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Booming Southeast Asian vehicle sales drive urban congestion

Region's speedy economic and urban growth rate fuel air and road pollution

As car sales increase in Myanmar, traffic jams are increasingly common in Yangon, the biggest city and commercial center of the country (Photo: Simon Roughneen)

JAKARTA -- Vehicle sales in Southeast Asia are set to outpace all other regions of the world during 2017, according to industry research, highlighting surging economic expansion in some parts of the region.

But the growing number of new cars and trucks in urban centers is likely to worsen commerce-stifling traffic jams in major cities such as Bangkok, Jakarta and Manila -- adding urgency to much needed transport infrastructure upgrades throughout much of the region.

BMI Research -- part of Fitch Group, a financial information company -- has forecast that total vehicle sales in the Association of Southeast Asian Nations will grow 8.1% in 2017, a marked increase in the combined 3.1% car sales growth the previous year across the 10 ASEAN countries, and more than double the sales growth rate of 3.7% projected for Asia as a whole in 2017.

"Looking at passenger cars specifically, we expect Cambodia, the Philippines and Vietnam to be the best performing autos markets in the ASEAN region in 2017 with forecast growth of 20.4%, 19.2% and 18.0% in passenger car sales respectively," BMI said in a recent report on the sector, citing "solid economic growth, strong private consumption and tax reform" as drivers of the car sales spike.

Total new-car sales in Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam climbed by a combined 14% in March from a year earlier to 316,736 vehicles, the fifth consecutive month of expansion.

Toyota Motor, which sells more cars in the region than any other manufacturer, said that its earnings for the year through March, announced on May 10, included some encouraging signs from emerging markets -- including Southeast Asia.

Car ownership estimates suggest that there is ample room for continued car sales growth in Southeast Asia over the coming years. While wealthier countries such as Malaysia and Thailand already have relatively high levels of car ownership -- at 82% and 51% of households respectively by 2014 according to the U.S.-based Pew Research Center -- the numbers for the Philippines, Indonesia and Vietnam were 6%, 4% and 2% respectively.

Accelerating urbanization

Prospects for strong growth in Southeast Asian vehicle sales rest on higher incomes and the expanding middle class in rising economies where urbanization is a relatively new but rapidly occurring transition.

In the 19th and 20th centuries, urbanization was mainly a Western and Japanese phenomenon, but developing countries are catching up fast, particularly in Asia, where hundreds of millions of people have moved from the countryside to the city in recent decades. World Bank research shows that nearly 200 million people in the East Asia and Pacific region -- excluding India and neighbors with large populations such as Pakistan -- moved from rural areas to urban centers during the decade from 2000, a transition that has driven economic growth and increased consumer spending.

Other predictions suggest that Asia's cities will continue to grow over the coming decades as the region becomes wealthier. McKinsey Global Institute noted in a recent report that in the next 15 years, "the center of gravity of the urban world will move south and, even more decisively, east." According to MGI, half of global gross domestic product in 2007 came from 380 developed world cities, with the 22 biggest cities in developing countries contributing a mere 10%.

But in less than a decade from now, Asian cities will be bigger and wealthier, and will likely have splashed out on purchases of tens of millions of new cars. "By 2025, developing-region cities of the City 600 will be home to an estimated 235 million middle-class households earning more than $20,000 a year at purchasing power parity," MGI said, referring to the 600 fastest-growing megacities and "middleweight" cities it has identified.

Of the three countries predicted by BMI to notch up roughly 20% new car sales growth in 2017, Vietnam's economy grew an annual 6.2% in 2016, with 6.3% growth forecast by the Asian Development Bank for 2017. Neighboring Cambodia's economy has grown at about 7% annually in most years since the 1990s, a post-conflict surge that saw GDP per capita exceed the World Bank's $1,200 per annum threshold for "lower middle income" status in mid 2016. The Philippines, meanwhile, sought to shed its image as "the sick man of Asia" during the 2010-16 administration of President Benigno Aquino III, when reforms saw increased foreign investment and ensuing annual growth rates of 5% to 6% and above.

Passengers watching a crowded train depart from a Manila metro station. The Philippine capital suffers from heavy traffic, despite the city's rail network (Photo: Simon Roughneen)

Aquino's successor, President Rodrigo Duterte, pledged that his administration would oversee a $160 billion infrastructure upgrade program during his term up to 2022, improving roads, adding highways and, urban planners hope, offsetting traffic jams in cities such as Manila, the vast capital that is source of around a fifth of the country's economic output, but also in secondary cities such as Cebu.

