Speech by Minister Lim Hng Kiang at the Financial Times ASEAN Economic Summit 2014

Idris Jala, Minister in the Prime Minister's Department of Malaysia

Mr Martin Wolf, Chief Economics Commentator of the Financial Times

Mr James Kynge, Emerging Markets Editor and Associate Editor

Mr Jeremy Grant, Asia Regional Corporate Correspondent

V. Shankar, CEO – Europe, Middle East, Africa and Americas of Standard Chartered

Mr Lim Cheng Teck, CEO (ASEAN)

Distinguished Guests

Ladies and Gentlemen

Good morning. Allow me to first thank the Financial Times for inviting me to speak at this forum.

Since its founding in 1888, the Financial Times has been known to provide credible, accurate and timely content for the global business community. This new ASEAN Economic Summit is an excellent initiative. It is taking place at an important juncture for our region, as concrete plans are being advanced to achieve an ASEAN Economic Community (AEC) by 2015.

My remarks this morning will focus on the prospects for ASEAN economies, the state of ASEAN’s community building and integration efforts, as well as its importance in enhancing the regional growth potential.

ASEAN: The New Frontier for Growth

First, an overview of ASEAN’s growth potential. As a region, ASEAN is a large and important market with significant opportunities. We have a growing population of 620 million people, and make-up the third largest combined GDP in Asia – at US$2.3 trillion in 2013.

ASEAN is currently one of the most dynamic and fastest-growing regions in the world. From 2002-2012, ASEAN grew at an average of 6 percent, compared to the global average of 4 percent, which is quite commendable.

Demographic trends are positive for most countries in the region. The young population and growing workforce are supporting healthy domestic demand. ASEAN’s combined labour force is the third largest in the world, behind China and India. In contrast to the rest of Asia where the labour force is expected to shrink, ASEAN’s young working-age population continues to grow at a fairly strong pace. Around 60 percent of ASEAN’s current population is made up of those below 35 years old.

An accompanying trend is the rising prominence of a wealthy middle class, which is helping to drive their countries’ per capita income growth. The Philippines, for example, took just 7 years to double its per capita GDP from US$1,660 to US$3,270. Experts forecast that Indonesia too, will see its share of private consumption rise from 56 percent in 2012 to 65 percent in 2030. Looking ahead, strong domestic demand will continue to underpin ASEAN countries’ GDP growth. This makes ASEAN an investment bright-spot that one should not overlook.

Thus, besides domestic demand, another important growth driver for the region is foreign direct investment (FDI). For the past three years, FDI flows into ASEAN have exceeded those into China. In 2013, the five biggest economies in Southeast Asia received US$128.4 billion in foreign investment, outstripping FDI into China for the first time.

ASEAN’s proximity to major markets such as China and India reinforces its status as a crucial global value chain player and a preferred production base for many multinational corporations. In the U.S. Chamber of Commerce’s “ASEAN Business Outlook Survey 2015”, 66 percent of respondents said that ASEAN markets will become more important for their companies’ worldwide revenue over the next two years. Meanwhile, 89 percent expect their companies’ levels of trade and investment in ASEAN to increase over the next 5 years. These are positive signs that ASEAN has become a new frontier for growth.

Growth Prospects of Key Southeast Asian Economies

The growth prospects of key Southeast Asian economies give us added reason for optimism. The average GDP growth of the 10 ASEAN countries in the last five years has ranged from 2.9 percent for Thailand to 5.9 percent for Vietnam and Indonesia. There are a few rising stars contributing to ASEAN’s growth story.

Top on the list is Myanmar, which has embarked on a momentous journey to reform its economy and strengthen its financial sector. Coupled with its strategic location at the intersection of China and India, a generous endowment of natural resources, and a large, youthful and literate population, Myanmar is poised to be the next economic frontier in Asia.   

The Philippines too, has achieved much in the last decade. It has sustained strong growth and macroeconomic stability, both of which have contributed to a vastly improved business climate. It has moved up significantly in the 2014 World Economic Forum (WEF) Global Competitiveness Report, advancing six positions to rank 59 out of 148 economies. Most expert projections see the Philippine economy continuing to grow at over 6 percent for the next three years – in other words, adding about a fifth to the country’s existing wealth by 2016.

