As the world continues to wait for a resolution to Europe’s debt woes, Robert Pearce, CFO of Davis, Langdon, and Seah’s regional Asia operation, reminds us that the world’s other most celebrated trading bloc is alive and kicking. Robert is the region’s regular contributor to the News from the Coalface section of ACCA’s Global Economic Conditions surveys (the next survey is out soon). He is based in the Philippines, and his views are his own.
By Robert Pearce, CFO, Davis, Langdon, and Seah, Asia
With the ongoing struggles in Europe surrounding debt and the Euro there is a growing concern of a slowdown in Asia. The last real Asian economic crisis was in 1997. However, the global economy has moved on since then and the situation we face today is different in many ways.
China for example has become a major global power after years of successive growth. Investment flowed into Asia as western entities looked to exploit new opportunity. However, the question is how Asia may be affected by a global slowdown such as that we face today.
China has been heavily reliant on global export trade and in recent years has been experiencing high inflation. Export levels appear to be declining as a result of lesser demand from Europe and other western economies. Land and property prices continue to increase albeit at a slower pace than previous due to government implemented policies. In the longer term China is likely to continue to grow but this does not mean that it may experience economic re-alignments along the way.
The Association of Southeast Asian Nations (ASEAN) on the other hand looks promising over the next decade. Historically the ASEAN region has experienced problems with political instability, inflation, employment, social and economic competitiveness. However, in many cases this enables many of its members to forecast only upside potential.
The ASEAN was formed in 1967 by Indonesia, Malaysia, the Philippines, Singapore and Thailand to promote political and economic cooperation and regional stability. Since then other countries have become part of ASEAN such as Brunei (1984), Vietnam (1995), Laos and Burma (1997) and Cambodia (1999).
The ASEAN commands far greater influence on Asia-Pacific trade, political and security issues than its members could have achieved individually. This has driven the ASEAN’s community building efforts.
In order to give you an idea of the ASEAN market place it is important to know that ASEAN Small and Medium-sized Entities (SME’s) account for 96 per cent of all enterprises and 50 per cent to 85 per cent of domestic employment in many member states. SME’s contribute between 30 per cent and 53 per cent to GDP and approximately 19 per cent to 31 per cent to exports. Based on these facts it is clear SME’s play a major role in the ASEAN therefore a set of common objectives was established for all member states:
- A common curriculum for entrepreneurship
- Comprehensive SME service centre with regional and sub-regional linkages in Member states
- SME financial facility in each Member State
- A regional program of internship scheme for staff exchanges and visits for skill training
- A regional SME development fund for use as a funding source for SME’s that are undertaking business in the ASEAN
Financial integration has been a key agenda for member states. The region envisages achieving integrated financial and capital markets by 2015. In addition, member states have endeavoured to introduce a nation-wide competition policy by 2015 to ensure a level playing field. There is also an increase in PPE’s (Public Private Engagement) in order to control improvements surrounding infrastructure and a drive towards mutual recognition of services allowing the qualifications of service suppliers to be recognized in all member states.
In terms of achievement the ASEAN has established free-trade and economic partnerships which are key towards economic improvement and competitiveness. The purpose of the trade agreements is to work towards tariff reductions through to tariff elimination. The agreements are intended to liberalise and substantially eliminate discriminatory measures with respect to trade in services and to promote and facilitate investment flows.
The ASEAN has established the creation of some of the largest free trade and partnership agreements in the world. These include AKFTA (2005 – ASEAN – Korea Free Trade Area), AJCEP (2008 AEASN – Japan Comprehensive Economic Partnership), AANZFTA (2010 ASEAN – Australia-New Zealand Free Trade Area), ACTFA (2010 – ASEAN-China Free Trade Area) and TIG (2010 – ASEAN – India Free Trade Area in Trade In Goods Agreement).
Key to the development of the ASEAN in particular was the free trade area agreement established with China in 2010. This agreement created a market of 1.91 billion consumers that have a combined GDP of about US $5.83 trillion and in terms of consumer market size; this is the biggest free trade area in the world.
Some sceptics argue that the ASEAN may not meet their objectives. However, even with the looming global economic slowdown the region appears to be experiencing growth and investment continues. It is arguable that certain countries in the region may experience a slowdown due to their connections with the west. However, an arrangement such as this offers new opportunity.
The cost of doing business within the region is still relatively low. The ASEAN will surely be a strong contender in decade ahead.