IE Insights ASEAN Economic Community: Opportunities through Economic Integration in Southeast Asia

 
INTERNATIONAL ENTERPRISE SINGAPORE

IE Insights
Vol. 22_May 2015

ASEAN Economic
Community:
Opportunities through
Economic Integration in
Southeast Asia
The Association of Southeast Asian Nations (ASEAN) has promoted regional
cooperation and deepened political and economic ties amongst its members.
Further economic integration is underway to achieve the vision of the ASEAN
Economic Community (AEC) by end 2015. This issue of IE Insights provides
an update of the AEC and discusses how Singapore companies can fully
tap the opportunities that the AEC will bring.

By FOO May Yan, KOH Wan Ling, LAI Shu Ying, LAM Yin Yin
Southeast Asia Group, Trade Group
enquiry@iesingapore.gov.sg
Contents

               03
               Summary

               04
               Southeast Asia’s Strong Growth Potential

               06
               ASEAN Economic Community (AEC) 2015: Challenges and Opportunities

               15
               Current State of Play in AEC

               18
               How Singapore Companies Can Approach AEC 2015

               21
               Conclusion

               Disclaimer
               While every effort is made to ensure that the information in this document is accurate, the information is
               provided by IE Singapore to you without any representation or warranty. Any reliance on the information in this
               document is at your own risk. IE Singapore does not accept any liability for any errors, omissions or misleading
               information. IE Singapore and its employees shall not be held responsible for any consequence arising from
               your reliance on any information provided by us. You are advised to consult your own professional advisors.
2
Summary
// ASEAN is Asia’s third largest growth engine after China and India and saw resilient
   growth despite the global financial crisis. Favourable factors like rising foreign direct
   investment, a young and large population and abundant natural resources will raise
   local productivity and create a rising middle class, to transform Southeast Asia into the
   world’s next consumerism and manufacturing hub.

// The ASEAN Economic Community (AEC) Blueprint, signed by ASEAN Leaders at the
   Singapore Summit in November 2007, is the cornerstone of ASEAN’s efforts towards
   deeper regional integration. The ASEAN Trade in Goods Agreement (ATIGA), ASEAN
   Framework Agreement on Services (AFAS) and the ASEAN Comprehensive Investment
   Agreement (ACIA) provide the foundation for a single market and production base.

// Progress of the AEC varies, with some areas seeing more progress than others. In
   terms of trade in goods, most physical goods already flow without tariffs between the
   ASEAN-61 economies and hence the focus has turned to identifying and eliminating
   non-tariff barriers. In comparison, the free flow of services has seen slower progress

// In the long term, the AEC will increase the overall competitiveness and productivity of
   ASEAN as a single economic region and make the region more attractive to global and
   pan-ASEAN investors. Singapore companies used to operating in a highly liberalised
   environment are poised to benefit.

// Singapore companies should adopt a pan-Southeast Asia perspective and focus on
   economies and sectors that would gain the most from integration.

1   ASEAN-6 members are Brunei Darussalam, Indonesia, Malaysia, the Philippines, Singapore and Thailand
                                                                                                          3
Southeast Asia’s
    Strong Growth Potential
    ASEAN – with a combined GDP of US$2.4 trillion in 2013 –
    is Asia’s third largest growth engine after China and India.
    Annual growth is projected to average 5.4% from 2014 to
    2018.

    In 2013, 26% of Singapore’s total trade with the world was with ASEAN, Singapore’s
    largest trading partner. ASEAN-Singapore trade has seen a general upward trend since
    2007. Despite the short-term domestic and geo-political uncertainties in individual ASEAN
    member states in 2014, global investors continue to recognise that the region’s strong
    growth potential is anchored on solid economic fundamentals.

    Southeast Asia is home to more than 600 million people (about 60% of its population is
    under 35 years old). This young and large population translates into a large and dynamic
    workforce. Growth is further supported by abundant land and natural resources, a wide
    range production capabilities and good intra-regional connectivity.

    The confidence that investors hold in ASEAN is reflected in the region’s strong FDI
    inflows. In 2013, the region attracted US$122 billion of foreign investment, more than
    China’s US$117.6 billion, an indication of the growing trend of global companies to
    “look South” to hedge against the rising costs of doing business in China. Large MNCs
    are increasingly adopting a “China-plus-one” strategy, benefitting the region due to its
    proximity and relatively lower labour costs.

