By Stephanie Jacob
As the deadline for the full realisation of the Asean Economic Community nears, the case for integration continues to grow. In this article, we look at how Asean integration is happening and why it is good for the region.
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The final countdown to the full realisation of the Asean Economic Community (AEC) has begun, with just slightly more than 11 months to go before the deadline of end-2015.
Depending on who you ask, the report card on progress differs. In general, the consensus appears to be that the AEC will not be fully realised by the year end, but substantial progress has been made. Most also expect that the region will achieve its goal sooner, rather than later.
What is a matter of less debate however, is that the business case for the integration of Asean is becoming stronger. Which means that companies are being faced with the decision of whether they should take the regional view in their strategising for the region or continue to view the 10 Asean nations separately.
Last week, The Economist Intelligence Unit (EIU) released a management brief titled ‘Re-drawing the Asean map: How companies are crafting new strategies in Southeast Asia’. The report was sponsored by Baker & McKenzie and CIMB Group.
The report was based on a survey of 171 companies, both headquartered in Asean and outside the region. The EIU also interviewed 11 senior level managers from various industries to get their views and an idea of how companies were crafting their strategies for the region.
From its research, the report concluded that it did in fact seem like companies were increasingly viewing the region as a single bloc rather that individual economies.
It said “despite Asean’s diversity and differences the region is indeed becoming a recognised block. A majority of international companies recognise the region as a distinct entity that needs it own management team and its own strategy.” And added that increasingly those strategies were “highly regional in character”.
Based on the report, in this piece, KiniBiz will look at how Southeast Asia has become one the world’s more attractive economic regions and at the case for Asean integration.
How is integration happening?
According to the report, Asean integration is happening in two ways. The first is bottom up integration, which is attributable to the efforts of individual companies and citizens.
”It is natural that when companies grow the first place they look for opportunity is in the countries closest to them…and as Asean citizens get wealthier and more educated the first countries they visit are their neighbours,” said the report.
It said evidence of this can be seen in intra-Asean trade, investment and tourist arrivals. It noted that between 2000 and 2013, trade saw a compound annual growth rate (CAGR) of 10%, and investment saw a CAGR of 28% in that same period. For tourist arrivals, CAGR from 2000 to 2012 was 8%.
The other way Asean is integrating is through the policies of the Asean Secretariat which aims to create the AEC by the end of 2015. The idea of the AEC is defined in the AEC Blueprint which was signed by the 10 Asean nations in 2007.
The blueprint identifies four pillars which are: a single market and production base; a competitive economic region; equitable economic development and Asean’s integration into the global economy.
Although there has been criticism over the speed of implementing measures set by the Secretariat, the EIU report said that nearly 60% of respondents expressed confidence that the AEC will be achieved. This was split between the minority that felt AEC would be implemented in time and the majority who expect that AEC will be achieved several years late – but sooner rather than later. Only 3.5% of respondents felt that the AEC would not happen at all.
So while there remains some way to go on each of those four targets, data increasingly shows that the Asean nations were right in their move towards economic integration for the region. “…the profile of Southeast Asia, and the Asean bloc that connects the region is clearly rising around the world,” said the report.
“The profile for the Asean bloc is soaring”
It called the region a “stand out as being one of the most exciting parts of the world,” and highlighted that in 2013 the value of foreign direct investment (FDI) into Asean not only reached a record high, but overtook the amount of inflows into China. Asean also attracted significantly more FDI than India and Japan.
With companies seemingly convinced that the AEC will happen sooner rather than later, the report said that it was worth considering what an integrated Asean would look like. To do this, the report aggregated the economic data of the 10 member countries and considered Asean as a single entity.
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The results of this showed Asean to be not only big and interesting, but also promising in terms of future growth, said the report. Currently if Asean were a single nation, it would have the seventh largest economy in the world and the third largest population overall.
It would be the largest producer of crude palm oil and natural rubber, while also having the most business process outsourcing (BPO) companies in its cities. Asean would also be the biggest issuer of sukuk.
Importantly the trend rate for growth in Asean over the coming years is expected to be strong, supported by a favourable demographic mix, strong commodities production and the growth of international competitive services BPO and growing financial services, said the report.
Based on the numbers crunched by the EIU, Asean is expected to grow by an annual rate of 5.6% over the next five years and only India and China are expected to outpace it. If accurate, by 2018 Asean will have the fifth largest economy in the world.
Given the promise of Asean, it is perhaps unsurprising that many companies are making it an area of focus. In tomorrow’s article, we look at the issue of diversity in the region, along with the other factors that could affect a company’s decision on whether to view Asean as an integrated entity or various individual economies when strategising and planning their operations.
Tomorrow: How Asean’s institutional barriers are the greatest
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