TWO in every five European investors in Southeast Asia have warned that economies, including the Philippines, may find themselves caught in the middle-income trap due to a lack of cooperation among governments in the region.
In a survey, the EU-Asean Business Council reported 60 percent of European firms said they are confident Southeast Asian nations can move past their middle-income status. However, 40 percent admitted they are uncertain about the prospect of climbing to upper income.
The World Bank classifies all Southeast Asian countries except Brunei Darussalam and Singapore as middle-income economies.
Based on the World Bank’s classification, high-income economies keep a GNI per capita higher than $12,535. On the other hand, upper middle-income economies range between $4,046 and $12,535, while lower middle-income economies post between $1,036 and $4,045.
An economy sinks in the middle-income trap when it develops beyond its low-cost competitive advantage, but fails to produce goods and services with added value required to compete with its upper-income counterparts.
To get out of the middle-income trap, European investors asked Asean governments to work with one another—and with the private sector—to enhance human development. Based on the survey, 52 percent of respondents are satisfied with the cooperation of the region’s leaders; the rest argued that work has to be done in the area of joint action.
On public private partnership (PPP), two-thirds of European firms recommended collaborating on programs that will provide access to quality education across all income groups.
Further, 65 percent pushed to develop technical skills for the digital economy, while 61 percent pitched for enhancing institutional reform in finance, government and legal systems. The survey also reported 60 percent suggested investing in English-language proficiency for all employees, while 51 percent proposed increasing individual responsibility for productivity.
Likewise, half of European investors said PPPs can be executed to coordinate Asean policies on human development; accelerate spending on research and development; and immerse the domestic markets in the global supply chain.
The EU-Asean Business Council cautioned 36 million people in the region live in poverty and will stay there if Southeast Asian nations fall in the middle-income trap. As such, it said Asean governments need to invest in human development, especially at a time economic growth has slowed due to Covid-19, to avoid multigenerational poverty.
“The middle-income trap is particularly problematic due to its compounding effect on poverty,” the survey pointed out.
According to World Bank records, Southeast Asia hosts several of the countries with the worst inequality based on Gini ratio. Gini coefficient measures are represented by a set of values from zero to 100; the higher the value, the worse the inequality.
Last year, Thailand leads the region in terms of Gini ratio with 84.6; followed by the Philippines, 83.7; Indonesia, 83.3; Malaysia, 79.6; and Lao PDR, 79.4.
In July, Acting Socioeconomic Planning Secretary Karl Kendrick T. Chua claimed the Philippines was supposed to improve to upper middle-income status this year had the World Bank retained its old classification. Based on the multilateral’s data, the country recorded a GNI per capita of $3,850 last year, from $3,830 in 2018.
The EU-Asean Business Council survey gathered the insights of 159 European investors, from manufacturing to banking to transportation to tourism, between January 31 and May 18.