(votes: 2, rating: 5)
Expert in the Foreign Policy and Security division at the Center for Strategic Research
Even in current crisis Russia can be an attractive economic partner for ASEAN. The country is still a vast market and the Russian Far East can still attract ASEAN investments. At the same time Southeast Asia is a promising area for cooperation in the spheres where Russia has traditionally been strong: energy, machine-building, and outer space. ASEAN countries may become Moscow’s allies in protecting a genuinely multi-polar world order.
The past three decades – from Mikhail Gorbachev’s Vladivostok speech in 1986 and to the 2012 APEC Summit in Vladivostok – have seen Moscow make several attempts to upgrade the Asia-Pacific in its foreign policy portfolio. However, the situation of 2016 is in many ways different: Russia is seeking broader interaction with its Asian partners not because of its accumulated economic and political potential, but rather in search of new growth sources and diversity for its external strategy.
The current “pivot to the East” is often criticized for coming too late, opportunistic and in some ways retaliatory. Whatever the real reason is, the current crisis in Russia’s relations with the West is gradually turning plan into reality. The political elites are looking for ways to integrate Russia into Asia and are more willing to consider internal and external initiatives that may help to achieve this end.
The main complaints of the critics of the pivot include an overreliance on China and the overall lack of balance of the Russian eastward strategy. The conditions for looking for a new balance are hardly optimal: other major partners of Russia in Northeastern Asia (Japan and South Korea) are treaty allies the US and the political climate for a deeper engagement with the two is far from favorable. So China seems like obvious option and among other things does not pose an ideological threat.
To the south of Russia’s main Asian partner are ten countries that are members of the Association of Southeast Asian Nations (ASEAN). By 2050 these Southeast Asian countries (SEA) with a population of 600 million may together become the fourth largest economy in the world. However, the new Russian foreign policy usually puts ASEAN countries at the end of the list of forms of Russia’s participation in Asian affairs. One gets the impression that Moscow needs to be seen as having a strong relationship with ASEAN merely to demonstrate the diversity of Russia’s pivot and the breadth of Moscow’s involvement in global affairs.
Meanwhile the question of real interaction between Russia and SEA countries remains open. The 20th anniversary of the Russia-ASEAN Dialogue Partnership in 2016 is a good occasion to investigate new sources of development for Russian-ASEAN relations. Without purporting to cover the entire topic we would like to suggest two promising areas of search. First, new resources of cooperation between Russia and ASEAN countries may be found in the very factors that define the ASEAN economies: from physical geography of the region to its participation in trade liberalization. Second, we will draw attention to the regional models of state-building and the more general approaches to the regional order and look at how these approaches relate to Russia’s global role.
A Start Long Overdue
Russia cannot boast of a rich history of positive relations with ASEAN countries. Before the collapse of the Soviet Union, the Association, like most of its members, was intent on counteracting the “Red Threat.” Indeed, ASEAN did not start developing normal relations with the geographically close China until Deng Xiaoping, on the advice of Singapore’s leader Lee Kuan Yew, stopped exporting communist ideologies to SEA.
The only exceptions were Vietnam, Laos and Cambodia. Close military and economic ties formed during the Vietnam War and the post-war restoration years laid a solid foundation for bilateral relations. However, these relations deteriorated in the 1990s because the new Russia simply did not even have enough resources to maintain links with a traditional partner, let alone significantly expand its relations with ASEAN.
Nevertheless, Russia was granted the status of Dialogue Partner at ASEAN’s 29th Ministerial Meeting in July 1996. This meant the emergence of permanent interaction mechanisms and a degree of recognition of Russia as a state with which ASEAN could develop friendly relations. That same year, Russia indicated a desire to take part in the emerging Asia-Europe Meetings (ASEM).
In the mid-2000s Russia was slowly acquiring the resources to develop relations with geographically remote regions. At the same time, Russia’s role as a champion of multi-polarity began to grow. The development of relations with ASEAN looked like a natural element of that policy. In 2004 Russia joined the Treaty on Amity and Cooperation in Southeast Asia, and in 2005 Russia’s President Vladimir Putin observed the East Asia Summit (EAS) and declared that Russia wanted to become part of that forum. The offer was then politely declined on the grounds that Russia’s relations with ASEAN had yet to gain some real substance.
Nothing much changed in the years that followed. Russia’s interest in SEA in the 2000s waxed and waned, as witnessed by the sporadic nature of Russia-ASEAN meetings. The first Partnership Dialogue summit was held almost ten yeas after it was founded, in December 2005 – and the second in 2010, although initially such meetings were meant to be held annually. Russia was admitted to ASEM in 2010 and to the EAS in 2011. Moscow also began participating in one of the most promising ASEAN-centric formats, the meetings of ASEAN defense ministers and dialogue partners (ADMM+).
The dynamics of Russia-ASEAN relations in their current form find their roots in Vladimir Putin’s third presidential term. His return to the Kremlin in 2012 generated great hopes for an active and vigorous foreign policy, including in the east. Observers of the Asia-Pacific were inspired by the President’s May Decree (Decree of the President of the Russian Federation of May 7, 2012 No 605 On Measures to Implement the Foreign Policy of the Russian Federation) which listed the Asia Pacific as the third foreign policy priority after the CIS and the EU, with the Asian section stressing Russia’s participation in regional integration, including dialogue partnership with ASEAN and participation in EAS. The three countries that were specifically mentioned were Russia’s strategic partners: China, India and Vietnam. The fact that Vietnam individually and as part of SEA, was mentioned in the foreign policy strategy was seen by experts as a milestone as great hopes were pinned on a new course and a qualitative change in Russia-ASEAN relations.
