AFG REPRESENTED AT ASEAN BUSINESS DIALOGUE
21-Nov-2007
Peter Church, Managing Director of Asean Focus Group recently spoke at the ASEAN Business Dialogue in Kuala Lumpur organised by the leading Malaysian law firm of Zaid Ibrahim and Co to celebrate its 20 year anniversary. Asean Focus Group has joint ventured with Zaid Ibrahim and Co in opening a law firm in Bangkok.

The ASEAN Business Dialogue addressed a number of thought-provoking issues and contained many forthright presentations underscoring the importance of addressing the challenges that confront doing business in the ASEAN region.

Malaysian publication The Edge covered the event and has published the below report.

Special Report: Asean at critical turning point
By Anna Taing
19 Nov 2007
http://www.theedgedaily.com/cms/content.jsp?id=com.tms.cms.article.Article_5bf8e7a3-cb73c03a-1d4d4930-2ebbd269

In the 1980s and 1990s, the Singapore-based Ascott group derived some 90% of its profits from Southeast Asia. Today, Asean contributes 33%, while Europe, 50%. "So, is Asean still relevant?" asks Yip Hoong Mun, CEO, Asia-Pacific Gulf region, Ascott International Management, Singapore. He believes so, because Asean is still Ascott's base, and contributes a third to its overall income. "Asean is important, it is still our base, but other emerging markets are coming up... we have to be careful," he told a conference on "Doing Business in Asean, Challenges and the Way Forward", organised by Zaid Ibrahim & Co in Kuala Lumpur recently.

But Asean must move on, because five years from now, the story could be very different. For the Ascott group, it is expanding fast to other parts of the world, and Asean may end up contributing less than 30% to the group's overall profits, according to Yip.

To take it a step further, what the Ascott group is experiencing today is shared by other businesses, too. The key is, will Asean still be relevant then for the businessman who wants to expand and grow market share? And the worry is, with the emergence of more competitive markets elsewhere in the region, Asean is in real danger of being marginalised.

Its biggest challenge, some observers say, is that few businesses view it as a single market.
"Asean as an economic bloc is still not on the minds of many CEOs, and this is a big challenge for us. We are comfortable with where we are, but there is still so much potential to be tapped," says Sandiaga S Uno, managing director of Saratoga Capital, Indonesia.

Sandiaga, Indonesia's new breed of aggressive young entrepreneur who have emerged from the downfall of the Suharto regime in the aftermath of the 1997 Asian financial crisis, says for Asean to go forward, its members need to help each other.

"Integration is positive, it is important, because it will help the bloc grow bigger and better. For example, Indonesia has so much natural resources, reforms are being carried out, and other businesses from Asean can help by taking part in this development," he opines.

Steve Maloy, General Electric's senior legal officer in Asia-Pacific, says Asean still has huge potential.

"For GE, some 70% of its sales comes from just three countries in Asean, therefore, there is a huge potential for growth... the challenge facing Asean is how to capitalise on its strength, and get people to see Asean as a single market," he says.

Asean Charter, AEC Blueprint
How can Asean rise to the challenge and ensure it stays relevant in a fast-changing world? This issue will top the agenda of the 13th Asean Summit, which will be held in Singapore next week, starting from Nov 20.

Indeed, the Singapore summit will be one of the most crucial meetings for the 10 members of Asean, because two major blueprints are up for approval  blueprints that will make or break the regional grouping that celebrates its 40th anniversary this year.

The two blueprints, the Asean Charter and the Asean Economic Community Blueprint, will map out the direction Asean will take in the next few years, the goal being the creation of a single market  an Asean Economic Community  by 2015.

The decision to establish the Asean Charter was made in 2005, the objective being to consolidate and strengthen Asean's community building. As it stands today, Asean is a loosely organised regional body, because its initial objective was keeping peace, and not ensuring economic prosperity in the region. Ong Keng Yong, Asean secretary-general, said in a recent speech that with the charter, Asean will become a more rules-based organisation, which will enable it to meet the challenges posed by regional integration, expansion of its external linkages and rapid globalisation.

Thus, in effect, the Asean Charter will set the legal foundation for Asean to restructure its existing mechanisms and improve its decision-making process to enhance efficiency. "The charter will provide Asean with a legal personality," he said.