    Looking forward, the ASEAN economies are expected to enjoy strong sustained growth
    over the next few years. ASEAN’s annual growth is projected to average 5.4% from 2014
    to 20182. Furthermore, the upside potential for ASEAN is tremendous; intra-ASEAN trade
    was only 24.2% of ASEAN’s total trade in 2013, growing only five percentage points from
    19.2% in 19933. In contrast, 65% of EU merchandise exports went to EU countries in
    20104. Rising foreign direct investment coupled with the region’s large, young population
    and abundant natural resources will raise local productivity, creating a rising middle class
    that will transform Southeast Asia into the world’s next consumerism and manufacturing
    hub.

    2   Source: “Economic Outlook for Southeast Asia, China and India”, OECD Development Centre, 2014
    3   Source: ASEAN Secretariat
    4   Source: World Trade Organisation
4
Southeast Asia’s
       Strong Growth
            Potential

                                Figure 1: Strong Growth Potential of ASEAN Members Based on Projected Economic Indicators

                                Myanmar                                             Vietnam
                                56.4b                                               171b
                                $1,740                                              $4,012                                    Laos
                                60.4m                                               89.7m                                     10b
                                                                                                                              $3,068
                                                   6.0 7.4                                    5.6 8.9                         6.58m

                                    Thailand                                                                                               8.4 9.3
                                    387b                                                                    Cambodia
                                    $9,875                                                                  15.6b
                                    64.4m                                                                   $2,576
                                                                                                            15.1m
                                                       5.5 7.0
                                                                                                                              6.2 10.3
                                Malaysia
                                312b                                                                                 Philippines
                                $17,748                                                                              272b
                                30m                                                                                  $4,682
                                                                                                                     99.6m
                                                   4.4 8.1
                                                                                                                                         4.2 7.1
                                         Singapore
                                         296b
                                         $64,584
                                         5.3m
                                                             2.7 4.5

GDP Growth (%)

   2012                                                      Indonesia
                                                             870b
   2012 – 2016                                               $5,214
                                                             247m
   GDP 2013 (US$ billions)                                               6.1 14.5
                                                                                                        Brunei
   GDP (PPP) per cap                                                                                    16.2b
                                                                                                        $53,431
   Population 2013 (millions)                                                                           0.393m
                                                                                                                      3.2 0.4
Source: International
Monetary Fund, 2012

                                                                                                                                                     5
ASEAN Economic
    Community (AEC) 2015:
    Challenges and
    Opportunities
    The ASEAN Economic Community (AEC) Blueprint, signed
    by ASEAN Leaders at the Singapore Summit in November
    2007, is the cornerstone of ASEAN’s efforts towards deeper
    regional integration. It comprises four key pillars and ASEAN
    has been focusing on creating a single market and production
    base. This will lay the foundation for the other pillars to be
    built on and presents opportunities for Singapore companies.

    On the trade front, the elimination of tariffs on physical goods
    trade has largely been realised, though non-trade barriers
    remain a key impediment. In terms of investments, AEC is
    expected to liberalise more sectors for foreign participation.
    Singapore companies should however be aware that each
    country is still allowed to exercise some flexibility, and that
    implementation progress also differs.

6
ASEAN Economic
      Community
    (AEC) 2015:
Challenges and
Opportunities

           The blueprint outlines four key pillars
           // A single market and production base
              Barriers to trade in goods and services will be brought down or kept to a minimum.
              Flows of investment, capital and skilled labour will be facilitated and co-operation in
              sectors designated as priority integration sectors will be promoted.

           // A competitive economic region
              To foster a culture of fair competition and develop or strengthen institutions and laws
              that can allow businesses to compete on an even playing field.

           // Equitable economic development
              ASEAN member states will develop policies aimed at SME development and narrowing
              the development gap between members.

           // Integration into the global economy
              ASEAN strives to integrate itself better as a bloc into the global economy through
              various agreements, including the “ASEAN plus” Free Trade Areas (FTAs) and Closer
              Economic Partnerships (CEP) Agreements with major trading partners.

           In line with our mission of driving external trade and promoting overseas growth of
           Singapore companies, we focus our attention on the first pillar – a single market and
           production base – in this issue of IE Insights, which will lay the foundation for the growth
           of the other pillars. The core areas covered under the first pillar are the liberalisation of
           trade in goods, services, labour and investment in the region. The ASEAN Trade in
           Goods Agreement (ATIGA), ASEAN Framework Agreement on Services (AFAS) and the
           ASEAN Comprehensive Investment Agreement (ACIA) provide the foundation for a single
           market and production base.

