Opening Remarks by SMS Lee Yi Shyan at the ASEAN Economic Community 2015 SME Forum: Leveraging New Opportunities in ASEAN at Grand Copthorne Waterfront Hotel

Distinguished guests

Ladies and Gentlemen

Good morning. I would first like to thank the Singapore Business Federation for inviting me to participate in this forum. I am particularly heartened that today’s forum focuses on Small and Medium Enterprises (SMEs) and their opportunities in ASEAN.

The fact that SMEs account for more than 96 per cent of all enterprises in ASEAN is well known. Amongst them are start-ups and enterprises with innovative ideas. Our job is to help them to tap on ASEAN’s market to grow.

The Growth Story of ASEAN Remains Strong

The reason for exporting to and investing in ASEAN is clear; ASEAN has about 600 million people, and make up the third largest GDP in Asia – at nearly US$1.8 trillion in 2012. During the last decade (2002-2012), ASEAN’s annual GDP growth rate was 6 per cent, higher than the global average of 4 per cent.¹ Looking ahead, ASEAN is expected to surpass Japan to become the fourth largest single market in the world by 2030 (after the EU, US and China).²  According to the Asian Development Bank, the size of the middle class in Southeast Asia will rise from 24 per cent of the population in 2010, to 65 per cent in 2030. As early as by end-2017, the number of middle class households in ASEAN will reach 85 million, up from 40 million in 2010.³

No doubt, the current political turmoil in some ASEAN countries, as Mr Lawrence Leow has pointed out, may have taken its toll on business and consumer sentiments. For the medium to long term, however, I remain positive about the key drivers of growth in ASEAN. One such driver is demographic. ASEAN also provides access to consumer markets that are predominantly young, dynamic and increasingly affluent. By 2020, the region’s under-30 population will account for nearly half of the total population. ⁴

As purchasing power grows, consumer demand for education opportunities, household goods and services, communications and dining options will also increase. What this means is that more companies will look to ASEAN as both a consumption and production base. As it is, ASEAN is attracting record levels of foreign direct investment (FDI). On a per capita basis, ASEAN is pulling in seven times more FDI than India, and almost the same amount as China. A recent Deloitte study further predicted that five of the top 15 manufacturing locations in the world will be in ASEAN by 2018.⁵

Moving Towards AEC 2015

Given such economic potential, the question then is whether ASEAN can fully realise its potential and maintain its proportionate share of global growth. This is largely dependent on its efforts in regional integration – formation of the ASEAN Economic Community (AEC) by 2015.

The report card for the AEC 2015 so far has been reasonably good. Let me elaborate.

a.                On goods, virtually all goods in ASEAN already move throughout the region tariff-free.⁶ The focus now is on eliminating non-tariff barriers, improving trade facilitation and harmonising standards and conformance to ensure that businesses will operate in a stable and predictable environment.

b.                On services, an increasingly important sector in all the members’ economies, the target is to complete the 9th package of commitments under the ASEAN Framework Agreement on Services (AFAS) by end of this year. With these commitments, businesses can expect a progressive reduction of barriers to services trade, such as foreign equity limits in the ASEAN countries.

c.                On investments, the ASEAN Comprehensive Investment Agreement (ACIA) provides for stronger and pro-business investment rules to enhance protection for investors in ASEAN. ACIA will generate more opportunities for investment and jobs through the liberalisation of sectors.

Businesses can also look forward to simplified customs procedures in the region. With 2015 fast-approaching, governments in the region are working hard to put in place ASEAN-wide trade facilitation initiatives. These include Self-Certification, which will allow selected exporters to certify export documents on their own, as well as the ASEAN Single Window (ASW). The ASW is a unique regional initiative aimed at linking the National Single Windows (NSWs) of Member States. ASEAN countries have made significant strides in establishing their NSWs. Once the various NSWs are fully linked to the regional platform, businesses can enjoy simpler and faster cargo clearance of goods.

While I have said that progress has been good, realising the AEC 2015 is not without its challenges. Let me highlight a few areas which I believe many of you, as businesses, would be aware of.

Top on the list is non-tariff barriers (NTBs), which can range from complex import licensing procedures to ineffective implementation of existing commitments. With tariffs already close to zero, ASEAN needs to prioritise work on tackling NTBs, which have as much potential as tariffs in restricting trade flows. Work is already underway in ASEAN on this, but addressing these behind-the-border difficulties would entail a multi-year effort.