Which is crucial if Asean wants to make headway in wanting to become a single market by 2015. The charter and AEC economic blueprint are up for ratification at the 13th summit.
The economic blueprint essentially is a masterplan that will guide Asean's economic cooperation and integration over the next eight years. The aspiration is to transform the AEC into a single market and production base that is highly competitive, equitably developed, and well integrated into the global economy.

The blueprint will contain measures that are required to realise the AEC, and these will include milestones and timelines for its implementation. More importantly, measures will be directed at modernising the group's commerce and economic systems, to bring down border barriers and facilitate a better flow of people and goods between the countries.

Roadblocks ahead
The road to a single market in Asean will not be easy, even though much has been achieved during the last 40 years.

Let's take a look at how far Asean has come since 1967. Apart from achieving significant success in the region's security, a major milestone for the grouping is the establishment of the Asean Free Trade Area (Afta) in 1992. Afta aims to eventually reduce tariffs to between zero and 5% in the region. Today, intra-regional trade amounts to some US$320 billion (about RM1.1 trillion) a year.

To expedite AFTA, 12 priority areas have been identified for fast-track integration by 2010, and these include agro-based products, air travel, automotive products, electronics, fisheries, healthcare, logistics, textiles and apparels, tourism, wood and rubber-based products.
Be that as it may, much remains to be done on the economic front. For one, Asean today is still viewed as 10 different countries, with 10 different customs' authorities, rules and regulations, and 10 different borders. Not surprisingly, viewed individually, each member is too small to make an impact. Moreover, the cost of doing business, like moving goods in and out of Asean, can be high if the borders remain.

Yet, viewed as a single entity, Asean is a huge market of more than 500 million people, where each country is a gateway into a hinterland that is rich in natural resources.

The biggest challenge to a single Asean market is whether there is political will to do so. Already, the drafting of the Asean Charter has been fraught with problems, and observers say the biggest impediment is whether all the governments will accept the agreement to set up a human rights commission.

Peter Church, managing director at Asean Focus Group Pty Ltd Australia, says the Asean Charter is important for Asean only if it is enforced. "The situation now is, even if the agreement is in place, nothing happens if people breach them. For example, the forest fires in Indonesia. Year in and year out, similar resolutions are made but nothing happens, and this is repeated year after year."

The Asean Focus Group is involved in corporate advisory services, particularly to companies on the soundness of their Asian strategies and business plans.

Church notes that while issues like Myanmar don't matter for day-to-day business, Myanmar is still the weak link in the chain for Asean, from a macro-perspective.

"The question is whether Myanmar will sign the charter, which contains a legal framework to establish a human rights body," he says.

Anangga W Roosdiono, secretary of the Asean Business Advisory Council, believes that the realities to confront, in moving Asean forward, is whether there is political will to drive through complete integration. In this regard, he says there is a need to balance development, and prevent it from causing weaknesses and discord among members.

Singapore summit critical
Human capital is the next frontier. Saratoga's Sandiaga says in terms of flexibility of labour mobility, Asean cannot be like the European Union, where every member has to follow a norm.
"Asean is made up of 10 siblings and they are all different. The way to do it is not by interfering, or dictating, but to include all in discussions. For example, for Myanmar, the solution is not through coercion, but dialogue on political reforms and so on," he opines.

Sandiaga's dream is that in 10 to 15 years, a bridge that symbolises Asean integration will be built to link Java, Sumatra and Malaysia together.

Philip Lee, CEO at JP Morgan Securities Asia Pte Ltd in Singapore, is all for greater integration in Asean. "There will be more business opportunities, investments, but there is a need for a common ground for regional investments," he says. "The challenge is, we have to take down border barriers in the face of globalisation, because it is difficult for foreign entities to conduct business because of these barriers and different regulations. "To change, this will take time, we have to be patient, but there is need to make regulations relevant for business."

Asean today is at a critical turning point. The consensus is that there is vast potential to be tapped, but first, it must re-engineer itself into a more open and integrated and well-coordinated grouping.

The wheels to achieve a single market, a common legal framework and greater cohesiveness among the 10 members have been put into motion. How fast things will move from here, though, will hinge on the outcome of the Singapore summit.