Asean's booming economy and its robust domestic demand have positive implications for intra-Asean tourism. But supply-side limitations regarding infrastructure connectivity and tourist worker mobility may prevent Asean from fully capitalising on surging demand.
The world is now looking to benefit from Asean's economic growth. During the recent global economic downturn, Asean's five major economies _ Indonesia, Malaysia, the Philippines, Singapore and Thailand (Asean5) _ held up very well.
This resilience owes much to the robust consumer spending in the region, which contributed almost half of last year's economic growth.
Given advanced economies' slow recovery, the important question is whether Asean5's domestic demand will be able to continue to boost their economies.
And what will the implications be for tourism _ one of Asean's star industries?
Going forward, favourable macroeconomic conditions are likely to continue to boost household spending. In particular, low unemployment rates _ averaging less than 4% last year _ helped establish consumer confidence and stimulated household spending.
And as labour markets tighten, the migration of labour from the informal sector to higher paying jobs in the formal sector should provide another consumption push.
Furthermore, the low inflation rate (around 3% this year) will help preserve household purchasing power and enable sustained robust consumption.
In addition to the present macroeconomic conditions, long-term structural economic changes also favour household spending.
One of those shifts is governments' stronger emphasis on social safety net programmes. Over the past 10 years, government spending on healthcare has risen substantially in Asean5.
Annual growth from 2000 to 2011 on a compounded basis is 19% for Indonesia, 15% for Thailand, and about 10% for Malaysia, the Philippines and Singapore.
This greater emphasis on social safety net programmes will continue to encourage consumption spending by freeing up household resources and by reducing their need for precautionary savings.
Another important long-term shift is the rise of the middle class. According to OECD estimates, the middle class, defined as those who earn above the poverty line but with characteristics distinct from the wealthy, made up only about 12% of the total population of Indonesia, Malaysia, the Philippines and Thailand in the mid-1990s.
It almost doubled to around 21% by 2011, and is forecast to continue rising in the next two decades.
The emerging middle class not only look toward consuming beyond their basic needs, they also alter their spending patterns. Comparing the demand structure of households between Singapore and the Philippines could give an example of the changes that a larger middle class would bring.
In the Philippines, a large share of households' consumption expenditure is on food-related items.
Singapore, by contrast, allocates more disposable income to services and durable goods.
On leisure and hotels, specifically, households in the Philippines spend 5% of their total consumer expenditure, while Singaporean households spend 18%.
What would this robust consumer spending imply for travel and tourism? Over the past five years, intra-Asean visitors (visitors from the Asean5 countries visiting other countries in Asean5) have grown steadily at an annual rate of 7%, accounting for about half of all international visitors in 2011.
One would expect the robust consumer spending to create demand spillover effects and add another push to intra-Asean tourism, which may not be limited to just Asean5 but the entire Asean community.
To fully realise that potential, the supply-side factors such as transport infrastructure and the management of the flows of tourist workers within Asean must be in good shape. The transport infrastructure, including air and ground, represents a mixed picture.
Air transport services seem sufficient for the time being, with each of the three major airports in Bangkok, Kuala Lumpur and Singapore offering direct connections to at least one destination in Asean countries.
Although these three main airports could be used as a base for travelling to other countries, the air connectivity could be enhanced further by improving the extent of routes and the quality of airport infrastructure in other countries.
Road and rail transport, however, remains a challenge at both the national and regional levels. The Asean highway network, in particular, requires significant upgrades on many parts of the network and there are still missing links in less developed areas.
Also the Singapore-Khunming Rail Link is experiencing a major delay because of financial difficulties in some countries and compatibility regarding rail structures.
Facilitating the flows of tourist workers within Asean is another important issue. According to a United Nation's estimate, Singapore and Thailand will approach the peak of their working-age populations in 2018 and 2020, respectively. It is likely the scarcity of workers, including semi-skilled people employed in the travel and tourism industry, could be raising concerns for these ageing societies.
With younger workforces in Indonesia, Malaysia and the Philippines, mobilising tourist workers across Asean countries would allow Asean to leverage on each other's advantages.
Asean's Mutual Recognition Arrangement (MRA) regarding tourism professionals is a step in the right direction but it would not be a game changer by itself. Easing work permit access and harmonising professional certification could reduce relocation barriers across Asean nations.
However, these regulation changes would only mark the first steps in encouraging related parties to take advantage of relaxed regulations.
For labour mobilisation to occur, it would also require business to attract foreign workers and workers to adapt their skills and attitudes.
Asean5's favourable macroeconomic outlook underpins robust household spending, which could in turn result in greater tourism demand within Asean.
But to seize those opportunities, they must overcome supply challenges.
Those challenges include the lack of upgrades in transport infrastructure and a possible shortage of human resources supporting the travel and tourism industry in countries with weaker demographics.
Dr Sutapa Amornvivat is Chief Economist and Executive Vice President at the Economic Intelligence Centre, Siam Commercial Bank. She has international work experience at IMF, ING Group and Booz, Allen, Hamilton. She received a BA from Harvard and a PhD from MIT. Email: firstname.lastname@example.org EIC Online : www.scbeic.com
About the author
Writer: Sutapa Amornvivat