Charles River Laboratories said it would cooperate with the U.S. Department of Justice officials, and suspended shipments of primates to its U.S. labs from Cambodia.

But as one route for the drug-testing monkeys shut down, another opened wider – from Cambodia to Charles River’s labs in Quebec, Canada.

From massive caged enclosures in provinces near Phnom Penh, long-tailed macaques are now being imported into Canada for human drug testing development in unprecedented numbers, an investigation by the Southeast Asia Globe, Pulitzer Center and Toronto Star has found.

Since Charles River’s February 2023 announcement that it would stop monkey imports to the U.S., the value of Canadian imports of these endangered animals has spiked nearly six times to roughly 62 million USD, federal data shows. Charles River is the only registered importer of macaques from Cambodia in all of Canada.

The import surge has prompted concerns that Canada has now inherited a tainted supply chain that includes wild long-tail macaques, protected animals that may harbor dangerous pathogens. 

“While they’re [Charles River] doing the right thing in the U.S., they’re doing the wrong thing in Canada,” says Dr. Nicholas Dodman, a veterinary medicine expert and professor emeritus at Tufts Veterinary School in Boston. “It’s a kind of back door…They can still do their research, just not in the United States.”

In a statement, a Charles River spokesperson said the company complies with all Canadian regulations and, by abiding by strict protocols, it has ensured “no members of the public have been exposed to any health or safety risks from our facilities.”

The company said its facilities in Canada are part of its “global network” that includes “state-of-the-art operations in over 20 countries.” In a call with investors following the subpoena, Charles River’s CEO said the company quickly pivoted its monkey shipments to countries with “friendly governments” that are “working with us.”

Poached macaques allegedly smuggled into U.S.

Experts and animal rights activists question whether officials here have done enough to vet those imports.

Canadian officials point to numerous quality control checks in place to ensure proper importation of macaques. But a crucial stage of oversight falls to agents in the exporting countries – including two Cambodian government officials who were indicted by the same U.S. investigation that pulled Charles River into an international scandal and sent its stock value tumbling.

Charles River is not facing any charges and has only been subpoenaed.

The small, docile test subjects are used in Charles River’s lab research, including the development of a COVID-19 vaccine. Animals used in such research are supposed to be captive bred, according to international protocols.

The 2022 indictment alleged thousands of monkeys imported into the U.S. were wild macaques that were poached and laundered through the legal trade of the captive-breds. Officials suspect about 2,600 wild macaques entered the U.S. on false permits since 2018.

The same year of the indictment, the status of long-tailed macaques on the Red List of Threatened Species was upgraded to “endangered.” The threat report listed “biological resource use” as a leading cause of the decline of macaques in the wild.

There are good reasons why laboratory animals should not be captured from the wild, says Andrew Knight, veterinary professor of animal welfare at Australia’s Griffith University.

“Scientifically, their genetic composition, and their health or disease status, may be unknown or variable, which can make experimental results less reliable,” he says. “Additionally, there are major animal welfare concerns when primates are captured from the wild, or transported from breeding centres close to wild populations.”

“Human health and animal welfare is paramount”

Canadian regulators should pay more attention to the importation of macaques, not only because of the alleged problems U.S. investigators found but also because Cambodian monkeys could bring diseases, says Lisa Jones-Engel, a senior science advisor with the U.S. activist group People for the Ethical Treatment of Animals (PETA).

“Charles River…went just to the north to Canada and not only did (Canadian officials) not shut it down, but it appears they threw the borders wide open, rolled out the red carpet,” she said. “And Canadian officials are ignoring that monkeys exported from Cambodia have been harboring pathogens that not only represent a deadly zoonotic risk, but the presence of these pathogens further undermines and confounds the use of these monkeys in experimentation.”

In May, Jones-Engel wrote a letter to officials in Ottawa that warned this primate trade is characterized by the “highest risk of zoonotic disease transmission” and that “Canadian residents may be paying the price for this industry’s hazardous practices.”

She told the Globe that the possibility of wild-caught monkeys entering the supply chain “means that this industry is more likely to usher in the next pandemic than it is to prevent it.”

we may produce or import animals carrying infectious agents capable of causing disease in humans

Charles River Laboratories

A recent case study by U.S. researchers tied a case of melioidosis, an infectious disease that can affect both humans and animals, to a Cambodian macaque imported to the U.S. in January 2021. 

The animal was not imported by Charles River, the company said.

In a statement, Charles River said it respects the views of “groups and individuals who deeply oppose the use of animals in human drug testing.”

“However, any factual and fair assessment of how [Charles River] carries out such drug testing would conclude that our commitment to both human health and animal welfare is paramount. We have no doubt that the people whose lives have been saved or immeasurably improved by the drugs we have helped develop would agree with us.”

In addition to COVID vaccines, the company develops drugs to treat cancer, diabetes and rare diseases.

The company did not respond directly to questions about whether wild-caught monkeys could have been included in their Canadian supply chain. In a 2020 form to the U.S. Securities and Exchange Commission, Charles River noted that “we may produce or import animals carrying infectious agents capable of causing disease in humans,” which “could be a possible risk of human exposure and infection.” 

The company says its strict protocols include a 30-day quarantine for imported primates and required disease testing, all monitored by Canadian officials. 

Canadian officials echoed Charles River, saying they closely monitor the primates to ensure public safety. 

Dodman, the expert in veterinary medicine, is less certain.

“Grabbing a monkey out of a tree and shipping them to a lab, you’re asking for a health crisis,” he says. “However many precautions they take, they can make mistakes and who knows the incubation time on some of these diseases?”

Oversight relies on permits issued in Cambodia

Environment and Climate Change Canada (ECCC) monitors the importation of animals going to labs. 

To do that, the federal government relies on the Convention for the International Trade of Endangered Species (CITES), which is run by the United Nations, to properly vet the animals’ origin and ensure there is no harm to species’ wild population.  

The officials in Ottawa said they look to ensure the incoming animals have CITES permits issued by officials in the originating country.

But Masphal Kry and Omaliss Keo, the two high-level Cambodian officials indicted by the U.S. Department of Justice, lead the CITES Management Authority in Cambodia that issues the permits Canadian officials say they rely upon.

Kry, who was arrested in the U.S. in November 2022, while on his way to a convention on the international trade of endangered species, is the only one so far who has stood trial. On March 22, he was found not guilty of smuggling and conspiracy to smuggle. His lawyers did not respond to a request for comment.

Despite the indictment, Keo is still listed as the CITES chairman for “terrestrial forest and wildlife resources” in Cambodia. When reached, Keo did not answer specific questions, but responded, “I thank [you] for your email and appreciate your asking (for clarification) and finding truth. I will respond as soon as possible.”

Upon Kry’s verdict and return to Phnom Penh, the Ministry of Agriculture, Forestry and Fisheries released a statement that read “This misrepresentation [the arrest of Kry] was based on evidence obtained via improper investigations, concealed from Cambodian authorities, and contravening normal practices of cross-border law enforcement norms.”

The press release continued that the allegations against Cambodia regarding the long-tailed macaque trade had no evidence and relied on unfounded assertions disseminated by certain individuals or NGO personnel, disseminated through local unprofessional media and Western mainstream media, aiming to discredit Cambodian officials and influence the court decision.”

Also facing charges are six officials affiliated with Vanny Bio-Research, a major exporter of long-tailed macaques bred for use in research. In a statement, the company said it “denies any wrongdoing.”

The allegations by U.S. prosecutors carry significant implications, said Sarah Kite, co-founder of the international advocacy group Action for Primates, adding that they “raise serious questions regarding how widespread this smuggling operation was — and may continue to be — in Cambodia.”

