What has just happened?
COVID-19 has exposed and heightened the challenges within Global economies as they battle to protect life and economic activity. Within the emerging economies of the ASEAN (Indonesia, Malaysia, Philippines, Thailand, and Vietnam), the pandemic has shined a light on their investment potential. This has also highlighted investment areas that could both speed up the economic recovery in these countries and lay the foundation for extended growth. [1]
What does this mean?
ASEAN economies have been slowly developing in the shadow of their global powerhouse neighbors; China, South Korea and India.
Yet, the growing and continual trade war between the USA and China, as well as the Pandemic has emphasised the need for regional growth within South East Asia. The ASEAN nations have seen the fastest growing trend of regionalisation, from 2000 to 2017, inter-regional trade in Asia quadrupled.[2] In other words[3]
Attracting and accelerating foreign direct investment (FDI) in the manufacturing sector will be vital for the acceleration of ASEAN growth. According to UN’s Economic and Social Commission for Asia and the Pacific, ASEAN has become the most popular destination for FDI. As it accounted for almost ½ of global investment spending in 2018. [4]
The UN figures comprise cross-border deals and on the ground projects — about $600bn and $300bn respectively. [5]
Legal impact?
2020 saw changes to public-private partnerships (PPP Law), leading to International infrastructure investors eyeing up new opportunities. The new PPP framework looks to overhaul specific sectors such as transportation and information technology infrastructure. Private investment is high up on the agenda of the ASEAN nations as there are high ratios of public debt to GDP. Vietnam has the greatest at 60% while many of the other ASEAN nations stand at around 50% public debt to GDP ratio.[6]
The PPP framework provides greater investor security through Decree 63 (ensured performance) as well as ‘tender security’.[7] Due to the emerging status of the ASEAN nations, many infrastructure projects are wholly state-owned, which can lead to issues in raising credit and debt finance.
Yet, Article 61 of the new PPP framework guarantee performance of state-owned enterprises which is considered essential for in project finance. These new assurances have seen developments in road infrastructure to increase the interconnects of the regions and Ho Chi Minh City and Hanoi. As well as encouraging negotiation on the expansion of the port regions within the ASEAN to increase import/export capacity.
A notable legal impact of the emergence of ASEAN nations and especially the rapid growth of Vietnam is that on contract law. The governance of the new PPP framework, hailed as a recipe for the development of Vietnam, will be under Vietnamese contract law. Which can pose some legal irregularities as the notion of liquidated damages and exclusions of liability for, for example, consequential losses are not as highly recognised under Vietnamese contract law.
International law firms will need to adapt and respond to the growing economic power of ASEAN nations. This could be their opportunity to expand their number of offices by merging with domestic ASEAN firms.
Written by Megan Hornsby
Assessing Firms:
All international commercial law firms, especially those specialising in contract law.
References:
[1] Oliver Tonby and Kaushik Das, ‘Reimagining emerging ASEAN: 5 levers to boost economic recovery’ (Financial Times, 2020) < https://www.ft.com/partnercontent/mckinsey/reimagining-emerging-asean-5-levers-to-boost-economic-recovery.html?utm_source=FT&utm_medium=Premium_Native_Amplification> accessed on 26th September
[2] Oliver Tonby, ‘The Future of Asia – Asian flows and networks are defining the nexr phrase of globalisation’ (2019) McKinsey Global Institute < https://www.mckinsey.com/~/media/McKinsey/Featured%20Insights/Asia%20Pacific/The%20future%20of%20Asia%20Asian%20flows%20and%20networks%20are%20defining%20the%20next%20phase%20of%20globalization/MGI-Future-of-Asia-Flows-and-Trade-Discussion-paper-Sep-2019.ashx> accessed on 25th of September
[3] IBID
[4] Sebastian Shehadi and Alex Irwin-Hunt, ‘Asia’s busy investors seeking opportunities beyond china’(Financial Times, May 11th 2020) < https://www.ft.com/content/4fb0821a-6acb-11ea-a6ac-9122541af204> accessed on 26th of September
[5] Sebastian Shehadi and Alex Irwin-Hunt, ‘Asia’s busy investors seeking opportunities beyond china’(Financial Times, May 11th 2020) < https://www.ft.com/content/4fb0821a-6acb-11ea-a6ac-9122541af204> accessed on 26th of September
[6] PWC ‘ The Future of ASEAN : Vietnam Perspective’ (PWC Publications, 2018) < https://www.pwc.com/vn/en/publications/2018/pwc-vietnam-future-of-asean-vietnam-perspective.pdf> accessed on 25th of September
[7] Melissa Keane, ‘Elevation of Vietnam's Public Private Partnership Regime: 14 key changes for foreign investors
‘ (Allens>< Linklaters, 27th July 2020) https://www.allens.com.au/insights-news/insights/2020/07/elevation-of-vietnams-public-private-partnership-regime-14-key-changes-for-foreign-investors/#anchor1 accessed on 24th of September 2020
Disclaimer: This article (and any information accessed through links in this article) is provided for information purposes only and does not constitute legal advice.