Title: Era of the AEC: Scenarios, Stakes and Strategies
Time: Tuesday, 31st March 2015 at 09.00am – 05.00pm
Location: Plaza Athénée Bangkok, A Royal Méridien Hotel
Programme
8:30am
Registration and Coffee
9:00-9:15am
Introductory Remarks
Mr. Ken Koyanagi
Publisher,
Nikkei Asian Review
9:15-10:00am
Keynote and Q&A
Dr. Surin Pitsuwan
Former Secretary General,
Association of Southeast Asian Nations (ASEAN)
10:00-10:30am
Coffee Break
10:30-12:00pm
Panel I: Outlook for Regional Economies in the AEC Era
Mr. Kavi Chongkittavorn
Assoc. Prof. Dr. Ruth Banomyong
Senior Fellow,
Head, Department of International
ISIS Thailand
Business, Logistics and Transport,
Thammasat Business School
Mrs. Kesara Manchusree
President,
The Stock Exchange of Thailand
Dr. Jayant Menon
Lead Economist,
Asian Development Bank
Moderator: Assoc. Prof. Dr. Thitinan Pongsudhirak
Director, ISIS Thailand
12:00-01:30pm
Buffet Lunch
12:30-01:00pm
A Luncheon Conversation: The ASEAN Political-Security
Community and the ASEAN Socio-Cultural Community
H.E. Mr. Lutfi Rauf
Ambassador of the Republic of Indonesia
to the Kingdom of Thailand
H.E. Ms. Jocelyn S. Batoon-Garcia
Ambassador of the Republic of the Philippines
to the Kingdom of Thailand
Moderator: Assoc. Prof. Dr. Thitinan Pongsudhirak
01:30-03:00pm
Panel II: Nikkei Asian Review’s “ASEAN100” Ranking –
Seeing ASEAN as AEC
Mr. Tassapon Bijleveld
Mr. Pipit Aneaknithi
Chief Executive Officer,
Executive Vice President,
Thai AirAsia
KASIKORNBANK
Mr. Surong Bulakul
Chief Operating Officer of
Infrastructure,
PTT PCL
Dr. Sarasin Viraphol
Executive Vice President,
Charoen Pokphand Group
Moderator: Assoc. Prof. Dr. Pavida Pananond
Associate Professor of International Business,
Thammasat Business School
03:00-03:30pm
Coffee Break
03:30-05:00pm
Panel III: How CEOs see Industry and Business in the AEC
Mr. Kyoichi Tanada
Mr. Darren Buckley
President,
Country Head,
Toyota Motor Thailand
Citibank Thailand
Stephen Jaggs
Managing Partner,
Allen & Overy (Thailand)
Moderator: Ms. Gwen Robinson
Senior Asia Editor,
Nikkei Asian Review, and
Senior Fellow,
ISIS Thailand
The public forum will be held in English only
Mr. Serge Pun
Executive Chairman,
Yoma Strategic Holdings,
Myanmar
Introductory Remarks
Mr. Ken Koyanagi
Nikkei, as a Japanese daily newspaper, is determined to become a major regional publication. Last year it
established its business headquarters in Singapore and its editorial headquarters in Bangkok. Why did
Nikkei choose these sites? It is very closely related to the ASEAN Economic Community (AEC). Nikkei
chose Singapore as its business headquarters because it has fewer regulations than its neighbours, it has
simpler labour laws and has a tax advantage, despite it not being the best country for a media organisation
to operate. As ASEAN member countries are able to abolish tariffs and non-tariff barriers, potential
business opportunities will grow.
Despite the potential, there remains much scepticism about the AEC. There is an AEC scorecard which
has filled out around 60-80% in most countries, but time is running out before the December 31, 2015
deadline. The ‘to-do list’ is very long, particularly with regards to non-tariff barriers, and free flows of
people and services, which are only slowly improving.
People are still debating whether it is the right time to launch the AEC at the end of this year, but the
AEC will always be a work in progress. It is not a scheme that can be launched in one shot on one day,
but it will take time. We are already in the Era of the AEC, but we now have to talk about how we are
going to manage and organise this new community in Southeast Asia.
Keynote
Dr. Surin Pitsuwan [Transcript]
“For the last seven years I have been the spokesman of not only ASEAN, but also East Asian integration
as a whole. Looking back at the evolution of Europe, you needed champions of the idea of the vision of
Europe. Europe was able to bring in people from a cross-section of European political ideologies – the
Christian Democrats, the Social Democrats, Communists, Socialists, all colours working towards one
Europe. Henry Kissinger once made a statement that East Asia – as far as growth, technological
advances, innovation – is equivalent to 20th Century Europe. But as far as systems, processes and
institutions, to take care of the problems among them and between them, he said that East Asia is still
19th Century Europe. This means that we need to build institutions, systems and processes in order to
bring us together, integrate and take advantage of all the potentials we have in the region. East Asia is
now the centre of gravity, and ASEAN happens to be right in the middle. East Asia is expected to be the
‘new locomotive’ to pull the global economy out of the crisis we have had since 2008.
ASEAN has something called the ‘Convening Power.’ No other country or dialogue partner could call a
meeting and everybody would want to come, because they have problems or historical baggage between
and among themselves. But when ASEAN calls a meeting, everybody would want to come. Europe is still
knocking on the door for entry to the East Asia Summit.
Why is AEC so important, being hyped so much and is so attractive? Because AEC is the raison d'être of
the ASEAN Community. It is the reason for the ASEAN Community. I remember in the 1980s, leaders
of ASEAN were using the phrase, “The oxygen of foreign investment has been diverted out from
Southeast Asia to Northeast Asia, China, and West Asia to South Asia.” Foreign Direct Investment had
been the main reason for growth, industrialisation and transformation in Southeast Asia. Now without
becoming one integrated, holistic market, Southeast Asia and ASEAN would not be able to compete with
China or India. So, from the very beginning it was the raison d'être, the reason for the being of the ASEAN
Community. Why is it so attractive? Because it is so concrete and relevant: it is about pocketbooks,
income, prosperity and employment, therefore everyone is interested in the AEC.
How much have we achieved? A great deal. You could only think about Southeast Asia without ASEAN.
How much more do we have to do? A lot more, but ASEAN and the AEC are here to stay. AEC
comprises of companies like AirAsia, like CIMB, Bangkok Bank, ThaiBev. These are the components that
make AEC a reality. They are already moving into the region. When you land at Bangkok Airport there is
a big sign from Bangkok Bank saying, “Local Expertise, Regional Aspiration.” CIMB says, “ASEAN For
You: 2.4 Trillion USD Combined.” UOB is all across Southeast Asia already. These companies are
components that make AEC a reality.
We have a long journey ahead. The problem with ASEAN is that leaders, ministers and bureaucrats
conceive these things probably with little support, awareness or participation from the private sector. The
private sector is waiting for the AEC to be a finished product, wrapped in a beautiful ribbon. This will
not happen. Ken Koyanagi is right, it will always be a work in progress, which is much like the European
Union. The EU is now trying to improve upon the areas where it is imperfect. ASEAN is a community in
search of perfection continuously into the future, much like everything else. But ASEAN has a lot to
achieve and to do. Of 2.5 trillion USD that we trade, we only trade among ourselves a quarter of that. An
economic community cannot be sustainable at this level. Compared to NAFTA and the EU, we are far
behind in terms of intra-ASEAN trade. We have tried to increase this for a long time.
We have to focus on the opportunities and potentials on the landscape. We need to encourage and
support our SMEs to cross borders. We need to encourage our young people to cross borders – ASEAN
is not for the old generation, now it is for the young generation to step up to speak in the ASEAN and
global market places. We need to integrate with the global trading system.
