Dec 30, 2013

Malaysia - AEC SPECIAL REPORT - MALAYSIA: Doubts and caution

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Since the Asean Economic Community (AEC) is currently foremost in the development of the Asean Community’s three pillars, and that the Asean Community in general is supposed to be achieved by 2015, the AEC can expect to be watched closely in the months ahead. It is also likely to be taken as a measure of the progress and prospects of the Asean Community as a whole. However, popular perceptions so far are not as positive as they ought to be.

Independent media and business circles have signalled their scepticism if not cynicism of expectations that the AEC can be achieved by 2015. This situation is as prevalent in Malaysia as it is elsewhere in Asean. The general pessimism is not without reason, but it should also avoid discouraging continued efforts to expedite establishment of the Asean Community. If the prospects of abiding by the 2015 deadline do not seem bright, that should be even greater reason to redouble such efforts.

At the same time, policymakers and others with inputs or interests in the process should identify and acknowledge the reasons why these prospects do not seem so bright. They should then rectify or resolve those problems to facilitate timely realisation of the AEC. At the same time, the Asean Community’s political-security and socio-economic pillars should not be held up just because AEC happens to be delayed. Each pillar should be independent enough of the others to forge ahead wherever possible.

Among policy researchers a general optimism may be observed, with some even saying that there are good reasons for optimism. If that sense of expectant hope is less than justified however, it may be that the AEC policy research community needs to be geared more closely to the regional “street” or that a disconnect between them and policymakers persists. A significant problem is the lack of connectivity between the key players: government, industry, academia, media and civil society groups.

To a degree, the public and private sectors tend to blame each other for delays and bottlenecks. No side is blameless, and it takes both contributing actively as well as cooperating imaginatively for success. A realistic outlook is essential from the outset, and this would include an honest assessment of any obstacles and weak spots.

In late October this year, the Group Managing Director and CEO of CIMB Group, Nazir Razak, expressed serious doubts that AEC would be established by the end of 2015 as planned.

Speaking at the World Capital Markets Symposium in Kuala Lumpur, the brother of Malaysian Prime Minister Najib Razak was sceptical that Asean would achieve a single production base with free movement of capital, investments, skilled labour and goods and services within another 27 months.

Among other challenges, he noted that Asean had yet to establish the master plan and banking framework for AEC.
Nazir also observed that the Asean Secretariat still lacked the necessary legal framework and infrastructure for AEC. Evidently, the available indications are that AEC is behind schedule. Nonetheless, Nazir prefers to maintain the 2015 deadline while cautioning that there should be no more unrealistic projections or expectations.

As a senior corporate figure in the region, he is more concerned with Asean realities and possibilities than with political spin or rhetoric. He was also expressing the hard-nosed concerns of the business world, adding that unrealistic expectations can backfire by damaging the integrity and credibility of community building itself.

At the government level however, a similar sense of urgency seems absent. There are reports that while Asean generally looks to Indonesia to show regional leadership on AEC, the government of Asean’s biggest economy had only lately realised the enormity of the task. Furthermore, the Indonesian corporate sector is looking to the country’s 2014 election to determine a new president, who—enjoying both national approval and regional consensus—would spearhead the drive for AEC. But given AEC’s 2015 deadline, that only spells delay and dismay.

Need for clear plans

One outstanding need is for Asean to articulate a clear trajectory to 2015 and beyond. For example, is the goal of AEC a common market, a customs union or something else? In coming after the EU, with all its known challenges and flaws, the Asean Community should take care in avoiding the same mistakes. A sound perspective of the 2015 challenge also helps: it should be understood that AEC was never meant to be “completed” by 2015, but fundamental aspects of it should at least be in place by then to enable a steady evolution thereafter.

Promising SMEs promise a successful AEC

Small and medium enterprises (SMEs) are also the prime cornerstone of national economies in the region. In Malaysia they account for up to 97 per cent of output. SMEs therefore need due recognition as such, with efforts to promote their interests and status. An AEC of promise is also one with promising SMEs. Singapore and Malaysia have well-developed SMEs and are in turn well-developed economies in Asean.

Much still remains to be done in several sectors. The automotive sector for example is plagued with policy anomalies that add up to obstacles and challenges. It has been said that little has been achieved in this sector other than tariff removals. Other industries such as foodstuffs, palm oil and timber also lack policy coordination and harmonisation. Specific timelines to serve as milestones are still undeveloped or non-existent.

Among Asean member states in general, a crucial sense of regionalism is also lacking. Individual countries still seem disproportionately concerned with national interests relative to other Asean countries. Two key points should be remembered by all: a better realisation of AEC will benefit all countries, regardless of whether some countries benefit more than others; and a weak or unfulfilled AEC will hurt all countries, whatever the degree of harm suffered by each.

