The world will likely be more expensive in the next decade, as geopolitical tensions mark an end to a period of disinflation that lasted between 1990 and 2020, says Dilhan Pillay, chief executive officer of Temasek Holdings.
China’s entry into the World Trade Organization in December 2001 precipitated an era of globalisation, which resulted in China becoming the manufacturing hub of the world, says Pillay. “Most importantly, it reduced the unit cost of production, which is disinflationary for all of us. Therefore, we were able to go through a period of relatively benign inflation, and therefore, benign interest rates.”
That has now come to an end. The unipolar world that came after the fall of the Soviet Union has given way to a multipolar world, adds the head of the Singapore-headquartered investment firm. “It’s not just the US and China. Now, we’ll begin to see the emergence of other powers; it’s almost like a game of thrones.”
Speaking on Sept 7 at NCS Impact 2023, the inaugural forum by the Singtel Group subsidiary, Pillay warns of coming knock-on effects. “Today, two watchwords are ‘security’ and ‘resilience’, and it comes with the other words [like] decoupling, de-risking and fragmentation. So, what’s the future of globalisation? If you think about the two watchwords, it comes with costs, like insurance costs.”
On one hand, technology has the ability to increase productivity and reduce costs, says Pillay, but these also come with attendant and consequent costs. “Therefore, we have to bear in mind that the world we will see in the next decade or more is likely to be more expensive… The likelihood of a disinflationary world is, in our minds, not there.”
‘Curveballs’ in the Asian century
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As a rallying call of sorts, “the Asian century” has been bandied about for more than 25 years, a promise of a coming economic boom in the region. “We started saying this before the Asian Financial Crisis of 1998, even with the advent of China and we were saying that even post-GFC [Global Financial Crisis],” says Pillay, “but every now and then, things change.”
We cannot look at the future “in a very linear way”, says Pillay in a subsequent conversation with NCS chief executive Ng Kuo Pin. “There are curveballs all the time. Covid-19 was a curveball. For example, generative AI is potentially a curveball [and] cyber-hacking is a curveball.”
For the Asia Pacific, the curveball is geopolitics, he adds. “For the first time, an investor has to implant geopolitics into every decision they make. Companies have to figure out how [they] will be accepted in the different countries that [they] operate in. How would you be perceived in the US if you have exposure in China, and vice versa?”
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That said, Asia still has the best growth prospects, says Pillay. “There is a young population that has become mobile-first, which actually transcends a lot of infrastructure costs that would otherwise be needed.”
But the success of Asia in recent decades was also due to a globalised world, he adds. “When China became a global manufacturing hub, its main benefit was to uplift the countries in Asia that became component suppliers and ecosystem partners to Chinese companies. That allowed a rising tide to life a number of boats.”
In a fragmented world with “friend-shoring, near-shoring and the like”, the reconfiguration of supply chains — while slow and costly — will drastically change the future, says Pillay. “You need to hedge against the potential of a future [that] is very different from what you were used to in the last 10 years, all because of geopolitics.”
India seems to be a potential beneficiary of this upheaval, says Pillay. While its economy is comparable to the Southeast Asian region, it has the benefit of being a sole country. “[They may have] 22 languages and all kinds of differences but it’s still one country. Southeast Asia is 10 countries, plus one to come.”
Timor-Leste, which gained independence from Indonesia in 2002, is preparing to become the 11th member of Asean. “GDP per capita varies [within Asean], so we are very, very fragmented in Southeast Asia,” says Pillay.
Pillay echoes Prime Minister Lee Hsien Loong’s call for economic integration at the Asean Summit plenary session in Jakarta on Sept 5. “Asean cannot be a political community, because of cultural and historical differences, but we can be an economic community, because there’s so much to learn from each other.”
Cooperation on the digital front holds even greater promise, says Pillay. “That’s the easiest [area] to get some level of cooperation, because populations want it. That’s important to us as well.”