There are four goals for the AEC, the first being an integrated market. Second, we have to be
competitive, otherwise we won’t be able to compete with China, India, Africa or Latin America. Third,
we must be equitable between ourselves. This is difficult, because from Cambodia, Laos and Myanmar to
Singapore is a per-capita GDP difference of 54,000 USD per year. That gap is too wide for a community
to be sustained. There is also internal inequity between ourselves: a country like Thailand for the past 13
years has had deep problems between the periphery and the centre, between urban and rural areas. We
couldn’t really have a stable, continuous or effective governance system that could bring the best out of
this ‘Land of Smiles.’ Inequities inside is critical for every ASEAN country. Fourth, is to be able to
integrate seamlessly and effortlessly with the global trading system. You can only integrate with the global
trading and production system if you improve your standards and change your legal systems to
accommodate the rest. You can’t ask for access to the rest of the world’s markets if you close your own.
It has to be a two-way street. That is the logic of globalisation.
So, according to the scorecards, we have achieved more than 80% of our goals, but the measurement is
only at the level of agreements and ratification of those agreements at the national level. It is a long way
from national ratification or legislative bodies, to the full implementation of those agreements across
borders.
ASEAN has stopped short of saying there will be a free flow of people because of its wide inequities.
Europe has free flow of people, but it still has problems with a general trend for people to move into
Western Europe. ASEAN learned the lesson from Europe, so came up with the idea for free movement
of skilled labour. And yet, economies of ASEAN need labour from each other. The fact that it is
inequitable means that it can help each other with raw materials, expertise and labour. Thailand alone has
about 3-5 million foreign workers, many of whom are illegal. Many of these workers are working in the
jobs that Thais no longer want to work in. The fishing industry in Samut Sakorn has more foreign
workers than Thai nationals. If this labour walked out tomorrow, the Thai fishery industry and food
production business would flop. We have these problems, but we need to find the balance, help each
other and rationalise the foreign worker market ourselves. We need to protect them, give them support,
welfare and human rights.
About 140 billion USD per year comes from outside the region. Going where? Not Thailand, the second
largest and most diversified country in ASEAN, nor to Indonesia, the largest economy in the region.
Why? Because of the lack of transparency in these countries. Where does it go then? Singapore, because it
guarantees it will be transparent. Of the 140 billion USD that comes into Southeast Asia, 70% goes to the
service industry, meaning that the quality of life is becoming expected, middle class is growing, education
and logistics are in demand.
We must improve our institutions, particularly tariffs and non-tariff barriers. We have reduced tariffs: this
is on paper and we have done very well. The ASEAN6 countries have achieved a very good record of
eliminating tariffs among us and between us. But more NTBs have emerged because of inequalities. Why
NTBs? Because we would like to protect our markets. The bigger the market, the more reluctant the
country is to open up. I have found that countries in the middle like Thailand, Malaysia and the
Philippines are the most difficult countries when it comes to complying with regional or international
trade agreements. Laos, Cambodia and Myanmar are more eager to comply, because they have a lot to
gain.
Hilary Clinton came to see the ASEAN Secretariat when just had just become Secretary of State in 2009.
She asked me a pointed question: “You have this Charter. How much to you intend to practise?” She
came from the perspective ASEAN a bad name; you come to the summit, you have an agreement and
then you forget about it. I said, “Madam Secretary, we have to make it a ‘living document’, much like your
Declaration of Independence or Constitution. Thomas Jefferson penned the phrase, ‘All men are created
equal, endowed with certain unalienable rights, among them life, liberty and the pursuit of happiness.’ But
he didn’t include the slaves who are human beings. He didn’t include white men without property. He
didn’t include the Indians. He didn’t even include women. But every generation of American leadership
have to appeal to that document in order to expand their own space of freedom to pursue their
happiness, and find their own quality of life. Whether it’s Lincoln, FDR, Kennedy or Obama. ASEAN
will also have to aspire to perfect our community knowing that it will take effort, that the private sector
needs convincing and assistance. You can’t wait on the side-line and wait for it to benefit you. You have
to take risks with us, you have to make a contribution. We have to make it a living document.” The
private sector has to make a move and take risks. This requires a lot of effort from all of us. If ASEAN
succeeds, the world will have one less region to worry about. Help ASEAN succeed and it will be
beneficial for everyone.”
Moderator: Dr. Surin both peddles ASEAN to the world, but also prods ASEAN from within.
Question and Answer
Moderator: When the ASEAN Charter was conceived a decade ago, they didn’t know what they
were getting into. It was largely a reaction to external events, but they also came up with the idea
of Economic Community, Political Security and Socio-Cultural unity. Now, arguably, the
Political Security pillar is a big problem, and if it is not managed then economic cooperation and
integration will be irrelevant. The peoples of ASEAN also don’t know each other, they don’t
speak the same languages and have not travelled widely in the region.
Public Question: Dr. Surin, what is it actually that will happen come New Year’s Eve 2015?
Surin Pitsuwan: You will most likely see a stronger commitment to overcome some of the major
challenges to ASEAN. One would be the elimination of NTBs. ASEAN leaders will know that the world
will not take them seriously if they don’t address this problem. That is already being felt around the
region.
From ratification, which is legislative, to implementation is a long process. Do you have open borders,
immigration officers 24/7, customs officers who understand the requirements and commitments? That is
difficult. Malaysia knows that after three years of relatively new members holding the ASEAN
Chairmanship, the time is ripe for an old member to make progress, solve issues that need to be
corrected, and implementation of agreements that have already been made.
Improving the figure of 25% trade amongst ourselves will targeted, otherwise it will not be a viable
economic community. Perhaps it is the nature of the landscape, but it is difficult to convince the world
that you are one integrated market when the level is so low.
Moderator: Malaysia is the current Chair: it is very equipped, has a good track record and will
want to do a lot this year. Next year is Laos, and in Vientiane they are already preparing to Chair
ASEAN successfully. When we get to December 31st, people will be celebrating, but what will we
see? When the dust settles the first week of January, what will we see, a new visionary statement
about AC 2.0?
Surin Pitsuwan: We will all be recovering from the hangover, at least from the euphoria of ‘everything
ASEAN!’ Laos will inherit momentum from Malaysia. Laos can also focus on the coordination and
cooperation, particularly on the Mekong Basin. Japan, Australia, the United States are certainly committed
to the GMS. When we talk about equity and improving ASEAN, we need to talk about the GMS. It
would be logical for Laos to focus on bridging the economic and social gaps in ASEAN.
Moderator: The private sector is really the locomotive or thrust of economic integration. The
‘private’ involves not only ASEAN companies, but also multinationals. If you leave ASEAN to
governments and officials, it goes very far on paper but stops short on action. So we have to rely
on other drivers. What advice to you have in term of the peoples of ASEAN? How do we get
them to know each other better?
Public Question: What potential impact will the Asia Infrastructure Investment Bank (AIIB) have on
the AEC?
Surin: I think the Chinese plan is something that is necessary and filling up the vacuum. We have talked
about infrastructure financing for a long time. ASEAN has set up its own small committee and fund
which is administered by the ADB. We want to use that 400 million USD to leverage, to encourage even
more money from outside or the private sector to come in. But it is not enough. The need for
infrastructure and connectivity is real. The Community will never take off if we can’t ship our goods fast
and effectively to each other’s markets. In fact, this has been one of the oft talked about NTBs: ships
carrying perishable goods are only allowed to dock in certain ports and at a distance from the market. By
the time the food items reaches the shop front, they have already perished. We need connectivity. We
need infrastructure. What the Chinese are saying is that this is part of the contiguous landscape. For
China, building roads and railroads in Southeast Asia is not foreign investment. It is a continuing
extension of the infrastructure to serve their own economy, to bring in goods and products from outside,
and to export their own goods and products. This is no different from the time that the United States was
trying to build the Western Hemisphere with its Monroe Doctrine. It’s a similar mentality, but targeted to
something that is needed among Asian countries. It is not foreign investment, it is investment connected
with domestic need and necessity. It is very strategic, welcome and necessary.