“By continuing to allow the importation of long-tailed macaques from Cambodia, Canada may be… contributing substantially to the cruelty of trapping, and the decimation of the species in the wild,” Kite continued.

Monkey shipments pivoted to ‘friendly’ countries

While the U.S. government has not officially instituted a ban on the import of Cambodian monkeys, redacted letters from the U.S. Fish and Wildlife Service show that at least two re-export requests of live long-tailed macaques and biological specimens have been denied since the indictment.

Pierre Verreault, executive director of the Canadian Council on Animal Care, which inspects Charles River facilities and other Canadian labs to ensure animal welfare, says the U.S. government’s probe is a key way to find out whether the supply chain is tainted. “Hopefully, if there’s something wrong there, it will stop.”

In the meantime, Charles River’s movement of macaque importations away from the U.S. has had no significant impact on operations, CEO James Foster said in a September conference call with investors.

While the indictment “was very concerning,” the company pivoted to its “international footprint, which is quite large, we have got great facilities all over.”

“We have friendly governments…working with us…We’re not going to pivot back to the U.S…The preponderance will be done elsewhere,” Foster said.

Charles River is also facing a class action lawsuit from shareholders. The plaintiffs allege that the company “made materially false and/or misleading statements” and failed to disclose that the company had “engaged in illegal activity with respect to its importation of non-human primates for research” including relying on “non-preferred suppliers of animals from Cambodia.”

As a result of the company’s “precipitous decline in market value” following the subpoena, shareholders have suffered “significant losses and damages,” the claim alleges.

Charles River did not respond to questions about the civil lawsuit. In a court filing responding to the allegations, the company denied making any false statements, saying that it “regularly warned investors of the risks of supply interruption” and potential need to rely on alternative suppliers.

“Charles River expressly warned investors about the risk of disruption to its supply of macaques and about the possibility that its operations may not comply with laws, including laws governing the importation of macaques,” the response reads. “Charles Rivers’ warning that it might be required to source products from ‘non-preferred’ vendors demonstrates that the company was being transparent, not attempting to mislead the market.”