Growth prospects for other Southeast Asian economies are also promising. Malaysia and Vietnam are on track to achieve healthy growth in 2014, growing at approximately 5.5 percent and 5.8 percent respectively. According to the World Bank, Indonesia is likely to rank ahead of Japan as the world’s 4th largest economy by 2050, behind China, the US and India. In addition to its abundant natural resources, Indonesia’s demographic dividend, increasing urbanisation coupled with a corresponding rise in investment is expected to drive long-term growth.

Journey towards integration is well on course

ASEAN’s ability to fully realise its potential depends fundamentally on our efforts in regional integration. Most ASEAN countries are too small individually to be game changers in the global market. But as an integrated region, we can benefit by leveraging our collective strength in responding to external challenges.   

We stand today on the brink of very exciting times for ASEAN as we draw closer to the vision of an ASEAN Economic Community (AEC) in 2015. If the AEC vision was aspirational when it was first conceived, it is now an imperative. This has prompted an increased momentum in efforts to realise a truly integrated and competitive region. With close to 80 percent of prioritised measures identified for 2013 already implemented, the journey towards an AEC is well on course.

Significant advancements have been made towards creating a tariff-free zone for ASEAN products. Today, close to 90 percent of products enjoy zero import duties under the ASEAN Trade in Goods Agreement (ATIGA). As a result of initiatives to increase transparency and reduce non-tariff barriers (NTBs), businesses can now operate in a relatively stable and predictable environment.

For trade in services, the 10th package of commitments under the ASEAN Framework Agreement on Services (AFAS) is set to be completed by 2015. Under each package, ASEAN countries commit to opening up more services sectors for other Member States. What this means is that businesses can expect a progressive reduction of services barriers, such as foreign equity limits in the ASEAN countries.

On the investment front, stronger and pro-business investment rules via the ASEAN Comprehensive Investment Agreement (ACIA) will enhance protection for investors in ASEAN, generate more opportunities for investment through liberalisation of sectors, provide greater transparency on investment rules, and offer recourse to investors in times of conflict.

ASEAN countries are examining ways to converge and harmonise the many regulations, standards and procedures in our countries through Mutual Recognition Agreements (MRAs). To-date, two MRAs have been developed and are currently being implemented – the ASEAN Sectoral MRA on Electrical and Electronic Equipment (EEMRA) and the ASEAN MRA on Good Manufacturing Practice for Inspection of Manufacturers of Medicinal Products (GMP MRA). Three more MRAs are being negotiated in the automotives, prepared foodstuff and building and construction materials.

Work under the other pillars of the AEC is ongoing to lay the foundation for integration in newer areas, such as competition policy, taxation, infrastructure development, e-commerce, and Intellectual Property Rights (IPR).

Over the next one year, ASEAN will step up our efforts to realise the high-impact action plans. These include addressing NTBs, realising the customs single window, as well as deepening services and investment liberalisation. “Behind-the-border” issues such as improving trade facilitation and harmonising standards and conformance will also be placed at the forefront of ASEAN’s economic agenda. These remaining issues are challenging, but will offer the most benefits for our businesses and peoples.

Deepening integration as the only way forward

Overall, ASEAN is moving in the right direction towards greater economic integration. However, the challenges facing ASEAN have also grown in tandem. ASEAN countries recognised the need to build stronger, more lasting economic connections, both within our region, and with the outside world.

Why do we need to work so hard for closer integration? The first is simply that we do not have a choice. To remain an effective and efficient organisation in a rapidly changing world, ASEAN needs to work together to tackle emerging, cross-border challenges such as: (a) climate change; (b) inclusive growth; (c) environmental sustainability; and (d) territorial disputes.

a. ASEAN needs to improve our response to tackle trans-boundary haze pollution, disasters, pandemics, and in mitigating the impact of climate change.

b. Despite impressive economic growth in most parts of the region, millions of people are still entrenched in poverty. Income inequality has grown in some countries, while the benefits of development have continued to bypass many.

c. More effort has to be made to tackle the region’s declining natural resources. ASEAN cannot continue to build its economic wealth just by exploiting its natural resources alone.

d. Tensions rising from territorial disputes and political strains in some of our Member States will also need to be carefully managed.

