ASEAN chiefs fear rising protectionism

Originally published in Financial Times, 8 September 2014

The chief executives of some of the biggest companies in the Association of Southeast Asian Nations (ASEAN) have warned that efforts to create a liberalised economic zone for the 10-member bloc are faltering amid signs of rising protectionism and without commitment from Indonesia, the bloc’s largest member.

ASEAN, whose members have a combined population of 620m, has emerged as one of the world’s fastest growing regions since the financial crisis of 2008 as a burgeoning middle class, urbanisation and robust commodity exports propel their economies.

If it were a single country, ASEAN would rank as the world’s seventh largest economy, with a combined gross domestic product of $2.4tn in 2013.

Foreign investment has been pouring into the region at a record rate. On Monday Philips, the Dutch electronics group, unveiled plans for a new ASEAN regional headquarters based in Singapore.

However, frustration is growing among many large domestic companies in ASEAN that efforts to remove non-tariff and other barriers envisaged in an ASEAN economic Community planned for the end of 2015 are moving too slowly.

“We are a long way from where we need to be, that is the truth”, said Piyush Gupta, chief executive of DBS, Singapore’s largest bank by assets.

The private sector is frustrated by lack of progress in areas such as harmonising ASEAN’s 10 different tax systems and tackling a myriad of non-tarriff barriers, the executives said at a meeting of the ASEAN Business Club, a private sector initiative to promote ASEAN economic integration.

Indonesia, ASEAN largest member, has in recent years implemented successive measures that further limit foreign ownership and the hiring of foreign workers. An attempt last year by DBS to buy a stake in Bank Danamon, an Indonesian bank, founded after Jakarta capped single ownership of banks to 40 per cent in most cases.

“ASEAN is nothing without Indonesia and unless the government in Jakarta pulls back from economic nationalism I think we’re going to really fall short,” said Nazir Razak, chairman of CIMB, the second-largest bank by assets in Malaysia, ASEAN’s third-largest economy.

Fauzi Ichsan, an economist and head of government relations for Standard Chartered in Indonesia, said it was hard to envisage the country’s biggest companies welcoming regional economic integration.

“They are scared that they will have their markets eaten by competitors from Malaysia and Singapore,” he said. “In the banking sector, the bitterness was quite apparent in the opposition to the merger of Bank Danamon and DBS.”

Tony Fernandes, The Malaysian entrepreneur who founded AirAsia, the region’s biggest low-cost airline, said protectionism was partly due to the role of government in business, especially in airports, many of which are straining to cope with rapid growth in are traffic.

“One thing that complicates ASEAn is that government is so involved in business,” he said. “Governments have to distinguish: are they regulators and facilitators of business – or are they in business?”