Charles River has asked the court to dismiss the civil claim.

~~~

This article was produced by a collaboration between The Toronto Star and Southeast Asia Globe, with support from The Pulitzer Center’s Rainforest Investigations Network.

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Rising inflation, the reopened economy and heavy storms combined to spike in demand and short-circuited supply, sending the price of the pungent vegetable soaring to a 14-year high of $12.8 (700 PHP) per kilogram. 

“[It got] to the extent that flight attendants were caught smuggling onions from other countries to bring into the Philippines because of the high price,” said the regional lead economist at the Asian Development Bank (ADB).

Such anecdotes have become symbols of a global economy wracked with uncertainty, as the continuing war in Ukraine and increasingly urgent climate crisis fuel concerns over inflation and rising living costs. But a new report from ADB released this month and regional analysts are giving reasons for Southeast Asian optimism in the face of wider global challenges such as flagging growth numbers and rising inflation.

Released Wednesday, the Asian Development Outlook reported a “marginal” downgrade for Southeast Asia’s growth prospects – from 4.7% to 4.6% for 2023 and from 5.0% to 4.9% in 2024 – reflecting weaker global demand for manufactured exports. The latest edition of ADB’s flagship publication focuses on analyses and insights for individual and regional economies across Asia. 

But despite the foreboding outlook, experts still believe the region’s interconnectivity, resilient internal markets and the return of international travel will bolster Southeast Asia’s economies against the wider global challenges. Villafuerte noted that while growth projections have slowed, they still exceed those in other subregions and the global average. 

“This is a region of 600  plus million people,” said Villafuerte. “Domestic demand remains intact and ‘revenge travel’ has really seen a huge leap in tourism, arrival and tourism related activities.” 

Villafuerte acknowledged that global headwinds from elevated prices had contributed to global inflation. On Tuesday, the Philippines central bank announced that policymakers were prepared to tighten monetary policy in view of continually rising inflation. 

His remarks came shortly after Kristalina Georgieva, managing director of the International Monetary Fund (IMF), the UN’s major financial agency, voiced similar concerns at last week’s G20 summit. The IMF’s own growth downgrades were predicted at 3.4% in 2022 to 2.8% in 2023, before settling at 3% in 2024.

Georgieva cautioned that economic activity is slowing, “especially in the manufacturing sector”, and called for a stronger “global financial safety net” to help support less-developed countries.

But for now anyway, she said the broader economic system is withstanding the pressure. 

“The global economy has shown some resilience,” Georgieva stated. “Despite successive shocks in recent years and the rapid rise in interest rates, global growth – although anaemic by historical standards – remains firmly in positive territory, supported by strong labour markets and robust demand for services.” 

A history of interconnected trade 

While international trade networks remain important, countries are also looking inwards to their own domestic economies. 

According to the ADB report, while global demand for manufactured goods slowed, domestic demand amongst Southeast Asian countries remained intact. Indonesia’s GDP expanded by 5.03% in the first quarter of this year, and economic growth remained steady, despite a slowing in exports. 

Strong national economies can help build on a history of intra-regional connectivity, according to Amanda Murphy, head of commercial banking at HSBC.  

“Southeast Asia has long been a bastion of free trade and sits at the crossroads of two of the world’s largest free trade agreements: the Regional Comprehensive Economic Partnership (RCEP) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP),” she told the Globe. 

These agreements, formed in 2018 and 2020 respectively, have strengthened bilateral relations within the Asia Pacific area, creating a network of trade avenues with the advantage of geographical proximity. There are signs this is already paying some dividends.

According to a recent HSBC survey, Murphy explained, over the next two years, Asia-Pacific corporations will place 24.4% of their supply chains in Southeast Asia, up from 21.4% in 2020.

“In particular, RCEP, with its tariff reductions and business-friendly rules of origin, is increasing the appeal of Southeast Asia as a manufacturing base, something more corporates are recognising,” she said.

China 

Within the Asia-Pacific region, Southeast Asian countries are planning their next steps with one eye on Beijing. Concerns over China’s slowing economy have caused ripples throughout international markets. 

“Weaker growth in the People’s Republic of China has actually weakened the demand for manufactured goods in the region,” said Villafuerte. However some Southeast Asian countries are benefiting from a “China+1” strategy, where global manufacturers look to move production out of China to diversify supply chains and mitigate their risk. 

“As businesses seek geographic diversification and adopt the ‘China+1’ strategy, Southeast Asia will continue to gain market share,” said Murphy. “Southeast Asia currently accounts for about 8% of global exports – there is every reason the share can increase.”

China’s exports in June fell to their lowest levels in three years, with a worse-than-expected 12.4% slump from the year before. On the other side of the world, the U.S. also saw a 2.7% export drop at the beginning of the year. 

But for Southeast Asia, as trade between superpowers slows, there may be an opportunity to enter new markets and build new relations. As the U.S. and the E.U. have faded as top destinations for Chinese export markets, the East Asian giant has diverged towards other destinations, including Southeast Asia. Chinese exports to ASEAN – the country’s largest trading partner by region – spiked by 20% in October. 

For ASEAN’s own export markets, building on critical sectors such as garment manufacturing will help strengthen the bloc’s overall economic outlook despite the global slow-down.

“Excepting [Myanmar], governments in the region are strongly committed to growth, which is fundamental. And this is export-led growth which is even better,” said Gregg Huff, professor of economic development and economic history in Southeast Asia at Oxford University. “Productivity increase is what enables real wages to increase. And if these increase it contributes to political stability.”

Domestic markets 

Private consumption was the main driver for economic growth, due to improved labour conditions and income across the region. Some demographics saw an increase in  disposable income, according to Singapore’s DBS Bank. 

But Elizabeth Huijin Pang, a DBS equity research analyst, was quick to stress at a press briefing that some sectors felt the hit of rising inflation and prices more than others. 

“There are still vulnerable groups who have seen the opposite [to our median customers],” she said. “Boomers saw expenses grow faster than income.”

Gig workers were another demographic spotlighted by the bank. DBS data revealed these informal workers to be Singapore’s most financially vulnerable group, with an expense-to-income ratio of 112%, almost double that of a DBS median customer. 

“[Gig workers should not be] lagging behind the rest of the population in terms of their longer-term needs,” said Koh Poh Koon, Singapore’s senior minister of state for manpower,  at a press conference last week. The remarks come shortly after the government’s agreement to accept recommendations from a workgroup for better representation for gig workers’ needs. 

New sectors and opportunities 

As well as focusing on vulnerable communities, shifts into new sectors are also a key part of Southeast Asia’s economic recovery. The region is one of the most vulnerable to climate change, and despite a recent decrease in green investments, a shift towards more sustainable business structures will likely be a key part of the region’s growth in its next economic era.

ADB has recently pledged $1 billion (54.4 billion PHP) towards the implementation of electric buses in Davao City, the Philippines’ largest road-based public transportation project.

“I think transforming our growth model into a more environmentally sensitive and green model of growth is important,” said Villafuerte. “When we analyse actually some of these green industries, we realise they also generate a substantial amount of jobs. … These will again be investment opportunities and also opportunities for employment.”

For Murphy, the rise of the regional digital economy is another key focus area for growth.

“Given that more than 75% of its population is online it’s not surprising that businesses are transforming their business models to cater to changing customer behaviour,” she said. 

The rise of real-time payments and recent initiatives to facilitate cross-border transactions, such as QR code payment agreements between Singapore, Malaysia, Thailand, Indonesia and the Philippines, are helping to boost the region’s economic connectivity. 

“When intra-Southeast Asia real-time payments become a reality, we can expect a jump in the velocity of transactions, whether they are business-to-business or business-to-consumer, which in turn will lead to greater economic activity in the region,” said Murphy. 

Transitioning through growing pains

As global crises continue, it is up to Southeast Asia’s private and public sectors to proactively plan their own paths forward. 

“Three long-term trends that businesses cannot overlook if they want to capture the opportunities in Southeast Asia are what I would call the 3Ts: trade, transition to net zero, and digital transformation,” said Murphy. 

Looking ahead to the future, Southeast Asian nations will have to take a proactive approach to adapt to these growing sectors. Moves are already being made at government level. Both Singapore and the Philippines both recently announced their first sovereign ESG (environmental, social and governance) bond and in April, Singaporean finance minister and Deputy Prime Minister Lawrence Wong revealed the Monetary Authority of Singapore’s finance plan for Net-Zero. 

For Vilafuerte, looking forward involves looking back. Governments and market response to the Philippines’ onion inflation earlier this year was almost immediate and prices and supply regulated. 

“These are temporary shocks and there are natural stabilisers,” he said. “Higher prices and inflation are a sign of a strong recovery. So I think this is just an adjustment period.”