                                                                                                           7
ASEAN Economic
                Community
              (AEC) 2015:
          Challenges and
          Opportunities

                           Figure 2: Four Key Pillars of the AEC Blueprint

                                                             ASEAN Economic Community 2015

                                                                        Key Pillars of the AEC

                                                       Competitive Economic              Equitable Economic        Integration into the
                                Single Market
                                                             Region                        Development               Global Economy

                                                                     Core Elements of Each Pillar

                            // Free flow of goods      // Competition policy           // SME development        // Coherent approach
                            // Free flow of services   // Consumer protection          // Initiative for ASEAN      towards external
                            // Free flow of            // Intellectual Property           integration               economic relations
                               investment                 Rights (IPR)                                              through FTAs/CEPs
                            // Free flow of capital    // Infrastructure                                         // Enhanced
                            // Free flow of skilled       development                                               participation in global
                               labour                  // Taxation                                                  supply networks
                                                       // Ecommerce

                                                                         Actions to be taken

                            • Eliminate tariffs and    • Introduce                     • Promote participation   • Enhance
                              non-tariff barriers        competition policy in           of SMEs in the            coordination towards
                            • Harmonise trade and        all member states               building of regional      a common position
                              customs procedures       • Establish networks              production and            in ASEAN’s external
                              and standards              of national                     distribution networks     economic relations
                            • Investment                 enforcement                     and best practices in   • Enhance adoption
                              protection and             agencies to                     SME development           of international
                              liberalisation             facilitate information        • Enhance platforms         best practices
                            • Facilitate mobility        exchange for                    to identify and           and standards in
                              of skilled personnel       consumer and IPR                implement technical       production and
                              through Mutual             protection                      assistance and            distribution
                              Recognition              • Improve physical and            capacity building
                              Agreements                 ICT infrastructure              programmes,
                            • Identify Priority        • Lay policy and legal            to narrow the
                              Integration Sectors        infrastructure for              development gap
                              to catalyse the            ecommerce                       within ASEAN as
                              integration process                                        well as between
                                                                                         ASEAN and the
                                                                                         world

    Source: AEC Factbook

8   8
ASEAN Economic
            Community
          (AEC) 2015:
      Challenges and
      Opportunities

                       Free flow of goods
                       The ATIGA, which entered into force in 2010, contains the full tariff liberalisation schedule
                       amongst ASEAN Member States (AMS), as well as more liberal rules of origin (ROO)
                       for products to qualify for tariff concessions. The implementation of ATIGA is on track.
                       ASEAN-6 has eliminated tariffs on 99.2% of tariff lines, whereas 77.6% of tariff lines from
                       Cambodia, Lao PDR, Myanmar and Vietnam (CLMV) have been reduced to 0% – 5%.

                       Figure 3: Tariff Reduction or Elimination Schedule under ATIGA

                        Product categorisation in      Tariff reduction/ elimination schedule under ATIGA
                        each ASEAN member state
                                                       ASEAN-6 (Brunei                   CLMV (Cambodia, Lao PDR,
                                                       Darussalam, Indonesia,            Myanmar and Vietnam)
                                                       Malaysia, the Philippines,
                                                       Singapore and Thailand)

                        Unprocessed agricultural       Import duties were reduced to     Vietnam: Import duties were
                        products (e.g. sugar, rice,    0% – 5% in 2010.                  reduced to 0% – 5% in 2013.
                        pineapples, etc.)
                                                                                         Lao PDR and Myanmar: Import
                                                                                         duties will be reduced to 0% –
                                                                                         5% by 2015.
                                                                                         Cambodia: Import duties will
                                                                                         be reduced to 0% – 5% by
                                                                                         2017.
                        All other products             Import duties were eliminated     Import duties will be eliminated
                                                       in 2010.                          by 2015, with flexibility of up
                                                                                         to 2018.

                        General exceptions             Import duties are not subject to reduction or elimination.

Source: IE Singapore

                                                                                                                            9
ASEAN Economic
           Community
         (AEC) 2015:
     Challenges and
     Opportunities

                Apart from the reduction and elimination of tariffs, the ATIGA also commits AMS to
                facilitate trade by tackling barriers faced by businesses as a result of burdensome
                customs procedures, technical barriers to trade (TBT) and sanitary and phytosanitary
                (SPS) measures. Key initiatives include eliminating Non-Tariff Barriers (NTBs), establishing
                the ASEAN Self-Certification System and the ASEAN Single Window (ASW) to reduce
                customs administrative burden, and the ASEAN Trade Repository (ATR), a one-stop
                website containing trade related information of all AMS.

                What this means for Singapore companies
                // Singapore manufacturers can export to ASEAN without having to pay tariffs for
                   most products. The increased access to ASEAN’s markets improves Singapore
                   manufacturers’ access to the rapidly growing demand in ASEAN.

                // With freer flow of goods within ASEAN, manufacturing and production costs should
                   be reduced due to lower costs for regionally-sourced raw materials or inputs. This
                   increases the competitiveness for Singapore-produced goods.

