16 May 2014
Can ASEAN develop a collective economy akin to Europe? By 2015 the Association of Southeast Asian Nations is targeting full economic integration – as the deadline approaches and the world looks to Asia ahead of the World Economic Forum East Asia meeting, we examine the opportunities and challenges ahead
ASEAN has the potential to become one of the world’s leading economic regions, competing with the major economies of Europe, China and the US, but it will take time, that’s the message from Chris Fossick, Head of Singapore and Southeast Asia, JLL.
In 2007, ASEAN was tasked with building an integrated economic community (AEC) by 2015. If successful, it will offer businesses in 10 member nations access to a market of over 600 million people, across an area of 4.46 million square kilometres. With a combined GDP of USD2.1 trillion, solid growth, low manufacturing costs and a rising middle class, the economic prospect for ASEAN is enormous.
The path to prosperity, however, is unlikely to be plain sailing; combining the diverse cultures and geo-political landscapes of many nations will be a challenge.
“The 1997 Asian financial crisis slowed growth in the ASEAN region and in some countries significantly held back the development of infrastructure. This lag in infrastructure development has meant that member states have not kept pace with other emerging economies, for example China, which has leaped ahead of many of the ASEAN nations.”
Infrastructure and other obstacles
Whether it’s power, telecoms, transport networks or real estate, each of the ASEAN member states is at a different stage of infrastructure development. These practicalities aside, Asia’s diversity will also prove a challenge in the push for integration: “You’re bringing together countries with very different political priorities, cultural differences, all at varying stages of economic and social development. So the question we need to ask is, where do the priorities lie, and how important is it to each ASEAN country to be part of a single market?”
The obvious benchmark of a fruitful single market, he says, is the European Union (EU). The EU supports the flow of people, goods and capital between member states and real estate plays a vital role in this process, from supporting infrastructure development to being a driver for industry and commerce. The more established a single market becomes, the more developed the real estate markets will need to be.
Chris comments, “Whilst significant progress has been made towards the AEC, with over 70 percent of the integration targets achieved, reaching 100 percent by 2015 looks less likely right now.”
According to ASEAN the member states are about 80 percent of the way to achieving the free flow of goods, services, investment and skilled labour. However, the legal system in some countries is not yet in place to support ASEAN’s objectives around competition policy, so there is still more work to be done in this area.
The benefits of integration will not be immediate but will be seen in the mid to longer term, says Chris, who stresses that those speculating on ASEAN in the short term should be prepared to play the long game.
One of the key tasks for ASEAN and its leaders is attracting international investors into the region. For example, the real estate sector in ASEAN has seen the bulk of its investment come from domestic or regional sources, and has yet to attract the level of international investment seen in other parts of Asia, such as China, Japan and Australia. This is primarily an issue of transparency and regulatory barriers. Singapore, a member state of ASEAN, is a good example of a nation that has attracted international investors in real estate and other sectors, through having a high degree of transparency, open legal system, established capital markets and an attractive regulatory system.
As business leaders and heads of state meet in Manila, ASEAN moves a step closer towards integration. Something that was considered an economic pipedream just a couple of decades ago. Although there is still a lot of work to be done, Chris says there’s plenty to keep business leaders interested.
“We’ll see increased capital volume flowing into ASEAN markets as the single market evolves. This will help to drive further investment and support the overall goal of integration.”