Point for Asean to ponder on the AEC

06 September, 2014
As appeared in TheStar.com.my

The Asean economy, at US$2.4 trillion (RM7.66 trillion), the seventh largest in the world, is set to become the fourth largest on its present growth trajectory by 2030 – behind only the European Union, China and the United States.

With the third largest population in the world, Asean’s economic growth will drive one of the most expansive consumer booms, making it a magnet for multinational companies from across the globe.

Together with a population composition of almost 50% under 30 years of age, Asean will reap the demographic dividend which will drive further growth in the future at a time when all of the world’s economic hotspots, including China, are ageing.

Little wonder then that companies from the United States, Japan, Europe and other places are circling round the Asean wagon, as I have written before. Not to mention Asean’s own large services, financial, plantation and other conglomerates.

The SMEs (small and medium enterprises), in which category must also be included the micro companies, form the backbone of the Asean economy.

Over 90% of the total number of enterprises in Asean economies are SMEs, as defined nationally. They provide between 63% to 99% (Indonesia) of the employment. However, in terms of gross domestic product (GDP) and exports, they generate only about one third of the regional total.

This points to two things: their social and political importance; and their economic significance, even if not overwhelming in terms of output which, in turn, speaks to the need to improve SME productivity, to get them on the supply chain that feeds strong regional growth and to gain from the broader export markets opened up by FTAs (Free Trade Agreements), the RCEP (Regional Comprehensive Economic Partnership) and the TPP (Trans-Pacific Partnership).

If Asean SMEs are retarded or fail there will be wide-ranging consequences. It is critical therefore that the benefits of regional economic integration, and Asean’s great promise, are maximised for SMEs.

The Asean SME Working Group is a good platform to make SMEs more competitive but, as always in Asean, there is a proliferation of bodies.

The more important thing is to get suggestions and proposals implemented.


Plan of action

As the relatively new chairman of the Asean Business Advisory Council (ABAC) Malaysia, and the incoming chairman for Asean as a whole in 2015, which will be the final lap to the AEC, I am disturbed by the fact that SMEs are in danger of being left behind in the Asean integration process.

The Asean economic ministers, including Datuk Sri Mustapa Mohamed, realise this, but they have not been able to fashion a strategic, integrated and practical plan of action to address it. It falls on Malaysia, as the next Asean chair, to do so.

A report by ABAC in March this year, which has been brought to the attention of the ministers, proposes that three immediate steps be implemented:

1. An integrated information campaign which uses technology but moves out of the cities to the outer-reaches of the region as well, be launched to let the SMEs know what is coming as well as the opportunities open to them with economic liberalisation (there are national models available such as the Philippines’ “Doing Business in FTAs” initiative – which is why, I guess, there is less anxiety there about market liberalisation and more excitement about opportunities, which I wrote about not too long ago);

2. Simplification of the certificate of origin and rules of origin requirements for exports, and also expansion of the laudable Asean Single Window initiative to expedite cargo clearance among Asean members states to other countries with which Asean has FTAs as well as, further, the prospective RCEP;

3. Better access to finance for SMEs which has been a perennial problem still not adequately addressed, with a three specific proposals (a) establishment of an Asean SME bank (b) a quota for SMEs in loan assets and (c) financial institutions to provide guidance to SMEs on book-keeping and how to procure bank facilities.

It must be borne in mind Asean SMEs are way behind in a a rules-based environment having operated mainly all these years on a relational and transactional basis. In many ways they are more concerned about the immediate bottom-line and impinging factors such as rising labour and energy costs.

Their access to technology and modern management methods is also limited. They can become an endangered species, the poor country cousins to the sophisticated multinationals, including regional champions, who can jet about the place, meet decision-makers and push the envelope.

Even if it happened, they will probably not make much use of the Business Travel Card which ABAC has proposed for the longest time to facilitate business travel against visa requirements and restrictions within the region. The big companies will benefit more.

They get around well enough now despite the inconvenience and are often received as VIPs, especially the non-Asean foreigners whose investment and technology are coveted.

The SMEs need assistance and if nothing is done fast enough they will be left so far behind that Asean will face serious socio-economic and political problems. Reports of SMEs feeling they will be overwhelmed by economic liberalisation are not exaggerated. With multi-lateralisation of FTAs, such as through the RCEP and, more demanding, the TPP, the SMEs are going to have one hell of a headache – which could become an even bigger one for policy-makers.


Hugh gulf

We must understand it is not a level playing field. Those well tutored in rules and regulations, such as the Americans and the Japanese, would have a flying start. There is also this dichotomy within Asean which would leave SMEs such as those in Indonesia way behind those in member states like Singapore which not only know how to use those rules but are also larger. So, rather than drive integration, a lack of focus on and action to assist Asean SMEs could cause division. All this is recognised in the Asean blueprints but there is a huge gulf between policy pronouncements and what is effectively pursued on the ground.

Socio-economic stress, even turmoil, must be avoided. It need not be a zero sum game of upheaval or social disturbance, but even a push back or reversal of the Asean economic integration process as a result of pressures from those left behind by it could cause damage to the prospect of an outstanding Asean economy. A go-stop-no go environment is not conducive to investment and growth, let alone socio-political instability.

So an action plan is sorely needed, but not one just beautifully existing on paper. It must be Asean policy that is vigorously implemented.