                ASEAN has also placed significant emphasis on the elimination of NTBs. Nonetheless,
                discriminatory practices or “behind-the-border” issues remain an obstacle. To address
                these issues, the following initiatives have been developed to help companies tackle such
                barriers:

                // Launch of a publicly available ASEAN Non-Tariff Measures (NTMs) database
                   This database will feature the range of NTMs that companies will likely face whilst
                   trading in each AMS. This is to enhance transparency to traders and serves as a
                   surveillance mechanism.

                // Harmonisation of national standards and technical regulations via the
                   implementation of Mutual Recognition Arrangements (MRAs) by sector
                   Many measures have been developed to harmonise standards across ASEAN. The
                   establishment of MRAs for products (like electrical and electronics, pharmaceutical,
                   automotive, prepared foodstuff, building and construction) will eliminate the need for
                   duplicative testing when such products are exported to ASEAN, reducing the time-
                   to-market. Harmonising technical requirements for products in specific sectors (like
                   medical devices, cosmetics) will also make it easier for Singapore exporters to comply
                   with the regulations when exporting to ASEAN.

10
ASEAN Economic
            Community
          (AEC) 2015:
      Challenges and
      Opportunities

                       Free flow of services
                       The AFAS has several objectives:
                       • liberalise trade in services,
                       • eliminate substantial barriers to trade in services,
                       • enhance cooperation in services, and
                       • provide mutual recognition of qualifications and experiences.

                       ASEAN aims to finalise the 10th and last package of commitments in 2015. Under the
                       AFAS, 12 broad sectors have been identified for liberalisation and five are earmarked as
                       priority integration sectors.

                       Figure 4: Liberalisation Timeline under the AFAS

                                        ASEAN Framework Agreement on Services (AFAS)

                                    Priority Integration Sectors (5)                                     Other Sectors (7)
                          Air transport, e-ASEAN, healthcare, hospitality and       Business services, construction and engineering, education,
                                     tourism and logistics services                     finance, environmental services, culture and others

                                       By 9th Package (2014)                                      By 10th Package (2015)
                         70% equity participation in priority integration sectors            70% equity participation in all sectors
Source: IE Singapore

                       The 12 broad sectors should allow at least 70% foreign (ASEAN) equity participation
                       by 2015. However, each member state can exercise flexibility in implementing the
                       commitments set out in the AFAS.

                                                                                                                                                  11
ASEAN Economic
           Community
         (AEC) 2015:
     Challenges and
     Opportunities

                What this means for Singapore companies
                The AFAS will provide more opportunities for Singapore companies to participate in
                previously closed sectors. The five priority sectors for services integration have been
                identified as most crucial to ASEAN integration and offer potential opportunities for
                Singapore companies in the following areas:

                // e-ASEAN
                   Increased consumer protection and standardisation of ecommerce laws would reduce
                   the costs of overseas expansion for Singapore companies. Firms have the option of
                   setting up a strong local online presence first, before physically entering the market.

                // Logistics
                   ASEAN officials are committed to improving connectivity – with approximately US$4
                   billion5 lending commitment through the ASEAN Infrastructure Fund till 2020. Singapore
                   companies would be able to export their expertise in supply chain management
                   and build up strong networks necessary to support other businesses including food
                   services, retail and even ecommerce. In countries that impose foreign land ownership
                   restrictions, Singapore companies could partner local players with nationwide reach.

                // Air Transport
                   Southeast Asia’s airline industry has enjoyed robust growth over the past ten years
                   fuelled by the entrance of low cost carriers. The AEC aims to create a single aviation
                   market characterised by open market access and a more flexible operating environment
                   for the air transport industry. Airlines would be able to pick up and drop off passengers
                   at more locations and explore different transit combinations. Companies that provide air
                   transport-related services should face fewer roadblocks in operating across borders. It
                   would make more routes commercially feasible and reduce operating costs for airlines
                   and air freight operators. The cost of travel between cities will also decrease, making a
                   regional business model more cost effective for our companies.

                // Healthcare
                   Reputational risk and maintenance of standards are key considerations in the healthcare
                   industry and more Singapore healthcare providers would be willing to invest abroad if
                   they can have greater management control over investments. Under the AEC, foreign
                   companies can enjoy greater autonomy in the hiring of personnel or purchase of
                   equipment and would thus have a greater degree of control.

                // Tourism
                   The liberalisation of the tourism sector and establishment of common standards for
                   tourism professionals would increase service levels across the ASEAN countries and
                   allow local communities to embark on partnerships with foreign equity providers.
                   Singapore hospitality or real estate companies could also participate more actively in
                   the development and operations of attractions or in the refurbishment of historical
                   monuments in ASEAN countries.

