Oct 6, 2012

ASEAN - ASEAN’s missed opportunities

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Although the pundits state that the ASEAN Free Trade Area (AFTA) and ASEAN Economic community (AEC) will be in place by 2015, there are signs on the ground in many of the member nations that this is far from the case.
With the rapid growth and development of China and to a lesser extent India, the ASEAN region has been largely out of global focus in recent times. Although in terms of GDP, the ASEAN region cannot come even close to matching the other blocks like the China, the US, EU, India, and Japan; trade and consumption figures are very interesting.
Exports from the ASEAN region to the rest of the world were USD1.25 trillion (RM3.75 trillion) in 2011, not too far behind China at USD1.89 trillion, the EU USD1.79 trillion, and the US at USD1.5 trillion. ASEAN exports were higher than Japan at USD800.8 billion, and India USD298.2 billion.
What is even more interesting is that the ASEAN region is also a very high consumption block indicated by its imports from the rest of the world at USD1.06 trillion, which was much higher than India at USD451 billion, and Japan at USD794.7 billion. ASEAN still trails China at USD1.74 trillion, with the EU at USD2 trillion and US at USD2.314 trillion.
If one looks at mobile telephone usage as rough indicator of consumption, ASEAN usage (569 million) is much higher than the EU (466 million) and ASEAN has a higher per-capita usage than China and Japan. Finally the population growth rate within the ASEAN block is much higher than any of the other blocks.
This makes the ASEAN region one of the most interesting growth markets in the world. ASEAN as a single trade entity also has the potential to strongly influence world affairs through its trade strength.
The agreement to form the ASEAN Free Trade Area (AFTA) in Singapore back in 1992, and later the ASEAN Economic Community (AEC), with the objective of streamlining banking, finance, transport infrastructure, customers regulations, human capital mobility, and economic policy embodying AFTA by 2015 may potentially enable the region to exercise this influence.
However this promise of great opportunity that could propel much of the ASEAN region into great prosperity and influence, may falter due to the current unpreparedness of ASEAN members in most areas of integration. The writer believes that this is not just a lagging schedule, as has been suggested by many, but most of the region’s members are currently inwardly focused upon their own domestic interests which may lead to the failure of achieving the implementation of the AEC by 2015. Moreover, a parochial rather than any regionally orientated mindset currently persists in Bangkok, Jakarta, Putra Jaya, Manila, Hanoi, and Naypyidaw, suggesting that this position may not change in the immediate future.
Inward Focus
Without going into detail, many ASEAN governments are facing watershed issues that may well set out how their respective societies will look for many future generations. Consequently their focus is currently inward upon domestic issues.
The Yinluck Shinawatra led government in Thailand has many deep issues to solve which not only concern the government’s immediate survival, but the way Thailand may be governed in the future. Shinawatra must find a way to work with the palace and the military without being seen to betray her peasant constituency in the North-east of the country who very deeply feel many injustices over the last six years since the coup d’état ousting her brother Taksin Shinawatra. In addition there will be a transition to a new monarch in the near future which according to commentators may bring some uncertainty. This is not to mention the insurgency in the South of Thailand which has seen an escalation over the last few months, potential floods again over the next few months, which last year devastated industry around Bangkok and surrounding areas, where long term solutions are scant.
In Malaysia the Najib Razak Barisan Nasional led government has been in power for 55 years and is tired. The opposition Pakatan Rakyat under the leadership of Anwar Ibrahim looks to be in a very strong position for the coming 13th general election that must be held before May 2013. The Barisan Nasional has the fight of its life ahead just to survive and cannot rely on its traditional strongholds like Johor, Sarawak, and Sabah to carry it through this time. The country has been in a quasi-election mode for some time, and with the focus on survival, there has been little interest in regional issues.
In Myanmar, President Thein Sein recently reshuffled the cabinet to reportedly strengthen his own personal position and maintain forward reform momentum. Myanmar is heading down a road of reform where it hasn’t gone before and the potential outcomes are still uncertain. Although Aung San Suu Kyi has been released from house arrest, many foreign governments have dropped sanctions, and the government has made peace settlements with a number of ethnic insurgency groups (yet many more like the Rohingyas need to be solved), there is little focus or interest in the regional issues at this point.
Indonesia went through its political turmoil more than a decade ago with the riots in 1998 that eventually brought the resignation of Suharto. With three presidents between 1998-2004, Indonesia is emerging as a vibrant multi-party democracy with Susilo Bambang Yudhoyono as President since 2004. The country is still plagued with corruption, natural disasters, pressure for autonomy, and poverty. Political diversity may be hindering the creation of a national vision of development that all in a bipartisan fashion can engage. Coupled with the logistics of managing an archipelago more than 4,000km long, the Indonesian focus is still primarily concerned with economic management, although there is a general belief that an ASEAN market would in the long term benefit the country.
Corazon Aquino was swept to the presidency during the peoples’ power revolution of 1986, ousting Ferdinand Marcos. Since her term as president, there have been a further four elected presidents of the Republic of the Philippines, with her son Benigno Aquino III as the current president. Political power in the Philippines is still very much based upon favour and alliance of ‘political warlords’ in each regional subdivision and this partly explains why the former first lady Imelda Marcos and children, although forced to flee the country in 1986, were welcomed back and today hold positions of power as a provincial governor and members of the legislatures. The Philippine government’s focus currently remains upon the issues of poverty, which at 32.9 per cent of the population is the highest in the region. Democracy in the Philippines has not seemed to solve the country’s fundamental issue of poverty. Like Indonesia, the Philippines is also an archipelago which presents many problems for development. The government still has to deal with the Abu Sayyaf in the south of the country, regular natural disasters, and rampant corruption.
