Why ASEAN Integration is Compelling

ASEAN Integration will foster cooperation among ASEAN member countries in terms of economics, environmental, social cohesion and regional security, by enhancing self-management capabilities and promoting regional competitiveness under the ASEAN Economic Community or AEC2015 initiative. This could make ASEAN a self-sufficient competitive block which allows the creation of a regional supply chain. Instead of the member countries competing against each other, more opportunities could be derived by leveraging on specialization and creating economies of scale. It is noted that the region has made significant progress in reducing tariff barriers. The result of this has been greater intra-regional trade between member countries having tripled to more than US$400billion over the last 10 years.

With an economy worth more than US$2 trillion as of last year, ASEAN is collectively the third-largest economy in Asia after China and Japan. Southeast Asian finance ministers predicted the region's economies will expand more quickly in 2012 than the previous year, and pledged vigilance against sharp movements in capital flows. They predicted GDP growth for the region as a whole at between 5.6% and 6.3% for this year, compared with 4.5% in 2011. Downside risks to the region include weak global demand, tight liquidity, rising oil prices and volatile capital flows.

By developing a single market and regional competitiveness with respect to China & India, it will ensure ASEAN and its 10 members, economic sustainability and independence. So instead of a market of 5 million in Singapore alone, Singapore-based businesses are able to reach to the 600 million market size of ASEAN.

Measures to counter Global Shocks

ASEAN finance officials and the heads of regional central banks are naturally concerned with the possibility of economic crisis and are working out potential means of managing the risks cascading to the Southeast Asian economies. One of the steps that the officials have taken is that of doubling a regional crisis fund to US$240 billion known as the  Chiang Mai Initiative Multilateralisation (CMIM).  Protection from the US and European economic crisis – which threatens many regional exporters exposed to the West – would come in the form of integrated finance among member states and boosted access to emergency funds and make it less reliant solely on the International Monetary Fund, officials from several Southeast Asian countries said. The ASEAN+3 (ASEAN, China, Japan, Korea) Macroeconomic Research Office (AMRO) is an independent regional surveillance unit which monitors and analyses regional economies to support CMIM decision-making, should work jointly and smoothly with the IMF. Regional financial safety nets should complement the global financial net and not undermine it.

Regional Infrastructure Investment

The new US$485 million ASEAN Infrastructure Fund (AIF) is ASEAN's largest financing initiative to date. The fund will help to finance the development of road, rail, power, water and other critical infrastructure across the region, which have been estimated at some US$60 billion per annum by the Asian Development Bank (ADB). The AIF is expected to finance around six new infrastructure projects in the region each year, to remedy deficiencies in connectivity within the market. This will   boost trade and its efficiency, foster economic growth and create more job opportunities .

Differences in Economic Progress

According to the World Bank, Singapore and Brunei are the only ASEAN countries that are considered high income. Malaysia and Thailand are categorised as upper-middle income economies, while Indonesia, the Philippines, and Vietnam are lower-income economies. Cambodia, Laos and Myanmar, on the other hand, are low-income.

Each country has its own relative strengths and weaknesses. However, as barriers between the ASEAN countries are reduced, the region as a whole should be able to combine their strengths and emerge more competitive on the international field, to balance the future dominance of China and India. The fundamental shift is accelerating in the global economic landscape with the decline of the West and rise of China, and ASEAN has to respond to the changing game through deeper integration.

Among the ASEAN countries, Singapore is the only one that is innovation-driven. Malaysia is moving towards an innovation-driven economy, but like Thailand, it is still an efficiency-driven economy. Indonesia is a mix of efficiency-driven and factor-driven being the largest market in ASEAN, while the rest are still very much factor-driven.

This offers the global business community looking into the ASEAN market varied options for their phased expansionary and long-term plans for the region.

Room for Growth

The low hurdles to growth can also be seen in the GDP per capita of countries in ASEAN. Compared to the world’s GDP per capita of $10,000 in 2011, only two countries (Singapore and Brunei) exceed this level. Malaysia is nearly on par (based on 2011 numbers) but the next nearest country, Thailand, is only about half of the world’s GDP per capita.

At this level of growth, simple improvements to factors of production should help to support growth. According to the World Economic Forum Global Competitiveness Report 2012-2013, Cambodia and Vietnam are still at the most basic stage of economic development — the factor-driven stage. Myanmar and Laos are not included in this report, but would likely be categorized as such, too. Brunei and the Philippines are in the transition stage to efficiency-driven and Thailand and Indonesia are in the efficiency-driven stage.

At the earlier stages of development, adoption of existing technology and practices, investing in infrastructure, provision of basic institutional framework, and health and education facilities, should help to drive growth. Hence, the region still has a lot of room for “easy” growth.

Challenges ahead

The road to deeper integration in the days ahead leading up to the target 2015 will be increasingly challenging. There are potential risks associated with public sentiment, when foreign businesses establish their presence locally. For ASEAN to move towards deeper integration, consensus among the governments of member countries is required, as it is only natural that individual sovereignty is prioritized over driving ASEAN as one region. However, steps must be taken to tear down domestic "bric" walls – namely bureaucracy, regulation, interventionism and corruption, which may hinder this goal. Protectionism would be the biggest risk for ASEAN growth.

Still, ASEAN remains attractive to investors as it develops into a hot market. Whether it will eventually develop to be key driver for the global economy amid the weakening role of developed countries, will depend on businesses stepping up their efforts to tap into the rising opportunities and intricate possibilities. This regional interdependence will not only draw foreign investments but also strengthen domestic resilience.