Rising US interest rates have not had the negative impact on the Asean region that some may have expected. Why might organisations consider expanding into the region and how can they do so with confidence?


The Asian financial crisis of 1997 saw the Association of Southeast Asian Nations’ (Asean) economies severely impacted by rising US interest rates, leading to a recession that lasted for years. As we see US interest rates rise once again, some may be imagining that economic history may repeat itself. But today, the Asean region has a different and positive outlook, evidenced by the likes of Dyson recently revealing plans to build a new battery factory in Singapore, amongst other major organisations looking to Asean territories for new manufacturing opportunities and investment.

Why the Asean region is ripe for investment

Asean economies have undergone significant reforms. In Vietnam, for example, new laws that came into effect in early 2021 offer a clear path for public companies to take steps to increase foreign ownership to 50% or above or remove foreign ownership restrictions with the consent of the State Securities Commission.

Economies have also strengthened their macroeconomic fundamentals since the Asian financial crisis, which has made them more resilient to external shocks. Examples of this include the Chiang Mai Initiative Multilateralization, a currency swap network designed to ensure financial stability among member states of the Asean, as well as China, Japan and Korea.

The increased use of domestic currency debt has helped the region remain less impacted by inflation.

Regional ability to adapt

The Asean region has demonstrated its ability to adapt to changes in the global economic environment, with Asean countries well-equipped to weather any potential economic headwinds.

According to a recent report by Atradius, countries in the region have become more resilient by:

  • Moving away from over-reliance on commodity exports,
  • Government efforts to increase their revenues, reduce external debt and maintain price stability,
  • Improved road, port, airport and telecommunications infrastructure resulting from large investments,
  • Strengthened financial systems by implementing measures to increase the resilience of the banking sector, improved regulation and supervision, and promotion of greater financial inclusion.

Obstacles to Asean trading and investment

There are, of course, some challenges to trading and investing in the Asean region.

Some member countries have faced political instability, and there have also been tensions between member countries over tariffs and intellectual property rights. This is in addition to gaps in connectivity and logistics and inadequate infrastructure in less developed member nations.

Also, Asean economies are not entirely immune to the effects of rising US interest rates, which can lead to a decrease in foreign investment, higher borrowing costs and a depreciation of Asean currencies. This can potentially impact the region’s growth prospects, cause volatility in financial markets and dent investor confidence. However, investor sentiment over the region is not always rooted in reality.

The hard facts are, while some Western economies are struggling with a looming recession and industrial unrest, many Asean economies are posting impressive growth rates with real GDP growth forecast to reach 4.6% in 2023 and 4.8% in 2024, according to the Organization for Economic Co-operation and Development.

How to overcome challenges to Asean expansion

Trade credit insurance can help organisations make the most of Asean opportunities by protecting against non-payment losses, maximising credit lines with existing customers through insight-led due diligence, and enabling them to expand into new markets. This cover indemnifies their accounts receivable against losses due to customers not paying their invoices due to insolvency, or because of specific export or political risk. This cover ultimately aims to minimise the cost of doing business.

In addition, trade credit insurance can enhance existing credit management and support cash flow certainty, both of which are key factors influencing business leaders’ level of comfort in Asean expansion.

Trade credit insurance customers can access

market intelligence from insurers on their view of payment risk, status reports on potential customers and suppliers, and make recommendations on credit limits based on underwriters’ access to up-to-date, dynamic information on how customers are faring in changing market conditions.

With access to insurers’ credit information, risk monitoring and, where chosen, debt collection capabilities, trade credit cover allows organisations to consider doing more business with Asean customers and prospective supply chain partners assigned to the ‘red zone’ that would not typically have extended credit.

Using credit limits underwritten by insurers also helps to stay ahead of would-be customers’ debtor risk, informing sales policy by identifying creditworthy customers, appropriate payment terms and security conditions. This enables organisations to grow without a corresponding increase in risk.

Insights from Asean trade credit claims data

According to a survey on Asia corporate payment published this year by Coface that provides insights into the evolution of payment behaviour and credit management practices of about 2,300 companies, “overall, fewer businesses reported overdue payments in 2022”. The report goes on to say that the share of companies reporting overdue payments fell to 57% in 2022, the lowest in 10 years, from 64% in 2021.

Nevertheless, the duration of payment delays across Asia Pacific increased markedly, as businesses were more restrictive with credit terms amid aggressive rate increases, tighter financial conditions and higher inflation. The average payment delay lengthened from 54 days in 2021 to 67 days in 2022.

Next steps on the Asean expansion journey

Far from being on the precipice of an economic downturn, the Asean market is in growth mode.

We expect to see more corporate investment, with insurers joining those organisations as they move operations to the region, and Asean territories benefitting from more manufacturers further diversifying their production and supply chains.

Trade credit insurance is one way to take more decisive steps into the region.

For smarter ways to manage risk when expanding into new markets, get in touch with WTW’s regional and trade credit experts.


Lee Garvey, Regional Head of Financial Solutions, Asia Pacific, lee.garvey@wtwco.com


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