                5   Source: “Facts and Data about Southeast Asian Infrastructure”, Asian Development Bank, May 2012.
12
ASEAN Economic
      Community
    (AEC) 2015:
Challenges and
Opportunities

           Free flow of skilled labour
           The AEC blueprint recognises that the flow of skilled labour across borders is crucial to
           facilitating the free flow of services. The ASEAN Agreement on the Movement of Natural
           Persons (MNP) was signed during the 21st ASEAN Summit in November 2012 to regulate
           the temporary movement of skilled workers across borders. Separately, ASEAN has also
           signed eight Mutual Recognition Arrangements (MRAs) in the fields of accountancy,
           architecture, dentistry, engineering, medicine, nursing, quantity surveying, and tourism.
           As a result of the MRAs, skilled professionals in these fields can have their qualifications
           recognised in other ASEAN countries.

           What this means for Singapore companies
           Singapore companies in the services sector often cite the availability of skilled labour as
           a key roadblock to overseas expansion, particularly in developing markets. The freedom
           to move skilled professionals from one country to another would bring down the cost of
           doing business in skilled-labour scarce markets. Singapore-based companies planning
           to internationalise or expand into the ASEAN region will find it easier to move skilled
           professionals to other ASEAN countries. Similarly, Singapore companies who require
           foreign talent to complement our local workforce may tap into a wider pool of skilled
           professionals should they so require, subject to the immigration and visa requirements of
           local authorities.

                                                                                                          13
ASEAN Economic
           Community
         (AEC) 2015:
     Challenges and
     Opportunities

                Free flow of investments and capital
                Investment cooperation is implemented through the ASEAN Comprehensive Investment
                Agreement (ACIA), which supersedes the earlier Framework Agreement on the ASEAN
                Investment Area (AIA), and the ASEAN Investment Guarantee Agreement (IGA). The
                ACIA covers the four pillars of liberalisation, protection, promotion and facilitation, and
                is ASEAN’s instrument to create a free and open investment regime in the context of
                an integrated economic community. The ACIA aims to provide greater confidence to
                investors to invest and maintain their investments in ASEAN. Additionally, the ACIA aims
                to encourage greater industrial complementation and specialisation among the AMS and
                increase intra-ASEAN investment in the region.

                Direct and portfolio investments are protected under the ACIA. It is based on international
                best practices and has comparable provisions on liberalisation and protection. Investors
                can also now make use of clearer and more transparent provisions to obtain approval
                and transfers of investments. In addition, investors will be protected through more
                comprehensive provisions on investor-state dispute mechanisms.

                What this means for Singapore companies
                The development of ASEAN as an integrated investment network would promote intra-
                ASEAN investments and attract more external FDI into ASEAN as a bloc. The streamlining
                of business procedures and enhanced investment protection would reduce the costs and
                risks of Singapore companies doing business in Southeast Asia.

                The availability of financing and arbitration options available in Singapore puts us in good
                stead to attract global MNCs and regional conglomerates to locate offices or ink contracts
                here. This would translate into opportunities for legal, accountancy and HR firms, which
                can serve as partners for regional or global companies looking to establish a pan-Southeast
                Asia footprint.

14
Current State of Play
in AEC
The movement towards the AEC is a complex and dynamic
process that calls for the economic integration of ten
diverse economies. Some sectors for integration have
seen more progress than others. Tariffs on goods have
been almost completely removed, especially amongst the
ASEAN-6 economies and ASEAN continues to work towards
creating an environment in which services and capital flow
unhindered. This process of integration will eventually
increase the overall competitiveness and productivity of
ASEAN as a single economic region and make the region
more attractive to global and pan-ASEAN investors.

                                                             15
Current State
                     of Play
                    in AEC

                                       Plans and priorities have been approved by the respective governments in the AEC
                                       process, though some sectors have seen more progress than others.