Public Question: Any advice on how to materialise the AEC as a ‘Living Document?’
Let’s take Thailand as a case study. What does Thailand need to do to improve communication skills?
When you come into Bangkok you don’t feel it being cosmopolitan, particularly compared to Manila,
Kuala Lumpur and Singapore. Nothing wrong with that, it is our inheritance from the past. We have
never been colonised. But we have used that as an excuse for a long time. We need to open up more. We
need English proficiency, a new mentality and better education. We need to open up our minds. Thais are
not very fond of leaving their countries to work outside. I think ThaiBev is experiencing this problem
now. They are trying very hard to train a new generation of businesspeople who are prepared, equipped
and willing to move outside of the Thai economic landscape. Other companies will have to do the same
thing.
I have seen younger Thai technocrats and analysts working for multi-national companies analysing
markets in ASEAN, assessing companies in ASEAN for extra-ASEAN companies to come in and take
over. There are fewer Thais working for Thai companies trying to understand the regional landscape,
trying to take over these companies in the landscape of ASEAN. We have to change that mentality.
Panel I: Outlook for Regional Economies in the AEC Era
Dr. Jayant Menon
The ASEAN Economic Community has made some important achievements to date, but there are a
number of remaining challenges remaining for the next nine months, particularly in getting the region’s
businesses and broader community more involved in the process.
Reform in ASEAN did not start with the announcement of the AEC. ASEAN has a long history of
working towards economic reforms, and the creation of the AEC is a culmination of years of efforts
starting with the decision to establish the ASEAN Free Trade Area and the ASEAN Trade in Goods
Agreement. AFTA, in a sense, sets the platform for the AEC, and indeed many of the achievements of
the AEC scorecards come from AFTA. While AFTA has made huge improvements in reducing tariffs, it
is also worth noting that the ASEAN countries have also pressed ahead in removing the same barriers
with non-ASEAN countries in a non-discriminatory basis, allowing the ASEAN countries access to the
region and worldwide. This is the true sense in which ASEAN has embraced liberal capitalism. This is
distinct to modern-day Europe which is considered a ‘fortress,’ which has focussed largely on reforms
within the group.
Intra-ASEAN trade is stuck at about 25%. There are many good reasons for the region being stuck at this
threshold. Most of the ASEAN economies are still largely competitive, rather than complimentary: they
have similar endowments, they produce similar goods and compete in the same third markets. They
cooperate through the regional supply chain, or “Factory ASEAN” as it’s sometimes called, which is
where further growth will develop (as well as in services and consumer goods).
The real challenge in ASEAN, as it is everywhere, is Non-Tariff Barriers (NTBs). As tariffs in ASEAN
have been going down, NTBs have been coming up, in a sense, to replace tariffs. Attention needs to be
focussed on removing these NTBs, but every time an NTB is eliminated, another barrier crops up to
replace it. This is a real challenge facing ASEAN going forward.
Investment is another good news story, especially in the ASEAN6. These are countries which have
transformed their economic from largely agricultural production to manufacturing, and now services
through being open to FDI. There is no need to really sell this story to the original members; they know
and have benefitted from it. The AEC will allow this to continue.
Based on ASEAN’s own self-assessment Scorecard, the progress so far is around 80%. With the amount
of time remaining, it seems that ASEAN will not meet all of its targets by December 31, 2015, but they
have come a long way. It also doesn’t really matter that ASEAN won’t hit all of its targets, because the
AEC is a journey, not a destination. Work will have to continue for years after 2015; indeed maybe it’ll
never end as we try to improve the investment climate and to meet all of the objectives of the four pillars.
However, the rate of progress has been slowing as the ‘low-hanging fruit’ has already been picked. Now
the more difficult or sensitive issues will have to be focussed on now.
There are a host of challenges, ranging from NTBs, labour, and development divides and inequities.
Economic gaps are narrowing (new members are growing faster than old members), but they don’t seems
to be narrowing fast enough. There also seems to be inter-country inequalities being replaced by intracountry inequalities. Many of the surveys done by the Business Advisory Council of ASEAN paints a
bleak picture of low awareness and even lower preparedness for the AEC, particularly private business.
Ratification of regional agreements might seem simple, but the real challenge is implementation.
Domestic laws might have to be changed which could attract opposition from domestic vested interests
trying to protect their market share, so governments must show leadership to push through reforms.
They must also ensure that enforcement and implementation is legitimate. In ASEAN, there is more
‘carrot thank stick.’ What recourse do you have if a country does not live up to its commitments? It is
very limited.
The way to think about the AEC is not just meeting a set of targets, but the AEC should be seen in a
broader perspective as part of the development aspirations of its members. The AEC should part of a
goal to improve livelihoods, increasing sense of community in the region and ultimately increasing
employment. If it is to achieve these aims, it will cost a lot of money. This money will have to come not
only from regional banks, but also from ASEAN member states’ domestic budgets.
Moderator: Don’t worry about deadlines. The timeline for the AEC should be considered as
‘flexible.’ The income divides within societies but also across borders will be a thorny issue for
the region. Of the 55% awareness of the AEC, probably 90% of that comes from Thailand alone.
The most fundamental issue, however, is how to get regional integration without supranationality. There are plenty of carrots, but there are no sticks in ASEAN.
Assoc. Prof. Dr. Ruth Banomyong
The question on everyone’s lips is, “What will happen on January 1st, 2016? Will the world change?” The
quick answer is, “No.” However these questions are still valid, as it is important to try to foresee the
future so that we can plan ahead from government and private sector perspectives.
So, what will happen if ASEAN is able to integrate and successfully establish the AEC? If ASEAN is able
to implement everything that they promise, what would happen? To determine this, a tool known as a
‘geographical simulation model’ can be utilised. The outputs of this model can point to answers to these
questions.
A number of scenarios were created; first, a ‘baseline’ established on the premise that none of the goals of
the AEC were achieved in the region. The second scenario was based on whether all of the ASEAN
countries were able to meet all of their commitments under the AEC; that information can be found on
the Master Plan of ASEAN Activity which lists all the various infrastructure projects and institutional
arrangements that have to be completed.
Overall, without the AEC, ASEAN will gain 0.32% by 2030. What should be noted though is that
ASEAN countries will not benefit at the same level. Based on the simulation comparing implementation
or non-implementation of the AEC Master Plans on connectivity, in terms of percentage-growth the
country which benefits the most is Myanmar. This is not surprising as it is starting from a low foundation.
However, the country that seems to be losing out from going into regional economic integration is
Cambodia, slightly. It does show that factors of production will move around; Myanmar will be able to
attract more investment and develop a higher level of growth. Another way of looking at these scenarios
is looking at the actual values of how much each country will get from ASEAN economic integration, and
in that case the country which benefits the most is Indonesia, which contains almost half the population
of ASEAN and which has an emerging middle class. The graphical map (above) is even more interesting.
Red represents ‘higher than expected level growth’ while blue represents ‘lower than expected growth’
(not necessarily negative growth). Thailand says that it wants to be the Hub/Kitchen/Detroit of Asia, but
looking at the map Thailand’s growth isn’t as strong as the rhetoric would suggest. In maritime Southeast
Asia, it is notable that the island of Java is coloured blue, because this map does not take into account
national plans for development. Because of the congestion already in Java, a lot of investment and
economic activity will be pushed outside of Java Island and further into Sumatra or Kalimantan.
