The ASEAN Economic Community (AEC 2015), is set to come into effect in December, making it easier to invest in Southeast Asia. However, while most high-priority goals have been met, there still remains some work for the ASEAN region to realize the full economic, social, and trade benefits that the AEC will bring.
A research report from Ernst & Young (EY) named “Trade Secrets: ASEAN Economic Community” listed five important areas for countries in Southeast Asia to improve on: improvement of infrastructure, labor mobility, financial integration, tax code harmonization, and effectiveness of implementation.
“More than ever, policymakers and businesses across ASEAN need to work closely together and share best practices as implementation moves into full play across the region,” according to Mildred Tan, EY’s Government and Public Sector Leader for the ASEAN region.
Tan, who is also EY’s country head for Singapore, said that the majority of goals needed for the AEC’s implementation have been met. However, he added that full economic integration for ASEAN will need cooperation between both businesses in the private sector and government officials in the public sector across the region.
Infrastructure Projects for AEC 2015
Southeast Asia’s road, railways and other infrastructure will be critical to the success of the ASEAN Economic Community. AEC 2015’s blueprint has focused on better connections in the energy and transport sectors. With rich resources and a population of over 600 million and growing, more efficient movement of people and products will enable greater competitiveness and economic growth.
Individual countries have made progress in this area. With that said, new regional infrastructure projects have been slowed by differences in national government priorities, lack of access to funding, land expropriation issues and more setbacks.
Lynn Tho, ASEAN Infrastructure Advisory Leader at EY, said that some countries in Southeast Asia countries have taken crucial measures to set up a framework. These nations have shown the political commitment to solve political, funding, and other issues.
Because infrastructure development in ASEAN has, in the past, been prioritized based on constraints and other issues faced by individual governments. Better coordination throughout the region will be the best way to meet infrastructure needs and make the AEC a success.
“The availability of regional funding support is critical. Given the scale of funding required, greater private sector investment and expertise will be key,” said EY’s report.
The report also listed the conditions for success with regard’s to ASEAN’s infrastructure. This includes setting up more public-private partnerships, centralizing government decision processes, and helping the ability for firms to manage large infrastructure projects.
Financial Integration and Stock Market Connectivity
The AEC, among many other things, is meant to help smooth regional investment, a connection between the region’s financial markets, and the breaking down of capital movement restrictions. The goal is to not only increase trade and investment within Southeast Asia, but to promote the 10-nation bloc as a single destination to the world.
However, with the different stages of development between all countries in ASEAN, achieving financial integration between all members is arguably the most challenging part of AEC 2015.
In order for ASEAN to meet its goals of financial integration, it will need to make progress in three areas: Harmonization of payment and settlement systems, financial services liberalization, and capital account liberalization.
To develop an integrated banking system, EY’s report recommended a dual-track implementation based on the financial development stage of each country. Indonesia, Malaysia, Philippines, Singapore and Thailand would proceed on a faster track. Brunei, Cambodia, Laos, Myanmar and Vietnam would move at a slower pace.
Liew Nam Soon, EY’s ASEAN Managing Partner said: “This dual-track implementation of the banking integration plan can mitigate the risk of excessive deregulation contributing to the development of an overly complex banking system.
“ASEAN should focus on developing banking services that matter for the real economy – and not whether ASEAN banks will be able to become internationally leading banks. Ultimately, it is better to have banks with a strong regional foothold than globally active super banks, of which their activities can pose a serious threat to financial stability.”
As far as stock market connectivity is concerned, ASEAN Exchanges is a collaboration between 7 countries in Southeast Asia which have worked on it since 2012. The platform’s goal, through the ASEAN Trading Link, will let investors to buy stocks throughout the ASEAN using their local stock broker, regardless of what country they are in.
The countries that joined the link promised to connect their stock exchanges by the end of 2015. However, it’s still not certain if all members will keep their promise.