economies rebalance toward domestic demand, especially household consumption, the region known as a global manufacturing hub will transform itself into a consumption powerhouse. As demand rises, more and better jobs will be created not only in Asia, but also globally, along supply chains and across production networks. Asia will not only be the largest consumer of goods, but also the largest producer of goods and services, influencing global trends.

Intra-Asia Trade & Investments Rising

The continuing shift in global power from the west to the east began with the end of WWII and continued even after the end of Cold War has now proven to be no fluke. It has been often projected that Asia will reach politically, culturally, economically and militarily a dominant position in the 21st century, provided certain demographic and economic trends continue uninterrupted. According to the World Bank, China may become the largest economy in the world sometime between 2020 and 2030, while India may become the second largest economy in the world sometime between 2030 and 2035 . Based on Hurun Report, for the first time in 2012, Asia surpassed North America in amount of billionaires. More than 40 percent or 608 billionaires came from Asia, where as North America had 440 billionaires and Europe with 324 billionaires. The direction of change is manifested in the growing economic power and influence of Asia. First in Japan in the aftermath of WWII and subsequently in South Korea and Taiwan led the economic revival in Asia. Singapore led “East Asian Tigers” gave further impetus to the region’s growth. The reforms in China and then in India further propelled the shift in “global economic center of gravity.” While the West has been the traditional export market of Asia, the intra-region economic integration has opened up new markets. Major intra- and inter-regional trade deals will further cement the region’s status as the engine of global economic growth in the 21st century. According to the Asia Foundation report “Regional Integration: Asia’s New Frontier” the intra-Asia trade corridor is the fastest growing trade area worldwide. Intra-Asia trade represents around 25% of Asia’s total $6 Trillion annual exports and is predicted to rise strongly. For instance, intra-regional trade with China now accounts for more than 37% of the Association of Southeast Asian Nation’s total trade, up from 26% in 2000 while ASEAN trade with US has fallen from 20% in 2000 to 10% in 211. IMF recently noted that Asia’s growth would hold steady in 2015, and the region is expected to continue outperforming the rest of the world over the medium term. While the Chinese economy is shifting to a more sustainable pace, growth is projected to pick up elsewhere in the region. This reflects the boost from lower world oil prices, strengthening external demand, and still-accommodative financial conditions despite some recent tightening.

Impact on Sri Lankan External Trade Profile

How has the changing fortunes of Asia impacted Sri Lanka? Between 2002 and 2012, imports from Asian countries has tripped from USD 4.5 B to USD 14.1 B. However during the same period exports to Asian countries had grown only from USD 1.0 B to USD 2.9 B, while the exports to traditional markets of North America and Western Europe grew from USD 3.8 B to USD 6.6 B. Exports to traditional markets is double the exports to Asia destinations. The trade imbalance has grown from USD 1.9 B in 2002 to USD 11 B in 2012. Sri Lankan business has quickly exploited Asia as a sourcing destination; it has not performed well in developing exports markets in Asia. With Asia becoming not only the largest consumer, but also the largest producer of goods and services, Sri Lanka should seize new and expanding opportunities that will come with it - opportunities in trading goods and services that would benefit Sri Lankan businesses and consumers alike. It will provide an opportunity for Sri Lanka to diversify its dependence on industrial economies, reducing its susceptibility to developments and imperatives in these markets. Sri Lanka stands to benefit from strengthening trade relations with Asia considering the demand prospects for its major exports to the region, combined with its geographic proximity.

Exploiting Emerging Opportunities in Rising Asia

In the aftermath of Global Economic Crisis, there have been many discussions on need to diversify export markets, and the need for Sri Lankan service sector grow beyond the national boundaries. However, it appears that Sri Lanka has not achieved much success in exploiting the opportunities arising from the increased Intra-Asia trade. Given this backdrop, the 62nd edition of LBR LBO CEO FORUM is dedicated to; 1) Understanding the characteristics and trends in the emerging Asia 2) Discuss the emerging opportunities and challenges LBR LBO CEO FORUM is pleased to present Professor Razeen Sally, Associate Professor at Lee Kuan Yew School of Public Policy. In his talk Professor Sally will present a brief overview of the state of China, Japan, ASEAN and India and then address the crosscutting themes for business opportunities: 1) Reorientation of Asian supply chains as low-cost production migrates out of the Chinese coastal provinces 2) Urbanization and the rising middle class in cities 3) The geo-economics of Asia: the dangers of an unstable balance of power (US, China, Japan and India) for economic development in Asia Professor Sally will deliver a brief keynote address and join the ensuing panel discussion.