Another problem is that the region’s private sector remains underdeveloped in policy terms, with little relation to plans, programmes and projects in the public sphere. They compare unfavourably with their counterparts in Japan, Europe and North America which are more pro-active in providing inputs for policy. The business sector in Asean countries needs to provide more in terms of thinking, proposals and advice to policymaking circles at national and regional levels.

Also lacking in this region are technical and professional inputs from the private to the public sector with seamless consistency. Institutions like the Asean Chamber of Commerce and Industry should step up and offer more suggestions. This lack is compounded by a general shortage of resources. For example, better funding for the Asean Secretariat would help. But since individual national contributions are uniform, improving the Secretariat’s cash flow and reserves is likely to remain a serious challenge.

In a state-centric Asean, much has of course been done at government-to-government level. This however contrasts sharply with the still minimal role of the private sector in helping to shape policy. Nonetheless, private sector tie-ups in the region do show promise in developing regional production networks and can be developed further. Due cognizance should be taken of these realities to avoid further difficulties while maximising opportunities.

Other concerns that need addressing include production moving up the technology ladder, providing a clear cost-benefit analysis of deeper regionalisation that evidently favours it, the growth of China that makes it both more complementary and competitive, and getting all sectors fully on board AEC. With those in place, the other two pillars of the Asean Community would also be better assured.

Cultivating greater involvement by business as well as civil society groups has become a prime requirement. More than before in Asean’s history, involving more non-state actors should now be a high priority. It does not mean the role of governments has diminished, but it does mean that Asean must be equated with a community of nations founded on the commonalities of their people. As a contemporary reality, this befits the current evolution of Asean in a highly competitive world.

The AEC may not be developing as quickly as it should or as smoothly as it could, but the fact of its development is certain and its direction is unquestioned. Since there is always room for improvement, it is then for all parties in the Asean nations to contribute to the process. Instead of carping or petty, cynical criticism, concerned groups and individuals should do their part in ensuring AEC’s timely realisation. Once in its formative stages it would be easier to shape and ameliorate, whereas continual self-doubt and endless questioning will only make it a perpetual nonentity.

Certain steps have already been taken to establish Asean capital market integration, for example. In early October, it was announced that Thailand’s Securities and Exchange Commission, Malaysia’s Securities Commission and the Monetary Authority of Singapore signed a Memorandum of Understanding to set up an Asean CIS (Collective Investment Schemes) framework. Once in operation from early 2014, investors in the three countries would have a broader menu of investment choices. From this collaboration of these original Asean members, others may join in as and when they are ready to help the process evolve.

Such efforts, although slower and later than they could or should have been, are at least careful and steady. As considered measures taken with the consent of all the stakeholders at each stage, they are at least less hobbled by glitches than they might otherwise have been. In practice, that means ensuring minimal or zero imperfections in operation for swifter growth and development. As soon as other Asean countries have the capacity to join the process, they can get on board very quickly.

Already, a set of common standards has been established for cross-border offering of Asean CIS. A certain professional standard for fund managers has also been set, with a sense of industry best practices. The process helps professionalism, competitiveness and ultimately the health of investments. With such efforts, development of AEC and of the Asean Community generally becomes assured.

Other, perhaps more modest, measures that are people-centred can also facilitate establishment of the Asean Community in general and AEC in particular. The purpose is to promote a sense of “Asean ownership” by Asean nationals when they travel between member nations. Several years ago Indonesia proposed a privileged travel document between Asean countries for Asean officials, and Thailand experimented with Asean Lanes at airport immigration counters, but the response in both cases was discouraging. The time may now be right to revisit such efforts, given the clearer direction afforded by the Asean Charter and the push to establish the Asean Community in two years.

Such goals as Asean connectivity, integration and community cannot succeed without better people-to-people exchanges and cross-border bonding. That means agreeing to, permitting, encouraging and assisting in Asean community building efforts by non-state actors. Asean officials need enough faith in their fellow citizens to make Asean less officious by making it more people-friendly. Once community building by people becomes a powerful reality, it can contribute immensely to inter-state functions.

Asean itself may remain an inter-state body, but its growth and development as a community with a distinct Asean identity can be realised only with greater participation by the people of Asean. As it has defined itself, Asean is after all an “association of Southeast Asian nations”, not of governments. Nations are composed of a broad range of private groups and individuals, not just official government bodies. If Asean governments are still not fully cognizant of the power and capacity of their people to build a strong, healthy and vibrant Asean Community, the sooner they realise it the better for all.

Bunn Nagara

Asia News Network

Business & Investment Opportunities 

Saigon Business Corporation Pte Ltd (SBC) is incorporated in Singapore since 1994. 

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