Expectations of a leap in Russia’s relations with Asia as a whole and SEA in particular were fueled by the Russian leadership’s serious approach to the APEC Summit in Vladivostok in 2012. The summit was supposed to showcase the Russian Far East, which was in dire need of investments and broad international cooperation, to Asian audiences. The massive preparations for the summit – both in terms of its content and technicalities (renovating Russky Island and Vladivostok) generated great optimism. However, as soon as the summit was over, the energy of Russian leaders waned. At the November EAS summit (the first in which Russia was a full participant) all the countries except Russia were represented by the heads of state and government.
The sense that the expectations prompted by the May Decree did not come true was reinforced after the publication in February 2013 of a new edition of the Foreign Policy Concept of the Russian Federation. The Asia Pacific was downgraded to fourth place among regional priorities after the USA, and in the Asian section the SCO moved to the top of the agenda. It was then followed by other multilateral institutions: APEC, Russia-ASEAN Dialogue, ARF (ASEAN Regional Forum), ASEM, the Conference on Interaction and Confidence-Building Measures in Asia (CICA), and ADMM+. Of the SEA countries the document mentioned only Vietnam, and only after China, India, Japan and even Mongolia and North Korea.
Since then only one important Russian foreign policy document meaningfully mentioned SEA, and that was the Russian President’s Address to the Federal Assembly in 2015. In that address Vladimir Putin referred to the EEU-Vietnam Free Trade Zone created that same year and mentioned the Russia-ASEAN summit in Sochi in May 2016. He also proposed creating the EEU-SCO-ASEAN “economic partnership” that would concentrate on “protecting investments, optimizing the movement of goods across borders, joint development of technical standards for the next-generation products and mutual opening of access to the markets of services and capitals.” There are reasons to think that this high-profile initiative was called upon to demonstrate Russia’s claim to be part of the trend of forming macro-regional economic partnerships such as TPP, TTIP and RCEP.
As mentioned above, Russia did not have a positive history of relations with the majority of SEA countries, so today it lacks a developed partnership network in the region. The closest links are with Vietnam, with ties officially described as a “comprehensive strategic partnership.” Judging by this formula, Hanoi has no partner more significant than Russia, other than, of course, China, with which the relationship is described as “comprehensive partnership and strategic cooperation.” Russia and Vietnam hold annual summits and other high-level meetings accompanied by lofty rhetoric about the traditional character of bilateral relations and historical friendship between the two peoples.
The high level of partnership and significant arms supplies to Vietnam entitle Russia to preferential use of the deep-water port in Cam Ranh which until 2002 served as a logistical base for the Russian (and before that, Soviet) Navy. In 2014, Vietnam simplified the port call procedure for Russian vessels. According to information leaked from the US Administration in 2015, the airfield in Cam Ranh is used by Russian aircraft that refuel strategic Tu-95 bombers. Vietnam’s readiness to offer Russia such services, in spite of burgeoning relations with the US and the neutralist “three no’s” policy, shows that there are significant parts of the Vietnamese political elite that consider Russia to be an important partner.
Thus, Russia’s political and strategic presence in SEA is currently very much dependent on its strong partnership with Vietnam whose significance for Russia may soon begin to dwindle as the country draws closer to the US, Japan, India and the EU. Even so, the large-scale military-technical cooperation with Vietnam continues to bring Russia political dividends. Unfortunately, today there are no other SEA countries with which Russia has such close relations.
Looking at Russia’s economic presence in the region, the picture is even less impressive. The growth rate in trade between Russia and ASEAN over the past ten years appears to be impressive because of the low starting base. Trade increased more than five times between 2005 and 2014. Yet even in the peak year 2014 (the last year before a sharp drop of Russian foreign trade) Russia’s trade with SEA countries stood at a mere USD 21.4bn, putting Russia in 14th place among ASEAN trading partners. Russia accounts for less than 1% of ASEAN’s foreign trade while ASEAN accounts for 2.7% of Russia’s trade. Russian exports were dominated by mineral resources (60%), machines and equipment (14.5%), and chemicals (13.8%) 1.
In the field of investment, Russia too does not look like a strong player in the ASEAN market. In 2012–2014 Russia invested USD 698m in SEA economies, or 0.2% of total input. Out of that sum, USD 420m was invested in a single country within a single year (Vietnam, 2013) 2, which indicates poor diversification of the Russian investment strategy in the region.
Russia wishes to increase the trade volume. It has announced plans to double bilateral trade with Vietnam, Thailand and Indonesia3. The parties are trying to accomplish this by trading in national currencies and by initiatives such as the EEU-Vietnam Free Trade Agreement proclaimed to be a step towards overall liberalization of trade relations between EEU and ASEAN.
The strong points of Russia’s economic presence in the SEA are the three areas in which Russia has traditionally been strong: oil and gas, nuclear power and military-technical cooperation.
It is still unclear what place SEA is assigned in the Russian strategy of diversifying energy supplies to Asia. Today the buyers of Russian oil and gas in the region are Singapore and Malaysia. Some projects with Indonesia are under way, but Russia’s leading partner in the region in this field is Vietnam, with several ongoing projects in both Vietnam and in Russia.