Apart from having to follow the ASEAN Master Plans on Connectivity, ASEAN member states also
have their own national master plans. In another scenario (below i. and ii.), it is assumed that all of the
countries have been able to implement the AEC, but either i. they have not been able to implement their
national plans, development plans and trade agreements, or ii. they have implemented all of their national
plans and trade agreements. It is interesting, that scenario ii. the country that seems to benefit the most is
Cambodia. So what does this tell us? We have ASEAN and the AEC, but the results and benefits from
the regional plans need to be moderated with countries’ respective national plans. Looking at the case of
Thailand, it is coloured slightly pink or white on the map, which suggests that with its delayed or
underdeveloped projects, benefits not be as forthcoming as expected.
These data present important implications for government and private business. First, while they’re
simulations based on assumptions, they give some foresight on what could occur. From a governmental
perspective, if a country is not happy with these simulations, they will have to work harder to ensure they
benefit from regional and their national plans to attract further investment, improve infrastructure and
increase trade. From a private sector perspective, it gives insight into areas for growth.
Mrs. Kesara Manchusree
The Stock Exchange of Thailand as well as other Stock Exchanges in ASEAN countries, have been
discussing integration for at least five years. There is growing dialogue between the ASEAN Exchanges,
occurring now at least twice per year. From the capital markets point of view, money can flow anywhere.
The market capitalisation of the SET is now at about 120% of GDP. What can be seen is that Thailand
and the Thai market has moved from low-income country to an upper-middle-income country. For 2014,
the net profit growth (excluding the energy sector), the SET grew about 5% compared with the economy
which grew at only 0.7%. However, we cannot just depend on the local market. 40 years ago Thailand was
able to grow because of developments on the Eastern Seaboard and the energy sector, but in this current
period investors must look abroad. 45% of the revenue of the 600 companies listed on the SET comes
from offshore, 25% of which is from ASEAN alone. Among these 600 companies, about one-fifth
operate offshore run offshore businesses, more than double that of 10 years ago. As a result of many toptier Thai firms already expanding into Cambodia, Laos, Myanmar and Vietnam (CLMV), consumers in
the region love using Thai products. Looking into the capital markets among ASEAN markets, in
Thailand, Malaysia and Philippines the stock markets are much larger than the banking and lending
sectors (in Singapore this is reversed, as it is a regional banking hub.) The capital markets in ASEAN have
grown very strongly.
In capital markets, it must be remembered that despite growing linkages and exchanges, every country is
still competing against its neighbours and that there are still huge development discrepancies within the
region. Although we are moving towards integration, there remains ‘competitive cooperation’ which will
endure longer than many expect. It should also be noted that competition from non-Southeast Asian
sources will increase as ASEAN becomes a more attractive proposition. Competition from the global
market may thus drive cooperation between ASEAN stock exchanges.
Moderator: It seems that some ASEAN economies are still bank-based rather than capital
market-based. The Thai listed companies investing abroad, it seems that they follow geography
as it seems as if their investment strategies are focussed on mainland Southeast Asia.
Mr. Kavi Chongkittavorn
There are 265 days until the AEC deadline. Can all of the 667 action plans be met before January 1, 2016?
So far, 80% have been completed, but these are the ‘low-hanging fruits’ ripe for the picking. The
remaining 20% will be the most difficult, and the future of the AEC will hinge on whether these can be
completed.
The simulations provided by Dr. Ruth will be impossible in the case of Thailand. The connectivity plans
of the region are extremely ambitious, but so far all of these good plans haven’t been properly
implemented (although China’s AIIB may come to the rescue on this front). Surin was one of the most
active Secretary Generals of ASEAN, but he had no real power or ability to distribute funding. ASEAN is
an organisation which has survived for nearly 50 years by being neither too weak nor too strong. ASEAN
has a convening power and had become central to the regional architecture because it is not too
threatening.
People are so interested in the AEC because it is about dollars and cents. But the AEC will go nowhere
without the success of the ASEAN Politico-Security Community or the most important ASEAN SocioCultural Community plans. So far, after the ASEAN Charter and ASEAN flag, the only semblance of
ASEAN Identity is the ASEAN Lane at airports in the region. Thailand sees the ASEAN Lane as a
temporary measure to promote tourism, they miss the fact that it is part of the ASEAN Charter as a
permanent measure to build identity and connectivity.
There is slow progress on implementation of its Community plans. ASEAN, and Malaysia as its current
Chair, would like to push hard on this issues. When Malaysia Chairs, big things happen (although this
time it seems some domestic turmoil might dilute its Chairmanship.) Surin mentioned that ASEAN needs
a ‘Champion,’ and this year Malaysia will try to promote the AEC so that the implementation figure gets
up to 95-97%.
Thailand has a lot of problems, and it appears that it won’t be ready for the AEC. One of the biggest
problems facing ASEAN is implementation at the national level. In the case of Thailand, there are around
106 pieces of legislation that the National Legislative Assembly need to amend or pass. Thailand is the
first country to make the AEC campaign an industry. Nearly 9 billion baht has been used to promote the
AEC in every city and village in Thailand, however there is little recognition of what it actually represents.
The Thai government has targeted this campaign towards the private sector, but it is the private sector
which has been most problematic. Small and Medium Enterprises, in particular, are not ready, they are
scared of foreign companies and worried that they will not be able to compete. Compared to SMEs, large
companies are much better positioned and prepared. Thailand does have academic ASEAN experts, but
they tend to think in silos. They do not see the AEC in a holistic manner. Since 1975, Thailand has put
ASEAN at the cornerstone of its foreign policy. AEC, therefore, should be the heartbeat of Thailand.
Panel I: Question and Answer Session
Moderator: Very sobering, but realistic. The great frustration and attraction of ASEAN is that
once you start to talk it down, it’s not as bad as you make it sound. But once you talk it up, it’s
worse than you think. The reality is somewhere in between.
Public Question: A few weeks ago the Central Bank governors met and announced an ASEAN Banking
Integration Framework. What are their intentions, and how will it shape financial integration going
forward?
Jay Menon: This should be considered the broader context of what is going on with ASEAN+3. A key
initiative associated with this is the Asian Bonds Market Initiative which aims to deepen local currency
bond markets in the region and increase their role in financing. This comes out of the ‘double-mismatch’
problem which sparked the Asian Financial Crisis in 1997, when currencies and durations were not in line
resulting in huge exposures when the exchange rates adjusted. All of these initiatives feed into the broader
development of regional markets for banking, capital and other forms of finance.
Moderator: On the subject of the Asian Bonds Market Initiative, how do you view the Asia
Infrastructure Investment Bank initiated by China? Now pretty much everyone has joined,
except for the United States. This will be a daunting challenge to the ADB.
Jay Menon: This is a personal view: I think the AIIB is a welcome development. We have heard about
the tremendous financing gap that exists in this region for infrastructure. ADB, the World Bank and
bilateral agencies cannot come up with the necessary money required for construction. China has the
world’s savings, so they’re looking to use it productively. The only concern, which has been widely
voiced, has been about governance. Will this be a race to the bottom in terms of regulations, protections
and safeguards? The approach taken by the AIIB is to adopt the national rules and laws that exist in each
country, the ADB and World Bank have standards that usually exceed domestic regulations.
Moderator: This is a case where the US is out, but Japan is ambivalent.
Public Question: Not all SMEs are fit for more regional integration and cooperation, but what are the
key elements that are preventing SMEs from entering the market? Is it access to information, more
structural issues, technology gaps, or role in the regional value chain – what is holding them back?
Ruth Banomyong: The biggest challenge for SMEs is that daily life is a constant struggle just to survive.
They don’t really have much time to reflect or think about what the future holds because they have to
survive the present. Of course, they hear about the AEC frequently, but they have no idea what it means.
SMEs must be given the skills to allow them to move within the AEC. They are also often concerned
with the challenges, rather than the potentials, of the AEC, particularly with regards to a potential flood
of foreign competition coming into Thailand (despite the reality being that foreigners are all already here).
