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Leveraging ASEAN

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Economic complementarities between Nepal and ASEAN member states offer opportunities for Nepal to expand its trade in Southeast Asia

After the Second World War, a number of regional and sub-regional groupings were formed in various parts of the world. Of all such groupings, the Association of South East Asian Nations (ASEAN) has arguably proven to be the most successful economic block. Initially, ASEAN was set up in 1967 by five countries of South East Asia—Indonesia, Malaysia, the Philippines, Singapore and Thailand—for political and security reasons, but it was later expanded to include Vietnam (1995), Laos People's Democratic Republic (1997), Myanmar (1997), Cambodia (1999) and Brunei (1984). Now extreme level poverty is almost non-existent in ASEAN countries. In 2000, about 14 percent of the people in the region were below international poverty line of US $1.25 a day; in 2013 it was reduced to three percent.With regional annual GDP growth of 5.1 percent, ASEAN has emerged as a major hub for manufacturing and trade. Its total merchandise export of US $1.2 trillion constitutes almost 54 percent of total ASEAN GDP and seven percent of global exports. Also, with a combined economy of nearly US $2.32 trillion, ASEAN today happens to be the fourth largest economic power next only to the US ($16.2 trillion), EU ($16.5 trillion), China ($8.22 trillion) and Japan ($6 trillion). In terms of labor force, it is next only to China and India. ASEAN 5, including Indonesia, Malaysia, the Philippines, Singapore and Thailand attracted more foreign investment than China, to the tune of US $128 billion in 2013, compared to US $117 billion in China.

Though ASEAN is a diverse region, it has fast-growing competitive economies and thriving markets. By 2030, it would emerge as fourth largest consumer market in the world next only to the United States, EU and China. In the same years, ASEAN member countries would be able to triple their per capita income, which would enable the people of the region to raise their standard of living on par with the people of the rich Organization for Economic Co-operation and Development (OECD) countries.

ASEAN is third largest trading partner of United States. The US is gradually diverting its related manufacturing units away from China to ASEAN region. Such export processing zones in ASEAN region as Balam Free Trade Zone (Singapore-Indonesia), the Southern Regional Industrial Estate (Thailand), the Tanjung Emas Export Processing Zone (Indonesia), the Port Klang Free Zone (Malaysia), the Thilawa Special Economic Zone (Myanmar) and the Tan Thauan Export Processing Zone (Vietnam) have contributed significantly in raising exports from the region.

Most significantly, during 13th ASEAN Summit in November 2007 ASEAN leaders prepared economic blueprint for the creation of ASEAN Economic Community (AEC) by 2015, which aimed at facilitating free flow of goods, services, capital, investments and skilled labor in the region. It also aimed at creating a single market and production base to enhance competitiveness, promote equitable economic development and intensify regional integration with the global economy.

In yet another important development, the ASEAN leaders approved the Initiative for ASEAN Integration strategic Framework and Work Plan (2009-15) to bridge the development divide between the economically more affluent members like Brunei, Indonesia, Malaysia, Philippines, Singapore and Thailand (known as ASEAN-6) and the four other less developed countries in Cambodia, Lao People's Democratic republic, Myanmar and Vietnam. These six countries together make up for 95 percent of total ASEAN GDP.

Until October 2013, the ASEAN countries were able to implement almost 80 percent of Economic Community Blueprint. Under the Free Trade Agreement, the tariff rates among the ASEAN 6 were reduced to zero; but the other four ASEAN members were given grace period of up to 2015 for the reduction of their tariff rates.

Among the ASEAN member countries, Singapore's per capita GDP is nearly 30 times higher than that of Cambodia or Myanmar. Myanmar has just started progressing from its decades-long isolation. In terms of savings, Brunei, Malaysia and Singapore have far higher rate of savings than Cambodia, Laos and Philippines.

Each ASEAN member country specializes in the production of certain products. Vietnam specializes in textiles and apparels; while Singapore and Malaysia are globally known for their electronic industries. Myanmar has largest reservoir of oil, gas and precious minerals. Apart from developing business-process-outsourcing industry, the Philippines are major exporter of agricultural and manufactured products. Singapore is ranked fourth in McKinsey Global Institute's connectedness Index for its specialization in tracking inflows and outflows of goods, services, finance, people and data. Also, Singapore has become a launch pad for multinationals and new companies as many of world's corporate headquarters are located there.

Of ASEAN's 608 million people, Indonesia alone has 41 percent of total regional population, followed by Philippines (16 percent), Vietnam (15 percent), Thailand (11 percent), Myanmar (9 percent), Malaysia (5 percent), Cambodia (2 percent), Laos (1 percent), Singapore (0.9 percent) and Brunei (0.7 percent). Besides being the member of G20, Indonesia has left other countries behind in digital area. In terms of GDP, it accounts for almost 38 percent of ASEAN economy followed by Thailand (16 percent), Myanmar (13 percent), Singapore (12 percent), Philippines (11 percent) and Vietnam (7 percent). At the global level, Indonesia is the fourth most populous country is the world and also the largest producer and exporter of palm oil, the second largest exporter of coal and the second largest producer of cocoa and tin.

Because of ASEAN's growing presence in global economy, all major power centers have been trying to establish new economic linkages with this group. But ASEAN is largely unknown in Nepal. Our acquaintance with this region is mostly confined to Malaysia and that too due to the exports of labor; there are nearly two million Nepalis in Malaysia right now. Economic complementarities between Nepal and ASEAN member states provide opportunities for Nepal to expand its trade, investment and connectivity in Southeast Asia. Let the soon to be formed government in Nepal leverage its economic diplomacy to benefit from the fast-emerging ASEAN region. This is one boat Nepal should not miss.

The author is Executive Director of Centre for Economic and Technical Studies in Nepal


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