Japan-ASEAN: an Inevitable
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In the nuclear energy field, cooperation with Vietnam is again the strongest. Russia is building the Ninh Thuan 1 power plant and providing support services and personnel training. In addition, a Russian offer to build a nuclear plant in Myanmar has been standing since 2007, however, positive changes on the question did not take place until 2015. A memorandum of understanding on the peaceful use of nuclear power was signed with Thailand in 2014, and in 2015 Russia joined the Indonesian nuclear research and reactor development project.
Arms and military equipment have always been among the best-selling Russian products in the SEA market. Historically Vietnam has been and remains the largest buyer. Major purchases include fighter planes, frigates, anti-ship missiles, air defense systems and Kilo-class submarines, the last of which are to be delivered to Vietnam in late 2016. Vietnamese shipyards are also assembling Tarantula corvettes under a Russian license.
Indonesia also buys Russian military hardware, including armored personnel carriers, helicopters and fighter planes. Malaysia has ordered some aircraft and recent reports speak of possible expansion of sales to Thailand. In the late 2000s and early 2010s Myanmar bought several MiG fighters, and cooperation with the country may continue.
To sum up, the links between Russia and ASEAN members today can be described as fragmentary and insignificant in terms of volume, range and depth. The underlying causes of this situation are as follows:
SEA countries have never been and are still not among the priorities of Russian foreign policy. In the context of new activity in Russia’s eastern policy, SEA is at best a secondary area of effort, with China and Northeastern Asia in the foreground. With the economic situation in Russia deteriorating it is unlikely that additional resources will be released or a major change of priorities will occur any time soon.
The poor political and economic base holds back the development of relations with ASEAN countries. While Russia was gathering the resources required for “the pivot to the East” other players – notably China and the USA – have greatly strengthened their positions in SEA. For China, it is a key neighboring region whose favorable geographical position is essential for its peaceful development. The US, with the launching of its “rebalancing” policy has been paying greater attention to SEA, and there is even talk of “a pivot within a pivot,” i.e. from Northeast Asia to Southeast Asia. Against this background, Russia has to operate in a catch-up mode, going through many of the stages its rivals have long left behind.
Owing to geographical remoteness and absence of a shared history Russian society and its elites are badly informed about what is happening in SEA. People-to-people contacts are the weakest element in the Russia-ASEAN interaction, even more modest than economic cooperation. Observers know how slowly the need for closer engagement with China is sinking in with Russian leaders. The situation with SEA countries is even worse. In such an environment, effective research and personnel policy in business and in government administration can hardly take shape.
One of the main challenges Russia will have to face if it decides to be more active in SEA is the escalation of the South China Sea (SCS) problem. At present, Russia’s position can be described as strictly neutral. Moscow does not support anyone’s territorial claims, comes out for a political-diplomatic solution of disputes, for compliance with the Declaration on the Conduct of the Parties in the SCS, an early conclusion of the Code of Conduct of the parties and adherence to international law.
Another point of the Russian position on the SCS, which was articulated earlier, has recently led some observers to conclude that Moscow’s and Beijing’s views on the issue are drawing closer together. In April 2016, the Russian Foreign Minister Sergey Lavrov said that Russia opposed the internationalization of the SCS disputes, which met approval in China and irritation in Vietnam. Russia’s position is in line with the overall ideological commitment of the Russian foreign policy to opposing any external interference.
This suggests that the perception of the Russian position and its political repercussions may change as the situation around the SCS deteriorates, even if the actual position remains the same. Increased American military activity in the Philippines, the US Navy’s continued Freedom of Navigation Operations (FONOP), possible reclamation on Scarborough Shoal by China, the militarization of China-controlled island – all these factors tend to fuel tensions in the region. Deterioration may occur after the Permanent Court of Arbitration delivers its verdict.
The parties to the territorial dispute will seek to enlist the support of external players, which means that the internationalization of the dispute is sure to continue. Paradoxically, by making statements opposing internationalization, Russia in part stirs it. This plays to the Western narrative that Russia enfeebled by sanctions and in conflict with the West has become politically dependent on Beijing, which will force Russia if not to take a pro-China stand at least to be silent if the conflict takes a military turn.
That is why it is not Russia’s task today to play a more active role in the SCS. Russia will score a big diplomatic victory if it preserves its strategic partnership with China and Vietnam at the current level as the situation around the SCS worsens. To this end, it is necessary to use bilateral diplomatic channels to resist attempts to drag Russia into a territorial dispute and interpret the Russian position as pro-China or pro-Vietnam. It would make sense to relay to the parties concerned that such interpretations are not in Russia’s interests.
At the same time Vietnam’s military-technical cooperation with Russia spells increased costs for China following a hypothetical military clash. This may reduce the risk of the conflict developing into a military phase if channels and mechanisms of Sino-Vietnamese political communication for preventing accidental clashes are developed in parallel. This form of Russia’s participation in the situation around the SCS may still be promising.
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ASEAN and Russia Look to
Achieve Their Full Potential
In the broader context of the evolving US-China competition in SEA, Russia has not yet become an indispensable element of the regional system. This is a view shared in Washington and Beijing, although Moscow’s political weight has significant public relations value. It would be a mistake for Russia and the US to project the overall strains in bilateral relations to SEA and to treat each other with mistrust because their interests in other regions do not coincide.
