South-East Asia Summit 2014 Summary

December 31st, 2015 is the due date for formation of the ASEAN Economic Community (AEC), which will create a potential single market of 600 million people. This is five years earlier than what had previously been planned, and speakers and attendees at The Economist’s South-East Asia Summit, held in Jakarta on August 27th, 2014, nearly all agreed that the new deadline is overly optimistic. The ten member states of the AEC will almost certainly miss next year’s agreed deadline to drop tariffs on goods and services as well as barriers on the movement of skilled labour and capital.

By The Economist

 

The takeaway message of the summit, themed “From neighbourhood to community?”, was that disparities in regulation and infrastructure between ASEAN member countries will persist for some time past next year’s AEC deadline. A phone call to Ho Chi Minh City from Bangkok, for instance, is likely to remain more expensive than one to London. Panellists arriving in Jakarta from other ASEAN member countries were waved off the ASEAN passport queue at the international airport because it wasn’t in service, underscoring the reality that for some officials ASEAN remains an afterthought.

 

Forming a fully integrated economic community within 15 months is unlikely, but change will come, however slowly. Many panellists took the optimistic view that the 2015 target date was less a hard and fast rule and more of a guideline—as traffic rules often are in the summit’s host city. “2015 will be the start of something. It certainly won’t be the conclusion,” said Guillermo Luz of the Philippine government’s National Competitiveness Council.
 
 

“There has to be a self-assessment of where each country is in terms of achieving goals set down by ASEAN.” 

- Idris Jala, Minister in the Malaysian Prime Minister’s Department and Chief Executive Officer of the Performance Management and Delivery Unit (PEMANDU), Malaysia
 
 

Building Capacity

 
Governments are being held back in their efforts towards regional integration by worries that their countries’ smaller and mid-sized companies will be overwhelmed by competition from foreign enterprises. Building these vulnerable companies’ capacity with skills training, and educating owners about the benefits of the AEC, will be key to reaching any agreement, according to Mr Lam. “The SMEs don’t have the knowledge or the expertise,” he says.“The big boys are ready to go.”
 
While fast-evolving technology and social media may give savvy small business owners an edge when it comes to lifting efficiency and cutting costs, the region suffers from a deficit of skilled labour, and existing education systems are often not up to the task of addressing it.
 
Thousands of vocational schools in Indonesia, for example, are nothing more than “diploma mills” where
students buy their way to a qualification of some sort. Few teachers have a university degree, and nearly 40% of all children are physically stunted, handicapping their capacity to learn, according to Douglas Broderick of the UN Development Programme.
 
In such an environment, companies can’t reasonably expect to grab for their “unfair share of talent,” said Ian Williamson, associate dean of international relations at Melbourne Business School. Companies are better at consuming talent than making it. That’s unsustainable, he says, when the supply is so limited.
 
One solution is for businesses to cultivate talent themselves. Joy Xu, chief human resources manager for
PepsiCo in the Asia-Pacific, says that her company makes significant efforts to invest in training, internally and in the community. It monitors talent scarcity by region and sets growth targets accordingly.
 
“The war for talent is over,” Mr Williamson says. “Talent won.”

 

 

Accidental War

 

But the threat of accidental war grows nevertheless. Vietnamese ships struggling to thwart China’s introduction of a massive oil rig into disputed waters between the two countries earlier this year ended up being rammed by Chinese government vessels.
 
Regional tensions will surely make the US “pivot” to Asia, whereby America shifts most of its military might to the region, all the more urgent. But that process will almost certainly take a back seat as the US and its allies address a newly belligerent Russia and murderous Sunni extremists in Syria and Iraq. And there has always been a risk the pivot strategy would backfire if US overreach forced South-East Asian nations to choose sides.
 
To avoid this, the summit heard, the US is attempting a balancing act, maintaining a presence just strong enough to reassure its friends in the region but not so big it unduly alarms China. Scot Marciel, principal deputy assistant secretary of East Asian and Pacific affairs at the US State Department, told the summit via a pre-recorded interview, “The world has an interest in the peaceful resolution” of the territorial disputes that bedevil relations between China and many of its neighbours.
 
Mr Marciel, a former ambassador to Indonesia, nevertheless defended the role of the United States in the region, even as he encouraged all parties to avoid provocative behaviour. After 40 years of relative peace, the United States is eager to support a regional environment that promotes growth, and institutions that promote stability. Mr Marciel urged Thai authorities, for example, to ease restrictions on free expression following that country’s coup.
 
 

Some good news

 
By contrast, Mr Marciel congratulated Indonesian voters for a “high-quality” election that ultimately chose Jakarta governor Joko Widodo as the country’s next president. It was, he said, “a good news story that usually gets overlooked.”
 
This year, Indonesia had the last word at the summit, with Mari Pangestu, minister of tourism and creative economy in the outgoing administration of Susilo Bambang Yudhoyono, commenting on the country’s prospects under the new administration.
 
After Yudhoyono’s second term, beset by protectionism and an ongoing debate over the future of the country’s fuel subsidies, Ms Pangestu suspects Mr Widodo, known locally as Jokowi, will be more “pragmatic.” This will mean easing application of the ban on raw mineral ore exports, which has cut six percent of its foreign earnings. She also says the elimination of the fuel subsidies is all but “inevitable”, and that a cash transfer to the poor would make this reform more palatable.
 
Returning to the topic of ASEAN integration, Ms Pangestu said that as in many member countries, worries persist in Indonesia that in 2015 the “flood gates will open and the market will be flooded with cheap imports.” Educating the owners of small and medium-sized businesses and making sure they have access to finance will be key. This, she says, may be enough to encourage some to compete for new opportunities not only in their immediate neighbourhood, but in the wider ASEAN community as well.
 
 

Please download the full summary here.

 

COMMENT
VIEW COMMENT
Andrew Vine
I was at the event itself, very worthwhile. Simon Long, Banyan Columnist, The Economist and Dominic Ziegler, Asia Editor, The Economist were driving the agenda, two guys we work with closely. I was particularly pleased to understand the progress being made towards the ASEAN Economic Community (AEC) and while there is no chance that the AEC will be ready in time in its entirety, that misses the point really in that real progress is being made and benefits will come of this. It seems to be slower and more difficult because ASEAN has no real teeth, too consensus driven perhaps. Another economist we work with, Dr Yuwa Hedrick-Wong, wrote a GEMS report for TIB last year in which he was very bullish indeed about Southeast Asia's prospects once AEC becomes a reality. I have that report to share too, which I will link in separately. Another person we work there was also a key speaker, Dr Thitinan Pongsudhirak, from Chulalongkorn University. Excellent programme. The summary will be worth a read.
BritCham
Thank you for sharing your views Andrew. Please do share your GEMS report when available. We are happy to include it in the Knowledge Bank.
Andrew Vine
The Insight Bureau is very happy to give access to BritCham Members any of the reports, articles and interviews we have with our various economists. New reports can go onto the knowledge bank. The one I mentioned came out April 2013 but is still relevant. Email me perhaps for past papers? andrewvine (at) insightbureau (dot) com
 
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