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Perched on a long bench in Singapore’s Woodlands Station, the slight elegant retiree doesn’t seem in a rush. The close links between her home country and neighbouring Malaysia allows her to build a base across both sides of the border. 

A shuttle train leaves 13 times a day from Singapore’s Woodlands station and arrives in the Malaysian city of Johor Bahru just five minutes later. A bus takes one hour, and non-residents are currently allowed to stay in each country for up to 30 days without a visa.

“I go for a holiday, to see friends, or just to relax,” Ma said. “These links are important because [Singapore and Malaysia] used to be one family. In a way, we still are one family.”

Once part of the same country, these neighbours remain close trading partners with increasingly intertwined economies. As ASEAN states deepen their connections through schemes like the bloc’s Single Window customs programme and cross-border QR payments arranged through central bank collaborations, Malaysia and Singapore may soon draw even closer together with a transnational special economic zone between the city-state and the state of Johor 

The combined GDP of their two intertwined economies is already predicted to exceed $1 trillion within the next five years, more than a quarter of the total ASEAN bloc. The special zone is still in tentative stages, first proposed unofficially by Malaysia’s Economic Minister Rafizi Ramli in May, but could mark a significant step in the countries’ integration. 

While details of what such a collaboration would entail remain scarce there are plans to raise it at an upcoming Malaysian Cabinet meeting before bringing it to the annual meeting of a Malaysia-Singapore joint committee for economic cooperation, expected to be held in mid-July.

“Malaysia and Singapore enjoy strong ties in terms of trade and investment flows, tourism and labour movement,” said M. Niaz Asadullah, a professor of development economics at Monash University Malaysia. “But there is untapped potential for mutual economic gains if Singapore can leverage its close proximity to natural resources rich Malaysia.”

Thousands of Singaporeans cross into Malaysia every day by the 1,056-kilometre rail and motorway causeway that has linked the two over the Johor Strait since 1924. Bus fare for the crossing starts from about $1.48 (SGD 2).

The convenience of travel has created a longstanding symbiotic exchange of labour, trade and people between the two regions. As of 2014, it was estimated that about 5,000 Singaporeans live and work in Johor Bahru. The ringgit’s recent depreciation against the comparatively stable Singaporean dollar has made the cost of living in the Malaysian region comfortable compared to the expensive city-state. 

But while more casual travel is a breeze, the closeness for commercial purposes is still marred by long queues, traffic bottlenecks and customs checks. Recent complaints reveal some Singaporean bus passengers spent up to seven hours waiting at the Johor-Bahru customs checkpoint, a delay a special economic zone could ease.  

Strengthening inter-ASEAN ties

The announcement of the proposed region comes as part of a concerted push by Malaysian Prime Minister Anwar Ibrahim to strengthen his country’s inter-ASEAN ties and reduce reliance on Western economies. 

As its closest neighbour, the city-state is a regional economic hub and a natural trading target for Malaysia. 

The two countries have deep historical connections – Singapore was originally part of the Federation of Malaya after the two countries achieved independence from the U.K. but split in 1965. A January meeting with Singaporean leaders secured $4 billion in foreign direct investment from the Lion City. 

“[Anwar’s] latest effort to renew bilateral ties with Singapore could be motivated by … a ‘look East’ philosophy,” said Asadullah. “By strengthening economic ties with Singapore, this can help Malaysia accelerate its transition to a high income nation status by 2028.”

For its part, Singapore benefits from the resources and labour available in the Malaysian state, with many Singaporean companies already choosing to locate their assembly and production lines in Johor.

Johor: a cornerstone of trade

Johor’s role as a cornerstone in the regional trade between Singapore and Malaysia has been a longstanding part of both countries’ economic history. In 1988, the border state announced a policy ‘twinning’ with Singapore that led to a 200% increase in investment from its neighbour that same year. 

Since then, the relationship between the two has only deepened – especially amidst broader economic recovery efforts after two years of pandemic-related border issues. 

“The two-year Singapore lockdown really had an impact on Johor,” said James Chin, professor of Asian studies at the University of Tasmania. “Now people are really looking for new impetus to push this Johor-Singapore growth triangle.”

Another motivating factor of this deepening network of economic relations would be renewable energy, as announced by minister Ramli.

This follows a May announcement to lift a Malaysian ban on renewable energy exports, part of the government’s ambitious aims to double renewable energy capacity by 2050. But the country’s renewable energy sector is still nascent, with coal and natural gas currently meeting 75% of Malaysia’s power demands. 

Over the border, Singapore is also trying to boost its renewables with limited success. Experts believe a symbiotic partnership between the neighbours could unlock new potential for both.

“The limited land area is a big challenge for Singapore to develop large-scale renewable energy projects,” explained Kim Jeong Won, research fellow at Energy Studies Institute of National University of Singapore. “Importing renewable electricity through regional power grids can help Singapore’s energy transition and the deployment of low-carbon solutions in the region.”

Professor Asadullah also hopes the new proposed economic region will help meet growing regional demand for energy while encouraging a mutually beneficial trade between Malaysia and Singapore.

“Land and natural resource-poor Singapore is particularly keen to develop a sustainable pan-ASEAN power grid,” she said. “This will not only pave the way for greater bilateral trade in clean energy, it’ll also encourage FDI from Singapore into Malaysia’s renewable energy sector… and overall development of green infrastructure.”

Smoother trade and transactions

The practicalities of how the two countries’ different economies, currencies and markets would interact could raise hurdles to seamless trade within the region. For Asadullah, the success of the economic region would rely on lowering cross-border transaction costs and harmonising labour and environmental standards. 

Singapore and Malaysia’s central banks have linked their countries’ smartphone QR systems to facilitate cross-border financial transactions.

“The key challenge is to coordinate the necessary institutional reforms,” said Natalya Ischenko, CEO of Robocash Group, a financial group specialising in providing financial services in Asia and Europe, adding that the effects of the QR developments should be “significantly manifested” in the coming year. 

She estimated that cross-border QR payment systems could facilitate trade between the two countries of at least 0.5% and e-commerce in Singapore by at least 2% a month.

“[If so], the foreign trade between Singapore and Malaysia will be between $136.9 billion and $147.3 billion by the end of 2024,” she said. 

For Chin, the latest proposed economic tie is a continuation of a history of two countries linked by politics, geography and ambitious economic goals. 

“Of course this is good for the region. It is a win-win situation,” he said. “[But] the way to understand the economic relations between Johor and Singapore is that they are tied to each other. Whether they like each other or not, it really doesn’t matter, they have to work together for prosperity.”

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Finally, in December, the ASEAN chair announced the bloc’s decision to admit Timor-Leste “in principle”, granting the country observer status. This will allow Timor-Leste to participate in all ASEAN meetings and to familiarise itself with the bloc’s structure, its decision-making process and its internal regulations.

But some Timorese experts remain unconvinced that this milestone was a game changer. As the country’s petroleum fund is drying up, and with a lack of alternative economic resources, some argue the accession will only add financial pressure that could prevent the country from benefiting from the bloc’s multilateral trade agreements.

According to Fundasaun Mahein, a local security research institute, ASEAN membership could boost foreign investments into Timor-Leste while boosting human capital and employment.

Membership relies on the unanimous vote of the 10 current ASEAN members. Although Timor-Leste meets the accession criteria enshrined by Article 6 of the ASEAN charter, the economic unreadiness and the capacity of its bureaucracy of Timor might be a stumbling block to its full ASEAN membership. More economically developed bloc members such as Singapore seem especially to fear that Timor-Leste’s limited social and economic development may also hold back ASEAN’s global economic integration. 

More questions remain regarding Timor-Leste’s role in the bloc, its benefits on a national level and the country’s ability to fully integrate into the regional market. 

According to a commentary by Roberto Soares, a former secretary of state for ASEAN affairs of Timor-Leste, the Timorese government has repeatedly guaranteed the country would not be a burden for the bloc, reiterating that despite the small size of its economy, it is ready to join the regional market and to abide by the international trade system. 

While Timor-Leste seems committed to bringing a positive change in ASEAN, a question remains on what the country would benefit from its membership in the bloc. 

Timor’s development context

With a regional market worth $2.3 trillion and a population of 600 million people, ASEAN’s dynamism could offer significant economic opportunities for Timor-Leste.

The extent of this potential development largely depends on Timor’s domestic development policies and investments to capitalise on such opportunities. 

It will be challenging for the country to find the right financial balance between domestic expenses and participation in the ASEAN market. Some of the extra costs Timor-Leste will have to cover as a bloc member include annual membership fees, expansion and maintenance of embassies across the region and beyond, the hosting of international events and travel expenses for diplomats attending hundreds of meetings abroad each year.