Thanks to the relatively stable political situation in SEA, Russia has an opportunity to expand its presence there without allocating significant military-political resources. Regional players consider competition in the field of trade and investments to be far safer than the struggle for political influence or military superiority. Unfortunately, Russia still lacks experience in economic and business expansion. One important practical area could be for Russia to be more active within existing multilateral diplomatic institutions. For instance, the president’s participation in the East Asian Summit would already be a significant step. Besides, Russia can make its neutrality more active by calling on the US to ratify the UN Convention on the Law of the Sea and declaring that political differences between individual states need not impede the freedom of economic activities in the region or threaten the safety of trade routes.
Would it be true to say that ASEAN is ready to welcome Russia to the region? On the one hand, the main geopolitical fear of the Southeast Asian countries is to be drawn into a showdown between the US and China. The current situation would seem to be pushing them towards the US, though the benefits of such a rapprochement would run out the moment Beijing decides that strong ties with the US makes the region’s countries less reliable as partners. Then the benefits of a rapprochement with the US would no longer outweigh the cost of distancing from China.
Until that moment, ASEAN countries would like to see more players in the region. Today the external middle powers, Japan and India, are taking on such a role. Similarly, ASEAN countries would probably welcome Russia’s involvement in regional affairs. The appearance in Southeast Asia of a player that is close to China, but not its ally, may be a safe way for China to weaken its “besieged fortress” self-perception and change the regional balance of power away from that of “China vs. everyone.”
Whether Russia would be prepared to play such a strategic balancing role is another question. Can it speak to SEA countries about matters that are relevant to them? As of today, this is not the case and Russia is not seeking to be involved in the regional security processes. As Russia sees it, its interests in the region are above all to preserve strategic partnerships with China and Vietnam, which determines its positions, if any, on the majority of issues. However, beyond this small area there is a whole spectrum of new forms and areas of cooperation that need to be considered.
New Sources for Partnership
The reasons why the relations between Russia and SEA countries have turned out to be underdeveloped have mainly to do with history and inertia. There are no ontological obstacles in the way of such cooperation, nor are there any obvious interests that such cooperation would contradict. This means that the key task in seeking a more active Russian policy in SEA is the search for new spheres and areas of interaction, an awareness that work in these areas is possible and sufficient political will. Russia-ASEAN relations have a capacity for growth that stems from the economic needs of modern Southeast Asia.
Having started from a low base back in the 1970s, ASEAN members have grown faster than most of the rest of the world. Their growth was driven by the consumer markets of Europe and the USA, though today the situation is changing as the rate of consumption in the Southeast Asian countries themselves is one of the highest in the world. Growing incomes speed up the formation of the middle class: according to McKinsey, while households with an income of more than $7,500 a year numbered 67 million in 2014, by 2025 they will double4. Of the 600 million people inhabiting ASEAN countries about 22% live in cities with a population of over 200,000.
Burgeoning industrial production in most ASEAN countries and the services sphere in the most advanced creates the need for better transport, energy and social infrastructure, the spheres without which the production and services sectors cannot develop in a sustained and safe manner. In the majority of these spheres ASEAN countries still rely on imported technologies, practices and capital.
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RIAC experts comments
The International Energy Agency predicts that over the next 20 years demand for oil, gas and coal in the SEA countries will continue to grow. By 2040 total demand for electricity will grow by 80%, which is equivalent to 1bn tons of oil. The share of power generated by coal-burning facilities will rise from 32% to 50% in spite of the global downward trend.
Oil production in ASEAN will continue to decline while demand will grow. By 2040, ASEAN countries will have to import 80% of their oil. In the gas sector both the production and demand will increase, but by 2040 demand for gas will outstrip domestic production, turning ASEAN into a net importer of gas. By that time, the countries of the region will annually spend $300bn on hydrocarbons5.
Mindful of the growing gas consumption and the importance of gas for ASEAN its countries pin great hopes on the Trans-ASEAN Gas Pipeline (TAGP)6. By mid-2015, 13 gas pipelines with a total length of 3300 km have come on stream. Since 2012, the TAGP provides for transportation of liquefied natural gas, and wherever the building of pipelines is uneconomic, the TAGP includes four regasification terminals. Among the problems facing that section of TAGP are the shortage of gas sources and the huge volume of infrastructure investments required.
SEA countries will need massive integration of power grids to ensure energy security. The development of hydropower generating capacity in Myanmar, Laos and Cambodia would ease the load of power generation in Vietnam and Thailand and reduce their import of electricity. Brunei will be able to increase gas exports by importing more electricity. The Malaysian state of Sarawak (Borneo island) can boost hydro-electric power generation and its ties to the Indonesian part of the island, making it possible to reduce costly energy production on thermal power plants.
More than 120 million people in SEA still have no access to eletricity7. The traditional model of connecting these households to the centralized national power grid may not prove to be workable, especially for the numerous islands of Indonesia and the Philippines where people still use inefficient diesel generators to get electricity. A more reasonable solution may be feeding power through a Trans-ASEAN grid or creating local micro-grids powered, among other things, by renewable sources.
Today the ASEAN Power Grid project is a long way away from completion: in 2015, only 6 out of 16 links were in operation. Of the 164 GW of generated power only 3.4 GW are transmitted via the power grid. Most of the present connections are bilateral. Over time they should combine into three subregional blocks before turning into a single ASEAN grid8.
Oil prices remain low in spite of the growing global consumption. This threatens to cause an imbalance between demand and supply in ASEAN energy markets. To mitigate the effects of the oil market volatility the countries in the region will try to diversify energy sources, seeking to increase the share of renewable sources.
