THE THREAT of macro-economic headwinds dragging global growth should be the impetus Asean needs to push its reform agenda harder in 2019, a HSBC senior executive opined recently.
As Asean’s chair in 2019, Thailand - under the theme of Advancing Sustainable Partnerships - has set a positive tone for the region highlighting several areas of focus.
The year is already shaping up as one where the headlines will write themselves: markets second-guessing a return of policy tightening by the Fed, a Brexit deal or no deal, company downgrades from trade tariff uncertainty, and oil prices running roughshod.
Amongst the bearishness, Asean remains one of the most optimistic and open regions in the world and in 2019 the region has the opportunity to further distinguish itself by continuing to drive reform and seek increased openness.
Key areas of focus for 2019
Improving intra-regional flows to offset global trade slowdown: Asean economies can partly offset any trade downturns if the much-discussed supply chain diversion to Southeast Asia - from China, US and Korea - materialises, but increasing the ease in which goods and services flow across Asean will make the transition more widespread. Important progress has already been made including the imminent launch of the Asean-wide Self-Certification scheme which allows wing certified exporters to self-certify the origin of their exports
The Asean Single Window – which digitised intra-Asean trade documents – which was launched across Indonesia, Malaysia, Thailand, Vietnam and Singapore in early 2018 - means cross-border goods flows has come down from 5-10 days to one.
But more needs to be done to smooth the flow of goods and services across Asean. This includes rolling out the Asean window to all Asean countries, standardising the cost and time of customs clearance across South-east Asia and enabling the freer movement of professionals across the region.
Attracting more inbound investment: Foreign Direct Investment (FDI) into Southeast Asia has improved post-global financial crisis, but more needs to be directed to countries like Thailand, Indonesia or Philippines where supply chains are expected to grow in future.
The levers to attract investment to Asean more widely are clear: reasonable production costs, stable institutions, improved technological innovation, lowering tariffs and import barriers for production inputs, and increasing labour skills.
A further way to bolster Southeast Asia’s investment appeal will be through free trade agreements (FTA) including:
lBringing new members into the recently-launched Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)
lConcluding new agreements like the Regional Comprehensive Economic Partnership (RCEP) and the Asean/Europe FTA
lUpgrading existing trade pacts with the likes of Hong Kong and China
lInvestment in digital economy
lImproving digital connectivity, and investment into Asean’s digital space to support the region’s burgeoning consumer base, could be another game-changer – both to shore up the region's supply chain potential and to increase the gravitational pull for multi-nationals and companies.
The Masterplan on Asean Connectivity 2025 has stated that between US$220-650 billion in additional annual economic impact in Asean by 2030 could be injected into Asean through new technology and the internet economy. Asean members signed the Asean Agreement on E-Commerce in November; however, converting this into tangibles will be crucial including
lDeveloping regional electronic payment infrastructure
lEnabling the cross-border movement of business
lCollaboration on cyber security to instil consumer and government confidence ?
lDriving a sustainable Asean
Perhaps the biggest challenge for Asean will come in the form of natural events rather than man-made ones as Southeast Asia is one of the most natural disaster-prone regions in the world. This has only been exacerbated by climate change in recent years. Weather aside, urbanisation will mean that by 2030 more than 100 million people will migrate urban areas across Southeast Asia placing massive strains on resources such as food, health, and infrastructure.
Areas of focus to drive a more sustainable Asean include:
lDeveloping regional incentive |frameworks and standards (such as subsidies on the legal and banking advisory costs linked to generating green loans and bonds) which will increase the cost effectiveness and, therefore, attractiveness of these |financial instruments for corporates.
lTo start converting the Asean Smart Cities Network – launched in April 2018 – from a concept programme into specific projects across the 26 pilot cities
lWorking with China, US, Europe and Japan - who have all earmarked Southeast Asia for their respective sustainable development programmes - to push for ‘bankable’ and transparent infrastructure projects that will generate commercial demand and, therefore, sustainable debt.
lThe first Asean Foreign Ministers’ Retreat - on 17-18 January - was a good kick-off under Thailand’s chairmanship. The meeting saw Asean members welcome the many priorities that have been placed on the table that seek to further drive prosperity and sustainability across the region. Clearly, continued integration of the region is crucial in the face of 2019’s challenging global backdrop. Businesses are crying out for tangible developments that will smooth intra-regional trade, encourage international investment and create a sustainable future. So achieving more reform, integration and openness in 2019 will help the region both capitalise and shield itself from global events that are likely to play out over the coming years.
Contributed by KELVIN TAN, Chief Executive Officer, HSBC Thailand