                                       Figure 5: Progress on ASEAN economic integration by sector

                                       Progress (%)       0–24          25–49       50–74         75–99          100

                                                                             Trade                                                 Invest-
                             Tariffs            Non-tariff measures                                                    Services               Labor
                                                                          procedures                                                ment
                                               Standards    Other       Single  Single                                 Services      FDI
                             Tariffed Tariffed and regula- non-tariff   window window               Trade     Trade     restric-   restric-    Labor
                              goods amount        tions    measures2     status trade Customs       speed      cost    tiveness     tions     mobility   Average Lowest
              Agriculture,
                               91       88        57          70                                                                     71                    75      57
              fisheries

              Rubber           93       98        98          96                                                                     71                    82      58

              Wood             94       99        96          75                                                                     68                    80      58

              Textiles         96       99        99          73                                                                     81                    82      58
   Goods                                                                  70       58       61        85       94
              Auto             94       94        94          39                                                                     81                    77      39

              Electronics      98       99        57          62                                                                     81                    76      57

              Consumer         94       99        60          56                                                                     81                    76      56

              Resources3       84       93        79          89                                                                     61                    78      58

              Air travel                                                                                                  71         61                    66      61
                                                                                                                                                n/a5
              E-ASEAN4                                                                                                    60         47                    54      47

              Health care                                                                                                 33         83         10         42      10

   Services Tourism                                                                                                       71         90         30         64      30

              Logistics                                                                                                   46         94                    70      46

              Finance                                                                                                     59         64         n/a5       62      59

              Telecom                                                                                                     60         47                    54      47

    Average                    93       96        80          70          70       58       61        85       94         57         72         20         69      20

   Source:
                                       1 Based on assessments of Indonesia, Malaysia, the Philippines, Thailand, and Vietnam. Brunei, Cambodia, Laos, and
   McKinsey Global
                                         Myanmar excluded due to lack of comprehensive data; Singapore excluded to avoid bias toward developed economies.
   Institute integration
                                       2 Includes administrative charges, certificates of approval, import licensing, quantity control measures, internal taxes, and
   database
                                         prohibition measures.
                                       3 Includes mining, and oil and gas.
                                       4 Digital readiness through connectivity, local content, e-commerce, common marketplace for ICT goods and services,
                                         skills development, and e-governance.
                                       5 Sectors not covered in mutual recognition agreements.

16 16
Current State
     of Play
    in AEC

           In summary, good progress has been made for trade in goods and most physical goods
           flow without tariffs between the ASEAN-6 economies. The focus has turned to the
           identification and elimination of non-tariff barriers although this continues to be difficult,
           particularly in the non-commodities sectors as standards and regulations for non-
           commodity goods continue to vary.

           Progress towards the free flow of services has been slower as local governments face
           domestic pressure or resistance against the liberalisation of sectors dominated by strong
           local players or deemed critical to national security. For similar reasons, efforts towards
           facilitating and increasing the flow of investments and skilled labor across borders have
           also seen varying progress across different sectors.

           Nevertheless, the AEC is not a one-off project but an ongoing effort towards creating an
           ASEAN in which goods, services, people and capital flow unhindered. Taken in this stride,
           the continued commitment of ASEAN member states towards the AEC is an encouraging
           sign. When fully implemented, the AEC is expected to increase the competitiveness and
           productivity of ASEAN as a single economic region by allowing international and
           intra-ASEAN firms to fully leverage the comparative advantages offered by ASEAN
           economies.

                                                                                                            17
How Singapore
     Companies Can
     Approach AEC 2015
     Singapore companies need to adopt a pan-Southeast Asia
     perspective and focus on economies and sectors that
     would gain the most from integration, to fully tap into
     the opportunities created by the AEC. While economic
     integration will bring both challenges and opportunities, the
     impact of increased competition from foreign companies
     is likely to be minimal in Singapore which already has an
     open economy. Beyond the AEC, Southeast Asia has sound
     fundamentals for manufacturing and consumerism related
     opportunities. Singapore companies should take a long term
     investment horizon and tap into these growth trends.

18
How Singapore
Companies Can
    Approach
   AEC 2015

           Adopt a pan-Southeast Asia perspective for both opportunities
           and risk diversification
           Singapore companies need to adopt a pan-Southeast Asia strategy and recognise that
           the benefits of increased integration will outweigh the challenges brought about by
           increased competition given that Singapore’s economy is already highly liberalised. By
           entering different markets across Southeast Asia, Singapore companies would be able to
           take advantage of the regional trade and investment flows, particularly in production and
           distribution.

           Companies that have recognised these include our industrial park players. Singapore
           industrial park players have established presence in Malaysia, Vietnam and Indonesia.
           Already well positioned in the region, such companies are poised to benefit from the AEC
           when it comes to fruition.

           Focus on economies that are most ready or likely to gain from
           integration
           The ten members of ASEAN have varying levels of economic development and political
           structures. Thailand has spent as much as 8 billion baht (US$246 million) to prepare its
           companies for the AEC. Indonesia is also likely to benefit with foreign investors keen
           to tap into the largest population in Southeast Asia. Singapore companies can consider
           partnering firms in these countries to leverage their relative strengths to reap benefits
           from the AEC.