Thus, in October 2015 ASEAN energy ministers agreed to bring the share of renewable energy sources in the consumption structure from 15% today to 23% in 2036.9 The most ambitious goals have been set by Indonesia (25% by 2025), Thailand (25% by 2022) and the Philippines (50% by 2030).10
The common ASEAN target of 23% may be achieved, for example, by developing hydro energy in Sarawak and in Laos, for which it would provide a major development stimulus. In the solar energy field, the undisputed leader is Thailand, which produces more of it than all the other ASEAN countries combined. By 2036 the country plans to bring its solar capacity to 6 GW, or 9% of the total power output. 11 At the same time, neighboring Malaysia is already the third largest producer of solar panels. Seeking to reduce the role of the hydrocarbon sector, SEA countries attempted to cut subsidies in the oil and gas industry (which stood at USD 36bn in 201412). However, in Indonesia, Malaysia, Thailand and Myanmar this was the result of high costs due to the world financial crisis, and it is hard to say how strong the motivation to cut subsidies will be in the future.
Nuclear energy use in SEA is limited, but it will be important for some countries, most notably Vietnam, which plans to build four reactors, but may eventually build as many as ten. There are offers to Indonesia, Malaysia and the Philippines. Thailand may also be a major client. According to the IEA, the country may start building nuclear plants between 2026 and 2030.13
Russia has a huge potential for joining the regional energy system. The growing need for gas and a network of regasification terminals creates a market for LNG supplies and for energy infrastructure, which may be of interest to Gazprom. The demand for electrification, including local demand, is a potential market for power grid companies, energy companies and equipment suppliers (Rushydro, Rosseti, Power Machines, Tekhnopromexport, Atomstroyexport).
The development of renewable and alternative sources of energy in Southeast Asian countries is prompted not only by the wish to enhance energy security. There will be demand in the coming years for all manner of clean technologies and investments in in the region. The dense population in the coastal areas makes ASEAN territories vulnerable to the consequences of global climate change and environmental pollution. By 2025 115 million people living in the coastal cities will be in danger flooding.14
Energy efficiency is one of the simplest ways to save money and reduce the environmental strain. The Asian Development Bank estimates that SEA countries will need USD 11bn by 2020 and a further USD 15bn by 2030 to meet the national targets of energy efficiency and reduce greenhouse gas emissions. These investments may become quite lucrative: if the share of investments in energy efficiency in Brunei, Indonesia, Malaysia, Thailand, Vietnam and the Philippines amounts to 1–4% of the total investments in energy, they will account for between 8% and 25% of the increase of primary energy consumption15.
Managing water resources remains an important challenge for ASEAN member countries. The main problem of the region’s continental part is equal access to the resources of the Mekong River. By building dams, upstream countries control the functioning of entire ecosystems, major agricultural areas and influence the quality of life of those who live downstream. For the maritime Southeast Asia access to clean and drinking water remains the key problem. In Indonesia, for example, only 68% of the population had such access in 201416.
Early warning, rescue and relief in the aftermath of natural and man-made disasters is another important issues for SEA. Typhoons, earthquakes, floods and droughts are among the most dangerous natural disasters to which the region’s countries lose on average 0.5% of their GDP a year (for some the figure is as high as 5%).17 Some disasters are man-made. A vivid example is the annual “Indonesia haze” caused by obsolete slash-and-burn farming techniques on Sumatra and Kalimantan during the dry season. The wind drives the smoke from forest fires that pollutes the air in almost all the Southeast Asian countries, but especially in Singapore.
Russia has much to offer to the region in the field of natural disaster response, not only as free humanitarian aid during actual emergencies, but by supplying technology and equipment from multi-purpose planes and vehicles to individual protection gear and training programs.
Things Russia Should Care About
in Southeast Asia: Environment
Insufficient infrastructure is a traditional problem of the SEA region. For maritime SEA, it is aggravated by underinvestment and physical-geographical factors. Between 2014 and 2030 ASEAN countries will need to invest an estimated $3,4 trillion in infrastructure. That sum is between two and six times larger (depending on the country) than it had been during similar periods in the past. By 2020 the shortage of investments in port capacity may amount to 52% and up to 59% for airports.19
Among the major regional infrastructure projects are the ASEAN Highway Network (AHN) and the Singapore-Kunming Rail Link. The AHN project involves the building of 38,000 km of roads linking the ASEAN countries. The project is almost completed, but about half of the roads built are of the lowest quality standard. By 2022, the SKRL high-speed rail network will link Singapore with Kunming in China via three branches that will pass through Myanmar, Laos and Vietnam.
Port infrastructure is pivotal for the region whose countries are practically linked by the South China Sea. Global logistic chains travel through the South China Sea, making the development of maritime shipping in ASEAN a challenge not only for internal economic communication, but for enhancing the connectivity of Southeast Asian countries to the global markets. Three countries in the region are among the top 50 in the Global Connectivity Index. They are Singapore (4th place), Malaysia (18th place) and Thailand (36th place) 20. Today the region’s countries seek to create an ASEAN Single Shipping Market as part of the ASEAN Transport Strategic Plan 2016 to 2025. Implementation of these plans would require significant development of 47 key ASEAN ports.
The SEA aviation market is changing with the growth of production, consumption, tourism and intra-regional connectivity. Boeing is predicting an annual 6.5% growth for the aviation market in Southeast Asia during the next 20 years. During this period, the region will need about 3750 new planes worth a total of USD 550bn. In passenger flights, 60% of the market is taken by low-cost carriers, so cheap medium-range flights will probably remain the strongest segment. Increased air carriage will require more airports, especially in Vietnam, Indonesia and the Philippines. ASEAN’s single aviation market, which is due to start operating in 2016, will further boost demand.
