Dec 15, 2015

The Philippines - Not ready for integration? It's your fault – economist

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If businesses in the Philippines are still not ready for the stiffer competition under a regional integrated economy, it’s nobody else’s fault but their own, an economist said.

Economist Fernando “Perry” Fajardo said most Philippine businesses are not willing to have competition due to fear of “dying out.”

“The question here is: when are we going to be ready? In the 60s and 70s, our neighbors were ready to conquer the world despite the competitors outside. Now that it’s 2015, we’re still not ready? It’s no longer the fault of your competitors if you lose to them. It’s your fault,” Fajardo said in an interview with reporters.

Instead of viewing competition negatively, Fajardo said the businessmen should welcome competition as a challenge to improve the quality of their products and lower their costs.

So long as businesses have products that are good quality-wise and cost efficient, they should have no problem competing with other businesses, Fajardo added.

Aside from looking at cost efficiency and product quality, businesses should begin moving from producing for the consumer industry to manufacturing in the medium to high capital industries.

He noted that the Philippines is still dependent on machines made outside — even simple machineries.

“Our technology is lacking. Kinamot pa tanan (Everything is done by hand). We lack machine work. Most of our industries are consumer industries. We produce for consumption. What we lack is to go into manufacturing of intermediate goods. We are importing tools from China and Korea. Why are we not making them? Then later we can move to high capital industries like making tractors or large machineries,” Fajardo said.

He also noted that businesses that produce only for the domestic market will have a harder time competing than those that are already exporters and global traders.

“If you only depend on the domestic market, again that is your fault because this is now a global economy,” he said.

Philippine businesses, however, seem afraid to compete in the global market unlike their counterparts in other countries.

“You don’t have to be big to conquer the world,” Fajardo said.

“Most businesses in Europe are small-scale. In Italy, village industries market globally,” he added.

Nelia V. F. Navarro, Department of Trade and Industry (DTI) Cebu provincial director, said micro, small and medium enterprises (MSMEs) that have not ventured into exports will have bigger challenges under an integrated economy.

“To me, the AEC (Asean Economic Community) outlooks are both positive and negative. Positive because the market is big, with an estimated 630 million people in the Asian region. Negative if you’re not ready for competition and if you’re not productive enough or if your price points are not competitive,” she said.

In general, however, Navarro said Cebu is ready for integration.

“Cebuanos have always traded with other people. They are used to doing that. So Cebu, compared to other parts of the country, is very much ready for the challenges the integration will bring,” she said.

Leaders of the Association of Southeast Asian Nations (Asean) has declared the creation of the Asean Economic Community, which will become a legal entity on December 31.

Under an AEC, there will be free intra-regional movement of people, goods and services with the removal of tariff barriers and visa restrictions.

Vanessa Claire Lucero



Business & Investment Opportunities 

Saigon Business Corporation Pte Ltd (SBC) is incorporated in Singapore since 1994. 

Indonesia - Indonesia’s fateful choices

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It was Indonesia that led its ASEAN partners down the path towards the ambitious ASEAN Economic Community (AEC). The AEC was signed onto in Kuala Lumpur at the ASEAN leaders meeting in November.

This was the year of delivery. Well, perhaps but not exactly — and that is probably an apt descriptor of where Indonesia is at on many fronts after the first year of the Joko Widodo (Jokowi) presidency. Not quite there yet, but still relied upon to deliver.

The AEC is a major enterprise to realise a single market and production base, allowing the free flow of goods, services, investment and skilled labour, and the freer movement of capital across Southeast Asia. If ASEAN were one integrated economy, it would be seventh largest in the world with a combined GDP of US$2.6 trillion in 2013. It could be fourth largest by 2030 given recent growth trends. With over 625 million people, ASEAN’s potential market is larger than the European Union or North America. Next to China and India, ASEAN has the world’s third largest work force and, unlike China, it is young and the demographic is favourable.

ASEAN is also among the most open economic regions in the world, with total merchandise exports of over US$1.2 trillion — nearly 54 per cent of total ASEAN GDP and 7 per cent of global exports. Yet, intra-ASEAN trade is still only around 25 per cent (ranging from 14 per cent for Vietnam to 65 per cent for Laos).

