Further integration into Asean (the Association of South-east Asian Nations) is top of the agenda of ministers in all 10 member countries, and is impacting upon their trade and investment policies. This stems from two important steps: the signing of a charter last November to give more structure to Asean decision-making and the intention to establish a regional free trade zone by 2015.
Faced with the prospect of free-flowing goods, services, investment and skilled labour, countries realise they must establish their own comparative advantage. “We have to transform our structure and to move upwards towards higher value-added production,” says Kosit Panpiemras, Thailand’s deputy prime minister. “Currently we are in the middle [among Asean countries in terms of value added].”
But Thailand has considerable experience at integrating its economy into new spheres, he says. “Integration into Asean for Thailand has always been the priority. In terms of the economic structure, we have seen a constant shift among Asean countries, such as our investment into Vietnam, and Singapore’s investment [into the region]. There isn’t a good statistical record of it but we can see all this change in the structure.”
“On the demand side, it’s now something like 20% of our exports going to Asean, our most important trading partner. It used to be the US – but now it’s not – so we have to find ways to facilitate this transformation. Asean 2015 is a very important timeframe for us and we have to improve ourselves [before then]. We have to face more competition as well, as we will have more opportunities. It depends on us. We are well aware that we need to upgrade our productivity and we are now launching a productivity campaign and changing the approach we take to the public sector,” says Mr Panpiemras.
“Those things which can be done best in the private sector will be performed there,” he says, adding that in some areas the government would like to continue its collaboration with the private sector. “We have been quite successful [already] in integrating into Asean. Prior to this we were also successful in integrating our economy to Japan and more recently, we have been quite successful in integrating into the Chinese emerging economy. But now it’s Asean, and this will be the conduit: there will be Asean-China, Asean-Japan, Asean-India [axes].”
At the World Economic Forum annual meeting in Davos, Mr Panpiemras participated in a panel along with senior ministers and heads of state from Asean to look at “the emerging Asean community: the role of Asean”. Stephen Green, group chairman of HSBC, which has considerable investment in the region, said at the meeting that while there were large disparities in Asean – small countries such as Brunei, large countries such as Indonesia, rich and poor countries – they all had in common rapid growth and strong prospects of continued growth. “The disparities do not constitute a roadblock in themselves to closer integration,” he said, adding that more even rules and a level playing field between countries would make conditions more attractive to investors.
Asean countries have a total population of 560 million and a consumer market of $330bn. A McKinsey report in 2004 predicted that the benefits of an EU-style economic integration (without a common currency and with less bureaucracy) would produce 10% of additional regional gross domestic product distributed over several years. Singapore’s prime minister, Lee Hsien-Loong, said at Davos that a common currency for Asean was not a realistic prospect for the foreseeable future.
Investment in Asean remains strong and Mr Panpiemras says that levels in Thailand strengthened even before last December’s elections that saw a civilian government take back power from the military. “It took a few months to convince investors that the vision is to go back to the usual [civilian government] and that [the military government] was just a temporary diversion required by circumstances. Since the beginning of last year things began to fall into place, we set an election date, we drafted a new constitution and so on and so forth. We then started receiving more applications to the Board of Investment.”
Key sectors for Thailand include electronics, automobiles and petrochemicals, and Satit Chanjavanakul, Board of Investment secretary general, says that Thailand has strong links and supply chains in these industries. Thailand is the world’s largest supplier of hard disk drives for computers and produces 40% of global supply, he says. Incentives and training programmes are focused on attracting investment into these and other value-added sectors to ensure that Thailand is well prepared for 2015.