The initial impression for SMEs, before thinking of investing abroad, is to think of how to protect their
domestic business.
Moderator: This sounds like a Public Goods problem, so perhaps the ASEAN governments
could step in to help, facilitate or finance some of the connections.
Kesara Manchusree: In terms of the SET, over the past few years there have been small companies
coming to list on the exchange, but we have found out that those new companies have plans to expand
into the CLMV (not ASEAN as a whole).
Public Question: When I go to these seminars, I get a feeling that there is some hesitancy or even
reluctance from Industry on the AEC. Is there any sector, in any ASEAN country, that is pushing for the
AEC?
Public Question: Prof. Ruth has argued that Indonesia will greatly benefit from the AEC. Could you
elaborate a little more where the benefits will be seen?
Moderator: Any sector in ASEAN that really wants the AEC? The geopolitics of the logistical
ambitions of China: the ADB has been a prime mover of the GMS, but is China stealing its
thunder now?
Jay Menon: China is a member of the ADB. They would like to be a bigger shareholder in the ADB,
World Bank and IMF, which so far they haven’t been able to achieve, so the advent of the AIIB is
probably a response to that. The world is changing, and the institutions don’t yet reflect those changes,
which is what is frustrating new emerging countries like China. In the GMS, China is playing an
important role in terms of developing infrastructure. There are some very unusual projects such as rapid
rail links between Laos and China (which will likely be a disastrous project for Laos), but by-and-large,
China’s role has been very positive.
There appear to be more sectors rallying against the AEC than calling for its acceleration, there is still a
protectionist sentiment in ASEAN, especially in the new member countries. We also have to distinguish
between national interests and vested interests. There are a lot of vested interests standing in the way of
realisation of the AEC, because quite understandably they’re worried about losing market share to foreign
entries of firms. Reforms must take place, consumers should benefit by having more access to products
and services at a competitive price, and that incumbents do not convince governments to limit entry.
Kavi Chongkittavorn: The areas that the AEC is pushing are tourism and education. Many countries are
trying to make sure that travel within ASEAN is visa-free. Implementation of this agreement is long
overdue.
Panel II: Nikkei Asian Review’s ‘ASEAN100’ Ranking – Seeing ASEAN as AEC
Moderator: The media and Thai government have focused a great deal on regional integration
and the AEC, particularly the potential it will bring for firms to expand overseas. Thai firms are a
part of this wave of regional expansion. But when a region expands, not only firms within the
region see the opportunities, but also multinationals outside ASEAN and Asia. How will
intensified regional integration, which allows multinationals to enter, affect your industry? How
competitive they would be and would they post threats to regional players?
Mr. Tassapon Bijleveld: People are the key drivers for every business. Within the ASEAN region, there
is great diversity and gaps among people in terms of languages, education, and culture. However,
Thailand would continue to fall behind further if the education system remains below other ASEAN
countries’ standards. In addition to human resources, the physical and network infrastructure would be a
hurdle to foreign investment into Thailand, particularly in the next 15 years. Currently, Thailand has lost
many opportunities due to its insufficient infrastructure. At this stage to be regionally competitive,
Thailand should aim to enhance these key drivers same level as other ASEAN countries within the next
5-15 years.
Mr. Pipit Aneaknithi: Banks play important roles in facilitating the movement of trade, investment and
funds. Competition within the region for local banks has intensified as foreign multinationals have
established themselves in the past several years. The regional integration in 2016 will post opportunities
especially in terms of intra-regional trade and investment. From historical data, the Free Trade Agreement
(AFTA) between ASEAN members boosted financial flow not only in ASEAN but also from ASEAN to
China. During 2007-2008 Financial Crisis, stable regional trade shielded ASEAN from global financial
crisis. In the same line with what Tassapon has mentioned, soft infrastructure, quality of workforce and
legal infrastructure to facilitate borderless banking will benefit the region enormously, not only to the
banking industry but the overall business and economics of the country. In addition, Thai firms will also
need to start learning to adapt to others’ business practices in order to learn and create international
business platforms and business models to counter upcoming competition.
Mr. Surong Bulakul: ASEAN is a unique region with a combination of high growth, low GDP versus
low growth, and high GDP countries. The opening up of borders will let the free flow of goods, capital
and labour. Beside positive perspectives, it is also important to realize that vast differences between
countries still exist. The laws and regulations of each individual country play a significant role in
facilitating or impeding free flows of goods.
In term of energy, countries such as Indonesia, Malaysia and Brunei are the region’s main energy
exporters while Thailand, Singapore, and The Philippines are facing energy deficiency problems. PTT has
been investing in the region for more than 20 years as suppliers and traders, and thus local knowledge is
essential for domestic business. For example, foreign energy retailers such as Q8, Petronas and BP have
tried to penetrate Thai markets in the past 20 years but could not grasp market share from domestic
players. However, when the business landscape changes in the coming future, the larger economies of
scale and scope will allow local players, as well as foreign multinationals, to gain more competitive
advantages. Consequently, winning local markets through services will be more important than ever.
In addition to market success, the other crucial determinant on energy firms’ success is the access to
natural resources. The major barrier of this industry is the protective regulations to their national
resources, as seen in the case of Thailand and Cambodia. Both countries share the same resources under
South China Sea, however, political sensitivity between them impedes oil and gas exploration within the
region. The regional integration will need to eliminate these non-tariff barrier issues and promote
collaboration between member countries. There may seem to be opportunities for big business, but on
the contrary, this may raise concerns among small and medium enterprises who are less competitive and
might suffer from the greater competition.
Dr. Sarasin Viraphol: Although there may be more competition under the AEC, the market will also
grow enormously and thus businesses will benefit from greater economies of scale and scope. CP and its
competitors will benefit from access to larger markets, capital and qualified people. CP welcomes
competition because competition means access to more market opportunities and potential customers,
corporate clients, and stakeholders. What makes CP standout from other competitors is the strategy it has
employed. CP has developed effective business models not in only Asia, but also Europe where it can
enjoy a long-term benefits.
Moderator: Business in general tends to feel good about the expanding pie that allows them to benefit
from economies of scale and economies of scope. I just have one follow up question before a specific
question to each firm. We have heard so much about how regional integration would facilitate business,
but in your industry, do you think that business have taken enough advantages of all these regionalization
schemes that are out there?
Mr. Tassapon Bijleveld
The aviation industry is one of the most protected industries in the region. Thai AirAsia has been in the
industry for more than 11 years. When it began, low cost carriers (LCC) were not very well known. At the
moment, major airports in Singapore, Indonesia, and Vietnam are fully filled up during the 2 am – 5 am
period. The turnover of both domestic and international airlines operators is at 3-5 minutes at Don
Muang Airport. As a consequence, it is a natural barrier from existing competitors and the limitations of
airport capacities that impedes new comers to enter the industry. To answer the question, although rules
and regulations are open for free competition, there are still hidden barriers in the competition, meaning
that newcomers will need to look for opportunities elsewhere to grow. At the same time, new
infrastructure to serve the market is also needed.
Mr. Pipit Aneaknithi: Within ASEAN region, the financial services sector can function very well.
However, as competition rises in the near future, local players will be forced to differentiate their
segmentation from personal banking, corporate banking, and international trade service or even to microfinance. Regulators will need to work together to promote true liberalization for the future sustainability
of the flow of finance and to facilitate trade within the region. Further, full liberalization would allow
financial access to rural areas across the region.
Mr. Surong Bulakul: Thailand is fortunate that as a net importer, it does not suffer from oil price falls.
