ASEAN Fact #7: Still not close to true economic community by 2016

Southeast Asia has long been seen as a collection of second-tier countries, but a push for integration among the members of ASEAN is changing that. The ASEAN Economic Community (AEC) aims to knit together ten growing countries into a single market in terms of free-flowing goods, services, labor and capital, originally by 2015. Pending agreements could add US$ 1.9 trillion to the global economy by 2025, providing multinationals with numerous opportunities to grow. The AEC’s blueprint involves an overly ambitious plan that goes way beyond just lowering tariffs. Infrastructure improvements, better intellectual property rights protection, harmonized investment laws and easier movement of skilled labor are part of the agenda.

However, given the extremely tight deadline and an overly ambitious goal, companies should accept the ugly truth: the AEC 2015 is just the beginning, not an end. As we now approach 2016, ASEAN is far from achieving a true economic community.

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Expecting all policy targets to be met and support systems to be smoothly functioning by 2016 would be an unrealistic hope. While the 2016 deadline is important, the real value of the AEC for multinational corporations comes from the creation of a strong policy foundation. Negotiations are likely to continue way beyond 2016.

Because a lot of work still needs to be done on the policy making front, it is the ideal time for companies to get involved in the process alongside the AEC’s committees. Companies should engage their country-level chambers of commerce and international organizations (chiefly those from their home country) to get more involved in the policy making.

The most active participants for this initiative should be the internal government affairs personnel. Multinational corporations still remain uninformed about the impact that the AEC will have on their business and the macroeconomic growth of the countries in their portfolio. While countries are expected to benefit from the income gains in the long run, if all agreements are not executed effectively, the changes in policies could hurt some of the companies operating in the region. Overall, executives now need to ensure that they become more informed and aligned on what to expect from 2016 onwards. (FSG’s clients can find the in-depth analysis on this topic here.)

ASEAN’s Seven Crucial (Less Talked About) Facts

This update is the last in a seven-part series of quick insights on the ASEAN region that I have been publishing over the past few weeks (see full list here). These have been carefully selected based on FSG’s numerous interactions with regional executives, and the topics have proven to have both high importance for senior executives of western multinational corporations and a lack of coverage in the business sphere.


For an in-depth analysis of this topic, FSG clients can access the full report on the client portal. Not a client? Contact us to learn more.

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