As Timor-Leste’s economy heavily depends on petroleum revenues, which account for approximately 86% of public expenditures, the country suffers an enormous trade deficit in its non-oil export market. The only visible alternatives to oil export are organic coffee production and the tourism industry. 

The private sector is still in its infancy. Unclear rules and regulations and administrative hurdles dealing with business registration, unclear land ownership and weak access to finance are widely cited as the main impediments for private sector investment. 

These have impacts on employment opportunities. According to the 2021 Labor Force Survey, very limited formal employment opportunities are available across the country. The labour participation rate is only 30% compared to the average 66% in Southeast Asia as a region, as recorded by the International Labour Organization.

The primary sources of employment in Timor-Leste remain agriculture subsistence and the informal sector. Formal employment is largely in the public sector and mostly concentrated in the capital Dili. These development challenges are widely discussed and acknowledged across the political spectrum in Timor-Leste and are cautiously considered by ASEAN members as risk factors for Timor’s viability to join the regional bloc. 

The renowned ineffectiveness of public institutions in the country is often one of the main constraints to effective economic development. These are reflected in the limited efficiency of the justice system and public resource management, as well as the low quality of public services.

As a result, the country ranks the lowest on the Human Capital Index compared to other ASEAN members, according to a World Bank economic report from last year.  

While Timor-Leste continues to be referred to as the most democratic country in Southeast Asia,  there is a growing fear that the government is not providing any real solution to major domestic issues such as poverty, stunting, unemployment and poor services for health and education.

For now, oil money still seems to provide a comfortable position for political elites, which uses it to provide cash handouts or subsidies to the citizens – all of which are short-term solutions not contributing to the country’s social development.

These are the reasons why ASEAN members are still cautious about admitting Timor-Leste as the 11th member, fearing that would increase the financial burden on the association. 

Addressing these problems 

Despite these development challenges, ASEAN cannot simply ignore Timor’s presence in the region. 

The real question now is how this first step into ASEAN will motivate Timor-Leste to move forward with new national economic reforms and push for effective and sustainable economic diversification. 

ASEAN’s economic community vision can provide a platform for Timor-Leste to address the institutional hurdles affecting its long-term economic trajectory. This would include support to simplify the country’s administrative procedures and policies to align national legislation with regional standards. 

Improving human capital is imperative if Timor-Leste intends to be competitive across Southeast Asia and beyond.

This step requires political commitment and leadership at the very top government levels. It is crucial for the political elites and society to change their action mechanisms. The government needs to ensure political stability and provide the citizens with a clear sense of direction in terms of national objectives. They also need to offer more realistic and pragmatic solutions, and society in general needs to hold political elites accountable based on promises and delivery. 

Addressing these institutional weaknesses and administrative challenges is critical to the future role of Timor in Southeast Asia, especially to its chances to successfully become ASEAN’s 11th member. 

Guteriano Neves is an independent policy analyst based in Dili, Timor-Leste, where he regularly writes and comments on the country’s economic development policies. He can be reached by email at guteriano@gmail.com 

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The Belt and Road Initiative (BRI) started with lofty ambitions. 

This massive China-led infrastructure project has been called one of the most “one of the most ambitious infrastructure projects ever conceived.” The vast network of overland corridors and maritime shipping routes was announced in 2013 by president Xi Jinping, and based on the Silk Road, one of the world’s original trade routes and a critical source of connectivity between Asia and the Mediterranean and European world.

The BRI is a critical part of modern Cambodia’s trade ties and its economic relationship with China. It is never far from domestic news, but there is still misunderstanding and confusion over what the initiative really means for the Kingdom’s economic future. 

Now, in the first of a two-part series on Cambodia’s economic relationship with China, Anakut podcast is delving into the complexities and realities of the BRI in Cambodia and debuting a brand new format. Join Globe Editor-in-Chief Andrew Haffner and his co-host Dy Sereyvoleak as they step out of the studio to get present-day perspective on Cambodia’s future.

To help explore some key concepts of BRI, today’s episode focuses on the new expressway running between Phnom Penh and Sihanoukville on the coast, the location of the country’s only deep water port and the site of ambitions to make a second major city in the Kingdom.

The team travelled down the expressway to see if its aspirations matched the reality and spoke to experts including China Public Policy Fellow Hong Zhang from the Harvard Ash Center for Democratic Governance and Innovation, on the nature of Chinese projects in Cambodia and how the BRI fits the eastern superpower’s brand. 

Despite bilateral agreements between various BRI countries and China’s strong focus on economic diplomacy and outreach, a cohesive arrangement of all BRI projects around the world does not exist. Zhang encouraged listeners to think of the initiative more as a “rallying call” for development, as opposed to a methodical programme.

Meanwhile, Prime Minister Hun Sen is calling on his Chinese counterparts for funding over the next couple of years as he pushes for Cambodia’s ascent from a low-income to a middle-income country. But while positive aspects of improved infrastructure are clear, underlying problems with land tenure and other rights could stifle success. The team spoke to residents living around the expressway ramp to hear how the construction will impact their lives and their hopes for the future. 

Development in the Kingdom relies on investment. But investment comes at a price. As the Anakut team travels down the expressway, they share a journey of a country and its people, driving towards new economic development, with Beijing and its investment at the wheel.

The post The Anakut podcast: China’s Belt & Road Initiative in Cambodia appeared first on Southeast Asia Globe.

Path, 45, who only provided his given name, has been a Grab driver for four years. From his red and black upholstered vehicle, he offers rides and helps customers transport unwieldy objects that won’t fit on a motorbike.

“Anything except drugs,” he said, laughing.  

Path used to be a construction worker, and made the switch because he can earn more driving and it’s easier on his body. When he first started out, he was making up to $25 a day. Now, though, he’s only averaging about half that. 

“My customers have decreased since the early part of this year,” he said. “Because now there are a lot of tuk tuks. I am making less money.”

Companies such as Grab, flush with investor cash, have transformed cities across Southeast Asia. Tourists can use the same app to get across Ho Chi Minh City and Bangkok, order takeaway and have their groceries delivered without speaking the local language. Working professionals can easily get around without owning a car or motorbike. And more low-wage workers have joined the gig economy as drivers. 

The company says it is rapidly moving toward profitability, with a goal of breaking even by the end of 2023. The company’s revenue in 2022 was $1.4 billion with a $1.7 billion loss. After pouring money into driver incentives and customer promotions to get people on the platform, Grab is now dialing back that spending in pursuit of profitability. 

In an effort to become profitable, the company is making cuts to incentives and directing its resources to other segments of its operations beyond ride-hailing. Over ten years out, the company’s original worker base, its ride hailing drivers, aren’t celebrating the same successes as the growing company. 

Idling on a nearby street in a less flashy vehicle with more wear, Prum Teak, 33, is also facing difficulties. The job is better than his previous work in a factory, Teak said, and he likes the freedom to make his own schedule without checking in with a boss. But he notes that he’s responsible for repairs to his tuk tuk. Plus, with a daughter and another child on the way, he thinks fares need to increase. 

“It’s harder now because of inflation,” he said. “It’s quite difficult to feed my family because now even though I earn more [than when I worked at the factory], the high price of living and high price of food, it makes my life and my family’s life more difficult.”

From money burning to profit earning

Grab launched in Malaysia in 2012 and has since expanded to eight Southeast Asian countries. And while the company began as a ride-hailing service, the brand now offers food delivery, grocery shopping and digital banking in efforts to serve the region as a multi-use super-app. 

When Grab first launched as a ride-hailing app, the company offered sizable incentives to drivers and enticing discounts to customers. By burning through investor funding, the company hoped to bring as many drivers and users onto the platform to be able to compete with traditional taxi services and beat out competing apps such as Uber in Indonesia. 

“Their goal is to lose at the beginning to be able to gain at the end, to lose to make a profit,” said Arif Novianto with the Institute of Governance and Public Affairs at Gadjah Mada University in Indonesia. “They deliberately experience a deficit of several billion every year, but the valuation [of the company] will continue to increase drastically.”

Grab declined an interview request and did not provide a statement for this story. 