The main objective for PTT is to explore and secure energy for the whole country. ASEAN integration
would allow more access to energy for those facing energy deficits. There are different energy business
environments in every country in the region. For example, Laos has a very clear environmental friendly
policy. The country does not welcome heavy and dirty industry, but rather pushes forward renewable
energy. Therefore, PTT invested in the Xayaburi Damn in Northern Laos to provide hydro-electric
energy for Thailand, particularly in the north and north-eastern part of the country. On the other hand,
Myanmar, which has one of the richest resource endowments in the region, allows PTT to exploit natural
gases, hydro-electronics and coal. In the southern part of the country which connects to Malaysia, there
are coal production sites to supply coal for electricity generators. Regional integration will lower energy
prices as there will be more internal supply from exporting countries. Once integration is implemented, it
can be ensured that the competition is healthy.
Dr. Sarasin Viraphol: Many of the concerns at the moment are only at the government/political level
which beyond corporate control. The issue for the moment for every manufacturer is to encourage
growth and consumption in the region without fear of inflation, or fear of possible impact on creating an
income gap. These concerns should be addressed by the governments of the country, and its people as it
will reap the subsequent benefits. Thailand wants to be a smart economy, but by looking around, there is
still no evidence to show the potential growth. Eastern seaboard project in the past 30 years has not been
fully implemented. Thailand may need to be reinvented in order to create growth which will attract
foreign investment. Currently, Thailand is not ready for AEC yet and if the country only relies on its
existing inheritance, it will not benefit but rather suffer from AEC integration.
Moderator: One of the key issues market integration is that firms would have to adjust their overall
strategy in terms of regional operations. What is your strategy plan for regional integration?
Mr. Tassapon Bijleveld: ASEAN is not one community as Europe where a business can be set up
under a single law, using a single currency. Before EU reaches that point, they experienced many
difficulties. ASEAN has just started AEC Blueprint, and the markets are still separated. For AirAsia, there
are AirAsia hubs in Malaysia, Thailand, the Philippines, Singapore, India, China, and Japan, which
although the planes hold different nationalities, they operate under a single platform. Therefore, people
can easily connect from place to place which allows AirAsia, as a group, to grow borderless under a single
brand. In addition, Thai AirAsia has established connections from spoke to spoke in small cities to
encourage more passenger and cargo traffic within the region. For example, Thai AirAsia started
Undonthani – Phuket route to allow passengers from Laos to fly directly without having to connect via
Bangkok. In addition, it also set strong cargo routes near major industrial zones to prepare for more flows
of goods in the future. For the coming regional integration, other than road and rail, airlines will play
important roles in connecting the region together.
Mr. Pipit Aneaknithi: By considering financial flows in the region and between ASEAN and
China/Japan, it is very challenging for the banking industry to capture the growing market. For Kasikorn
Bank’s strategic direction, the preparation for people to serve foreign clients is an essential part of the
service industry as it will facilitate trade and investment flows not only at the regional level but also at the
global level. Currently Kasikorn Bank is collaborating with different international banks to exchange
knowledge through human resources. For example, Kasikorn Bank is currently working in collaboration
with Japanese banks by sending KBANK staff to Japan and invite Japanese officers to work in Bangkok
in order to learn and to facilitate international clients. For the next step, KBANK will continue to
promote this collaborative business model between ASEAN regional banks to improve cross-border
financial sector cooperation and to assist corporate client expansion.
Moderator: As PTT is a state-owned enterprise, how does PTT act as a private company to serve
government interest as well as shareholders’ interest at the same time?
Mr. Surong Bulakul: Basically, the roles of PTT are to ensure the sufficiency of energy and to maximise
shareholders’ value. PTT has had leverage outside Thailand particularly within ASEAN (except Brunei)
for more than 20 years and has gained experience and local knowledge very well. For PTT businesses,
ASEAN can be divided into 2 parts; Mainland ASEAN and Maritime ASEAN. The motive for PTT to go
outside Thailand is mainly for resource seeking in Myanmar (coal production sites), Laos (hydroelectronics power plants) and in the gulf of Thailand (oil exploration sites). However, PTT is also
expanding into other related business such as gas stations and retailers (in a Joint-Venture agreement with
CP) to strengthen its business and to provide greater value to its customers. In the near future, PTT is
expected to have gas stations in every regional road and highway to support road transportation including
northern highways that link from China to Rayong and from India through Phisanulok to Vietnam. In
addition to road transportation, PTT also serves the aviation industry in the region, in which will allow
mutual benefit if both industries are going in the same direction.
In order to prepare for the integration, PTT realised the importance of adapting to local customers so
that foreign players cannot grasp market share in Thailand. Therefore, when PTT invests abroad, it also
adapts its strategies to fit local cultures and business environments. In addition, PTT, together with its
partners will need to establish strong cooperation to support each other’s growth within region.
Dr. Sarasin Viraphol: CP is known in the region and elsewhere as a company that is successful
everywhere, but particularly in China. CP’s overseas operations are most diversified in China. Besides
China, India is also an important economy, as well as the future expansion of ASEAN. Just like PTT, CP
is practically in every country in ASEAN except Brunei. CP businesses actually has no boundary. In the
value chain, CP can select and choose which part of the value chain it wants to emphasize. So today, CP
is in every part of the value chain from upstream to downstream. CP produces animal feed and food for
people and has businesses in logistics, retail, and coffee (not only TRUE coffee but also another brand
call ‘Community Coffee’.) CP thinks beyond ASEAN’s 600 million people, focusing also on the 3 billion
people in China and India. In the past, CP has received support from not only the Chinese government
but also Indian government. Therefore, if ASEAN government creates a single standard for every
country, it will allow CP to enable every part of the society to benefit. It might sound crony but in Asian
business, all sectors including the state will need to rise together to ensure the sustainability. CP is very
confident and very optimistic about its business model. The rest of growth will depend on the
government’s vision and strategy of how the country will position itself in the global marketplace.
Panel III: How CEOs see Industry and Business in the AEC
Moderator: We are here today with a very distinguished panel to hear about how CEOs in
industry and business view the AEC. Since we are looking at the CEO view of AEC and ASEAN
as a whole, I’d like to turn to each of our panellists to tell us about their businesses and its
positioning in the region.
Kyoichi Tanada: The Asian market has continued growing since the currency crisis in 1997. However, in
3 countries, India, Indonesia and Thailand, the growth has been dramatic. Thai automobile market
dramatically surged since the early 2000s. In 2012-2013 the number were boosted due to the baht order
arising from the flood in 2011. And the first car policy buyer policy is reaching 1.4 million units.
In 2014, the market has dropped sharply due to domestic factors, the political situation, and increased
household debt. Last year the market was 31 per cent. In 2013, the total production was close to 2.5
million units, which was the highest ever. In 2014, this dropped to 1.9 million due to decreases in
domestic demand. However, Thailand still has the highest production volume in ASEAN. 40% of
automobiles manufactured in Thailand came from Toyota. In 2014, the export unit reach 1.1 million
units. Exports account for 781 billion baht, which broke the previous year record high. Cleary, the
automobile industry is the key industry contributing to the Thai economy. Many countries now import
cars from Thailand. It can be said that Thailand is one of the biggest car export houses in the world.
The history of Thai automobile industry can be broken down into 5 main stages; in the 1960s, the Thai
government began to attract foreign investors with privileges such as tax exemptions. In the 1970s, after
the government had attracted foreign investment to Thailand, the government then increased import tax
aiming to protect domestic industry. The purpose of this policy was to also increase the local plants in
Thailand. Then, in 1980s, the Thai government focusing on the parts supply industry and more Japanese
suppliers came to Thailand. In 1990s, the market policy in ASEAN region seized upon this opportunity
and encouraged the Thai government to promote exports. Since 2000, Thailand has come to be widely
known as the Detroit of Asia.
Since Toyota Motor Thailand’s (TMT) establishment in 1962, TMT has grown alongside Thai
government policies and the Thai automobile industry. We have established 3 assembly plants and 1
engine plant since commencing operation here. Toyota’s main products are the Vigo pick-up truck and
Yaris eco-car.