The AEC has four objectives: creating a single market and production base; increasing competitiveness; promoting equitable economic development; and the further integration of ASEAN into the global economy. On its 40th anniversary in 2007, ASEAN adopted the ASEAN Economic Community Blueprint, and advanced the completion target to 2015 from 2020.

While ASEAN leaders duly signed on to the AEC in Kuala Lumpur last month, to avoid missing the deadline they had set themselves, the agreement is expected to have very little immediate practical effect. ASEAN citizens will be allowed to work in other ASEAN countries but in only eight sectors, including engineering, accountancy and tourism. These sectors comprise only 1.5 per cent of regional jobs. As this year’s chair of ASEAN, Prime Minister Najib Razik of Malaysia said, while tariff barriers are low within the region, the work of building the institutional frameworks that will ensure freer movement of people and capital, and remove the barriers that hinder growth and investment has yet to be fully embraced.

The major question mark that hangs over the AEC, of course, is about where Indonesia, its largest and most important member, is now going on these issues that are at the core of its economic and diplomatic rationale.

In this week’s lead essay — which begins our annual Year in Review series analysing developments around the region over the past year and the forces that will shape them in the year ahead — David Nellor observes that the Indonesian government is yet to convince the international economic jury that it has turned the corner towards more constructive economic policy and that it has the political leadership and capacity to implement that policy. While Indonesian economic policy remains in limbo, the whole ASEAN enterprise remains uncertain, along with the potential of Indonesia itself to return to more respectable rates of growth and break through to middle income status. Growth has dived towards 4 per cent from rates over 6 per cent in recent years.

‘Over the past few years a plethora of regulatory interventions have discouraged investment and widened the infrastructure gap. The government’s loss of policy credibility, owing to a lacklustre track record and difficult external environment, magnifies the challenge’, says Nellor. ‘The jury is undecided on whether the Jokowi government’s reform efforts are sufficient to tackle the challenge’.

What reform there has been so far has focused on areas that reflect wariness about taking on the vested interests that resist exposure to competition and use political power to protect their monopoly rents. Liam Gammon explains that proposals that aim at market reform ‘are politically toxic in Indonesia — and at odds with Jokowi’s own track record. His ministers spent much of this year re-capitalising state-owned enterprises with taxpayers’ money, raising tariffs and promoting the misguided goal of “food self-sufficiency”’.

‘The defining blunder of Jokowi’s presidency came in February when he nominated a venal but politically-connected officer as the new police chief after intense lobbying from party bosses. The ensuing public outrage saw the appointment cancelled but Jokowi’s anticorruption credentials have never recovered’, writes Gammon.

Nellor sees some signs that fundamental reform is re-entering the policy debate in the past few months. Gammon identifies presidential rhetoric that has been prepared to acknowledge the interests of foreign investors as evidence that Jokowi has taken some criticisms seriously. But there is still a long way to go in confronting the politics that infect Indonesia’s investment climate and scare long-term investors away.
The conflicts that bedevil a reliable investment environment are partly about entrenched ideological attitudes but they are more about access to rents, says Eve Warburton. ‘Contract extensions for large-scale projects are a feeding frenzy for Indonesia’s rent-seeking elites. Different factions within the politico-business class vie for influence over the terms of lucrative contracts, trying to gain preferential access to service contracts or cheap company shares’.

Certainly the times require some fateful choices. The international environment has delivered a blow to Indonesian growth based as it was in recent times on the easy takings from the bull run for resource exports. Actual growth has no chance of reaching potential growth of 7 per cent or more unless Jokowi takes on the hard politics of deep structural reform. Without a proactive economic agenda, Indonesia’s diplomatic leadership in ASEAN and more broadly in the region will continue to ebb away. This is the theatre in which Indonesia will need all the diplomatic leverage it can muster to support a national reform agenda — not to be found in the ludicrous aspiration to join the TPP. There are signs that serious technocratic players both understand this and are trying to energise the politics to deliver. But time is running out for Indonesia and perhaps for ASEAN.

Peter Drysdale

Peter Drysdale is the editor of the East Asia Forum.



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Saigon Business Corporation Pte Ltd (SBC) is incorporated in Singapore since 1994. 


