Further economic integration within the Association of Southeast Asian Nations (ASEAN) could increase regional GDP by 7.1 per cent and create 14 million additional jobs. With ASEAN predicted to become the world’s fourth largest single market by 2030, there is a growing international interest in the trade prospects for the region.
Earlier this month, UK Foreign Secretary Jeremy Hunt announced that the UK will open a new mission to ASEAN headquarters in Jakarta, as the UK seeks to strengthen relations with ASEAN post-Brexit. However, businesses may be uncertain as to how the ASEAN institutional machine can deliver on the region’s potential.
A report prepared by Asia House Advisory, commissioned by AirAsia, highlights the areas where the broader business community can support progress to help unlock ASEAN’s future growth potential. (Full report available for download here).
According to the report, there are three key ways in which the business community can play an active role.
1. Enable cross-border payments to link ASEAN’s young population with goods and services across ASEAN
ASEAN’s demographics are ripe with opportunity – there is a growing middle class, a very high percentage of the population is of working age and domestic consumption is on the rise. GDP per capita is projected to grow 6.5 per cent from 2017 – 2021, with disposable incomes to rise up to 10 per cent. There are also high rates of personal technology adoption – ASEAN has hundreds of millions of mobile phone and internet users, projected to rise to 480 million by 2020.
Enabling greater access to cross-border payments would allow businesses and economies at large exploit the huge opportunity these trends present in e-commerce, as large and growing digital consumer populations could be integrated effectively into online consumer markets. This would have a compound effect on overall development as financial inclusion increases.
Singapore has been successful in developing an e-commerce framework agreement as a starting point for further action. Exploiting these trends more fully would necessitate implementation of this agreement, increased use of the ASEAN Single Window for trade, as well as widespread improvements in digital infrastructure.
Aside from e-commerce, this would enable growth in related sectors including logistics and online retail banking.
2. Prioritise ASEAN agreement on services
The service sector is the biggest contributor to GDP for 9 out of the 10 ASEAN nations and is projected to generate up to 70 per cent of the region’s GDP in the medium term. Yet non-tariff barriers in the service sector remain high. Based on the ASEAN agenda for 2018, there is relatively little time spent on pursuing the ASEAN Framework Agreement on Services, or the ASEAN Trade in Services Agreement, compared to time spent on reduction of tariffs and trade in goods – where an average of 98.6 per cent of import duties have already been eliminated.
Out of approximately 92 scheduled economic meetings in 2018, only 5 were focussed specifically on services and another 6 on either banking and investment. In order to successfully develop the services market and effectively implement the two related framework agreements, there needs to be an enhanced focus on development and liberalisation of the services sector and related sub-sectors, as well as aligning commitments in member states.
Mobility agreements around certain professions would allow technical transfers and knowledge sharing.
3. Integrate cross-border financial services and promote financial inclusion
Whilst banking and financial services comes under the ASEAN Framework Agreement on Services, developing financial market integration and financial services inclusion are specific aspects that ASEAN has made limited progress on, and where improvements would significantly support both micro- and macro-economic growth and development.
In terms of commercial and investment banking, as well as financial markets, this would include policies designed to deepen capital markets, provide liquidity support, align regulations, develop sovereign bond markets and develop financial market infrastructure throughout AMS. This is most relevant to the major ASEAN economies of Indonesia, Malaysia, Philippines, Singapore, and Thailand.
An untapped opportunity exists in the unbanked population in ASEAN. In 2016 only 27% of the ASEAN population had a bank account. Access to services is a major road-block here, a gap that digital technology will be able to fill.
Technical developments will be key to this – a space where the private sector can contribute by advising ASEAN governments.
This would have a compound effect on economic growth as liquidity issues for large financial services providers, and access to retail banking for the population, are key constraints to enhanced integration and growth in all sectors. It would have a circular effect, furthering e-commerce and access to and development of the broader services market.
Download the full report: ‘Key Growth Opportunities in ASEAN – Integration and Growth’
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