The company’s honeymoon period couldn’t last forever, said Novianto. Grab had already started reducing incentives for drivers before the pandemic, and in 2020 driver earnings, predictably, took a nosedive. One study found that Indonesian ride-hail earnings dropped by 67% from February to April 2020. Some were barely able to make enough to pay for food or repairs on their vehicles, all while working dangerously long hours. Massive protests broke out across the country, along with petitions and strikes demanding fair wages. Most of their demands were not met, but they did successfully advocate for somewhat higher ride-hailing fees for customers.  

Drivers in other countries also experienced loss of wages. In Vietnam, Grab’s fee deducted from worker incomes increased from 15% in 2015 to 20% in 2020. Food delivery drivers in Thailand staged protests against reduced compensation.

These app-based gig workers have seen some recovery in their earnings since the early stages of the pandemic. From the same period in 2021 to 2022, Grab driver-partners earned 13% more for every hour in transit.

But even a few years out from nationwide Covid lockdowns, with tourists back in the region and business up and running again, drivers have not seen their wages bounce back completely. In the last quarter of 2022, Grab spent $44 million less on incentives, for both drivers and merchants, compared to the year before, a 20% drop.

“After the end of the pandemic, now that it’s normal or the [impacts of the] pandemic have decreased, the bonuses or rates haven’t returned to their original state,” Novianto said. “That’s what often makes many drivers feel cheated.”

A case study in Malaysia

The response from Malaysian Grab drivers to a recent rate change illustrates the growing discontent from workers as the company pursues its profitability goals. 

On 16 January, the company announced an altered fare structure for driver-partners in Malaysia. Instead of distance-based fares, fares would now be calculated on time spent on trips. Before, a driver stuck in traffic would be penalised for the time idling in gridlock. Now, there’s a benefit to taking those rides, which the company thinks is good for serving the largest number of customers during busy commute times.

The company said the change stemmed from worker feedback, stating in its press release: “We hear you.”

But the announcement prompted many workers to voice their concerns in an attempt to be heard. Drivers argued that the time-based fare structure disadvantaged them on long-distance drives and would ultimately make them lose out on income. The workers took to forums such as the Grab Drivers Malaysia Association Facebook page and gathered outside Grab offices in Penang, holding signs that said “Grab, we are drivers, not cattle.” 

These protests were small, unlike the major rallies in the much more populous Indonesia, but still reflected collective anger with Grab’s rate changes. 

“If you follow most of the drivers they will not agree with this rate change, including myself, I don’t quite agree with some of the changes,” said Mohd Azril Ahmat, vice president of Grab Drivers Malaysia Association. “I have a community of drivers and over 60% or 70% of people still argue, why is the price like this?”

The major problem, he said, is that while drivers did notice somewhat higher rates during peak hours, for those driving in non-peak hours, they saw a substantial decrease in earnings.

“When we drive in peak hour areas and hotspots, the fare is a bit higher compared to before January,” he said. “But the slight problem is that in places outside of peak hours and also outside of hotspot areas, the price drops quite drastically.” 

He did meet with some lower management officials to discuss driver feedback, but he said getting Grab to incorporate their requests has been a slow process. The group was not able to put major pressure on the company.   

Part of the challenge for workers in the region to take collective action is the lack of political power of some unions, said Yosuke Uchiyama, a PhD researcher studying the gig economy at University of Malaya in Kuala Lumpur.

“In the case of Malaysia in Southeast Asia, [there are] very few powerful unions and associations,” in the app-based gig work industry, he said, especially because the workers are independent contractors without the same legal protections as employees.

Mohd Azril said he ultimately doesn’t see Grab as the problem, but rather the larger gig work ecosystem, with a slew of ride-hailing apps competing for customers by lowering prices and a lack of government intervention with minimum fare requirements. 

Companies including Grab are, after all, in it to make a profit. But the way things are going, he sees a breaking point coming for drivers. 

“If the government does not stop the open market like this I think in maybe three, four or five years, transportation like Grab can lose their business and then get out of Malaysia,” he said. “Because they cannot put the fare too low for the drivers.”

Additional reporting by SoPhanna Lay.

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Press the play button to listen to the audio version of this story.

Inside the colourful interior of Brasat Mohor Pagoda outside the city of Kampong Thom, about 30 members of the local older people association gathered for a day of activities. 

There was singing, a massage train and a raucous round of a variation on the game Simon Says. 

But alongside the fun there were more serious discussions. As they sat in a circle, a few young children flopping down in laps, the group of older people talked about the benefits of getting vaccinated for Covid-19, applying for a national equity card and making contributions toward the community fund for funeral costs.  

Uch Ith, a 63-year-old who looks after her grandchildren when her adult children are working in Phnom Penh, said the government assistance she gets for being low-income is not a lot, but at least it helps with some of her bills. 

“The [government payments] help relieve me temporarily,” she said. “When I can’t earn enough, I have the money to sustain my family’s needs and keep some to buy medicine for myself.”

Ith represents many of the challenges older people in Cambodia face, juggling family obligations with poor health and little money to spare. As working-age people increasingly leave rural areas for places with higher salaries, from Phnom Penh to Thailand and beyond, more older people are in need of support outside of traditional family structures. Government programs benefit some, but experts say many are left behind without universal assistance targeting the old-age population. 

Cambodia’s population is young compared to other countries in Southeast Asia, with a median age of 25.6 in 2020. Still, the ageing population is growing – by 2030 the 65-and-older segment is expected to increase by up to 11%. 

This elderly population survived the Khmer Rouge, many living with trauma and in need of mental health care. Deaths from landmine explosions, road accidents, HIV and poor health due to poverty have disrupted family structures that traditionally support people in old age. Lack of education for many poor Cambodians, especially for women who also tend to live longer, meant less access to formal employment and opportunities to save. 

With the cultural expectation that children bear the sole responsibility for their elderly parents, most older people rely on their children as their main safety net. But a transformation of the family structure and therefore how elders are cared for is looming in the country. Some children of ageing parents don’t make enough income to support them. For others, an uptick in urban and international migration in pursuit of higher paying jobs means older people are increasingly left behind in rural areas to take care of grandchildren. 

“It’s interesting because in Cambodian culture, people respect old people a lot,” said Im Soksamphoas, a postdoctoral fellow with the Center for Khmer Studies, a private American Overseas Research Center. “I think the reason that people sort of forget about old people is because they think old people are already taken care of by their family members, their children and grandchildren, so they don’t need to pay attention to them.”

HelpAge Cambodia is a nonprofit working to provide some of that needed attention. The organisation strives to help marginalised older people live healthy and secure lives. 

One area the nonprofit focuses on is developing older people associations. These community groups provide informal support for people generally aged 60 and up, and are run by local volunteers and older people. So far, HelpAge Cambodia has helped establish over 230 associations at village levels. The Ministry of Social Affairs, Veterans and Youth Rehabilitation supports the formation of these organisations across the country. 

The nonprofit’s team also works to get people registered for government assistance, including through the Identification of Poor Households Programme, known as IDPoor, part of the National Social Protection Policy Framework. People identified at the lowest poverty levels, as well as those with disabilities and other vulnerabilities, are able to get government services and monthly cash deposits. 

During the pandemic the government expanded the programme and eligible families received about $45 a month on average. That helped restore household spending to 87% of pre-pandemic levels for groups that qualified.

But Tum Vira, HelpAge Cambodia’s executive director, said older people in need are often excluded because of registration errors and inconsistencies.

“Sometimes the questionnaire cannot fully tell whether the family is really poor or not,” he said. 

People have reported to the nonprofit that they were disqualified because their family owned a small TV or a motorbike and were perceived to be too well-off. With local leaders carrying out the interviews, some have reported that personal conflicts or political disagreements with leaders have prevented them from being registered. 

Tok Saody works with an older people association in the Moung Ruessei district of Battambang. She conducts IDPoor interviews with people in her community and sees firsthand how the narrow interview questions can at times exclude those in need. 

Sometimes older people answer that they do in fact receive money from their children, and this disqualifies them from the government payments. But that money from children might be inconsistent, only handed out as gifts on holidays, for example.

“They still need the support from the government, even though they get support from their children,” she said. 

And the IDPoor status is determined by the household, which can disqualify elderly parents even if they are being neglected by their children. The working age children might not be providing adequate care to their elderly parents because of competing responsibilities and costs of raising small children.

