In just over a year from now, the 10 members of the Association of Southeast Asian Nations (ASEAN) are set to move a step closer towards integration, as the ASEAN Economic Community (AEC) comes into being.
Bringing together 10 markets – effectively Asia’s third-largest economy by nominal GDP – the AEC provides another good reason to believe that ASEAN will go on delivering strong rates growth.
The ASEAN region has been a global outperformer since 1980, averaging economic growth around 5.4 per cent a year, well above the global average of 3.4 per cent.
The ASEAN region has been a global outperformer since 1980
Growth in ASEAN has been remarkably resilient, even during the global financial crisis, and it’s not over yet: there is considerable room for further growth over the next few years, driven by urbanisation (the majority of ASEAN’s population still live in rural areas), foreign investment and domestic consumption.
If ASEAN, with its population of 625 million, were a single country, it would be the world’s largest market after China and India. Investors view ASEAN as a low-cost factory base, but the region is also a huge consumer market, underpinned by fast-growing incomes.
Taking the opportunities
To make the most of these opportunities, and attract investors, ASEAN needs better infrastructure. Many of the 10 ASEAN economies are relatively advanced when it comes to telecommunications and have good access to electricity, but improvements are needed to roads, ports, airports and other transport infrastructure.
Even so, ASEAN is likely to remain one of the world’s top exporters. The region is currently fourth after China, the US and Germany, but could surge to the number two spot, if it continues to benefit from low value-added manufacturing moving out of China. The AEC will also help to boost intra-regional trade, currently standing at 26 per cent of all ASEAN trade.
As global competition intensifies, ASEAN needs to integrate better as a region to overcome challenges and attract investors
ASEAN is favoured by an ample and cost-efficient labour supply, expected to grow by 70 million by 2030 – by contrast, China’s labour force is expected to contract by almost the same number. Meanwhile, ASEAN is actively pursuing a high number of free trade agreements that will help boost its growth.
The ASEAN way to tighter cooperation
As an economic community, ASEAN is not an Asian answer to the European Union, nor is it trying to be. ASEAN works by consensus – the ASEAN way – and there is no central institution, such as the European Commission, to enforce joint commitments.
However, as global competition intensifies, ASEAN needs to integrate better as a region to overcome challenges and attract investors. As an integrated region, ASEAN would also have a more powerful voice on the global stage.
There is much work still to be done, and completing the AEC blueprint by next year’s deadline may be tough. As such, the inauguration of the AEC – currently set for 31 December 2015 – should not be seen as the finish line of ASEAN integration, but rather a key milestone, as the 10 nations in this Asian powerhouse move on a steady course towards closer cooperation.
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