ASEAN is one of the fastest-growing regions in the world, promising strong growth momentum and potential. With a total GDP of US$2.4 trillion and average GDP growth of 4.5% last year, the economy is already the 7th largest in the world and the 3rd largest in Asia if taken as a whole.
The future looks even more exciting for the ten member bloc. ASEAN’s population is set to grow to 690 million by 2020. Population growth along with rapid urbanization will drive the rise of the region’s middle class and consumption.
The ASEAN Economic Community (AEC)
ASEAN was first established for the purpose of peace and harmony for the region — similar to the early European Union. Today, the goal is one of forging economic integration with the ASEAN Economic Community (AEC). The ultimate goal? A common ASEAN identity to realize the full potential of this region.
While similar in some ways to the European Union, some lessons have been learned from the Eurozone’s failure. One single currency requires common debt, but one single currency does not need one common interest rate policy. The AEC will offer economic integration in many ways, but a regional currency is not one of them.
However, before we look too far into the future, let’s focus on the challenges at hand: The creation of a single market with a free flow of capital, services, products and skilled workers across borders, to facilitate trade and integrate the region into the world economy.
To realize the potential that the AEC promises, everyone has to agree to make it work. Amongst the people in ASEAN, however, there are those who believe in the benefits of the AEC, some who are skeptical, and others who know very little about the AEC and the opportunity it will bring
Southeast Asia’s Investment and Growth Potential
Larger companies are set to succeed in the AEC, however, the challenge remains to get small and medium-sized enterprises (SMEs) – which generate around 90% of domestic employment and contribute around 40% of the local markets’ GDP – to buy into the idea and be active participants in the economic integration process. To do so, awareness of what the AEC means has to be generated.
Possible benefits of the AEC include:
- Generating Employment
- Increasing Female Employment
- A Younger Working Population
- A Better Educated Workforce
- Greater Regional Investment
- More Government Support for SMEs
- Increasing Cross-Border Trade
Besides generating awareness of the AEC’s benefits, political leaders have to start pulling on strings. Yes, all ASEAN governments are pushing for the idea, but some members are trying harder than the rest.
One way of achieving this is to change the mindset. Pitching national agendas against ASEAN agendas has to stop, as it only leads, down the road, to protectionism. Why not focus on the greater good of the ASEAN community — growing the economic pie for all?
Furthermore, there is much help needed for businesses venturing across borders to make sense of the vastly differing administrative policies and diverse legal and regulatory standards across ASEAN countries.
ASEAN still is too daunting of a prospect for businesses looking to expand. At this moment, succeeding across border in the region, demands multi-pronged marketing strategies and an ability to offer differentiated products and services.
Those speed bumps for businesses wishing to do business across the ASEAN community have to be eliminated by focusing on a more consistent set of regulations and rules.
Lastly, the ASEAN nations have to adopt a trade facilitation framework. The AEC is all about improving the flow and movement of goods, services, capital and people across borders in Southeast Asia. However, there are many barriers that are hindering the entry of businesses across borders, with tariffs being the most obvious.
Yes, the low-hanging fruits of tariff elimination have already been reaped, but the reduction of non-tariff barriers to trade and investment in the form of standards, regulations, and compliance measures is still a task which lies ahead.
Regulations Will Determine ASEAN’s Success
Standards harmonization is what’s required, in particular standards and practices that are being used internationally.
To address this problem, the private sector has to take more of a proactive role; trying to catalyze and shape this process by working closely with key government stakeholders such as the regulators, central banks and trade authorities, and by facilitating the sharing of best practices from other parts of the world.
It will take time for all this to be achieved. So for now, let’s enjoy this journey of the AEC integration — and please, the question that needs to be asked for once is “has this ever been tried before?” to prevent repeating mistakes from the past.