“When [older people] go to the hospital for a check-up, their children will be responsible for that,” Saody said. “Some children can only afford a little amount. The parents don’t feel good about that because it’s not their own money, it’s not their own healthcare support.”

Older people who live alone or don’t have family can be even more vulnerable and isolated, and may not know that they are eligible for government help. Going through the bureaucratic process – finding documents and filling out paperwork – can be challenging for an older person. 

Government spending on social protection overall is low compared to the region, and that’s especially true when it comes to funding for older people. Only 3.2% of Cambodians 55 and older received an old-age pension, significantly lower than many other Southeast Asian countries, according to data published by the International Labor Organization in 2017. 

The government has taken steps to improve the state of Cambodia’s ageing population. In October the country launched a new pension programme, a significant milestone that will benefit a much broader set of the current working population when they retire down the line. The Cambodian government also developed the National Ageing Policy in 2017, with the goal to “ensure that older persons are enabled to fully participate with freedom and dignity”.  

But the pension programme will take years before retired people reap the benefits. And Soksamphoas with the Center for Khmer Studies said the National Ageing Policy still has a long way to go. 

“The National Aging Policy, even though it was launched only a year after the National Social Protection Framework, hasn’t left any impact on the older people,” she said.

According to her, the policy has been slow to implement, information hasn’t been disseminated well, especially in rural communities, and funding for the programme is still up in the air.

“When there’s a policy already in place, the government can always claim credibility that, ‘Oh, now we’re putting our attention into caring more for the population,’” Soksamphoas said. “But the problem is that we don’t know when the policy is really going to translate into any benefits at all for the target group of the population.”

The National Social Security Fund and the Ministry of Social Affairs, Veterans and Youth Rehabilitation did not respond to requests for comment on this story. 

The slow progress means Cambodia’s older population today might miss out on the help they need to live out their old age with dignity. 

Pech Chheup, a 65-year-old member of an older people association in Aek Phnum commune in Battambang, said she tries her best to support the people in her community by getting them signed up for available benefits. She also organises ceremonies where monks give blessings to elders, because taking care of the elderly sets an example for Cambodia’s youth.

“I want the young people to understand the difficulties older people face…It doesn’t mean that younger people do not care about elders but they are young and having fun,” Chheup said. “The older people get, the less income they earn by themselves,” and that’s why they hope for more support.

Additional reporting by SoPhanna Lay.

The post Cambodia’s elders struggling without welfare or family support appeared first on Southeast Asia Globe.

The appointment of Vo Van Thuong comes during a period of political upheaval in Vietnam, where the all-powerful Communist Party’s anti-graft purge and factional fighting have seen several ministers fired.

Members of the National Assembly elected 52-year-old Thuong — the sole candidate — for a term running until 2026, following the resignation of Nguyen Xuan Phuc in January.

In his first statement as president, Thuong said he would be “determined in the fight against corruption and negative phenomena”.

Thuong carried 487 out of 488 votes in the national assembly, according to state media.

Authoritarian Vietnam is run by the party, which is officially led by the general secretary, president and prime minister.

Thuong is seen as close to Secretary General Nguyen Phu Trong, the most powerful man in the party and the architect of the anti-corruption drive.

The campaign has led to the arrest of dozens of officials, with many of the graft allegations relating to deals done as part of Vietnam’s Covid-19 pandemic response.

The Communist Party ruled in January that Phuc was responsible for wrongdoing by senior ministers under him during his 2016-2021 stint as prime minister, before he became president.

‘Apparatchik’

Thuong was “an apparatchik” of the system, said Benoit de Treglode at the Strategic Research Institute of the Military Academy (IRSEM) in Paris.

Thuong previously served as deputy head of the Central Steering Committee on Prevention and Control of Corruption and Negative Phenomena since 2021.

He is also head of the party’s central propaganda department, a position that has a powerful grasp over freedom of speech and press in the communist nation.

“His appointment does not symbolise a turning point,” Treglode said.

Jonathan London, an expert on contemporary Vietnam, noted Thuong’s appointment “would mark Nguyen Phu Trong’s latest stroke in his ongoing campaign to shape the party’s present and future”.

He said the appointment could make him a frontrunner to replace Trong at or before the next congress, but that it was unclear whether he had strong enough support.

“There’s an equal chance he’s a transitional figure,” he added.

© Agence France-Presse

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On 14 February, Singaporean Finance Minister Lawrence Wong announced the details of a “particularly challenging” 2023 budget that aimed to balance fiscal prudence with helping the city-state’s residents manage rising living costs and inflation.

As the city-state’s bars and restaurants decked out in hearts for Valentines Day business, Wong, the named successor of Prime Minister Lee Hsien Loong, also focused on coupledom. The budget featured increases in both paternity leave and the Baby Bonus cash stipend for married Singaporean couples, as the city bumps up efforts to tackle low fertility rates and stagnating populations.

These plans are geared toward nuclear families as defined by the state, according to advocacy groups, which does not include the 6% of resident households led by a single parent in the Lion City.

“Given such exclusions, unwed parents miss out on a substantial amount of financial assistance that would aid in alleviating the financial burden of raising a child,” said Corinna Lim, executive director at AWARE, Singapore’s leading gender equality advocacy group.

Though single-parent households can access the Child Development Account – a special savings account for Singaporean children – they are not eligible to receive the Baby Bonus and other incentives granted to their married peers.

The bonus received a $2,248.30 (SGD 3000) cash hike, a major part of the 2023 budget. Other family-based programmes mentioned by Wong in the budget announcement include tax cuts, such as the Working Mother’s Child Relief scheme, and priorities for families to buy their first home through state-subsidised Housing Development Board programmes.

Lim said the increases “will only widen the disparity between the support given to married and unwed parents.”

“This is particularly significant as many single parents already experience financial difficulties as sole income earners and caregivers,” she said. “The exclusion of unwed parents from such schemes jeopardises their ability to provide a stable living environment for their children.”

Despite a slight population increase of 3.4% in 2022 from the year before, Singapore’s population still remains below its pre-Covid levels. Resident fertility rate has also seen a general decrease over the past decades, despite a slight hike since a historic low in 2021.

This is because of later marriages and married couples deciding to have children later in life, according to a report by the government’s National Population and Talent Division.

Now, in the world’s most expensive city, the government is providing financial incentives to help build the Lion City’s next generation of cubs.

A Baby Bonus cash gift from the government is a longstanding boon for married Singaporean couples, with stipends for babies ranging from $7,504 – 9,755 (SGD 10,000 – 13,000). Under the new budget, this will be given an extra $2,251.20 (SGD 3000) boost.

There will also be more government contributions to the Child Development Account, as well as the Baby Support Grant, for children born from 1 October 2020 to 30 September 2022.

Paternity leave for expectant fathers was also increased from two to four weeks.

Background to budget

Singapore’s new budget also reflects hopes to replenish pandemic-depleted coffers.

Wong said the government collected higher-than-expected revenue last year, resulting in a smaller deficit of $2 billion (SGD 1.51 billion) for the 2022 fiscal year instead of the initially estimated deficit of $2.25 billion (SGD 3 billion), or 0.5% of GDP.

For 2023, the expected shortfall would be $0.3 billion (SGD0.4 billion), or 0.1% of GDP.

Wong announced tax changes that would affect higher-income Singaporeans and large companies but also more support for low-income families, top-ups for a medical assistance fund and a support package to offset a hike in sales tax.

“With a stronger fiscal position than last year, deputy prime minister Lawrence Wong’s Valentine Budget 2023 has rightfully provided a slew of goodies for lower-income earners, working mothers, and retirees through various enhancements,” Ajay Kumar Sanganeria, a partner at KPMG Singapore, said.

Singapore’s trade-reliant economy faces headwinds this year from slowing global growth, inflation and rising interest rates. Meanwhile, its expenditures are increasing due to the climbing cost of healthcare, driven by an ageing population.

Support package

Wong said Singapore must brace for higher inflation but added that the government would help citizens and businesses weather cost pressures.

The government will enhance a support package to help Singaporeans offset a recent sales tax hike from $4.97 billion (SGD 6.6 billion) to $7.2 billion (SGD$9.6 billion.)

The second step of a scheduled sales tax hike would go ahead as planned in 2024. The sales tax will increase to 9% next January, after increasing from 7% to the current 8% on Jan. 1 this year.

Wong said this would offset all the spending increases lower-income households face due to inflation and the sales tax hike, while “substantially covering” spending increases for middle-income households.

With material from Reuters.

