Fears that the gap between the six strong ASEAN players and the four developing countries remains too large for the ASEAN Economic Community (AEC) to be effective have been raised by regional decision-makers ahead of its implementation at the end of the year. By Marissa Carruthers
“Asean is like a teenager having sex. Nobody really knows how to do it, how it works or what will happen,” says U Moe Kyaw, founder of Myanmar Marketing Research and Development. While the analogy may seem strange to some, it is one that Kyaw has been using repeatedly to express his grave concerns about ASEAN Economic Community (AEC).
Made up of 10 countries, the ASEAN community is an unfair playing field, with the six super powers of Singapore, Brunei, Thailand, Malaysia, the Philippines and Indonesia leading the way, while less developed Cambodia, Myanmar, Laos and Vietnam – commonly referred to as the CMLV – lag way behind.
At the top end of the scale sits Singapore, with a GDP of $56,319 per capita – second in the whole of Asia and ninth in the world. Sitting in stark contrast – and third from the bottom of Asia’s 63 countries – is Cambodia, with a GDP of $1,081. Vietnam, the strongest of the CMLV, has a GDP of $2,053, while the second ASEAN superpower of Brunei has a GDP of $36,607.
Other extremes see Singapore sitting ninth in the Human Development Index (HDI) and Brunei 30th, compared with ASEAN’s lowest-ranking nation Myanmar at 150 out of 187 countries, and then Cambodia at 136.
Kyaw predicts it will take the CLMV between 15 and 19 years to reach the same HDI levels as the ASEAN six enjoys today. “It has also been suggested it will take developing ASEAN 28 to 44 years to reach the average ASEAN economy at the current growth rate,” he adds. “ The gap between these countries is too wide for this to be viable, and that’s why integration will be slow. We have a long way to go.”
The likelihood of the AEC achieving the four “pillars” (see box) laid out by the end of 2015 is also highly unlikely.
Jayant Menon, lead economist in the Asian Development Bank’s (ADB’s) economic research and regional cooperation department, says the effects of the AEC will not be felt when the formal document is signed on December 31. He predicts 2020 will be a “milestone” for integration but adds 2025 will be the earliest that any bene ts will be seen. “ This diversity in ASEAN is a critical issue; the disparities are huge, and not just economically, in terms of culture, language, religion and politics,” he says.
Grant Knuckey, CEO of ANZ Royal bank, says that while Cambodia is ready for AEC integration in terms of regulatory harmonisation and liberation, it may lose out to other countries because of this divide in stages of development. “In particular, it is the readiness to compete on an equal footing with those countries that will challenge Cambodia to attract the same production platforms and related labour,” he says.
And, he fears, it is not only the gap between the developed and non-developed countries that needs to be bridged. Within the CLMV challenges also lie, including the wide developmental differences between Cambodia and the likes of Vietnam, as well as Thailand, which may lead to the Kingdom failing to enjoy the proportion of investment it has the potential to sustain.
An apparent reluctance of the super six to share their wealth and fortunes with the CLMV, coupled with unwillingness to seemingly give up part of their identity to become an ASEAN community and a lack of trust across the borders, has also contributed to the stalled development towards a united, functional ASEAN. “Singapore and Brunei are the most developed, and they’re not exactly generous,” says Menon. “We also don’t have a France or Germany to fund a Brussels.”
These combined elements have even led to some questioning whether ASEAN is in the interest of the CLMV at all. “Is there really that spirit of being a community there? Is it really for the benefit of developing ASEAN countries?” asks Kyaw, calling the ASEAN-six “bully boys”.
The idyllic creation of an effective and integrated common market by December 31, which is competitive and boasts a free flow of skills and freer flow of capital, sits far away, and there are many hurdles to overcome. An increase in labour mobility that includes unskilled as well as skilled labour is essential – and needs to be formalised.
