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Looking ahead

Released at: 09:31, 15/10/2014 AEC 2015

Looking ahead

The results of VET's recent pocket survey indicate that local enterprises are quite confident about Vietnam joining the AEC despite lacking understanding and being rather ill-prepared.

by Minh Tien

Sixteen months remain until the anticipated establishment of the ASEAN Economic Community (AEC), with not only regional but also international enterprises with operations in Southeast Asia having a stake in the outcome. VET conducted a pocket survey of local and foreign-invested enterprises in Hanoi and Ho Chi Minh City in a bid to gain a deeper insight.

The results of the survey are used here together with figures from the European Chamber of Commerce’s Business Climate Index for Quarter 2, 2014 (EuroCham’s BCI-Q2/2014), the US Chamber of Commerce’s ASEAN Business Outlook Survey 2014 (AmCham Singapore’s BOS2014), and Milliman Inc.’s ASEAN Economic Community Survey, to provide readers with diverse viewpoints.

AEC beneficiaries

Interestingly, when asked whether the AEC is a positive development for countries in ASEAN in general, 93 per cent of respondents from Vietnam expressed a belief in a bright future. Respondents from the other nine ASEAN countries, however, were not so optimistic, according to Milliman, with a remarkable 99 per cent believing the AEC would be something enjoyable but only 72 per cent feeling definite confidence and 27 per cent being uncertain.

Such results are quite surprising, as Vietnam is believed to be one of the countries that will benefit the least from the AEC. When asked which country would benefit the most, Singapore led the way, followed by Indonesia and Malaysia, with 47 per cent, 17 per cent, and 14 per cent, respectively. Vietnam stood in eighth place, garnering just 1 per cent of votes.

Vietnam’s low ranking is understandable, as 88 per cent of respondents from Vietnam are concerned about increasing competition in their market. Fifty-five per cent believe that competition will only increase slightly, while 33 per cent believe it will be much fiercer. Only 23 per cent of respondents from ASEAN countries are anxious about tougher competition, while 45 per cent believe that the impact will only be small. Therefore, despite having a belief in positive development for countries in ASEAN in general, Vietnam’s business community appears distressed over the prospects of potential competition and are concerned about the small benefits expected to come their way.

Understanding and preparation

The concerns of Vietnam’s business community may also stem from their generally poor level of understanding about the AEC as well as their inadequate preparations. None of the respondents from the local business community were sufficiently confident to evaluate their understanding of the AEC at the highest level. Only 23 per cent asserted that they had a “fairly high” understanding of the regional economic community, while the remaining 77 per cent replied they have a “moderate” or “fairly low” understanding.

Despite the fact that none were confident enough to confirm a high level of understanding, 9 per cent of Vietnamese respondents believed they had a very high level of preparation for the AEC, though perhaps their lack of understanding is clouding their judgement in this regard. Fifty-five per cent said that they are “moderately” or “fairly” prepared, while only 36 per cent admitted their preparations are at a “low” level.

Respondents who felt they had a “high” (9 per cent) or “fairly high” (21 per cent) level of preparation were then asked to estimate the effectiveness of their preparations, and only a modest 29 per cent expected their preparations to be highly effective. This may also explain the concerns expressed by the local business community mentioned above.

Clock ticking down

December 2015 will be upon us very quickly. VET’s survey, however, showed that 81 per cent of respondents believe they will have more time than that to prepare, as only 19 per cent think the AEC will be established on time. Respondents from other ASEAN countries have more faith in the AEC’s punctuality, with 28 per cent believing it will indeed happen at the end of next year. US businesses operating in the region are not as certain but more certain than their Vietnamese counterparts, at 23 per cent. Thirty-two per cent of respondents from Vietnam believe that the AEC will be established in 2016, 38 per cent sometime between 2017 and 2019, and 11 per cent by 2020. Two per cent of ASEAN respondents don’t see the AEC ever happening.

If it is the case that the AEC will not meet its December 2015 commencement date, Vietnam’s business community should take full advantage of the delay to learn more about the opportunities and challenges in order to improve their competitiveness and, consequently, the country’s position in terms of who will benefit the most from the AEC. Support and direction from the government are essential in order for this to happen. EuroCham’s BCI-Q2/2014 showed that Vietnam is only competitive in labour costs and is much less competitive than other ASEAN countries in terms of availability of materials, infrastructure and, especially, legal and administrative systems. Forty-one per cent of respondents graded the government’s support to the business community as being below average one a scale of 1 to 10, so something needs to change as the sands of the hourglass continue to fall.

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