Russia can already boast a major railway construction project in Indonesia, on Kalimantan Island (implemented by Russian Railways). However, in the infrastructure market it faces strong competition from Korean, Chinese and Japanese companies.
ASEAN countries see the strengthening of the IT services sector and introduction of information high technology as an important factor of sustained development. According to McKinsey, there are five key technologies that may generate additional income of USD 625bn for SEA countries by 2030. They are the mobile internet, Big Data, Internet of Things, automation and cloud computing.21
SEA countries are at various ends of the spectrum in terms of the digital environment. In the 2014 Network Readiness Index, which measures the preparedness of countries for introducing IT innovations, Singapore was second place and Myanmar was 146th place out of 148. Malaysia and Brunei are in the top 50 while Indonesia, Thailand, the Philippines and Vietnam are between 64th and 84th positions.22
The areas in which IT innovations are likely to be introduced most quickly are mobile payments, e-commerce, online gaming and internet advertising.23 Singapore is at the forefront of developing all kinds of smart technologies, due to their integration with the urban environment, as well as e-government technologies and practices. Less developed countries, such as Vietnam and the Philippines, will seek to occupy outsourcing niches in services such as the development of and technical support for software, including gaming software.
Over the course of economic development, ASEAN countries are emerging as a vast consumer market in the digital sphere. Penetration of mobile communications in the region stands at 124%, and of the internet at 40%24. There are 233 million social network users in the region, with nearly 200 million active on mobile platforms. Some countries present a strong challenge to global technological leaders: in Thailand the Korean messenger Line has almost as many monthly users as Facebook, and in Vietnam the Russian Cốc Cốc browser and search engine is second in popularity to Google Chrome (almost 20% of the market).
The last example shows that Russia, somewhat surprisingly, has a noticeable presence in the IT market. Kaspersky Lab has a regional office and it is doing quite well in Southeast Asian countries, like other companies that are in payments, network security and business process management. The burgeoning IT-startup industry opens up opportunities for the presence of Russian venture capital and transfer of technology to and from the region.
Southeast Asia is a particularly interesting region in terms of the integration processes it is witnessing. On December 31, 2015 ASEAN officially created the ASEAN Economic Community, AEC. Ideally, the community means free movement of goods, services, capital and labor within the region. In reality, that goal is still a long way off, especially if one considers that deadlines for implementation have been extended for four late-comers to ASEAN (Cambodia, Laos, Myanmar and Vietnam, known together as CLMV).
ASEAN countries aim to use the AEC to create a single production base and, through a common market policy, to provide global investors with access to the entire ASEAN through each individual member. The Association prides itself on duty-free trade. In 2014, about 70% of all trade within the bloc was duty-free and tariffs exceeded 10% for only 5% of the trade. In the investment sphere, the main liberalization and protection instrument is the ASEAN Comprehensive Investment Agreement, or ACIA. However, the five founding members are only beginning to formalize these obligations while Brunei and the CLMV countries still lag behind.
Integration of capital markets is one of the most complicated spheres. The ASEAN Exchanges system bringing together seven stock exchanges from six ASEAN countries (two from Vietnam) in a single information system that has been in operation since 2011. Within the project, 180 ASEAN Stars stand out, represented by 30 blue-chip companies from each country. However, the real step towards integration was the ASEAN Trading Link project, which so far links only three exchanges within a cross-border trade system: Singapore, Malaysia and Thailand. Difficulties persist due to underdeveloped national capital markets, and a weak legal framework on which the ASEAN Capital Markets Forum is working.
Realistically, ASEAN countries would not be able to complete the formation of the community before 2030. They are being pushed forward, on one hand by international competition, and on the other by the danger of being caught in the middle income trap, which is very real for many of the bloc’s countries. The competitive advantage of cheap labor will quickly recede into the past while labor productivity and the skills growth may not be fast enough. Thus, economic integration for ASEAN countries is a way of attracting international business by presenting itself as a single entity. The positioning of ASEAN as if it were a single economy has become an effective way of upstaging other regions.
In addition to their own integration project Southeast Asian countries are involved in the process of forming two trade mega-blocs, the Regional Comprehensive Economic Partnership (RCEP) and the Trans-Pacific Partnership (TPP). RCEP is an expansion and unification of ASEAN free-trade zones with six partners: Japan, China, South Korea, India, Australia and New Zealand. This integration format enables ASEAN to be a relatively consolidated entity within RCEP preserving its centrality in agreeing the terms of trade liberalization.
However, so far RCEP is losing out to the TPP mega-bloc: the agreement was signed in 2015 and is going through the ratification process. TPP provisions do not only deal with reducing trade barriers and promoting free trade, but also bring the member countries closer together in investments, intellectual property rights, arbitration rules, labor legislation and regulation of state-owned companies. The terms have already been agreed on and those who are not among the 12 founding countries will have to accept them as is if they choose to join the agreement.
TPP includes the Southeast Asian countries of Vietnam, Malaysia, Brunei and Singapore. Indonesia has stated its intention to join. Vietnam and Malaysia stand to gain the most economically by signing the agreement. However, the fact that only part of ASEAN is joining TPP may become a problem for ASEAN and create new division lines. Major trade and investment partners of ASEAN that are members of TPP – the USA, Canada, Japan, Australia – will give preference to ASEAN members which have joined the bloc. This may lead to the transfer of production and changes in the structure of regional economic cooperation. For example, Thailand will be losing out to Vietnam and Malaysia in the quest for investments unless it decides to join the TPP.
