Mr. Lim Cheng Teck, CEO for ASEAN at Standard Chartered Bank, discusses how to get the best out of the AEC.
Promise of Greater Integration
Since its founding in 1967 with five nations (Indonesia, Malaysia, the Philippines, Singapore, and Thailand), ASEAN has grown to today’s ten-member association and is one of the fastest growing regions and promises strong growth momentum and potential.
With a population of 625 million people, aggregate GDP of $2.4 trillion and growth of 4.5 per cent in 2014, the economy is the seventh-largest in the world and the third-largest in Asia.
We are excited about its future. ASEAN’s population is set to grow to 690 million by 2020. Rapid urbanization will drive the growth of the middle class and consuming class. Foreign investors are taking notice of this and foreign direct investment (FDI) has grown by leaps and bounds. In 2013 ASEAN overtook China as the single largest recipient of FDI.
The ASEAN community was first established for the purpose of peace and harmony for the region. Today, we are moving into forging economic integration, with the ASEAN Economic Community (AEC) and, ultimately, a common ASEAN identity, and to realize the potential of this region.
So while political and business leaders gathered in Jakarta at the 24th World Economic Forum (WEF) on East Asia to share insights on closer collaboration and greater integration in the region, one wonders if the idea of ASEAN and the AEC actually matters to local businesses and people across ASEAN? And why hasn’t it taken off in a big way yet?
A.G.R.E.E to Make It Work
Let’s focus on the task at hand: economic integration and the AEC, which aims at a single market, with freer flow of capital, services, products and skilled workers across borders, to facilitate trade and integrate the region into the world economy. It hopes to rival the European Union in 10 to 15 years, the WEF heard. We believe that by growing the economic pie, all member states of ASEAN will benefit. Closer economic integration could improve the cost competitiveness for business, adding to the attractiveness of ASEAN and greater integration could lift the region to the next level of growth.
To realize the potential of the AEC, everyone has to agree to make it work. Among people in ASEAN, however, there are those who believe in the benefits of the AEC while others are skeptical and some may not be aware of it at all.
So the first area we need to focus on is raising awareness among those who do not know what the AEC means and what its benefits may be. Larger companies are well set to engage. The more important challenge is to bring small and medium-sized enterprises (SMEs), which generate around 90 per cent of domestic employment and contribute between 30 and 50 per cent of local markets’ GDP, to buy into the idea of the AEC and be an active participant in the economic integration process.
To do so we need to create awareness among SMEs of what the AEC means, as there is too little understanding of the opportunities it brings. A survey from the Asian Development Bank and Institute of Southeast Asia Studies revealed that less than one-fifth of ASEAN businesses are prepared for the new trading environment. While there are currently various programs for SMEs in each market, we would need a pan-ASEAN framework for governments to support SMEs, directing some of the benefits towards smaller businesses.
We believe that private sector companies also have a role in helping local businesses and individuals understand the AEC. As the only international bank with a presence in all ten ASEAN member states, Standard Chartered is in a strong position to do so. We have been working with the ASEAN Secretariat, participating in forums such as the WEF, and through interacting with our clients and partners we share information about the AEC and promote the benefits of economic integration.
For ASEAN, the whole is greater than the sum of its parts, so integration will generate employment, attract investment, grow wealth, and improve the lives of citizens.
Wealth is growing across ASEAN. Nielsen predicted that the middle class of 190 million in the region as at 2012, defined as people with disposable incomes of $16 to $100 a day, will more than double to 400 million by 2020.
We forecast increased female employment, a younger working population, and a better-educated workforce. All will drive demand for high quality consumer products and services.
As ASEAN’s population becomes urbanized it will drive demand for housing, motor cars, information and communications technology, education, healthcare, consumer durables, and financial services. The AEC will also open doors for cross-border trade in these areas.
Governments are pushing for it but some ASEAN members are trying harder than others. Perhaps a different way of looking at it is to change the mindset a little. Instead of pitching national agendas against ASEAN agendas, which would lead down the road of protectionism, why don’t we focus on the greater good of the ASEAN community? Let’s be realistic. There will never be absolute trust even between the closest political allies. But as long as every member state focuses its energy on achieving greater efficiencies, enhancing the ease of doing business across borders, improving the lives of the people in ASEAN, I am sure we can reach consensus and common ground much more effectively.
Rules and Regulation
ASEAN presents a diverse historical, cultural, political, and economic landscape. There is much help needed for businesses venturing cross-border to make sense of the vastly differing administrative policies and diverse legal and regulatory standards across ASEAN countries. With over 625 million people in ten countries, ASEAN can be a daunting prospect for businesses looking to expand. It is so complex and varied that it can be easier to pursue opportunities elsewhere. For example, it takes four days on average to clear goods being imported into Singapore, 14 days for Malaysia, and 23 days in the case of Indonesia.
This demands multi-pronged marketing strategies and an ability to offer differentiated products and services, which can be hard for businesses used to operating in one market. ASEAN is not a one-size-fits-all market, and we need to eliminate the speed bumps by next focusing on a more consistent set of regulations and rules of operating across the markets in ASEAN. Banking partners such as ourselves who can provide good local support and have deep access to the different ASEAN markets can help businesses ease into the markets that the businesses are unfamiliar with.
The AEC is all about improving the flow and movement of goods, services, capital and people across borders in ASEAN. However, there are many barriers that are hindering the entry of businesses across borders, with tariffs being the most obvious.
While the low-hanging fruit of tariff elimination has been reaped, with 99.7 per cent of ASEAN-6 tariff lines being reduced to zero, for example, the reduction of non-tariff barriers to trade and investment in the form of standards, regulations, and compliance measures is proving to be a more elusive goal.
While part of the problem may be traced to domestic pressures another reason could be the lack of familiarity with the process of standards harmonization, in particular with standards and practices that are being used internationally.
To address this problem ASEAN nations have adopted a Trade Facilitation Framework. I believe there is a proactive role that the private sector can play to catalyze and shape this process, by working closely with key government stakeholders such as the regulators, central banks and trade authorities, and facilitating the sharing of best practices from other parts of the world. In fact, the business community is already doing so via private sector channels such as the ASEAN Business Club and ASEAN Business Advisory Council. I believe more can be done to eliminate barriers to entry.
This was mentioned quite a few times at the WEF discussions - that AEC integration is a journey rather than an end goal. I agree totally that it will take time for differences to be sorted out to reach common ground and to achieve a one-ASEAN identity. However, if we keep telling ourselves that it is a journey it may take much longer than it should. I am very clear about the end point I have in mind for the AEC: an ASEAN that allows businesses and people to move with ease (perhaps not with absolute freedom) across borders, a region that speaks in a collective voice to the rest of the world, and a powerhouse that generates growth and prosperity, bettering the lives of all people in ASEAN.
Success begets success, and the more the AEC’s achievements are celebrated the more we would expect to follow. The day will come when even the man in the street will be aware of the ASEAN story and the promise of a collective ASEAN power.
So let’s work on agreeing to make ASEAN’s economic integration a reality, sooner rather than later.