The ASEAN Economic Community is attracting a lot of attention from local and foreign businesses thanks to its huge potential, yet several challenges need to be tackled to make the AEC a success… A panel of specialists from the public and private sectors share ideas about the AEC’s opportunities and difficulties still to be managed.
On the occasion of its ASEAN Business Summit, organized in Bangkok in December 2014, Bloomberg has gathered a panel of experts from the public and private sectors around Haslinda Amin to present their views about the upcoming ASEAN Economic Community – AEC – and its impact on Southeast Asia and the ASEAN countries:
- Idris Jala, minister in Malaysian prime minister’s office
- Korn Chatikavanij, former finance minister of Thailand
- Gita Wirjawan, former trade minister of Indonesia
- Francis Yeoh, Managing Director of the Malaysian company YTL Group
- Chaly Mah, CEO of Deloitte Asia-Pacific
Realizing the potential of ASEAN
ASEAN gathers a population of more than 600 million people with a combined GDP of more than 2.3 Billion USD. This makes ASEAN a leading global economic power and attractive market for business, as detailed in this series of infographics on ASEAN.
However ASEAN has not achieved its integration and every country still manages most business policies and regulations on its own. The private sector ends up managing the legal framework of ten countries instead of one ASEAN system that could make it much easier to do business across Southeast Asia.
To enable the private sector to take advantage and fuel the growth of Southeast Asia, ASEAN countries will need to move forward together, and quickly, in 2015 and further to make the AEC a reality. If they succeed, ASEAN could become an economic engine for the global growth in the coming decades.
Political risk in ASEAN
Political risk remains a major threat to investments in ASEAN countries. Changes in the legal frameworks decided by new governments can undermine many Southeast Asian country’s attractiveness for businesses. Thailand’s recent coup d’état has been a proof of that, so could be the opposition that has shown its power against the newly elected Joko Widodo in Indonesia.
Echoing a previous interview on his perspectives on reforms in Indonesia, Gita Wirjawan soothes the concerns over the political landscape of Indonesia. According to him, “Jokowi” should be able to cope with internal opposition, play a positive role on the international scene, and manage the fluctuation of commodities produced in Indonesia. To help him, he could rely on massive support from the Indonesian people.
Nevertheless, Gita Wirjawan also stresses that some consumption trends will need to curbed for the people’s good. Businesses should therefore not forecast with too much linearity in Indonesia or other countries as policies could be implemented in the middle term to provide certain critical benefits, taking examples in the following areas:
- health: obesity could become a concern for lawmakers
- infrastructure: the capital needed to build all the infrastructure in ASEAN could force the public sector to get involved
- taxes: the fiscal landscape could also change to help investments or to ensure public welfare
The lack of vision to create a coherent and transparent legal framework in ASEAN is also stressed by Francis Yeoh. Implementing the rule of law, that is clearly defined and enforced, debated and not imposed, would be a major step forward to attract the heavy investments necessary for infrastructures to be safely planned and conducted.
The AEC transcending ASEAN
After standing in the shade of China and India for decades, Southeast Asia is now becoming an attractive regional block for multinational corporations – MNCs. MNCs benefit from each country’s specificity according to its needs, making ASEAN as a whole attractive through its diversity of economic development, income and skills.
The generally young population of ASEAN make it eager to use new technologies. Yet, some countries, like Thailand, have a rapidly ageing population. The AEC can therefore also benefit ASEAN as a whole by enabling more workers to move to other countries and contribute to their economy in areas where workers deficits create economic bottlenecks.
The lack of freedom in the mobility of capital and labor is one of the remaining obstacles to the success of ASEAN. It could finally be taken care of through the realization of the AEC. Benefiting from this new openness, Southeast Asian companies should try to learn from their home region to conquer the world: manage interests and provide value both to individual nations and to ASEAN as a whole.
Issues in ASEAN
Often underestimated, ASEAN has nevertheless accomplished a lot since its creation. Several ASEAN countries have grown a lot individually with their people’s economic situation improving a lot. Collectively, ASEAN has created a certain peace and tolerance within Southeast Asian countries.
But ASEAN countries are very different from one another, and their government’s policies can be at odd with each other. Certain countries take a fiscal stand that can undermine others and the income inequalities between the richest and poorest nations will need to be addressed in order to ensure the regions’ peace and stability.
Gita Wirjawan reaffirms that Indonesia, the giant of ASEAN, is willing to move forward with ASEAN if it can ensure that income disparities are diminishing and not increasing between member countries. To strengthen its democratic system, Indonesia will need to create 2 to 3 million jobs per year which will require a 7% yearly economic growth. Such are the long-term objectives Indonesia needs to realize and exposes ASEAN to.
“ASEAN minus X”: the coalition of the willing
On the contrary to the European Union, the AEC has a “bottom-up” approach to its success, engaging people and the private sector to move forward rather than imposing rules from a governing body, like the European Commission.
In a final reflection, Chaly Mah explains an easier way to make different countries and different views move forward in the ASEAN consensus. A few willing ASEAN countries can move forward on certain topics which they are ready for. When the remaining countries get ready, they can join the initiative and get involved in the policy at a latter stage.
With this concept “ASEAN minus X“, certain topics, agreements or regulations which are harder to implement within ten very diverse countries can be tested by a few countries. If they succeed, the other countries can join along later when they are willing to take part in the project.
Bloomberg video from January 2015