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ASEAN Economic Community (AEC): A great lesson for African Integration

01 January 2016
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With the aspiration of being a “single market and production base, with free flow of services, investments, and labour, by the year 2020” and after almost two decades of discussion, the ASEAN Economic Community (AEC) was proclaimed on 31st December, 2015.

The third highest population at 634 million, after China and India, the ASEAN region as a composite trading block would be the 4th largest exporter after China, the EU, and the United States, with still very much scope for growth from Cambodia, Myanmar, the Philippines, and Vietnam from a diverse range of activities ranging from agriculture, food, minerals and commodities, electronics, and services. The coming AEC is already the 4th largest importer of goods after the United States, EU, and China, making it one of the biggest markets in the world.

 

The AEC is not intended to be the same model as the EEC (European Economic Community) and is far from being any fully integrated economic community. The lack of social, cultural, and political integration within the ASEAN region indicates the massive job ahead that Europe, for instance, had been through decades ago. Unlike the EU’s bureaucratic apparatus in Brussels, the ASEAN Secretariat based in Jakarta relies on cooperation between the member state governments for policy direction, funding and implementation of the AEC.

Perhaps the biggest benefit of the upcoming AEC is the expected boost this will give to intra-ASEAN trade. Today intra-ASEAN trade is approximately 25% of total trade, growing around 10.5% per annum, and expected to reach 30% of total ASEAN trade by the year 2020.

Most ASEAN nations have previously put their efforts into developing external relationships with the major trading nations like the EU, Japan and the US through bilateral and free trade agreements. To some extent, the potential of intra-ASEAN trade was neglected, perhaps with the exception of the entrepot of Singapore.

At this point, the aim and opportunity of boosting intra-african trade through the long awaited African CFTA (Continental Free trade Area) by 2017 could be compared to the AEC as an opportunity to refocus trade efforts within the ASEAN region, especially when Vietnam, Cambodia, Indonesia are rapidly developing, and Myanmar is opening up for business with the rest of the region.

Perhaps, one area in which the ASEAN experience is of great value to the equivalent initiatives in Africa is the social, cultural, political and business interchange within the ASEAN region that has traditionally been low, until the rapid increase of intra-ASEAN travel, due to the low-cost airline explosion within the region.

However, there are a number of outstanding issues concerning the growth and development of the AEC that could be good points of reference for the regional integration endeavors in Africa.

Infrastructure: The necessary infrastructure to support intra-ASEAN trade growth is lagging behind with a delay in the completion of the Trans-Asia Highway in Cambodia, and vastly inadequate border checkpoints between Malaysia and Thailand in Sadao and Kelantan. In this area, the ASEAN Infrastructure Fund (financed by member countries and the Asian Development Bank) will be extremely important. Conceivably, such areas are duly emphasized in the African Union’s Action Plan for Boosting Intra-African Trade, the Trade‐Related Infrastructure Cluster clearly setting out its targets for the development of innovative, legal, financial and other mechanisms for multi-country infrastructural development projects.

Interministerial Cooperation: The frontline of AEC implementation are the individual country ministries, which presents many problems, as some issues require multi-ministry cooperation and coordination, which is not always easy to achieve as particular ministries have their own visions and agendas. Getting cooperation of these ministries isn’t easy.

Structural and procedural issues: At the inter-governmental level, laws and regulations are yet to be coordinated and harmonized. So, in brief, there is one community with 10 sets of regulations in effect this coming January 1st. Consumer laws, intellectual property rights, company and corporate codes (no provision for ASEAN owned companies), land codes, and investment rules are all different among the individual member states.

Missing agreements: There are no integrated banking structures, no agreement on common and acceptable currencies (some ASEAN currencies are not interchangeable), no double taxation agreements, and no formal agreements on immigration.

Business visa: There is not even any such thing as a common ASEAN business visa. These issues are going to hinder market access for regional SMEs. Any local market operations will have to fulfil local laws and regulations which may not be easy for non-citizens to meet and adhere to.

Trade Barriers: Even though there are some preferential tariffs for a number of classes of ASEAN originating goods, non-tariff barriers are still in existence, which are insurmountable in some cases like the need for import licenses (APs) in Malaysia, and the need to have a registered company which can only be formed by Thai nationals within Thailand.

Force for regional integration: Some of these problems are occurring because of the very nature of ASEAN itself. ASEAN was founded on the basis of consultation, consensus, and non-interference in the internal affairs of other members. This means that no formal problem solving mechanism exists, and the ASEAN Secretariat is a facilitator rather than implementer of policy. Illegal workers, human trafficking, money laundering, and haze issues between member states have no formal mechanisms through which these issues can be solved from an ASEAN perspective.

Political commitment: One of the major issues weakening the potential development of the AEC is the apparent lack of for a common market by the leadership of the respective ASEAN members. Thailand is currently in a struggle to determine how the country should be governed. Malaysia is in the grip of corruption scandals where the prime minister is holding onto power. Myanmar is going through a massive change in the way it will be governed. Indonesia is still struggling with how its archipelago should be governed. There is a view from Vietnam that business within the country is not ready for the AEC.

‘Economic nationalism’: is very strong within ASEAN. Malaysia has its Government Linked Companies (GLCs), State Economic Development Corporations (SEDCs), Thailand its Crown Property Bureau, and family business empires within each country which have vested interests in keeping market access at the current status quo. The AEC is seen as a threat to many existing business empires, which fear open market access. Many of these business empires have enormous political influence upon their respective governments.  

Free Movement of Labor: With the problems the EU is currently facing, maybe it is wisdom in hindsight that the leaders of ASEAN have been extremely cautious in their approach to the formation of the AEC. Any opening up of the labor market could also be a potential disaster. According to Gyorgy Sziraczki, the director of the ILO in Vietnam; free flow of labor across ASEAN would potentially put many under-qualified people out of work.

However, if the leadership of ASEAN see the opportunities of dramatically increasing intra-ASEAN trade, then the AEC has great potential to assist the region in this great and ambitious journey.

Hence, even though some expect the fate of the AEC to be similar to that of the Indonesia-Malaysia-Thailand Growth Triangle (IMT-GT), and the Brunei Darussalam-Indonesia-Malaysia-The Philippines East ASEAN Growth Area (BIMP-EAGA), which are in existence by name, but with little real substance on the ground, the whole world has its eyes on the region.
With Superpowers like the U.S. strengthening their ties with the region as witnessed at the U.S.-ASEAN Summit, where the two sides upgraded their relationship to the level of a strategic partnership, this region should be a great study lab for Africa’s leaders through their economic integration visions.

What can Africa learn from the AEC?

 

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