“If there is something missing in the AEC framework at this point, it is probably some firm policy and agreement on how to deal with those developmental gaps that do exist, simply due to economic and industrial maturity,” says Knuckey.
Compliance needs to be enforced, with many countries hesitant to introduce or scrap, rewrite and implement new laws to bring them in line with ASEAN standards. There is also a need to nullify the gap between product standards. Transparency, the huge infrastructure deficit and the imbalance in legal systems also need to be addressed. In addition, more open conversations between regulators and bilateral discussions must take place.
“ The majority of businesses think it will be like the EU with a free flow of trade, products and people,” says Kyaw. “How can that happen? Immigration laws are restrictive, and visas and work permits are needed. Getting a visa can be a slow process, and countries such as Thailand, Malaysia and Singapore, will only give a foreigner work if no suitable local workers are available.”
Another issue is that while the AEC promises the “free movement of goods, services, investment, skilled labour”, the flow of capital will only be “freer” – a point that Chea Serey, the director-general of the National Bank of Cambodia, made at the BritCham – ASEAN Forum Question Time debate on the Future of the Banking Sector in Phnom Penh in October. It is hard to envisage financial markets moving towards CMLV countries under such circumstances.
Even more worrying is the lack of understanding about AEC at a grassroots level. A recent study carried out by Financial Times Confidential Research revealed that more than one third of the 5,000 people quizzed from across the 10 countries do not know what ASEAN is. Of those who did, less than half are convinced the AEC will help the economy of their country. David Robinson, principal (ASEAN) of FT Confidential Research, says, “AEC is a work in progress, and massive steps need to be taken to convince ordinary people of the benefits.”
However, hopes remain high that, if done properly, the ASEAN countries can eventually reap the rewards integration presents. The latest data from ASEAN Statistics reveals the region’s GDP grew by 4.6 percent to $2.57 trillion in 2014, and sustained growth has led to GDP per capita rising from $3,908 in 2013 to $4,130 in 2014 amidst a wavering global economy.
“It has been well documented how important this region is for growth. The dynamics are compelling, from a growing GDP to the emerging middle class. It will just take time,” predicts Menon.
And in terms of Cambodia, the biggest potential lies in the ability of the AEC to act as a spur to the relocation of much greater production within the region, enabling the country to slot into those essential industrial value chains.
“Doing that still has the necessary pre-conditions of continued investment and planning in the areas of infrastructure and skills development,” warns Knuckey.
As previously reported in ASEAN Forum, a recent ADB report reveals Cambodia is set to benefit the most from the AEC integration, with potential growth from the move estimated to be 20 percent. However, this comes with conditions, states Vongsey Vissoth, the Kingdom’s Secretary of State at the Ministry of Economy and Finance, citing improved institutions, connectivity and skills, combined with a stronger business climate, as being essential if Cambodia is to thrive.
Despite the challenges, and the wide gap between the developed and less developed countries, Knuckey remains optimistic that the AEC presents great potential for Cambodia – “but it has to be grabbed,” he adds. “It won’t be simply manna from heaven.”
What is the AEC?
The ASEAN Economic Community (AEC) will be the goal of regional economic integration by 2015. AEC envisages the following key characteristics: (a) a single market and production base, (b) a highly competitive economic region, (c) a region of equitable economic development, and (d) a region fully integrated into the global economy.
The AEC areas of cooperation include human resources development and capacity building; recognition of professional qualifications; closer consultation on macroeconomic and nancial policies; trade financing measures; enhanced infrastructure and communications connectivity; development of electronic transactions through e-ASEAN; integrating industries across the region to promote regional sourcing; and enhancing private sector involvement for the building of the AEC. in short, the AEC will transform asean into a region with free movement of goods, services, investment, skilled labour, and freer flow of capital.
The ASEAN leaders adopted the ASEAN economic Blueprint at the 13th asean summit on november 20, 2007 in Singapore to serve as a coherent master plan guiding the establishment of the ASEAN Economic Community 2015.