Incidentally, for external partners and investors the participation of some Southeast Asian countries in the TPP is good news. Production facilities located in these countries will be able to export their goods to a vast market with includes the grand markets of the US and Japan. Thus we will soon see increased flows of foreign investments to Vietnam and Malaysia which will supposedly take advantage of these opportunities to improve the quality of their economic growth.
Ivan Timofeev, Elena Alekseenkova:
Eurasia in Russian Foreign Policy:
Interests, Opportunities and Constraints
Ideology: Common Ground
Although ASEAN is far removed from Russia geographically, the Association and its members are extremely interesting in terms of the national development strategies, the values and the principles of world order they espouse. Russia has already taken some of these principles on board, while others may turn out to be useful in the future.
ASEAN is often compared with the EU and is even described as the second most successful integration project. It is also often said that while the EU unites European democracies that are culturally and politically close, ASEAN members differ from one another much more. Although initially formed on ideological grounds for protection against the Communist threat, today the political systems of its member countries are as different as could be.
In Vietnam the Communist Party is still in power, actively introducing market forms of economic management while building socialism. In Laos the socialist doctrine is more rigorous, and in Cambodia, in spite of the monarchy rule and a “people’s” party similar to Vietnam’s, opposition is strong. While Indonesia is a fairly well-developed democracy, the Philippines and Malaysia are fighting corruption, with the latter also having problems with transparency and balancing its electoral system. Singapore falls far short of the Western idea of democracy, but in the broad sense it is better and more effective than the political struggle in Thailand, leading to military rule in 2014. Little is written on Brunei, which is a sultanate, but the monarchy has become more religious oriented with the recent introduction of Sharia law. Finally, there is Myanmar, which is passing slowly and painfully from the military to civilian rule while seeking ethnic peace.
On top of diverging political systems there are ethnic and religious differences. Indonesia and Malaysia are among the largest Muslim countries in the world. In the Philippines the population is almost entirely Christian. Thailand, Laos and Cambodia are largely Buddhist, and in neighboring Myanmar religion often becomes radical. In Vietnam a different strand of Buddhism is combined with deeply ingrained (and partly politicized) animistic beliefs, although officially the majority of Vietnamese are atheists.
Despite all these differences, ASEAN countries are doing well economically and are just as successful in co-existing. Partly the reason for and at the same time consequence of such a unity between the countries is the fact that they reject universalist approaches to state building and tolerate national particularities of development. Southeast Asian countries are not imposing on one another their forms of governance and state structure as the only true ones.
The principle of non-interference is closely connected with this attitude. ASEAN countries do not seek political integration, thus they rarely speak about each other’s internal affairs, let alone trying to influence domestic policies. They are far more interested in the free market and mutually beneficial economic development. Thus, after the dramatic change of government in 2014 Thailand did not become an outcast within ASEAN. The relations between the military administration in Bangkok and the opposition do not particularly interest others in the region.
To some extent these principles can be reduced to foreign policy realism which goes against an idealistic view of the world. ASEAN members recognize common values, but they are not connected with the internal structure of the state: ASEAN members understand that it is impossible to work out common political principles. Economic development and even co-development are at the heart of ASEAN, justifying almost any political imperfections highlighted by external players.
Growth Is More Important Than Freedom
Economic growth is the top priority for almost all ASEAN members. The quest for prosperity shapes the above-mentioned differences in the national development models. Needless to say, history, ethnic dynamics, and the features of the political elite do matter, but for many countries in the region growth in living standards for the population today legitimizes of the ruling class.
Singapore’s development model is a vivid illustration. The combination of an incredible growth rate, efficient governance and rigid political system made it an icon for autocratic regimes. The Singapore miracle became at once an unattainable ideal and a reason for renouncing liberal theories of economic growth in other countries. Advocates of this model argue that there is no need for change of government if the ruling class more than fulfils its obligation to improve quality of life. This is a concentrated version of a classical social contract: the citizens are ready to forego some personal and political rights in exchange for a better well-being and security.
In Singapore such a social contract is guaranteed by the huge technical capacity of the state. The PRISM digital system of monitoring and processing data ensures an unprecedented degree of public control, while the population has the government’s oath that personal data will be used exclusively for the benefit of the citizens. This nanny state model is close to traditional Asian paternalistic systems in which the ruler’s concern for the good of his people is taken for granted.
Like in Singapore, in the majority of Southeast Asian countries economic growth and the real improvement of the people’s well-being is the key source of political legitimacy. At the same time the elites often use economic levers to ensure political control and often cannot resist the temptation of collecting rent. That is why “statist” trends are strong in Southeast Asian societies. The state is the most important player in the social space, whether it is represented by the king and his family, the Communist Party or an elected president. Power is strongly centralized, state corporations are active, and bureaucracy plays a great role, often claiming the credit for economic success stories, thus justifying a certain lack of transparency.
It’s hard to say how long economic growth will continue to ensure the stability of Southeast Asian regimes. However, stability is one of the main reasons why foreign investments keep flowing in. One of the reasons why social contracts in Southeast Asia work is that a large share of their populations is politically passive rural dwellers and the civil society is not mature. Wherever an educated urban class is formed, threats to stability and social cleavages appear. One thinks above all about Thailand and Malaysia and in some ways also Vietnam. It is impossible to predict whether the current political elites in the Southeast Asia will be able to meet the demands of these new social forces and make them accept the traditional consensus.
