ASEAN’s economic unity: A role model for the GCC?

Reading Time: 3 minutes

Modelled partly on the European Union and other far-reaching trade pacts such as NAFTA or Mercosur, the ASEAN Economic Community, or AEC, aims to achieve a single market and production base to develop into a highly competitive economic region of equitable economic development and to become fully integrated into the global economy.

By Arno Maierbrugger

The AEC will encompass a region that now covers 600 million people with a combined gross domestic product of $2.3 trillion, and is expected to be inaugurated by the end of 2015. To pay attention to this development is especially interesting for GCC countries, where ideas of an economic union have been mulled for a number of years as well. In comparison, the GCC has a combined population of just 46.5 million, but a combined GDP of $1.5 trillion which comes fairly close to the AEC and would make it without doubt equally powerful on the international stage.

However, a GCC economic and political union is far from being implemented. Despite GCC leaders reiterating in December 2012 at a meeting in Bahrain the fact that economic integration would receive great attention and that the GCC countries must strive to form an integrated economic unit as a basis for a real unity in the future, there is actually no common strategy to reach such a target for the time being.

Not there yet
Forming an economic union between diverse countries is not easy. ASEAN Secretary-General Le Luong Minh recently admitted in an interview with Inside Investor that the ten bloc members have only put in place about 74 per cent of measures necessary to reach an economic union worthy of the name, less than three years ahead of its launch. As a possible role model for a GCC economic union, it makes sense to look at the challenges and obstacles the AEC is currently facing.

The AEC development has been criticised for being too slow.  Some observers have said that the issues that have been delayed were important ones that could make or break the success of the integration.  Some experts also commented about the lack of leadership on this issue within ASEAN, but it remains to be seen to what extent Le Luong Minh will drive the project forward.

Another big issue, one that is comparable to the GCC, is lack of infrastructure and thus the need for significant investment. The development of both hard infrastructure such as roads, ports, airports, etc. and soft infrastructure such as human resources and training are being addressed, but not entirely resolved. According to the ASEAN secretary-general, an amount of no less than $60 billion annually is necessary to upgrade infrastructure within ASEAN to make it internationally competitive, and this only relates to hard infrastructure. For soft infrastructure, better-English-speaking countries in ASEAN such as Singapore, Malaysia and the Philippines will have an advantage over countries like Thailand where English proficiency is poor.

The banking sector in particular will need to stay ahead of the game to facilitate investors and to support their moves throughout the region. Singaporean and Malaysian banks, for instance, have invested heavily in the region and seem to be slightly ahead of other competitors in better preparing themselves for the AEC.

Another issue, and this perfectly applies to the oil-rich Gulf states, is that ASEAN members still view each other as competitors.  Ultimately, these distinctions should start to fade to some extent, but in the future the line between competitor and collaborator within ASEAN has to be drawn. The ASEAN members will need legally binding means to enforce compliance with the objectives of the AEC roadmaps.

As for companies in the region and for investors, executives will have to adjust their strategies.  Inside the AEC, managers will increasingly have to pursue sales opportunities across the region while focusing relentlessly on cost efficiencies by integrating their operations across ASEAN, managing through lean techniques but also developing effective corporate centralisation. Externally, managers in the West and in the GCC are going to have to start paying more attention to the new opportunity of the AEC. Many of them right now still seem to have eyes only for China and India.

This comment is one of Inside Investor’s monthly contribution to Qatar’s leading business magazine Qatar Today.

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Reading Time: 3 minutes

Modelled partly on the European Union and other far-reaching trade pacts such as NAFTA or Mercosur, the ASEAN Economic Community, or AEC, aims to achieve a single market and production base to develop into a highly competitive economic region of equitable economic development and to become fully integrated into the global economy.

Reading Time: 3 minutes

Modelled partly on the European Union and other far-reaching trade pacts such as NAFTA or Mercosur, the ASEAN Economic Community, or AEC, aims to achieve a single market and production base to develop into a highly competitive economic region of equitable economic development and to become fully integrated into the global economy.

By Arno Maierbrugger

The AEC will encompass a region that now covers 600 million people with a combined gross domestic product of $2.3 trillion, and is expected to be inaugurated by the end of 2015. To pay attention to this development is especially interesting for GCC countries, where ideas of an economic union have been mulled for a number of years as well. In comparison, the GCC has a combined population of just 46.5 million, but a combined GDP of $1.5 trillion which comes fairly close to the AEC and would make it without doubt equally powerful on the international stage.

However, a GCC economic and political union is far from being implemented. Despite GCC leaders reiterating in December 2012 at a meeting in Bahrain the fact that economic integration would receive great attention and that the GCC countries must strive to form an integrated economic unit as a basis for a real unity in the future, there is actually no common strategy to reach such a target for the time being.

Not there yet
Forming an economic union between diverse countries is not easy. ASEAN Secretary-General Le Luong Minh recently admitted in an interview with Inside Investor that the ten bloc members have only put in place about 74 per cent of measures necessary to reach an economic union worthy of the name, less than three years ahead of its launch. As a possible role model for a GCC economic union, it makes sense to look at the challenges and obstacles the AEC is currently facing.

The AEC development has been criticised for being too slow.  Some observers have said that the issues that have been delayed were important ones that could make or break the success of the integration.  Some experts also commented about the lack of leadership on this issue within ASEAN, but it remains to be seen to what extent Le Luong Minh will drive the project forward.

Another big issue, one that is comparable to the GCC, is lack of infrastructure and thus the need for significant investment. The development of both hard infrastructure such as roads, ports, airports, etc. and soft infrastructure such as human resources and training are being addressed, but not entirely resolved. According to the ASEAN secretary-general, an amount of no less than $60 billion annually is necessary to upgrade infrastructure within ASEAN to make it internationally competitive, and this only relates to hard infrastructure. For soft infrastructure, better-English-speaking countries in ASEAN such as Singapore, Malaysia and the Philippines will have an advantage over countries like Thailand where English proficiency is poor.

The banking sector in particular will need to stay ahead of the game to facilitate investors and to support their moves throughout the region. Singaporean and Malaysian banks, for instance, have invested heavily in the region and seem to be slightly ahead of other competitors in better preparing themselves for the AEC.

Another issue, and this perfectly applies to the oil-rich Gulf states, is that ASEAN members still view each other as competitors.  Ultimately, these distinctions should start to fade to some extent, but in the future the line between competitor and collaborator within ASEAN has to be drawn. The ASEAN members will need legally binding means to enforce compliance with the objectives of the AEC roadmaps.

As for companies in the region and for investors, executives will have to adjust their strategies.  Inside the AEC, managers will increasingly have to pursue sales opportunities across the region while focusing relentlessly on cost efficiencies by integrating their operations across ASEAN, managing through lean techniques but also developing effective corporate centralisation. Externally, managers in the West and in the GCC are going to have to start paying more attention to the new opportunity of the AEC. Many of them right now still seem to have eyes only for China and India.

This comment is one of Inside Investor’s monthly contribution to Qatar’s leading business magazine Qatar Today.

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