On 22 November 2015, leaders of the Association of Southeast Asian Nations (ASEAN) signed the Kuala Lumpur Declaration, establishing the ASEAN Community – a regional blueprint that seeks to bring about closer economic, geopolitical and socio-cultural integration among all the 10 member states of ASEAN.
A key thrust of the ASEAN Community blueprint is regional economic progress through the establishment of the ASEAN Economic Community (AEC). Set to begin on 31 December 2015, the AEC will see the economies of ASEAN’s member nations join forces to become a single market and production base.
Because there has been so much discussion on the AEC in the news as well as among major companies, I decided to dig deeper into how being part of the AEC could potentially benefit Singapore and its economy.
Right now, each member nation of the ASEAN has its own attractive characteristics. Some nations have abundant natural resources, some have a competitively-priced labour force, and some others, like Singapore, boast highly-developed infrastructure and a business-friendly climate.
The AEC is an ambitious plan to tap on to and unify the various strengths of ASEAN’s constituent economies so that the less developed member states can be linked up with their more developed counterparts. This brings about a more equitable pace of economic growth throughout ASEAN, allowing the region to hold its weight against the rest of the global economy. The AEC blueprint envisages that ASEAN, as a collective entity, will become the fourth largest economy in the world by 2030, placing the region behind the United States and China.
In probing deeper into the framework of the AEC, I found out that Singapore has much to gain from being part of the AEC. Businesses in Singapore will soon be able to optimise costs by moving production of their goods to other ASEAN states where labour is cheaper. This reduces costs, which in turn translates into lower prices for consumers.
In addition, local businesses also have the opportunity to dramatically grow their consumer base. With the elimination of tariffs and the freer flow of goods that will ensue under the AEC, businesses in Singapore can market and sell their goods and services more easily to the 630 million people that make up the population of all 10 ASEAN states. These prospects are extremely beneficial to helping small and medium enterprises in Singapore grow. In fact, experts have predicted that Singapore’s gross domestic product will be 9.5% higher by 2030 because of the AEC.
Another benefit of the AEC would be job creation. It is predicted that the economic growth and the increased workforce mobility arising from the AEC can generate around 14 million new jobs in the region by 2025. This means that Singaporeans will find it easier to look for employment not only within Singapore, but also in ASEAN nations beyond our shores. Conversely, local industries that require specialised labour will also be able to employ professionals from other ASEAN nations, thereby increasing productivity and cost-effectiveness of labour. No longer will professionals trained in a certain country be confined to working or practising in their home countries. Rather, there will be a free flow of skills and talents across the ASEAN member states, greatly improving the allocation of human resources.
However, as I studied the AEC in greater detail, I discovered that its implementation also brings about a number of challenges. First, the movement of labour within ASEAN requires member states to now take additional steps in regulating immigrant labour. Economists foresee significant movement of job seekers from the less developed ASEAN states into the more developed ones because of better wages and living conditions in the latter regions.
Second, for the AEC to function along the lines of economic unity, the trade and investment laws of its different member states must be aligned to some extent. For example, each member state must review and revise its trade laws to make it easier for businesses, goods and services from other ASEAN states to enter and operate in its economy.
However, amending laws is more of a political than an economic process. Experts expect this process to take time – local businesses that are unable or not ready to compete with foreign entrants may take steps to block the passing of laws that will liberalise the market and expose them to competition.
The AEC is an ambitious framework. It looks set to greatly enhance the competitiveness of ASEAN’s economies, including that of Singapore’s. Of course, as with all grand plans, reaping the fruits of its implementation will take time as well as effort and cooperation from the ASEAN community. After knowing more about the AEC, I am excited about the opportunities that Singapore, as well as her people and businesses, can enjoy under this promising economic blueprint.
Contributor: Fong Weili for NLB
Photo by Randy Tan Travelogue via Flickr
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