Japan–US Union and Southeast Asia:
Getting closer to cement the status quo?
Multilateralism and the priority of multilateral diplomatic institutions are very important for ASEAN. Not ideal democracies in their internal policies, Southeast Asian countries are very democratic in external policy, for example, they adhere to the principle of consensus in making decisions on integration. The ASEAN Way seeks to take into account the interests of all the members effectively putting mutual accord above progress.
Similarly, the principles of multilateralism are translated into the broader international space around ASEAN. It seeks to become the centre of multilateral diplomacy in the region via such formats as ARF, ADMM+ and EAS. Within these institutions ASEAN expects all the powers in the region to accept its values and principles, and all the issues that arise to be solved in accordance with them.
Democracy in the foreign policy field goes along with the promotion of the multi-polar world principle. Southeast Asian countries would not like the world or Asia to be dominated by one or two competing powers. This can be avoided by forming several poles. ASEAN, of course, sees itself as one such pole. The idea of ASEAN centrality in the regional security system and its great importance as a pole is supported not only by the ASEAN members, but also by large external actors.
The cohesiveness of ASEAN as a group and its important role in the region may in theory help its member countries avoid being caught between the grindstones of bloc confrontation. Thus, ideally Vietnam or the Philippines have no need to seek the political or military support of China or the US in case there is a conflict. Conflicts should be prevented not by raising the stakes for the aggressor, but by a stable regional order where small states are part of the groups which have spread their values of multilateralism to all the Southeast Asian states.
Of course, so far this exists only in the dreams of ASEAN idealists. The low level of political integration and democratic procedures prevent the group from even speaking out on key problems in the regional political order, for example, on the problem of the South China Sea. The countries which see China as a threat still rely on national or others’ political, military and economic resources. By contrast, those who tend to take Beijing’s cue are ready to undermine the presumed unity of ASEAN to gain tangible benefits.
It may be that external players support the ASEAN centrality precisely because the center of this construction is fairly blurred. The soft middle makes it possible to bend the regional security system, with only the US military presence, alliances and partner relations as the hard core.
Supporting ASEAN centrality in the region is good manners, its democratic and positive image adds to the image of every state. However, whether external players will be as supportive of ASEAN if it suddenly starts working in a more concerted way and obtains real regulatory functions, is an open question.
An Instrument For Russia
The deep meaning and arguments that shape the foreign policy ideology in Southeast Asia may be useful to Russia in promoting its own narrative.
Anti-universalism and limited applicability of some national, regional or cultural recipes for development are already an important part of Russia’s ideology. The case of ASEAN shows that a common interest in economic development and cooperation may even bring closer together] states with very different political systems. However, one has to bear in mind that ASEAN members have hardly any foreign policy claims to each other and have managed to overcome the negative aspects in their history.
Russia should focus on the success of the state-centric models of development in Southeast Asia. The use of concentrated power by elites to implement effective reforms from the top and to attract foreign investments, and the integration of their countries in the regional and global economy has enabled them to preserve their legitimacy without systemic political reforms by ensuring a high growth rate and higher living standards.
Emphasis on multilateral institutions could also be in Russia’s interests. Moscow stands to gain a lot from greater protection of multilateralism, revival of the supremacy of international law, the introduction of clear rules of the game and the development of effective international institutions in conditions when the country’s resources are hardly growing in absolute terms and when its influence is likely to fade as new actors arise. This new kind of institutionalism could be the central part of the Russian approach to solving the worldwide security problem – from a single and indivisible security system in Europe and close treaty-based interaction with the US on strategic issues to the building of a collective security system in the Middle East and a law-governed regional order in Asia around strong ASEAN-centric structures.
Russia today does not have a significant presence in Southeast Asia. The recent revival of interest in the Asia Pacific may not, after all, bring about a qualitative leap in the relations with ASEAN countries. The reason is not only lack of historical and cultural common base, but the fact that Russia today has more important foreign policy priorities.
Russia’s partnership with the Southeast Asian countries should not be treated as something grand and no quick deepening and broadening of cooperation should be expected. However, deriving the maximum benefit from this dynamically developing region would make sense. Many markets have already been occupied by the players, who were first-comers, but the Southeast Asian markets are expanding rapidly and new ones are constantly springing up. Cooperation with ASEAN members should be business based and states should protect and promote such interests. It is necessary to help the Russian companies working in advanced segments of production and consumption to break into new markets in Southeast Asia.
Even in current crisis Russia can be an attractive economic partner for ASEAN. The country is still a vast market and the Russian Far East can still attract ASEAN investments. At the same time Southeast Asia is a promising area for cooperation in the spheres where Russia has traditionally been strong: energy, machine-building, and outer space.
The values that form the core of the foreign policy ideology of ASEAN are not alien to Russia. ASEAN countries may become Moscow’s allies in protecting a genuinely multi-polar world order in which the relations among states are regulated by effective international institutions. The region will have to face the test of real politics and great power ambitions, but the outcome may be the emergence of a real multilateral regional system. If Russia manages to gain a foothold as a fully fledged Asian power it may take part in shaping this order and transfer the experience of institution-building from other regions of the world.
First published in Russian on the site of The Carnegie Moscow Center
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