ASEAN - Asean good ground for innovation, says study

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A study conducted by French agency Global Entrepreneurship Monitor (GEM) revealed Asean to be a fertile ground for innovation driven by entrepreneurship.

According to the study, which was done in Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam, the region is among the most entrepreneurial in the world with 66% of the people in the region viewing entrepreneurship as a positive career choice, above the GEM global average of 62.46%.

The study also revealed that the region is ripe for entrepreneurship as neighbouring countries in Asia and in the Pacific Rim see Asean as providing good opportunities for trade, business and economic partnerships.

Executive director Mike Herrington said Asean is well positioned to play an increasingly important role on the global economic stage.

“An Asian Economic Community (AEC) is no longer an abstract, but a reality that the regional governments are urged to embrace,” he added.

He said the GEM report recommended 10 key focus areas to boost entrepreneurship and innovation across the region including building the professional ability of governments to better understand and serve entrepreneurs, and meaningful media communications.

The report also suggested investing in good IT infrastructure and creating tailored development programmes for entrepreneurs.

“Entrepreneurial capacity can be built through concerted mutual effort, with governments focusing on reforms that help to create enabling environments that foster innovation, facilitate more productive economies and, critically, open up new and better job opportunities for all segments of the population,” he said.

Herrington said these would address the concern in the report which showed only moderate levels of innovation. He noted that only over half of Asean entrepreneurs said their products or services are not new to customers.

Teraju aims for 40 Bumiputera listings within three years

The Bumiputera Agenda Steering Unit (Teraju) is targeting 40 bumiputera companies for listing in the next two to three years under Skim Jejak Jaya Bumiputera.

Its chief executive officer Datuk Husni Salleh said Teraju also targeted to increase the total market capitalisation of bumiputera-controlled public listed companies to between RM7bil and RM10bil during the period.

He said the agency has a sound plan to get the companies listed on Bursa Malaysia at the right time, depending on market conditions.

“Three companies are in the final stages of floatation next year. They have obtained approvals and are awaiting listing,” he told a recent media briefing on the Bumiputera Economic Empowerment Report 2015.

Launched by the Prime Minister in September 2013, Skim Jejak Jaya Bumiputera, which is jointly managed by Teraju and Ekuinas Nasional Bhd, is part of the Bumiputera Empowerment Agenda.

Husni said the scheme provides comprehensive advisory services to bumiputera companies with potential for listing.

Until August this year, 11 companies were listed on Bursa Malaysia through the scheme, with total market capitalisation of RM5.5bil.

Cradle Seed makes first investment

Cradle Fund Sdn Bhd’s unit, Cradle Seed Ventures Pte Ltd (CSV), has invested millions of US dollars into Involve Asia Technologies Sdn Bhd (IAT), an e-commerce marketing platform.

CSV chief executive officer Aziz Hussein said this was CSV’s first investment following its launch in June this year.

“The investment injected into IAT involves millions of US dollars and following this, CSV will hold a 20% stake in IAT,” he said, but declined to reveal the amount.

Aziz said CSV was impressed with IAT’s strategic focus and momentum since it started operations last year and the injection of funds would greatly assist it.

IAT CEO and co-founder Jimmy How said the investment would be used to expand its operations across South-East Asia.

“The funds will be used for our technology development and developing partnerships throughout the region,” said How.

To-date, IAT has over 80 online merchants and over 1,000 publishers in its network in Malaysia, Singapore and Indonesia.


Business & Investment Opportunities 

Saigon Business Corporation Pte Ltd (SBC) is incorporated in Singapore since 1994. 

Myanmar - Asean awaits - nervously - a new Myanmar

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After a successful election early last month, which handed down a landslide victory to Daw Aung San Suu Kyi's National League of Democracy, there is a growing sense of anxiety within Asean about what kind of a new Myanmar is emerging.

Asean leaders understand too well the grouping's most famous nemesis, Suu Kyi, is going to shape her country's future with Asean in the next five years. The challenge is how Asean can interpret her complicit silence in this pivotal relationship in ways that would not undermine the full integration of the Asean Community, which begins on December 31.

