ASEAN For A New Era
We stand between yesterday’s ASEAN, and tomorrow’s ASEAN. A new world is unfolding and we need a new ASEAN to meet its challenges and harness its opportunities.
The old ASEAN was defined by security concerns. A new ASEAN will stand or fall based on how its economic integration project fares. I will argue that this project is a step change and therefore needs a step change in the way all of us support, communicate and implement the ASEAN project.
IIn August 1967, five foreign ministers from Indonesia, the Philippines, Singapore, Malaysia and Thailand declared that their countries would “establish a firm foundation for common action to promote regional cooperation in South-East Asia in the spirit of equality and partnership, and thereby contribute towards peace, progress and prosperity in the region.”
They created the Association of Southeast Asian Nations (ASEAN), Asia’s oldest and most important inter-governmental organization.
Their regionalism was motivated by the common ideal of an autonomous Southeast Asia and a shared fear of external interference.
This ‘first generation’ ASEAN’s chief task was confidence building. It secured forty years of peace between its member countries. No small achievement. However its methods are not enough for today’s task.
Forty years later, the context of ASEAN is so different that what is needed is ASEAN 2.0, an ASEAN for a new era.
THE WORLD HAS CHANGED
The world has changed in ways that make regional cooperation more important than ever, for three reasons:
1. The geopolitical landscape has changed.
Since ASEAN’s Cold War birth, we have seen the fall of the Soviet Union, the premature proclamation of the End of History in a world dominated by a single model of liberal-democratic capitalism, and now the emergence of a multi-polar world. In this environment regional organizations are the key platforms for securing the stability of international order.
2. Information technology is driving change at a greater rate and over a wider part of the world than at any time in human history.
Let’s compare the technological context within which ASEAN was founded and today’s context. Take the Apollo Guidance Computer that provided guidance for the Apollo 11 landing module in 1969. This state of the art system had 2k of memory, 32k of storage and a processor clock speed of 1Mhz. The iPhone 4 in your pocket has 260,000 times more memory, 1 million times more storage, and is 800 times faster.
We are in the middle of a social and political revolution driven by information and communication technologies. From epidemics, financial crises, climate change to political uprisings, opportunity and threat now arrive in globalised form and demands regional responses.
3. The Great Rebalancing of the global economy is happening before our eyes.
The dominant story of our time is the rise of Asia which brings great opportunities but also severe competition to Southeast Asian economies. China and India are each larger and growing faster than ASEAN because they are single economies and ASEAN is not. By 2030 they are likely to be the largest and third largest economies in the world respectively. They have markets of a billion people while we remain a set of economies with barriers to investment, trade and the movement of people between them.
The countries of ASEAN cannot tap the advantages of economic size without economic integration. An ASEAN Economic Community must be at the core of our response to the Great Rebalancing.
AN ADEQUATE RESPONSE TO A NEW ERA
The good news is that ASEAN has a blueprint and Charter which potentially reinvents itself for a new era. The bad news is that almost nobody believes ASEAN is capable of bridging the gap between reality and these plans.
By 2008, the member governments had ratified a Charter for ASEAN, making it a legal entity with powers to set up a rule-based inter-governmental organization dedicated to the formation of an ASEAN Community.
ASEAN 1.0 was a defensive alliance against global conflict. ASEAN 2.0’s core project is to anchor our economic relevance in a world economy.
ASEAN 1.0 was an ASEAN of the diplomats. ASEAN 2.0 is an ASEAN of the people.
ASEAN’s prior role was to preserve a peaceful status-quo. ASEAN 2.0 is about breaking the status quo to create a new economic entity. This project needs mobilisation beyond government leaders. It needs businesses, academia and NGO’s to come together.
ASEAN 1.0 was a process. ASEAN 2.0 is a vast project with timed deliverables.
Among the three aspects of integration: economic, security and socio-cultural, identified by the blueprint, the ASEAN Economic Community (AEC) is the cornerstone effort. The AEC is a plan to transform our region into a single market and production base by 2015. Our governments have promised to remove barriers to create a new regional economic entity.