Bangkok and Jakarta ranked the second and third worst congested cities in the world in 2016, according to navigation equipment manufacturer TomTom, in a survey of 390 cities in 48 countries. Cities such as Manila and Cebu, along with Indonesia's Bandung and Surabaya, languished near the bottom of a 2016 survey of driver satisfaction carried out by Waze, maker of a popular mobile phone navigation and traffic monitoring application.

Struggling infrastructure

The government of Indonesia, Southeast Asian's biggest economy and an archipelago of 17,000 islands with a population of 260 million, also wants to modernize roads and railways as part of a wide-ranging infrastructure overhaul pledged by President Joko Widodo at the start of his five-year term in office in late 2014.

Railway construction in central Jakarta. It is hoped that public transport infrastructure development will see a reduction in the Indonesian capital's infamous traffic jams (Photo: Simon Roughneen)

Those upgrades are being complemented by various reforms intended to make doing business in Indonesia less complicated and bureaucratic. But another hurdle for any business executive, certainly in the capital Jakarta, are the daily traffic jams, or macet, that often force residents to spend their evening commutes trickling home in winding tailbacks.

Jakarta's residents hope that the daily jams will be offset by public transport upgrades including projects such as a new metro line, which is currently under construction, and a new rail route linking downtown Jakarta to the international airport west of the city. Such changes could bring public transport standards in the massive Indonesian capital closer to those seen in Kuala Lumpur and Singapore, which have extensive overhead or subterranean urban rail networks.

But Jakarta's traffic jams will likely worsen before they can be reduced by commuters opting for new rail services. While Indonesia's car sales growth this year will not reach the double-digit boom levels likely to be seen in Cambodia, the Philippines and Vietnam, May 17 data from the national automotive association showed that just under 90,000 new cars rolled onto Indonesian roads in April -- down slightly on the month before -- but a 5.7% rise for April 2017 against the same month a year previously.

As elsewhere, a growing middle class with more money to spend will likely mean more people buying cars, worsening already clogged traffic and complicating urban development in rapidly changing cities.

As Phnom Penh grows, the city's skyline is altering rapidly as hundreds of new high rise towers go up, but problems related to urban growth, such as traffic jams, are increasing (Photo: Simon Roughneen)

Phnom Penh, the capital of Cambodia, where car sales are projected to grow by 20% year on year in 2017, is amidst a building boom, with hundreds of new apartment towers going up around a previously low-rise city. Phnom Penh's population is much lower than those of vast metropolises such as Bangkok, Jakarta and Manila, but the Cambodian capital will soon feature the traffic jams that characterize its bigger urban counterparts.

Air of congestion

Among the problems stemming from urban sprawl and the proliferation of new cars in the region is poor air quality -- even though newer car models are generally less polluting than older models.

According to Carlos Dora, coordinator of the World Health Organization's work on environmental health, Asia's heady economic growth, consumerism and urban expansion are making for more polluted cities. "In some places it is the impact of increasing sales of cars, often old cars, many with diesel engines," Dora said.

In Myanmar, used car sales remain high compared with sales of new models. Reforms implemented since the country's transition to democracy began in 2011 have loosened restrictions on car imports, previously monopolized by military-linked companies, but Myanmar's roads remain dominated by Japanese models from the 1980s and 1990s.

Motorcycles remain a popular form of transport in many cities in Southeast Asia, such as here in Ho Chi Minh City (Photo: Simon Roughneen)

Myanmar was the biggest importer of Japanese used cars in 2014 and 2015, as noted by PwC in a June 2016 report on Myanmar's car market. The report said that local importers and joint ventures with foreign automakers "are still establishing their operations, and have only been able to sell since last year."

Another source of air pollution in the region that will be affected by the growing sales of new cars is the countless millions of outdated two-stroke motorcycles -- popular for their mobility in the middle of traffic jams in cities such as Ho Chi Minh City and Jakarta. But bike sales are likely to flatline, according to a recent survey of consumers in five Southeast Asian countries by FT Confidential Research. The survey cited market saturation, at the same time as a shift by middle class consumers toward four wheels over two.

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