TMT employs nearly 170,000 individuals, including those in factories and marketing. TMT is the
headquarters of Asia Pacific region. In Thailand, nearly 2,400 companies are related to the automobile
industry employing around 540,000 employees.
There are 2 factors with the potential to enhance the automobile industry within AEC. The first is
economic expansion. The second is the infrastructure, logistics and customs processes enhancement. It
will further benefit Thailand as a production hub and create supplies and operation chains within the
ASEAN region. So, as for the potential of the growth in this region, TMT sees a large population with
low rates of car ownership. Now the population of the Mekong Region which includes Thailand,
Vietnam, Myanmar, Laos and Cambodia is 230 million, this is equivalent to Indonesia. Compare to
Thailand, GDP of other Mekong Countries are still low and car ownership is limited. TMT expected huge
market growth once the economy expansion will increase people’s salary in this region.
The Mekong is widely connected by land and one economic zone with Bangkok at the very centre. The
AEC aims to have a single window which means to simplify custom procedures at borders. Travel
between Bangkok and Hanoi will be shorten to just 2-3 days from the current 5-15 days. Enhanced the
inter trade transaction within the Mekong Area will also changing logistics and procurement strategies.
TMT aims to consolidate Thailand’s position as a business operational hub with this in mind
Thailand has played a long-standing role as an important export centre in automobile industry. Second,
we believe that AEC will increase opportunities for all industries in terms of market and supply chain in
the region. Third, TMT aims to position Thailand not only as a production and R&D hub, but as a
business knowledge hub in the Mekong region to be ready for market expansion. In the near future,
business expansion will take place in the Mekong and ASEAN region through the AEC. And TMT hopes
that it can grow together in this new era of opportunity.
Darren Buckley: Citigroup has been around for 200 years and it has been in Asia since 1902. It operates
across 17 countries in Asia-Pacific. In 2014, income from the Asia-Pacific alone was 36% of Citigroups’s
global net income. Within ASEAN, we have operated since 1902 and now have operations in 7 of the 10
ASEAN member states. So far, Citigroup has not entered Myanmar, Laos and Cambodia, however
ASEAN remains a very significant part its overall Asian business. The group serves around 4 million
clients in the Asian region with 37,000 employees. Citi also provide a wide range of services through, for
example through a technology hub in Singapore, a trade processing hub in Malaysia, and an anti-money
laundering hub in the Philippines. Citigroup has also tried to look at ASEAN in many different ways to
support not just ASEAN, but also global businesses around the world.
Stephen Jaggs: Allen & Overy has been in Asia for 25 years. It is different to other law firms and other
services companies. Law firms usually locate themselves near financial centres, thus most firms are in
Singapore and Hong Kong. However, Allen & Overy’s strategy has been different. The anticipated
opportunities in ASEAN encouraged the company to spread throughout countries in the region, such as
in Indonesia, Vietnam and Myanmar, and since became the best law firm clients can find in the country.
It is a different strategy compared to competitors, although it it still debatable whether the firm should
establish a central hub for all its resources. Allen & Overy has a team of people which can travel within
the region to deal with international projects.
The reasons that drive Allen & Overy to employ this strategy into ASEAN are because, first, Japan is still
the biggest investor in ASEAN region by far. Connectivity between offices in Tokyo is very important.
Although we are seeking competition from China and Korea as well as in countries such as Indonesia,
Myanmar and Laos, the company tries to offer the best service to its clients by planning ahead around
clients’ demands. Recently, Allen & Overy started to think more about ASEAN in the long term because
they perceive customer base as becoming more homogenous. Allen & Overy’s clients are now organising
to serve middle-class demands, and the company tries to replicate how they implement those strategies.
Another big driver is the amount of infrastructure investment that will be required across ASEAN over
the next 5 years. ADB has estimated around 60 billion dollars of infrastructure investment is required in
each year for 5 years. Most of them will be invested in power, transport, and port and water services.
In the past 5 years, Allen & Overy saw the trend of large ASEAN corporates investing in other ASEAN
markets, partly because their local markets are saturated so they need to find growth elsewhere. Also, they
become more comfortable with the risk and see investment opportunities more clearly than they were
previously. In addition, the number of European and international banks have withdrawn from the
banking space and regional banks and new banks are expanding to fill that gap.
There is a lot of risk within the region as its individual markets are very different. Some of them are very
domestic and inbound such as Indonesia and Myanmar. Others are more outbound such as Malaysia and,
to some degree, Thailand. Some markets like Laos and Cambodia are very small and very niche.
Therefore, the firm tries to set up investments to mirror individual markets, and what clients will
eventually need when they enter the markets.
Moderator: Given the size of your incredible group, perhaps you could give some insight into the
inner workings of Yoma?
Serge Pun: As far as the business community is concerned, the AEC is something that is compulsory.
The opposite is not an option. In today’s globalisation and where the world is divided into various groups
of interest, economies and groups of the region must work together otherwise they will be far too weak to
compete. The establishment of the AEC is not something that has been conceived by dreamy, visionary
leaders, but it is very much a necessity.
Surin Pitsuwan believes that the business community in ASEAN has not caught up, and he called on the
business community to be more active and join the AEC bandwagon. However, the business community
really do not need much cajoling or rhetoric, business will discern the first opportunity there is on their
own and will run to capitalise on it. The trouble is that AEC until very recently, has not enabled
businesses to see any concrete advantages or opportunities, and therefore were aloof and non-vocal.
Businesses cannot lead the realisation of AEC, government have to lead. It is beyond the ability of any
business, no matter how big, global or regional they are to actually make any dent or effect on the AEC.
Only the 10 governments of ASEAN can make this happen. Businesses will be firmly behind it if the
strategies are good and practical.
Moderator: One of the major issues facing the region is Non-Tariff Barriers. There have been a
number of agreements to tackles these, but how much of an issue have these non-formal barrier
been to physical trade as well as legal, finance or manufacturing industries?
Darren Buckley: By 2025 it is estimated that 50% of the world’s consumer class will be within a 5 hour
flight from Myanmar. Take the opportunities now.
From the perspective of multinational companies within ASEAN, the NTBs have become much more of
a hindrance than the traditional tariff barriers which have almost been eliminated. NTBs come in many
different forms, in the banking sector there are all sorts of restrictions for foreign players, from number
of branches and ATMs, certain rules for where deposits can be invested, and limiting access to electronic
or instantaneous banking. These are all barriers that impede the services for foreign players. More
broadly, issues around customs and property rights cause various problems for multinational companies
looking to expand into ASEAN. Also, as ASEAN companies increasingly look outwards beyond their
national borders into ASEAN countries some of these barriers will be a hindrance for themselves.
In the banking sector, however, there have been a number of positive achievements. The ASEAN Bond
Market Initiative has been terrific for capital markets in ASEAN which have grown from about 2.5 billion
to 1 trillion USD between 2000 and 2014. Developments in the various stock exchanges have led to
greater coordination, which have also seen fivefold increases in market capitalisation up to 2.5 trillion
USD, which is about 100% of the GDP of the entire ASEAN region. The recent adoption of the Banking
Integration Framework will mean that any ASEAN bank will be able to operate in any ASEAN market as
a local bank. That is terrific, but hopefully there will also be some relaxation for the multinationals
operating in Southeast Asia, particularly those that have a long, embedded history in the region.
Certainly, NTBs get in the way of doing business, raise the costs of doing businesses and make it more
difficult.
Moderator: Could you say how much of an issue is it within, say, the American Chamber of
Commerce, and what more can companies do help eliminate them?
Darren Buckley: The AEC is not something that will happen on the 31st of December. ASEAN has
been a concept for nearly 60 years. To that extent, businesses understand the regulatory environment and
tariff barriers, and we have to find ways to work with them. Many large companies, both multinational
and regional companies, have been able to work through some of these barriers and have been extremely
successful.