The second reason for enhanced integration is a strategic one – creating a more united and cohesive organisation so that we are favourably positioned as the basis of the evolving regional architecture. This is where ASEAN has an opportunity to play a constructive role, as we provide a neutral core around which we can develop the regional architecture with our Dialogue Partners.

As the saying goes, “a chain is only as strong as its weakest link”. ASEAN’s viability and progress as an economic community is also dependent on how well each Member State’s development strategy syncs up with another. By developing complementary development strategies, we can reap the benefits of stronger regional supply chains, thereby presenting a more compelling value proposition for investors and better jobs for our people.

To be sure, while there will always be differing national priorities and perspectives, we should manage these differences in a constructive manner. We would do better to exchange ideas and share best practices on how our governments tackle domestic economic challenges, such as improving job quality, enhancing skills development, or boosting productivity and wages. As a cohesive region, we can achieve more together.

Integration beyond the region

For ASEAN to remain competitive in a globalised world, integration cannot stop at ASEAN’s borders. This is why even as we pursue deeper internal integration, ASEAN will continue to explore ways to strengthen our economic engagement with Dialogue Partners. One of the ways we try to do so is by reviewing and enhancing our existing FTAs with key trading partners and also commencing new FTA negotiations.

The on-going negotiations of the Regional Comprehensive Economic Partnership or RCEP are a defining point in ASEAN’s endeavour towards deeper integration beyond the region. The RCEP will bring ASEAN and its six FTA partners in closer economic linkages with each other, and will integrate a third of the world’s GDP and over three billion people, or 45 percent of the world’s population.

The RCEP goes beyond the existing five ASEAN Plus One FTAs in its coverage of both traditional and newer trade issues such as competition policy and intellectual property. In taking the lead to launch the RCEP with our FTA partners, ASEAN is undertaking an unprecedented commitment to further integrate our economies into the global value chain. ASEAN will continue to exercise leadership as Parties work towards concluding the RCEP by the end of 2015.

We are not alone in seeing the value of pursuing trade liberalisation and reform through FTAs. The ongoing negotiations of the Trans-Pacific Partnership (TPP) and the trilateral China-Japan-Korea FTA are significant regional integration efforts. Many of their members are major trading partners of ASEAN. These initiatives offer the prospect of still larger integration with ASEAN.

The RCEP and the TPP, for example, could provide a possible pathway to a Free Trade Area of the Asia-Pacific or FTAAP. If realised, the creation of the FTAAP will be a monumental step for the region and a leap for global trade reform, in reaffirmation of the multilateral trading system. Both architectures are open and inclusive to whichever economic partners ready to meet the individual benchmarks as set by its parties.

Developing Integration efforts beyond 2015

While 2015 will be a significant milestone for the AEC, it will not mark the end of ASEAN’s integration efforts. The current Blueprint alone is no longer sufficient for the organisation to retain its relevance in a fast changing world. ASEAN’s continued vitality and success will hinge on Member States’ willingness to embrace further changes and deepen regional economic integration beyond 2015. 

In developing its post-2015 vision, ASEAN needs to take into account global mega trends, while staying ahead of the curve, so as to improve prospects for our countries and peoples. The post-2015 vision for the AEC will therefore comprise not only the enhancement of current ASEAN platforms and initiatives, but also include newer areas and priorities. One of the key objectives would be to allow ASEAN countries to move up the development ladder in an inclusive and sustainable manner, and to enhance ASEAN’s centrality in regional and global architectures.

Conclusion

Let me now conclude. ASEAN’s efforts at economic integration have helped to anchor ASEAN’s relevance to the world. It has also been instrumental in creating more opportunities for businesses operating in the region. ASEAN must sustain this good momentum and build on the positive inroads made.

ASEAN has consistently been Singapore’s most important market and largest trading partner accounting for about a quarter of Singapore’s trade with the world. Singapore remains committed to the ASEAN vision of deepening regional integration, as a free and open regional and global economy is an important part of the Singapore growth story. I am confident that ASEAN can fulfil most of our 2015 targets and beyond.

On this note, I wish you a fruitful session ahead.  Thank you.