           For Thailand, third-country collaboration to take advantage of Thai conglomerates’ strong
           networks in neighbouring countries such as Cambodia, Laos, Vietnam and Myanmar is
           one possible mode. Apart from local or regional companies, MNCs can also make good
           partners for Singapore companies. Regional players are familiar with the local climate
           and have ready contacts while MNC collaboration would give our firms access to larger
           projects, particularly in the infrastructure sector.

           Indonesia, with the largest population in Southeast Asia, is expected to be one of the
           largest recipients for the increase in foreign investment resulting from the AEC. This will
           drive demand for infrastructure and the growth in affluence will increase the consumption
           appetite of Indonesian consumers.

                                                                                                         19
How Singapore
     Companies Can
         Approach
        AEC 2015

                Pay particular attention to sectors that tap into Southeast Asia’s
                strength as a manufacturing, and consumerism hub
                The economic potential of SEA is anchored upon its large and young population of 600
                million people and abundance of land and natural resources. The AEC seeks to maximise
                these strengths by easing the flow of goods, people and knowledge across borders and
                manufacturing and consumerism are sectors that will benefit significantly from regional
                economic integration.

                In the manufacturing sector, the surge in FDI brought about by liberalised investment
                regimes will be accompanied by the flow of expertise and technology across borders.
                Singapore companies can explore locating different parts of their operations across
                different economies to maximise their cost efficiency. Increased productivity and lower
                logistical costs from looser trade regimes would contribute further to reducing costs for
                companies, making the region more attractive as a whole. This will pose benefits for
                Singapore companies as they increasingly look towards ASEAN to hedge against the rising
                costs of doing business in other parts of the world.

                The emergence of an increasingly affluent and connected urban middle class in Southeast
                Asia also creates opportunities for regional and global brands in the consumer sectors and
                the AEC will ease the expansion of such brands across borders.

                Take a long-term approach to investments in Southeast Asia
                In many countries, political, legal and economic frameworks are still undergoing updates
                and revision. These changes are not unexpected and investors need to factor in political
                and regulatory risk when evaluating opportunities in Southeast Asia. They should also take
                on a long-term view and not succumb to a knee-jerk reaction. Despite these uncertainties,
                the Southeast Asian economies have demonstrated resilience and strong overall growth
                over the past decade.

20
Conclusion
The economic integration of such a diverse region is not
without challenges. Nevertheless, the AEC 2015 should
not be viewed as a deadline but an ongoing process aimed
at creating an ASEAN in which trade and investments flow
unhindered.

Over and above the AEC, Southeast Asia has good
fundamentals with a large young population, burgeoning
middle class and abundant natural resources. Opportunities
will continue to exist for Singapore companies in the
manufacturing, infrastructure and consumerism spaces and
the move towards integration will yield considerable benefits
for businesses.

                                                                21
International Enterprise Singapore
     International Enterprise (IE) Singapore is the government
     agency driving Singapore’s external economy. We spearhead
     the overseas growth of Singapore-based companies and promote
     international trade. Our vision is a thriving business hub in
     Singapore with Globally Competitive Companies (GCCs)
     and leading international traders.

     Trade has always been the backbone of Singapore’s
     economy. In addition to promoting export of goods and services,
     IE Singapore also attracts global commodities traders to establish
     their global or Asian home base in Singapore. Today, Singapore is
     a thriving trading hub with a complete ecosystem for the energy,
     agri-commodities and metals & minerals trading clusters.

     GCCs are a critical growth engine for the next phase of Singapore’s
     development. GCCs compete on the global stage against the very
     best in their industries. They contribute to Singapore’s economic
     resilience, develop Singaporeans into global business leaders and
     strengthen the Singapore brand. Through our Global Company
     Partnership, we work with Singapore-based companies in their
     various stages of growth towards being globally competitive.
     We customise total solutions in capability building, market access
     and financing for these companies as they internationalise.

     Our global network of overseas centres in over 35 locations
     provides the necessary connections in many developed and
     emerging markets. In Southeast Asia, we are present in eight
     locations namely Bangkok, Hanoi, Ho Chi Minh City, Jakarta,
     Kuala Lumpur, Manila, Surabaya and Yangon.

     Visit www.iesingapore.com for more information.

