Business

Monday August 17, 2009

Malaysian firms should seize the opportunities in Asean

Policy Perspective - By Tan Sri Rahman Mamat


A growing market waiting to be tapped

ASEAN is fast emerging as a significant economic entity for two reasons: global suppliers find it an increasingly attractive production base while investors are lured by its consumer market of half a billion people.

Many business opportunities are being created as this transformation takes place, but few Malaysian companies appear to be taking advantage of it. Should this continue, the initiative may well pass on to their more enterprising neighbours.

The formation of Asean in the late 60s was motivated primarily by political and security reasons. But today, the pace and direction of its development is dictated largely by economics, by how countries respond to the fast-changing pattern of world trade and cross-border investment.

Over the last 10 years, Asean economic regionalism has taken on a new urgency. The 1997-98 Asian financial crisis showed that the economies of South-East Asia were more closely related than previously thought, and it made sense for them to seek to increase intra-regional trade and rely less on exports markets in the United States and Europe.

Two other factors accelerated the drive towards greater Asean economic consciousness. Asean countries found that they had to compete against regional trading blocs like the North American Free Trade Area and the European Union for foreign direct investment.

They were also in danger of losing out to the emerging economic behemoths of China and India as low-cost producers. Unless they got their acts together, Asean countries were going to lose out in the battle for investment.

As Asean entered the new millennium, the strategic direction it had to adopt became clear.

First, a stronger, integrated and more competitive Asean was seen as necessary to overcome the preferential treatment some other countries receive.

And second, Asean had to sustain economic growth and raise per capita income to transform itself into an attractive consumer market of half a billion people. This would entice producers to locate their operations in the region.

So while they continued to rely on traditional inter-regional trade to sustain their economies, Asean leaders realised that they had to look inwards to generate growth. Promoting increased intra-regional trade and investment thus became the core objective of Asean economic policy.

Towards this end, Asean leaders agreed in 2003 to establish an Asean Economic Community. The operational vehicle to achieve this was the Asean Free Trade Agreement, a scheme which sought to integrate the economies of member countries through the staged elimination of tariffs on intra-Asean imports. The target date for the free movement (i.e. zero tariffs) of goods, services, investment, capital and skilled labour within the group was set for 2020.

In 2007, this target date was brought forward. It was decided that tariffs between Asean countries were to be completely eliminated by 2010 for Asean-6 (Malaysia, Singapore, Thailand, Indonesia, the Philippines and Brunei), and by 2015 for Asean-CLMV (Cambodia, Laos, Myanmar and Vietnam).

In practical terms, therefore, this means that by Jan 1, 2010, customs import duties will have been eliminated for almost all products in Asean-6.

The less developed countries of Asean-CLMV will do the same by 2015. In fact, these latter countries have already substantially reduced their tariffs on imports from Asean countries to less than 5%.

Steps have also been taken to facilitate the free flow of investment and services within Asean. Restrictions on equity and other barriers are progressively being removed in the sub-sectors of tourism, healthcare, construction, information and communications technology and recreation facilities. As of now, over 65 services sub-sectors have been liberalised for intra-regional trade.

These initiatives to create a single large market have contributed to a significant increase in intra-regional trade. Last year, intra-Asean trade totalled US$453bil compared to US$120bil 10 years ago.

Malaysia has benefited from this regional initiative. Over 25% of Malaysia’s trade is within the region. Over the last decade, the country’s trade with Asean grew by an average 10% annually.

In 2008, exports to Asean totalled RM171.2bil and imports were RM126.4bil.

Several Malaysian companies have participated in this intra-Asean growth.

A number of autoparts manufacturers are located in Rayong, the automotive hub of Thailand, and in the textiles and garments sectors in Cambodia and Vietnam.

Some others are involved in operating airports, hotels, hospitals and recreation facilities in the region, and in the toll roads, ports, hotels and industrial parks.

In the larger scheme of things, however, the Malaysian share in cross-border Asean businesses is still relatively small.

The business potential in the region is enormous: a population of 587 million people and a combined gross domestic product of US$1.4 trillion.

Companies from outside the region have found it beneficial to invest their money in the region. Malaysian companies should be no less enterprising and should investigate what’s available at their doorstep even as they look elsewhere for investment opportunities.

  • Tan Sri Abdul Rahman Mamat is secretary-general of the Ministry of International Trade and Industry.

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