AEC’s Altruistic Mission for Enlightening the Business Economy of the South East Asia

By Asif Gani, Industry Analyst

ASEAN Economic Community (AEC) has been on a mission for over a long period of time in order to create an aura of multifarious opportunities for the member countries of the South-east Asian region. AEC has laid down several proposals consisting of a number of action plans for promoting business opportunities and intensifying consumerism and competition within this region. They have envisaged boosting the development of a number of sectors in the SE Asian countries.

The Association of Southeast Asian Nations, most popularly known as ASEAN, is a conglomeration of ten different nations present in the SE Asian region created in the year of 1967. This region has shown significant improvements in terms of economic endeavor post-2000. In 2003, AEC came into existence as one of the three pillars of the regional community development programme. However, there are still some gap areas in AEC plan, which are yet to be filled and need to be addressed soon for achieving optimal growth across the region.[1] As a result of which, efforts are being made by the committee members to develop newer plans and programs. The AEC aims at integrating different ideas and policies of the participating countries’ heads to forge a common decision of implementing the economic development programs.

Overall Outcome of AEC’s plan 2015

As a result of this formation, several businesses are expected to receive a bountiful of opportunities, which in a way, will boost the overall economy of the South East Asian region. The primary objective of AEC is to create a single region-based common trade platform that will prove to be competitive in nature. The open-door policy will enable the free movement of commodities, services, skilful and cheap labors, and most importantly the investors, who would be finding it easy to put their money in this highly profitable and large market base.[2] Similarly, there are other goals too which include the subsiding of the tariff rates as well as rationalising of some of the directorial measures.[3] AEC wants to have these countries jointly build up a competitive market force with a view to giving a tough challenge to current Asian giants like India and China. AEC’s plan to introduce free trade agreement policy with larger geographical markets such as US, China, Australia, Japan, and India will help the homegrown businesses in ASEAN countries to trade their products and services quite smoothly.[4] This also gives an opportunity to different sector-based investors, coming from some of these above-mentioned countries to get access to one single market node, which consists of nearly 600 million potential consumers. In a way, this will be attracting a large number of Foreign Direct Investments (FDI) in this particular region.

Agreements for stabilising AEC’s formation

AEC’s foundation has been shaped up by creating and mandating of certain critical agreements, some of which are as follows:[5]

· ASEAN Trade in Goods Agreement (ATIGA)

· ASEAN Framework Agreement on Services (AFAS)

· ASEAN Comprehensive Investment Agreement (ACIA)

· ASEAN Framework Agreement on the Facilitation of Foods in Transit (AFAFGIT)

· ASEAN Framework Agreement on Multimodal Transport (AFAMT)

· ASEAN Framework Agreement on Facilitation of Inter-State Transport (AFAFIST)

The above-mentioned agreements are meant to support free trade, liberalisation of the market, reduction of tariffs, flexibility in the movement of product offerings, services and labours, creation of a business-friendly environment, boosting up the transport network systems across the region, and encouraging technological innovation. This will indirectly help in constricting the gap that has been lying between development and untapped market zone.[6]

Exhibit 01: ASEAN Economic Community delegation’s meeting with US & Russia aimed to achieve sustainable economic growth in South-east Asian countries[7]

Key success parameters

One of the parameters, which can be taken into account for the success of this region, would be the growth in the Gross Domestic Products (GDP) index.

Exhibit 02: GDP growth spurt in the last 3 years ending 2015[8]

The above chart implies that there has been significant movement in the growth rate of GDP from 2013 to 2015. This clearly gives us an idea that the AEC plan of action might have contributed to the overall growth in the GDP of this particular region.

How different sectors of ASEAN will be benefitted through AEC

Among the different sectors in ASEAN region, Banking and Financial Services and Insurance (BFSI), Tourism, Transport, Energy, Information and Communication Technology (ICT) are the ones, who are going to be benefitted from the policies formed by AEC. Since the objective of AEC is to develop ASEAN as one single market and production base for all the major investors of the world; therefore, there will be a need for well-developed banking systems across the region. They want to fortify the financial incorporation by developing various home-grown financial institutions, which are having a highly developed network of both insurance and capital market.[9]

The AEC’s vision for 2025 in related to tourism is to bring in sustainable development in the overall tourism industries prevailing in different countries of the ASEAN region. They have a plan to develop an optimum level of benefit channelisation among the ASEAN member States, reduce security issues and enhance safety measures for global tourists, and to ensure the cross-border procedures easier and economical for visitors.[10]

Thus, AEC has set up well-directed plans to propel various business-related opportunities, which will certainly boost the economy of the region. Although there are some disparities between different countries in this region, in terms of culture and economy, still this formation has a long way to go in the future for shaping up the economic structure of ASEAN.