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But selling her goods to factory workers has become more challenging. 

“Many workers lost their jobs, around a thousand,” Hong told the Globe. “It takes me extra time to sell all the food since then.”

After selling only a few portions of rice, Hong was on her way, looking for more customers. 

Despite Vietnam’s rising status as a manufacturing powerhouse and a mammoth 8.02% GDP growth in 2022, layoffs among garment, footwear and wood workers have been all too common in recent months. Even as the country enjoys a wave of foreign direct investment (FDI) from major tech firms that had fled China’s severe Covid-19 protocols – which routinely brought production to a standstill – a sluggish global economy has slashed demand for garments and similar products, leaving factories and workers struggling to make ends meet.

Many workers have resorted to prematurely emptying their pension funds, effectively clearing their retirement savings. 

In November, Ty Hung terminated almost 1,200 workers’ contracts due to low orders from overseas. That places it among almost 530 enterprises, mostly in and around Ho Chi Minh City, that had orders reduced by the end of December 2022.

With that, factories laid off or reduced hours for more than 637,000 workers. Because of their reliance on the export market, the textile, garment, leather, footwear, wood processing and mechanical sectors are expected to encounter further challenges and job shortages.

It’s unclear how many laid-off workers could be absorbed by the rising tech manufacturing sector, which is mainly clustered in the North.

The job losses expose a deeper issue and pose long-term threats to the country’s economy. Low-cost labour is a key driver attracting multinational companies to manufacture in Vietnam but leaves most factory workers with little left to fall back on, said Tu Phuong Nguyen, adjunct fellow at the University of Adelaide, whose focuses include political economy and labour in Vietnam.

“Many workers have no or limited savings, even after they spent 10 to 15 years at work,” she told the Globe. “When they lose their income, when they have their hours at work reduced. … They are faced with very difficult choices.”

Vietnamese workers contribute monthly to a social insurance fund. The state-run fund was designed to be used as savings for retirement. But in times of crisis, Nguyen explained, “more and more people” withdraw the funds early. 

From 2016 till now, the number of people withdrawing the lump sum of their social insurance has increased by about 11%, Nguyen said.

“People who withdraw their social insurance money now would not have their pension and free public health insurance that goes with their pension in their old age. That puts a lot of pressure on the government to support and provide care for those people when they have no income.”

Winners and losers

In 1975, Vietnam was one of the poorest countries in the world after suffering decades of conflict. After the state’s tight control of the financial system failed to bring the country out of poverty, the government liberalised the economy in a series of reforms known as Đổi Mới beginning in the mid-1980s. 

By 2009, Vietnam reached lower middle-income status. Exports were pivotal to the upward trajectory. From rice, sugar, and cashews, to textiles, and electronics – the country has climbed up the value-added chain of exports. 

Foreign investment hit $22.4 billion last year – the highest influx of FDI in five years.  The country’s export revenue reached $371 billion, a 10.5% increase from the Covid slump the year prior.

In 2022, the country’s 8.02% GDP growth was the sharpest increase since 1997, making Vietnam Asia’s fastest-growing economy.  Experts are attributing the record growth to FDI, which came with the shift in manufacturing away from China. As major producers sought greener pastures amidst the pandemic and geopolitical tensions, Vietnam proved enticing due to geographic proximity, low-cost labour and ease of doing business. 

Tech giants including Google, Samsung, Microsoft and Apple are now expanding or starting operations in Vietnam. They’re joined by LG, Nintendo, Sharp and Komatsu, as well as Apple suppliers Foxconn and Luxshare Precision Industry. 

Major consumer products such as Macbooks and Apple watches are planned to be made in Vietnam for the first time this year.  

“[This] means greater investment figures for Vietnam beyond the already more than $1 billion that Foxconn has poured into the country since it started operations there,” said Elina Noor, deputy director of the Asia Society Policy Institute in Washington D.C. 

Along with job creation, Noor said, the increase in Apple products made in Vietnam pushes the country up the ranks of value-added exports. 

“The manufacture and assembly of component parts for smaller devices like the Apple Watch requires significant precision,” she told the Globe.

“This development highlights Vietnam as an increasingly major and therefore strategic player in the global tech supply chain. … [And] this is just one company expanding its business in Vietnam.”

While the economic statistics showcase Vietnam’s macroeconomic successes, these gains are paired with struggles at the bottom tier of the global supply chain.

Factory work has enabled many to leave their rural hometowns, help bring their families out of poverty, and put their children in school, Nguyen explained, but provides little opportunity for upward mobility.

“[Vietnam] has benefits to attract foreign investment therefore there is a lot of potential for growth but there’s always winners and losers in the process,” she said. “The workers, in particular, are the losers. … [They] are trapped in a precarious situation.” 

Hoang Phuong Do, who got his doctorate in economics in the U.S. and is now a lecturer at RMIT University in Ho Chi Minh City, agreed.

“Vietnam is very dependent on FDI and just moves more and more people into factories,” he told the Globe. “People don’t have many choices in this kind of society when they are working in the factory.”

The recent plummet in orders from overseas, driven in part by rising inflation and other downstream effects of the Russian war in Ukraine, is also impacting the logistics industry. An employee at a freight forwarding company told the Globe that air freight services have declined since the beginning of 2022 particularly in garments and footwear products.

“Our company stopped a lot of freighters in 2022. Air rates from Vietnam to the U.S. have declined five times from 2021,” they said, asking to withhold personal details and the name of their company as their information was confidential. 

Along with loosening the late payment policy for their customers and diversifying business into neighbouring Thailand and Cambodia, the air freighter has shifted to transporting electronics. 

“We changed the major customer from garment and footwear to electronics,” they said. “Due to the high value of the product, they are willing to pay a higher cost for a VIP service. … We can survive in this terrifying market.”

Social Insurance

Workers may now be facing even more uncertainty than during the country’s worst wave of the pandemic, when a Delta-variant-fueled spike of infections put much of the South into near-total lockdown during the summer of 2021.

“During Covid, there was some hope that the government would be able to control the virus and things would go back to normal. But now it’s so uncertain,” Nguyen said. 

After an aggressive vaccination effort, most businesses were able to return to normal working conditions in late 2021. But jobs remained dependent on consumer demand from overseas.

Across from the Ty Hung factory, a small alleyway leads to a crowded dorm where many workers live. As most of the employees departed Ho Chi Minh City for Tết, the dorm was mostly deserted and silent.

Sitting outside a rented room smoking, an electrician in his 40s told the Globe his wife was fired after working for eight years at Ty Hung. Although she was able to get another job, her salary was reduced. 

“My wife is working close by at the moment,” he said, requesting anonymity due to the sensitivity of the subject. “She took back her previous job, at a clothing manufacturer. They don’t pay much, just 4 million VND per month (approximately $170) while the Ty Hung factory paid her 6 million VND (approximately $256).” 

With lost jobs and an unstable future in factory work, many are looking to their social insurance fund to get through this critical period.

According to the social insurance scheme, workers are able to claim their funds one year after being terminated. Local media often depicts scenes of people queuing up overnight to get their social insurance premiums. 

“They are desperate to find a way out of their relative poverty,” Hoang at RMIT said. “People working in the factory don’t see their future.”

But withdrawing the money early leads to a “precarious cycle”, Nguyen said, leaving many without resources to pull from in old age and in case of emergency. 

For some, waiting one year after termination is too long of a stretch without monthly earnings. They look to a semi-legal system in which they sell their social insurance books to a broker for a fee. 

“It is a black market and there’s no way to crack down on them,” Nguyen noted of brokers who charge high fees. “I’m sure that it’s going to continue with people now losing their jobs and needing urgent money to support themselves.”

The government has announced intentions to help workers with $42-127, or about 1-3 million VND, to those struggling, but recent pledges to disburse funds have not always gone as planned.

Many still are yet to receive any Covid-relief money after last summer’s Delta wave. Just $2.33 billion (55 trillion VND) of the $14.83 billion (350 trillion VND) planned for the relief package has been disbursed.

“Of the workers I’ve spoken to, the support is only in the news,” Nguyen noted. “They never actually know what it is or get access to it.”

For Hoang, it’s still unclear how the layoffs will impact the economy. The exact number of people in need is unknown, he stated, and it will take months to see how job losses will impact the country as a whole. 

Though some of these laid-off workers may be taken up by tech manufacturers, Vietnam’s export reliance in a shaky global environment and labourers’ withdrawal of social security funds pose threats down the road. 

“We have too many people working in the factories. Because they have just withdrawn their contribution to the social security fund as they get older and older we will see masses of people on the street,” he said.

“Unemployment will be a huge problem in the future. I don’t know how the government will solve it.”

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