Asean's business community cautiously optimistic about AEC

ASEAN'S business community is largely optimistic about the prospects for 2015, despite or because of cheap oil prices and a strong US dollar. Indonesia is expected to be a star performer. And the era of the Asean Economic Community (AEC), scheduled to start at the end of 2015, is largely being welcomed, although few people expect any major changes before the end of the decade.

These are some of the top findings of a survey by Ipsos Business Consulting of 866 executives across Indonesia, Malaysia, Singapore, Thailand, the Philippines and Vietnam. Some of the variance across countries shows where priorities lie. Indonesia may be the market where most executives were expecting to make their money in 2015, but Singapore was voted as the country most likely to benefit from the AEC. Vietnam executives are much more concerned with disturbances in the South China Sea in 2015 than their counterparts elsewhere. Malaysian executives see the drop in oil prices as being one of the biggest challenges to their economy this year. And there are some interesting variations by seniority in the outlook for the region, with CEO concerns over lack of staff skills not being shared by their teams.

Survey respondents, mostly representatives of large and multinational enterprises, viewed intra-Asean trade as a difficult process. A retail sector manager from Malaysia complained of "the restriction by Asean country governments hampering the growth of multinationals". A vice-president from the automotive sector in Singapore complained about "inefficient government approval processes and corruption . . . non-tariff-trade barriers . . . and local standards which are not in line with international standards". And yet this executive, along with most of the other 865 surveyed, seemed to feel optimistic about the region as a whole and that the AEC is "a step in the right direction". The recommendation from this respondent and others was that, at this stage, it was best to focus on some of the stronger individual markets rather than to roll out regional marketing plans.

The biggest beneficiaries from the AEC identified in the survey were not necessarily going to be foreign MNCs, but rather the large pan-Asean companies. These companies are familiar regional brands often with a long history and distribution network with local managers who are accustomed to the challenges of inter-Asean trade and regulations. Larger domestic companies and small and medium-size companies were not expected to benefit significantly from the AEC, presumably because they are not doing business in multiple countries.

Respondents mostly agreed that the AEC would be a positive thing for their own companies, primarily for facilitating cross-border trade and logistics. A CEO from an agricultural company in Vietnam explained that "a free (trade) zone in Asean (with) no visas and no tax would give us a lot of opportunities to do business with Indonesia, Singapore and the Philippines . . . It (would) change our company a lot".

However, as the automotive VP from Singapore stated, "we don't believe that there will be significant positive developments before 2020". Hence perhaps respondents were stating what they hoped to see eventually from the AEC in the longer term, rather than what they were expecting to see at the end of 2015.

Across the region, just over 51 per cent of respondents claimed that their regional senior staff were very familiar or familiar with the AEC. Indonesia had a slightly lower rate of 47 per cent. Singapore respondents were about 10 per cent lower. Malaysian respondents were even less sure of the benefits of the AEC, with only 38 per cent claiming familiarity in their senior staff. Other countries were more confident. 64-66 per cent of respondents in Thailand, Vietnam and the Philippines claimed that their regional senior staff were either very familiar or somewhat familiar with the benefits of the AEC.

CEOs MORE BULLISH

Asean executives seem to be somewhat bullish about both their local economies and their revenue expectations for 2015, with 84 per cent predicting growth for their offices this year. CEOs are notably more optimistic than their staff, with 32 per cent predicting growth in excess of 10 per cent for the year whereas only 18 per cent of their managers are expecting growth rates of this magnitude.

One country stood out as being less confident of its own economy in 2015. 63 per cent of Malaysian respondents were not very optimistic or not at all optimistic about their economy. They had a higher concern than the rest of the region about falling oil prices and the rise of the US dollar

Despite the overall optimistic expectations, most respondents were still concerned about whether the local economies would enable them to hit targets, although again there were differences around the region and up the management ranks. 36 per cent of CEOs also pinned the blame on the lack of suitably qualified staff, whereas only 18 per cent of their managers thought this was an issue. A construction industry director from Singapore commented further on this point: "Availability of local talent and regulatory factors are some of the challenges to growth. Will this be partly addressed by the AEC? Likely. A caution will be: certain countries will benefit more than the others. Those which benefit less might put in place protective measures."

Hence perhaps if Asean becomes a level playing field for the recruitment of talent, then this would create a brain drain in lower-cost countries. Top of the list of the other regional trends that would likely impact business this year are cheap oil and the rise of the US dollar. Both factors are new to the 2015 list, having emerged towards the latter part of 2014 due to the growth of shale oil in the US and the subsequent signs of recovery in its economy.

Both factors could contribute either positively or negatively to businesses in the region. At a country level, Thailand, which is dependent on road transport, will be a beneficiary of low oil prices. Malaysia, on the other hand, will suffer as a net oil exporter.

There were regional differences of opinion about the priorities of these factors as well as differences within organisations by seniority. For instance 38 per cent of (presumably poorly paid) managers claimed that growing income inequality would be a strong regional factor whereas only 16 per cent of (presumably well paid) CEOs thought that this was an issue. Respondents in Vietnam (52 per cent) were more likely to indicate that geostrategic tensions in the South China Sea would be an issue this year. Most of the rest of the region is not so directly effected by this, or in the case of the Philippines (31 per cent), thought it an issue but not as important for their business as some of the other factors.

Asean's business community is realistic about the challenges that lie ahead but cautiously optimistic about the economic prospects for the region. There seems to be a lot of enthusiasm about the potential for the AEC to fix a lot of the problems of intra-Asean trade, but an underlying expectation that trade post-AEC implementation will probably be "business as usual" for some time.