22
Our Offices in Southeast Asia
Bangkok                                                   Jakarta                                                     Surabaya
International Enterprise Singapore                        International Enterprise Singapore                          International Enterprise Singapore
Unit 1702-1703                                            c/o Embassy of the Republic of Singapore                    SPAZIO 7th floor, Unit 710
17th Floor Sathorn Square Office Tower                    - Indonesia (Jakarta)                                       Graha Festival Kav. 3,
98 North Sathorn Road                                     Block X/4, Kav No. 2, Jln HR. Rasuna Said                   JI. Mayjen Yono Soewoyo
Bangkok 10500                                             Kuningan, Jakarta 12950                                     Kelurahan Pradah Kali Kendal,
Thailand                                                  Indonesia                                                   Kecamatan Dukuh Pakis
T +66 2108 1270                                           T +62 21 522 9274                                           Graha Famili – Surabaya
F +66 2108 1272                                           F +62 21 520 1488                                           Jawa Timur, Indonesia 60226
                                                                                                                      Indonesia
Hanoi                                                     Kuala Lumpur                                                T +62 31 99001265
International Enterprise Singapore                        International Enterprise Singapore                          F +62 31 99001238
Floor 21, Him Lam Street Business Centre                  Singapore Centre KL
Capital Tower                                             Unit 6.3, Level 6                                           Yangon
109 Tran Hung Dao Street                                  Menara Standard Chartered                                   International Enterprise Singapore
Hanoi                                                     30 Jalan Sultan Ismail                                      Union Business Center, #03-11
Socialist Republic of Vietnam                             50250 Kuala Lumpur                                          Nat Mauk Road, Bo Cho Quarter
T +84 4 3848 9151                                         Malaysia                                                    Bahan Township, Yangon
F +84 4 3848 9150                                         T +603 2141 0046                                            Myanmar
                                                          F +603 2141 0951                                            T +95 1 860 3357
Ho Chi Minh City                                                                                                      F +95 1 860 3359
International Enterprise Singapore                        Manila
c/o Consulate-General of the Republic of                  International Enterprise Singapore
Singapore – Ho Chi Minh City                              c/o Embassy of the Republic of Singapore
Saigon Centre, 65 Le Loi Boulevard                        505 Rizal Drive, Bonifacio Global City
8th Floor, Unit 1, 1st District                           1634 Taguig City
Ho Chi Minh City                                          Metro Manila
Socialist Republic of Vietnam                             Philippines
T +84 8 3822 5173/74                                      T +63 2 551 4856
F +84 8 3825 1600                                         F +63 2 551 4366

Our Past Issues
// Vol.1_Jul 2012     China’s Twin Paradigm Shifts - Beacons in a Sea of Change
// Vol.2_Jul 2012     Myanmar: Opportunities in Asia’s Last Frontier Economy
// Vol.3_Sep 2012     Thailand: Resilience and Economic Revival
// Vol.4_Oct 2012     A Win-Wind Situation: Opportunities in the European Offshore Wind Industry
// Vol.5_Nov 2012     Indonesia: Partnering the Private Sector for Growth
// Vol.6_Jan 2013     Malaysia: State of Transformation
// Vol.7_Mar 2013     Forging Ahead in China: A Survey of Singapore Companies
// Vol.8_Apr 2013     Japan: Opportunities Amid Change and Recovery
// Vol.9_Jun 2013     Central China: A Growth Story
// Vol.10_Sep 2013    Driving Singapore’s External Economy Beyond 30 Years
// Vol.11_Sep 2013    Vietnam: Prospects Amidst Challenges
// Vol.12_Oct 2013    Brazil: Beyond the World Cup and Olympics                                                                                  Scan for past
// Vol.13_Nov 2013    Indonesia’s Consumer Sector: Tapping the Consumer Dollar in Food and Retail                                                issues of
// Vol.14_Jan 2014    Myanmar: Navigating the Risks and Opportunities                                                                            IE Insights
// Vol.15_Feb 2014    China’s Third Plenum: Decisive Shifts towards a Market-Oriented Economy and People-Centric Urbanisation
// Vol.16_Oct 2014    Mexico: The Aztec Tiger
// Vol.17_Oct 2014    Recipe for Success in the London Food Services Market
// Vol.18_Oct 2014    Making Inroads: Capturing Intrastructure Opportunities in Asia
// Vol.19_ Nov 2014   The Philippines: A New Awakening
// Vol.20_ Nov 2014   Turkey: Stepping into a New Era
// Vol.21_ Apr 2015   Indonesia’s New Administration: Infrastructure and M anufacturing Opportunities

                                                                                                                                                                 23
Our Global Network

                                                                               V1/May 2015
Abu Dhabi
Accra
                                              This brochure is printed using
Bangkok                                           soy ink on recycled paper.

Beijing
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International Enterprise Singapore
230 Victoria Street #10-00
Bugis Junction Office Tower
Singapore 188024

1800-IESPORE (1800-4377673) local toll-free
T +65 6337 6628
F +65 6337 6898
www.iesingapore.com
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