If ASEAN was an economic entity, it would be an “economic country” of 600 million people or 8.8% of the world population and boast a GDP of USD1.8 trillion. It would be Asia’s 3rd largest economy, with a unique proposition as the world’s most culturally diverse region.
Individually, we disappear in the pack of emerging countries. Together, we are one of the world’s most important economic entities.
With such high stakes and four years to go, how are we doing?
We have made progress. An ASEAN Free Trade Area (AFTA) for goods originating in ASEAN is in effect. As of 1 January 2010, duties on 99.65% of all tariff lines have been eliminated thanks to a Trade in Goods Agreement (ATIGA). We also have agreements governing Services and Investments. We have adopted a Masterplan on ASEAN Connectivity. However the general public is not aware of the AEC. Many don’t believe it can happen. Others think the plan is too ambitious.
I think our implementation is not ambitious enough and we need a more aggressive approach.
We cannot rely on policymakers, regulators and diplomats to drive the change we need. The business community should be the leading agents of change. Currently, businesses are by-standers. A survey found that fewer than 20% have plans for AEC 2015. Are ASEAN’s plans not credible or are they not aware of them?
How and where companies decide to locate production, hire people, source supplies and sell products will be the test of the effectiveness of AEC initiatives.
CIMB is “Aseanising” our entire organization and we connect with our customers in each market as their local ASEAN bank. It is unfortunate that we had to fight many battles to make intra-ASEAN banking possible.
There is currently no common framework for banking that would allow regional banks to bridge their growth across the region. It is hard to move talent, information and capital between ASEAN borders.
We lack a common policy framework to support the development of ASEAN businesses. Government departments in ASEAN countries treat companies as either foreign or local. If we are serious about the AEC there should be a category for ASEAN businesses, an “ASEAN Lane” between “foreigners” and domestic companies.
ASEAN businesses have a catalyzing role to play. Helping them is to help build the Community.
ASEAN FINANCIAL SERVICES INTEGRATION
ASEAN’s progress in capital markets reflects insufficient ambition. The recent creation of a website as a common platform for ASEAN stocks was welcomed positively. This is a first step to promoting ASEAN as an asset class.
Meanwhile however, the world’s largest exchanges are consolidating. A merger is planned between the London Stock Exchange, Deutsche Borse and NYSE Euronext. Each of these starts out many times larger than all of ASEAN’s exchanges combined. Together they become a seamless high performance trading system spanning geographies and time zones. They will make our national exchanges irrelevant, make ASEAN’s gradual approach look like “a Sony Walkman in a world of iPods”.
We need radical initiatives and bold competitive responses to confront the radical challenges ahead. A single equities exchange. But how?
The crucial first step has nothing to do with capital markets per se. We need a shift in the mindset of our national governments. The leadership of ASEAN should thoughtfully redraw the line between things we should protect as domestic reserves and those we should build together as a regional community. There is an understandable instinct that each country must have its own equities exchange just as it was once thought that each country must have its state owned “flag-carrier” airline or “national car”. Rather than get into national-ego contests we should be tracking only tangible outcomes such as GDP, direct investments and more importantly, per capita income, educational levels, health and other measures of well-being of our people.
Once freed of such a paradigm, ASEAN should set up a new exchange, say ASEANX. It could automatically recognise presently listed companies from existing national ASEAN exchanges with over half a billion USD in market capitalization. It could dual list them first but eventually all national exchanges would be relegated to being smaller companies exchanges.
Existing exchanges will feel some dislocation in the advent of a new, larger ASEAN exchange. But it’s a badly kept secret that in great transformations there will be winners and losers, at least temporarily.
The combined market capitalization of this exchange would be USD2 trillion. In comparison, the largest exchange in ASEAN, Singapore’s SGX, has a combined market capitalization of only USD620 Billion. ASEANX would still pale next to NYSE which is almost USD15 trillion but it would certainly compare more favourably against the HKSE which is about USD2.7 trillion. It would be a far more competitive platform for fund raising by our companies, which is what matters.