A new economic bloc promises much for ASEAN’s member states, but is the region still beset by problems of the past? BY LUKE HUNT
Ten southeast Asian countries launched their cherished economic dream when 625 million people across the region rang-in the New Year. But the outlook for 2016 and the ASEAN Economic Community (AEC) is far from bright amid weak economic forecasts and a highly charged political environment stemming from issues at home and abroad.
On the wider front, the economic downturn in China and higher interest rates in the US will weigh on sentiment while the Islamic State of Iraq and Syria (ISIS) – also known as Daesh – will provide enormous security problems for regional leaders.
“The implementation of the AEC could not come at a worse time,” says Keith Loveard, a security analyst with Jakarta-based Concord
Securities. “There are too many individual national headaches at the moment that are going to delay effective implementation.”
The International Monetary Fund (IMF) has revised down its regional economic outlook for 2016 to 5.0 percent GDP growth from 5.3 percent, still slightly better than 4.6 percent growth registered in 2015. But it said the growth rate was moderating “in 2015/16, owing to a number of factors, including lower commodity prices, political uncertainty and weaker growth in China.”
Overall, it expects growth in The Philippines to offset declines in scandal-prone Malaysia with regional trade bolstered by the AEC and the opening-up of eight professions – doctors, nurses, dentists, architects, engineers, accountants, surveyors and the tourism industry.
Trade within the AEC is expected to surpass $1 trillion a year and according to embattled Malaysian Prime Minister Najib Razak ASEAN’s combined GDP will expand from $2.6 trillion in 2013 to $4.7 trillion by the year 2020.
That compares with a current GDP of $1.9 trillion in India and $9.3 trillion in China.
As a result, analysts said logistics and education are two industries that will benefit as AEC members seek to raise and harmonise regional standards.
“ The logistics sector is one area that could create positive change: Thailand is way ahead of Indonesia for instance, but even so no logistics operation can make much of a difference if the required infrastructure is not in place,” Loveard says.
For the region’s unskilled labour force the AEC will have far fewer tangible benefits. However, semi-skilled workers will benefit from cross-border employment opportunities such as domestic helpers, labourers and tradespeople on construction sites, and as staff in the hotel industry.
Additionally, ASEAN growth was expected to be underpinned by foreign investors who pumped $136 billion worth of direct investment into ASEAN in 2014, more than the $128 billion invested in China over the same year.
But broad figures from developing economies can be misleading. Gavin Greenwood, a risk analyst with Hong Kong- based Allan & Associates says at least 6.0 percent growth is needed in Indonesia simply to soak-up each year’s school leavers as they enter the workforce.
This is typical of economies with high unemployment and big birth rates. Indonesia has a birth rate of 17.04 per 1,000 people while Cambodia, Laos and The Philippines have even greater troubles with birth rates of above 24 per 1,000. Singapore, on the other hand, has a birth rate of just 8.1 per 1,000 people.
This matters when the IMF says the global economy is expected to grow by just 3.6 percent over the coming year with bleak economic prospects in China, Japan and Europe and only a slightly better prognosis for the US.
“It is highly likely that the AEC is going to create progress in integrating the economies of the member states in a manner that brings benefits to all of them, it will only start to do so once the current difficult external economic environment becomes more supportive,” Loveard says.
Political and diplomatic issues will also test ASEAN’s mettle. Chief among them are cross-border relations that includes Chinese maritime ambitions in the South China Sea where Beijing is at odds with The Philippines, Vietnam, Malaysia, Brunei and Indonesia.
Widespread toxic pollution caused by an annual burning-o by palm oil plantation owners, known as the haze, has proved highly divisive while the ASEAN mantra which dictates each country must remain out of a neighbour’s domestic affairs leaves the bloc politically feckless.
It’s an unwanted image which is unlikely to improve given the controversies lurking on the horizon.
This includes succession issues in Thailand where Prince Maha Vajiralongkorn is favourite to fill the shoes of his father King Adulyadej Bhumibol. In Malaysia, Najib is beset by corruption scandals and leadership issues remain unresolved in Myanmar following November’s election.
Sharia law has been promulgated in Brunei at a time when Islamic militancy is back on the radar with hundreds of Indonesians, Malaysians and others fighting with Daesh in the Middle East, raising fears they could return home and resurrect the jihad pushed by Jemaah Islamiyah in Southeast Asia in the years following the 9/11 attacks on the US.
Cambodia’s decision to break ranks with other ASEAN members and side with China over its maritime claims, pending presidential elections in The Philippines and human rights issues across much of the region, particularly in communist Laos and Vietnam, will also test the collective political will.
Even lingering resistance to the AEC remains stiff . In Indonesia, Loveard notes, speculation that the ASEAN power house would be flooded by Filipinos and Malaysians following the December 31 launch of the AEC has led to a surge in xenophobia.
This included an attempt by the Manpower Ministry to insist that foreign workers there pass an Indonesian language competency exam. It was scrapped on the direct order of the president.
Xenophobia has also been liberally doused with outright lies. is was evident when the Indonesian Doctors Association warned that healthcare costs would rise significantly if a flood of foreign health workers landed in the country.
“This does not make much sense,” Loveard says. “ The association’s position also denies the theory that greater competition brings prices down, not up. This is just one example of the paranoia that is present in Indonesia in facing the arrival of the AEC.”
The launch of the AEC is an historic marker for a trade bloc which was initially forged by the Cold War allies of the US in the 1970s when Washington was designing its exit strategy from the ashes of conflict in Indochina.
As a trade bloc and a unifying force for 10 countries whose cultures are as varied as their religions and economics the AEC should be welcomed and applauded but whether it can provide a lasting prosperity needed to improve the lives of all – as promised by the region’s leaders – remains the great unknown and its greatest challenge.
Follow Luke Hunt on Twitter @ lukeanthonyhunt