A US$1-trillion loss from the pandemic, estimated by the United Nations Conference on Trade and Development (UNCTAD), is an expensive lesson to learn for global economies while recovery anticipated remaining lethargic in 2021. The ASEAN region, seeing an economy fell for the first time in 22 years, has had to contend with the impacts of the pandemic since its prologue in March 2020. Despite the uncertain aftermath, the recovery is at the arm’s length. In particular, for the ASEAN-5, is expecting a GDP growth of 5.2% in 2021, according to the International Monetary Fund (IMF) audit of January 2021.
Recovery of China, a boon to the ASEAN
China, known as the world’s factory, is estimated to garner a 2.3% growth year-over-year in 2020; and projected to reach 8.1% in 2021, according to the International Monetary Fund's (IMF) updated January 2021 economic outlook. The country rebounded more rapidly and re-opened gradually as early as April 2020.
The ASEAN is anticipated to reap the benefits from its trade ties with China, its largest trading partner since 2009; and its fourth-largest external source of foreign investments (FDIs) in 2019, accounting for 5.7% of the region’s total FDIs.
Collaborations to future-proof regional expansion
Starting in 2021, partnerships among the ASEAN countries, China, and other trading nations are expected to accelerate recovery in the region. Over time, growth will be driven by the digital transformation, the Fourth Industrial Revolution (4IR), and connectivity cooperation - all of which are underscored in different initiatives, namely, the ASEAN’s 2025 connectivity master plan (MPAC), the ASEAN-China Strategic Partnership Vision 2030, the Belt and Road Initiative (BRI), and the China-led Regional Comprehensive Economic Partnership (RCEP), to cite a few.
The China +1 strategy is also a promising route for the ASEAN-5 to foster more investments. Companies that adopt the China +1 with the ASEAN-5 countries can enjoy the dual benefits of doing business with China and the ASEAN-5.
The ASEAN-5’s participation in regional and international free trade agreements also allows investors to access global supply chains. Likewise, the region’s strategic geographical location meets the logistical needs of companies and offers the advantage of reducing production costs.
Meanwhile, for China’s BRI, the ASEAN is vital to its Maritime Silk Road, which will connect China to other trading economies in Southeast Asia, South Asia, the EMEA (Europe, Middle East and Africa), and the European regions. ASEAN’s participation in the BRI has witnessed a surge in infrastructure developments which facilitates trade and investments for the ASEAN countries, thereby improving their competence in the global market.
Restoring growth momentum in the medical devices sector
While country lockdowns have caused several industries to push pause buttons, the medical technology sector has grown exponentially as demand for personal protective equipment (PPE), respirators, fans, test kits and other essential medical devices has increased and surpassed supply. Southeast Asia has benefited from its production capacity for PPE and medical devices. Digital healthcare readiness is another advantage. The emerging upper-income economies of countries like Thailand and Malaysia, for example, are both aiming to become the medical hubs of Asia.
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In Thailand, medical devices are considered a high value sector. For this reason, the country has laid down the groundwork with enabling policies like tax incentives allowed by the country’s Board of Industry (BOI) for investment projects and the machines that they require, and on raw materials used in making exported products, and other duty exemptions. As well, the 10-year strategic plan spanning from 2016 to 2025 will cover four major areas – wellness, medical, academics, and products. This roadmap paves the way for developing a medical industry that is innovative and focused on research and development.
Meanwhile, Thailand 4.0 is an economic model that uses the Industry 4.0 concept to drive Thailand's transition from a medium-income to a high-income country status. Digitalization is central to Thailand's Industry 4.0 business model and augurs well for the medical device sector. Healthcare applications, telemedicine, assisted robotics, and cloud technologies could be given a boost under Thailand 4.0. Thailand is a bastion of manufacturing for single-use and durable, high-technology medical devices and appliances ranging from magnetic resonance imaging (MRI) and X-ray machines, surgical implants, and diagnostic tools to first aid kits, dental equipment, hospital beds, and others. The majority of its locally manufactured plastic and rubber medical devices are exported. According to Krungsri Research, 70% of the sector’s total sales come from exports and 30% from domestic sales.
Malaysia, another hotbed for the medical devices sector, boasts a strong distribution network via its 13 free industrial zones and other logistics channels. It also offers diverse medical technology ranging from surgical gloves, wound care, and other single-use devices to cardiac pacemakers, stents, orthopedic and imaging equipment. To date, Malaysia has over 200 medical device manufacturers; and more than 30 multinational corporations (MNCs) producing high value-added medical devices. Over and above, Malaysia is the world’s largest nitrile and latex rubber gloves producer, accounting for more than 60% of global supply. Domestic rubber glove makers and other emerging players have witnessed a growing demand for gloves during the Covid-19 pandemic and reaped the benefits from the growing global glove sector. Kenanga Research projects a 30% growth in Malaysia’s nitrile glove market share in 2020. In response to the growing demand, large glove manufacturers have expanded with additional production lines and land for new factories. Meanwhile, demand for medical gloves is projected to rise by 15-20% in 2021, according to the Malaysian Rubber Gloves Manufacturers Association (MARGMA).