Asean 'may be the next factory of the world'

Singapore

A REPORT by the Australia and New Zealand (ANZ) Banking Group has predicted that Asean will still not have developed into a fully integrated common market by the end of this year, when it becomes an economic community.

However, this setback is unlikely to stop it from becoming Asia's third engine of growth alongside China and India, and replacing China as the world's factory, said the report, released on Friday and entitled "Asean, The Next Horizon".

Singapore, being the financial hub and having the related talents in this area, is tipped to play banker in Asean's growth into a manufacturing centre and global market.

The report said that although the Asean Economic Community (AEC) has met most of the benchmark targets to qualify as an economic bloc, it will take another 10 to 15 years to clear the remaining blockages and build the infrastructure and financial linkages needed for it to become a borderless common market.

Glenn Maguire, ANZ's chief economist for South Asia, Asean and the Pacific and an author of the report, said that Asean also lacks the leadership to drive the AEC forward, but by virtue of Singapore's financial strength, it will play a de facto role there.

The report said that Asean has made good progress in areas such as trade integration and cuts in tariffs. It added that as Asean integration evolves, three sub-regions will emerge within the AEC.

The first is the Mekong Frontier, which consists of Myanmar, Cambodia and Laos. These countries will provide cheap, youthful labour to the new production platforms in Thailand, Vietnam, Indonesia and the Philippines.

The second sub-region will be the Mid-Manufacturing Competitors - Thailand, Vietnam, Indonesia and the Philippines, which will seek to be the most cost-effective, mid-value manufacturers in Asia.

And thirdly, the High-Income Economies sub-region will comprise Singapore and Malaysia. These countries will develop higher value-added activities such as the design of electronic circuits, and be the dominant finance and technology hubs.

The report said: "The three sub-regions should allow multinational companies to more readily take advantage of cost efficiencies and skills specialisation across Asean. We believe the synergies between these sub-regions will deliver strong economic gains for the region and the world."

The report projects intra-Asean trade to exceed US$1 trillion by 2025, and extra-Asean trade with the G-4 economies to hit US$3.7 trillion.

Foreign direct investments into Asean from key partner countries are expected to continue to grow strongly to around US$106 billion, as more companies look to set up production bases in the region and expand global supply chains. Investments into Asean already surpassed the flow into China in 2013, in a signal that Asean is ready to take over from China as the world's leading production hub.

The report said: "With a projected economic growth rate only marginally behind that of China and India, Asean is on track to to emerge as Asia's third engine of growth; it will be the fifth largest economy in the world by the end of the decade."