In terms of the AEC and delivering on its vision, private companies do not actually seem to be lagging.
They have been well ahead of the game in driving their business models to be more multinational. The
American Chamber of Commerce would like to see governments doing more to eliminate some of the
existing barriers across the different markets, but also some of the impediments to doing business overall.
Across ASEAN, except Singapore, perform badly on a number of different indices which are measured
around the world, such as transparency and ease of doing business. It is difficult when you have ten
different governments with different agendas (particularly having a more domestic the pan-ASEAN
mandate) for them to find ways to tackle these common challenges across the region.
Moderator: What improvements, if any, will the AEC bring for the regulatory environment for
corporate activity? Who would stand to benefit the most from the AEC and the reforms it
promises to bring?
Stephen Jaggs: The AEC has certain aims, and if it is to achieve some of those, particularly reducing
NTBs and customs barriers, then it will be very positive. There may not be a level field in terms of
general regulations in the 10 different ASEAN countries for a very long time. Most of them have very
different legal systems and many of them are at different levels of development in terms of their
regulatory framework. For example in the banking system, you have well developed frameworks in
Singapore but more rudimentary in developing places like Myanmar. The focus of the ASEAN Finance
Ministers is not on trying to harmonise regulation is the banking sector, but rather managing systemic risk
and controlling their own individual economies. But progress will happen over time.
Moderator: As one of the most international domestic banking operations in Myanmar, Yoma
sits astride both foreign and domestic interests and sensibilities. The recent entry of foreign
banks into Myanmar on a limited basis has led to some of your colleagues to complain about
competition and warning that Myanmar’s banking sector is not yet ready for ‘big’ competitors.
Using that as an illustration, how to balance the need in a developing country to allow industries
onto their feet before a rush of foreign investors to flood the market, while also keeping foreign
investors happy?
Serge Pun: It is reasonable to expect that in any country that is opening up to foreign investors, there is
bound to be domestic resistance. That is historical, everybody would be at least a little protective. Don’t
worry too much about those in Myanmar who have been vocal about ensuring protection in the banking
sector, their objections are more founded in lack of information or ignorance than fact.
When the foreign banks applied to come to Myanmar, the most important aspect that was pressed to the
Central Bank of Myanmar was to secure assurances that the local banks would not be marginalised. It is
not about prohibiting outsiders in, but it is about not marginalising or eliminating existing banks. Every
time we discuss the AEC, the subject of, ‘who is going to benefit the most’ always features heavily in the
discussions. The AEC is supposed to benefit everybody, but there is no way it will benefit everybody the
same. There are bound to be countries that get more, others less. There will be certain sectors that benefit
more, others less. But as long as the AEC does not marginalise any member country, it is good.
The foreign banks into Myanmar has been welcomed as a positive step in the liberalisation of the
financial sector. It is something that our government was very adamant about doing despite strong winds
against it. The extent of liberalisation or the extent of activities allowed to foreign banks is another matter,
but what has been allowed in Myanmar has been the right measure for the first wave of opening up.
Darren Buckley: In the context of Myanmar which is at a very different level of development to the rest
of ASEAN, the banking sector requires a little bit more protection than some of the other markets in the
region. Whether or not the licencing and regulations for foreign banks makes full sense at the moment is
open to question. Citibank’s view was that it really did not make sense to apply for a licence in Myanmar
because had it done so, Citibank as a brand would set expectations for clients which would not be able to
be met under the current regulations.
Should banking in Myanmar be opened up a little more? Yes. The foreign banks going into the Myanmar
have a very different target market than domestic banks, which are there to provide banking services to
the mass market and try to promote financial inclusion in the country, as well as SME growth and
development. In contrast, foreign banks are there to support multinational companies looking to invest in
the country and to undertake more globally minded retail consumers. You see this reflected across the
region.
Kyoichi Tanada: For Japanese enterprises, there has been a long history with this region, and are always
interested in investing in Southeast Asia. The population of the region is 600 million and in terms of the
automotive industry it is not yet matured. There is great potential for expansion of the automobile
industry. In the near future, through Thailand as a central hub, Japanese and Thai enterprises will have a
chance to expand into other Asian companies. This will be driven by the AEC.
Moderator: Is politics a concern for investors coming into the region?
Darren Buckley: Politics and economics are often inextricably linked. Looking at Singapore, they have
managed their politics very well and the economy has been kept in good shape, but free and fair elections
are not necessarily a top priority. In the Philippines’ recent history the economy has performed well and
President Aquino has done a pretty good job. In Indonesia, there is a lot of responsibility resting on the
shoulders of Jokowi, but he will have his worked cut out trying to keep his political situation in check.
Whether he is successful will affect the economy. Thailand has had a long cycle of coups but the
economy has continued to grow.
What effect to free and fair elections have on international investors? The stock of United States’
investment into Southeast Asia is 204 billion USD, which is around the same amount of the total US
investment into Japan, South Korea and China combined. The United States, as they have repeatedly
indicated, prizes free and fair democracy. Yet, it hasn’t deterred US investment in the region and it
certainly hasn’t deterred their engagement in the region.
Public Question: In 2025, more than 50% of the world consumer market is going to be located within a
5 hours flight of Myanmar – Thailand also as it’s close to Myanmar. So you can imagine; China, India, all
of ASEAN (almost 900 million people). The potential is immense. ASEAN is at the right place
geographically.
Are you experiencing more growth in the Mainland of Southeast Asia? I wonder if we will see in ten years
a growing a divergence between the Mainland and Maritime economies of the region.
Now you are talking about companies establishing ASEAN markets. I think that ASEAN markets are
‘coming into their own.’ ASEAN is becoming an identity and entity among multinational firms. Will this
trend continue?
Darren Buckley: In the mindset of ASEAN companies, we are certainly looking at ASEAN as a whole
more than we are looking at individual markets within it. We are also looking at the three overriding
trends of our generation; globalisation, urbanisation and digitisation, and how ASEAN is fitting into that.
36% of ASEAN’s population lives in cities which is quite low (compared to the United States at 77% or
Europe at 63%). We expect to see much more migration from the agricultural sector into larger cities that
will develop across ASEAN. We already see 110% penetration of mobile phones across ASEAN.
Today, there may be some divergence between Mainland and Maritime ASEAN, but it is less driven by
geography and more determined by the cycle of where each country is, and its governance and political
framework. The Philippines, a maritime country, is doing a little better than Thailand, but that is due to
political rather than geographical reasons at this point in time. Thailand was once the darling of investors,
but now it is certainly not the case.
Stephen Jaggs: I don’t think the fact that whether a country is mainland or maritime will make much of
a difference, except perhaps between land and seas based shipping costs. But if you look at the
Philippines and Indonesia, it doesn’t seem to make too much of a difference. Where there could be
winners and losers could be that most countries in the region are becoming or already are Middle-Income
Countries.
The concern, particularly for Thailand, is that they could get stuck there. 10 years ago there was about 35
billion USD of hard-disk investment in Thailand from the electronics industry, and about 2-3 billion USD
investment into Vietnam. Today, that figure has not changed in Thailand, but there is now 37 billion
USD in Vietnam. There has been a big change there where Thailand has stayed the same, but due to the
lower labour costs and opening borders there has been a big migration to Vietnam. Perhaps most
importantly, manufacturers in Vietnam are already moving to Solid State Drives (SSD) which are a major
advancement in the technology, whereas in Thailand there is no SSD investment. Picking the winners and
losers based on whether they are poor or rich, maritime or mainland will be difficult. It will be due to the
ebb and flow of investment based on a number of different factors.
Rapporteurs: Jacob Hogan and Kannapa Chartiyanon