What is the future of ASEAN
ASEAN wants to act united in 2025
The Association of Southeast Asian Nations has made significant progress over the past few years in terms of integrating its trade and financial markets. The trend towards digitization and the qualification of the workforce is giving the regional economy important impulses for the future.
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If ASEAN, with its ten countries and a population of 630 million people (9% of the world's population), were an economy, it would now be the sixth largest in the world. This speaks of both its progress - since its humble beginning in 1967 - and its potential.
Country-specific characteristics - in terms of demographics, language, competitive advantages and market practices - can be seen as an obstacle to economies of scale and seamless cross-border transactions. But diversity, if it is holistically cultivated and further developed, can also form the basis for regional strength.
Therefore, the establishment of the ASEAN Economic Community (AEC) Vision 2025 aims to create a holistic and globally more competitive ASEAN. The following questions arise: How far has progress been made and how can the goal of a holistic and globally competitive AEC be better implemented in view of changing demographics, emerging new technologies and economic uncertainties? The ASEAN region is already in a strong position. However, in order for ASEAN to be very prosperous and competitive, ongoing efforts to promote key areas must be stepped up.
How can ASEAN become a single economic area?
The ASEAN countries are striving to standardize their economy and financial markets and to dismantle cross-border barriers in order to achieve economies of scale through an expanded market. As for progress, the picture is positive: tariff barriers are falling, regional supply chains are flourishing, and multinational companies in ASEAN are encouraging smaller domestic companies to join global value chains.
We are also seeing that the cross-border use of currently restricted currencies is encouraged. The central banks of Thailand, Indonesia and Malaysia, for example, have announced their intention to encourage the use of local currencies for trading and direct investment transactions. More and more companies are also hedging their FX exposures - which makes integration easier - and financial institutions are launching innovative cross-border FX payment services for cost-efficient currency transfers.
Guided by a draft from the ASEAN Capital Markets Forum, the region's capital markets are also a starting point for closer cooperation to build the size and liquidity of the regional capital market. Regulatory authorities and the private sector have already gained valuable experience in capital market integration in the past. Now this experience can be used, in particular to avoid the costs of unnecessary duplicate structures.
But despite obvious progress in some areas, our discussions with leading ASEAN spokesmen have revealed obstacles and resistance on the way to a unified capital market - an important topic here too is the increase in non-tariff trade barriers.
E-commerce is fast becoming a tool that can accelerate ASEAN's pace of integration and boost trade in services. This is a key area where banks can work with regulators and corporations - both local and multinational - to lay the foundations for digital commerce and finance, efficient and resilient financial supply chains, and cost-effective compliance with regulatory requirements.
The low wage advantage enjoyed by a number of ASEAN economies will not last forever. So how will the ASEAN economies future proof themselves? Many countries are relying on more automation, higher quality industry and mass production. There is a risk that the countries' perspective will shift too much inward.
However, the region should continue to orient itself towards the global market and further expand regional cooperation. Because the size of the regional market creates opportunities and attractiveness for investors. Cooperation with the EU - particularly with regard to trade in goods, the exchange of experience with digitization and cybersecurity - should be further strengthened. The EU has already concluded free trade agreements with Singapore and Vietnam that are about to be ratified. Negotiations are ongoing with other countries.
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