With ASEAN’s 50th anniversary fast-approaching, Boon-Hiong Chan, Deutsche Bank’s GTB Head of Market Advocacy APAC, and lead of its “Reimagining ASEAN” commemorative special report, summarises the region’s progress in terms of its trade and financial market integration, digitalisation, and human capital development
ASEAN is complex.
Its differences – in terms of demographics, language, comparative advantages and market practices – could be viewed as an obstacle to achieving economies of scale and seamless cross-border operations. Yet, diversity, if nurtured and developed holistically, could also provide the foundation for regional strength. Imagine.
Hence the establishment of the ASEAN Economic Community (AEC) Vision 2025, which strives to create a more holistic and globally competitive ASEAN. The question is: how much progress has been made so far, and how can these goals be better realised given changing demographics, emerging technologies and economic uncertainties?
As the first edition of our upcoming special report on the region – ASEAN Reimagined – outlines, ASEAN is already in a strong position. But, for a highly prosperous and deeply integrated ASEAN to materialise, ongoing efforts to advance critical reforms have to be intensified.
How can ASEAN become a highly integrated and cohesive economy?
ASEAN integration involves both the economic and financial markets; breaking down cross-border barriers for an enlarged market with higher economies of scale.
In terms of progress, the picture is positive: tariff barriers are falling down, regional supply chains are flourishing, and multinational companies in ASEAN are supporting smaller domestic firms’ participations in global value chains.
We are also seeing cross-border utilisation of currently restricted currencies being encouraged. The central banks of Thailand, Indonesia, and Malaysia, for example, have announced their intention to promote the use of regional currencies for trade and direct investment settlement.
More corporates are also hedging their FX exposures – facilitating integration – with financial institutions launching innovative cross-border FX payment services for cost-effective currency transfers.
Guided by an under-reported ASEAN Capital Markets Forum’s blueprint, the region’s capital markets are also a focus for closer integration to build scale and liquidity. Early attempts by the regulators and the private sector have yielded invaluable experience as to how this can be better achieved – as well as highlighting clear opportunities to streamline certain unnecessary duplicative costs.
Yet, despite obvious progress in some areas, our discussions with leading spokespeople in ASEAN highlighted some headwinds; with an increase in non-trade barriers an important issue.
How do we address this? Better regional customs and trade facilitation infrastructure like the Single Window, for one, would help cross-border trade, while better and broader education and resource support for local companies could help elucidate the scope of the opportunities and facilitate their regionalisation.
E-commerce is fast becoming a tool that can add to ASEAN’s pace of integration and boost trade in services. This is a key area where banks can work with regulators and corporates – both local and multinational – to contribute to resilient foundations for accessible digital trade and finance, efficient and robust financial supply chains and cost effective regulatory compliance.
A competitive, innovate and dynamic ASEAN: what’s next?
The low wage advantage enjoyed by a number of ASEAN economies will not last forever. So how will ASEAN economies future-proof themselves? Naturally, many are assessing a formidable arsenal of greater automation, higher-value added industries and mass manufacturing.
It is extremely encouraging – and important – to see the establishment of ASEAN Masterplans that put digitalisation and connectivity at the very heart of regional policy. Across ASEAN, its member states are also establishing national strategies, while the private sector forms its own fintech associations and initiatives. As one example: an active ASEAN blockchain community chatroom thrives with over 200 members who debate new developments and exchange experiences. In addition, Singapore has recently announced e-commerce and establishing a digital economy as key planks of its 2018 ASEAN Chairmanship.
Yet, from speaking to experts across the region, one long-term challenge kept cropping up: inclusivity. For ASEAN as a whole to benefit from digitalisation, we need fast, affordable and accessible internet for as many as possible. We need smaller companies to be able to easily invest in technology. We need skills-based education that can prepare successive generations for a more digitally-enabled ASEAN. Otherwise, we are staring at a potentially large digital divide.
Similarly, e-commerce must be easy to tap into. Data needs to be able to flow cross-border, and we need regional cybersecurity standards and co-operation if we are to avoid each ASEAN economy becoming its own stand-alone digital fortress, inhibiting connectivity.
It is therefore imperative that ASEAN policymakers, regulators and the private sector all come together now to create sustainable and resilient economic, industrial and financial sectors before the young demographic dividend clock runs out. In this respect, an ASEAN regional fintech and innovation advisory council would be a significant step forward.
Why is a resilient, inclusive, people-oriented ASEAN so important?
Enhanced human capital raises output and productivity as skilled workers are able to both leverage technological advancements and further innovate. ASEAN, with its 600 million population, is asset-rich in this respect.
Yet, closer engagement among government, employers and training providers is needed to meet evolving skill demands as many ASEAN countries recalibrate their economic models. Increased mobility of skilled personnel within the region would also help develop skills and plug gaps, such as in the areas of data management and cybersecurity.
With slowing growth in China, changing trade patterns and increasing uncertainty around US trade policies, there is a danger that ASEAN members’ outlooks may shift away from being global or regional, to more inward perspectives. However, ASEAN’s regionalisation momentum – which builds scale, opportunities and attractiveness to investors – remains strong.
It should therefore continue to look outwards. Increasing co-operation with the EU – especially with respect to inter-region trade and the exchange of digital and cybersecurity experience – should be one area that should be explored further.
So, how can ASEAN meet its goals in the face of such rapid change?
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Director, Head of Market Advocacy, Asia Pacific