Another challenge for ASEAN is to stay the course in community building. I mentioned earlier about political unrest in some ASEAN countries. This is something that we are very concerned about, because it makes it difficult for these governments to concentrate on gearing up for the AEC’s implementation.

Another challenge affecting timely implementation is the difficulties faced by ASEAN Member States in transposing both intra-ASEAN and extra-ASEAN commitments into domestic laws and regulations. This requires political will at the highest level.

Raising Awareness of the AEC 2015

As an initiative to reach out to businesses on the benefits of the AEC 2015, the ASEAN SME Working Group has launched an ASEAN publication entitled “SME Guidebook towards the AEC 2015” in November last year, which will help to prepare our SMEs for the implementation of AEC 2015. For SMEs, chambers of commerce, industry and business community at large, this SME Guidebook provides them with key messages, implications and benefits of the measures, standards, regulations or agreements being implemented by various sectoral bodies under the purview of the ASEAN Economic Community pillar.⁷

Internationalisation for SMEs

We know that SMEs venturing abroad are among the most innovative and competitive. To encourage our companies to expand their overseas’ footprints and grow locally, we have two dedicated agencies, IE Singapore and SPRING, which work together to build our SMEs’ capabilities and to internationalise.

SMEs looking to build up capacity and strengthen their value proposition can tap on SPRING’s Capability Development Grant (CDG). The grant supports a wide range of capability upgrading initiatives that enable SMEs to successfully compete and grow their businesses locally and globally.

Meanwhile, IE Singapore’s global network of 39 Overseas Centres provides Singapore businesses with in-market support and knowledge. It supports both established companies and companies new to internationalisation. Its Global Company Partnership (GCP) and Market Readiness Assistance (MRA) programmes cater to companies at different stages of their internationalisation journey.

For example, Mevo Ptd Ltd, an SME providing Distribution Management Solutions to the Fast-Moving Consumer Goods (FMCG) industry, tapped on IE’s assistance to conduct market assessment and set up a marketing office in Yangon.

Similarly, another company Netiquette Pte Ltd, made use of IE’s grant assistance to penetrate the Indonesian market. It has set up an office in Jakarta to reach out to SMEs in Indonesia to offer cloud enterprise solutions such as accounting management system, inventory management system, and customer relationship management systems.

Besides SPRING and IE, the Singapore Business Federation (SBF) also plays a significant role in helping our companies establish networks overseas. Over the last few years, SBF has organised many business missions to markets such as Myanmar, Indonesia, Vietnam and Philippines in order to establish good relations with business leaders there and create inroads for Singapore companies to enter ASEAN markets.

Conclusion

As a small economy, we are committed to free trade as this is most conducive for our SMEs to grow by expanding both regionally and internationally. Besides the AEC, Singapore also has a network of 21 Free Trade Agreements and Economic Partnership Agreements with 32 trading partners. These agreements help our businesses reduce costs through the removal or reduction of custom duties, or the simplification of customs or import procedures. In addition, they open new markets for our businesses, and encourage investments by providing investors with greater confidence and legal certainty.

Let me once again express my appreciation to SBF for hosting the AEC 2015 SME Forum. I wish you all a fruitful forum. Thank you.

¹ Source: 2013 World Economic Outlook Database.

² Source: ASEAN-US Business Council. According to the OECD Development Centre’s Publication on “Economic Outlook for Southeast Asia, China and India 2014”, ASEAN’s annual growth is projected to average 5.4 per cent for the next five years (2014-2018).

³ “Riding the ASEAN Elephant: How Business is Responding to an Unusual Animal,” Economist Corporate Network (2013).

4 “Catching the ASEAN Wave,” Accenture (March 2013).

⁵ Source: Deloitte Global Competitiveness Index 2013. The 5 ASEAN countries are Singapore, Vietnam, Indonesia, Malaysia and Thailand The other ten countries are China, India, Brazil, US, Canada, Mexico, Germany, South Korea, Taiwan and Japan.

⁶ ASEAN-6 countries have eliminated tariffs on 99.65% of tariff lines effective 1 Jan 2010. The CLMV countries have reduced tariffs on 98.86% of their tariff lines to the 0-5% tariff range in 2010, and are expected to eliminate tariffs on these goods by 2015, with flexibility for a few tariff lines until 2018.

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SME Guidebook Towards AEC 2015