Finally, although Vietnam has tried to reform the economy with the ‘doi moi’ programs of the mid 1980s, the country is still basically a centrally planned economy. More than 20 per cent of GDP is agriculture based and state owned enterprises account for more than 40 per cent of GDP. Vietnam has a large trade deficit even though exports are rising rapidly. Controls have been put in place to stem further blow outs in the trade deficit, bringing more state control over the economy rather than liberalisation. State debt is also high with some state firms in deep financial trouble which is eroding the country’s financial ratings and even causing some political instability at leadership level. The Vietnamese economy, along with that of Cambodia and Laos are far from ready  for integration within the framework of the AEC.
Currently there is an absence of any leader with regional vision within ASEAN. The leaders of the region don’t appear to have the relationships like their predecessors once had, as emerging democracies and development have their own demands. The club of dictators has gone. Even the pro AEC ASEAN Secretary General Dr. Surin Pitsuwan who kept the integration momentum going is preparing to hand over the position to a less experienced diplomat from one of the less developed members, potentially leading to a further vacuum in leadership on the issue.
The beneficiaries?
The constituency that one would expect to support an integrated ASEAN economy, regional conglomerates appears to still be lukewarm to the concept. Although companies like Air Asia, CIMB Bank, Bangkok Bank, SingTel, and Siam Cement are taking advantage of the region as a market, they are the exception. The majority of ASEAN conglomerates are ethnic Chinese who settled across the region building up their empires along common models of trading, real estate, finance and insurance, retail, and banking activities. These firms are well connected in their own countries and haven’t historically done well business wise in countries within the region where their connections are weak. Consequently these firms prefer to diversify business interests within their home country rather than expand across the region.
One can easily get the impression when visiting Bangkok, Jakarta, Kuala Lumpur, and Manila that business there is a widely diversified ownership of business, where in fact region businesses in ASEAN countries today are still in the hands of a small number of families. Many of these companies are yet to develop the regional mindset necessary to take up the opportunities that the AEC offers. They may actually enjoy the current protection that is afforded them from outside competition.
At the same time the ASEAN region is dominated by SMEs which account for approximately 98 per cent of all enterprises and some75-85 per cent of total employment. Many of these are subsistence based enterprises employing no innovation in their business models. AFTA and the AEC will provide very few opportunities to these enterprises, except in the area of tourism.
ASEAN member states still see each other as competitors, competing with each other to attract direct foreign investment. Competing education and medical hubs have been set up which aim to attract international customers at the lowest cost. How the paradigm of collaboration rather than competition can be developed still remains to be seen.
Lagging preparation and the barriers to overcome
Infrastructure and logistic networks the AEC required for increased trade within the region are still very much work in progress. With the exception of Singapore, major highways, railways, deep-water ports are still under construction. Many border crossings are extremely congested, and the high speed railway between Thailand, Laos and Southern China is still only just an idea.
The banking system is not yet integrated, little has been done in the way of streamlining customs procedures which is hindering the implementation of high quality logistic systems across the region. Little exists in the way of a regionally based media to culturally integrate the region.
Existing ASEAN initiated projects like the Indonesia-Malaysia-Thailand Growth Triangle (IMT-GT), and the East ASEAN Growth Area (BIMP-EAGA) have existed more as ideals rather than anything that has substance on the ground. Above all there has been no attempt to integrate monetary or fiscal policy within the ASEAN region which would be necessary within any common market.
ASEAN states are still very much in different stages of growth, spread across a wide development continuum. The contrast between developed Singapore and Laos, Myanmar, Vietnam, and Cambodia is extremely wide, much more than any other region around the world. This diversity presents even greater challenges where assistance given by the more developed members of ASEAN could be construed as interference by the lesser developed nations. This is still a very sensitive issue within ASEAN today.
In addition, each country within ASEAN is in a different stage of legal system development, which is very important as the legal system creates the framework upon which business is conducted. Even if the common market is pronounced to be in existence by 2015, this factor alone will be a major impediment for companies within the region. There is too much folklore within the business communities about specific ASEAN country legal systems that make them shy away from direct investment.
At government level there are still many bilateral issues that can potentially hinder and set back collaboration. Only just recently the Thai and Cambodian army had a number of skirmishes over the Preah Vihear Temple ruins along their common border. Cambodia is concerned about Lao dam construction, Malaysia and Indonesia are yet to settle some maritime and land borders in Borneo, the Philippines still has a claim on Sabah, Singapore and Malaysia had a number of spats concerning water, land reclamation, and rock formations in the South-China Sea that went as far as the International Court of Justice (ICJ). Vietnam and Cambodia are still in dispute over outlying islands along their common border.
The region is way behind schedule in the implementation of the AEC. Many unresolved issues concerning agriculture and non-tariff barriers are yet to be resolved. The less developed countries of Cambodia, Laos, Myanmar, and Vietnam are also holding back progress.
If the ASEAN region fails to create an effective and integrated common market in 2015 which is truly competitive, with free flow of skills, and capital, ASEAN will be severely disadvantaged vis-a-vis China, the US, Japan, and the EU, at a delicate time when the current détente is in flux and transformation.
It may be ASEAN’s own inward focus and inbred parochialism that prevents it sitting at trade, political, and economic forums as equal partners with influence and stature. This may also prevent ASEAN entering into an era of diverse economic prosperity in the near future from the synergies and market size an AEC would bring.
It is highly unlikely the AEC will be in place with any effective form by 2015 unless it becomes a high policy priority within each member government. The outcome most likely is the formation of an AEC in a compromised form, consistent with the track record of past ASEAN compromises since its formation back in 1967.
Murray Hunter
This is the personal opinion of the writer or publication and does not necessarily represent the views of The Malaysian Insider.

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