After its admission to Asean in 1997, Myanmar has been suffering from all kinds of prejudices and heavily ostracised by its members and dialogue partners due to human rights violations and political oppression within the country. When it was time for Nay Pyi Taw to chair Asean in 2005, the besieged nation opted out for good, citing unpreparedness and domestic turmoil as key reasons.

For the next 10 years, the ruling military regime under the strongman, General Than Shwe, pursued unwaveringly the seven-point peace plan, which began in 2003 and ended with the recent election - but with extremely high casualties.

The military crushed the Silk Revolution harshly in 2007, which drew heavy condemnation from Asean and the international community at large. Even amid the human tragedy after Cyclone Nargis hit the Irrawaddy Delta in May 2008, the regime went ahead with the planned referendum on a constitution six months later.

Again, despite the display of leniency and understanding over dissension since the 2011 reforms, the Thein Sein government responded heavy-handedly against student demonstrations over education reform, fearing they would derail the scheduled election. The recent widespread floods in most western and northern parts of the country caused rumours of a postponement of polling day.

As it turned out, the vote outcome shocked the power wielders - they were victims of their own schemes. The people of Myanmar wanted change, and they wanted Suu Kyi to make the changes for them.

Following that poll, Myanmar has now risen like a phoenix and gradually occupied the discourse concerning the latest developments and its democratic impact on the rest of Asean.

Indonesia's dramatic political change in 1998 accelerated the grouping's economic and political integration, turning the most reluctant member - the grouping's lowest denominator - into an enthusiastic cheerleader in promoting Asean's profile among the global community. However, under the current President Joko Widodo, Indonesia has focused more on domestic issues and development trends.

As a new game changer, Myanmar's epoch-making turnaround, along with its geostrategic location, will create broad ripple effects on Asean and beyond. For instance, in the new action plans outlined in the Asean Community Vision in 2025, Myanmar has already been at the forefront in implementing measures to create rule-based, democratic and good governance.

Notably, among all the Asean members, Myanmar has become one of the most dynamic and active users of social media - even though mobile technology was only recently introduced and popularised. By the end of next year, it is estimated that nearly 75 per cent of its 51 million population will have access to online platforms.

With the NLD's reign in Myanmar, there are two possibilities regarding relations with Asean. First, the new government could pursue the Thein Sein government's ongoing policy, which has already integrated Myanmar into the overall scheme of integration with Asean. The country has done well in its economic programme despite ineffective implementation of key measures on non-tariff measures, particularly those requiring intra-agency cooperation such as a single window, harmonisation, and small- and medium-size enterprises - a common symptom among Asean members.

Under the new government, action plans on political security as well as social-cultural pillars would be further accelerated, especially in the areas of social development, human rights and civil society organisations.

The second alternative is to focus on domestic priorities, akin to Indonesian President Joko Widodo, after he took power over a year ago. Unlike Widodo, Suu Kyi has no long-standing acrimonious relations with Asean and its leaders. With her international status as a Nobel Peace laureate and democratic icon, she does not need Asean to prop her up in Myanmar.

Under the current circumstances, Asean needs her more than she needs Asean to promote the grouping's democratic and human-rights profile. Ironically, if she decides that Myanmar should chill towards Asean, it would be a relief for the rest of Asean leaders who are anxiously watching the leap-frog political transformation and assessing its contagious effects.

The first indicator will be visible during the first week of February, when she expects to name the new president for the parliamentarians' approval. Nearly five years ago, General Thein Sein was elected president on February 5, 2011. At the moment, he is scheduled to join the Asean leaders who have confirmed their attendance for the special Asean-US Summit in mid-February 2016 at the Annenberg Retreat at Sunnylands in California. However, if a new president can be named in time, he or she would replace Thein Sein as Myanmar's head of delegation. US President Barrack Obama invited the leaders to the US for a special meeting when they met last month in Kuala Lumpur.

Suu Kyi's relations with Asean have a long history, mostly unreported. On July 28, 1995, when she was scheduled to meet the Yangon-based Asean diplomats to exchange views following her release on July 10, the meeting was called off at the last minute at the request of the Ministry of Foreign Affairs, as Myanmar was acceding to the Treaty of Amity and Cooperation at the Asean meeting in Brunei. Since then, her ties with Asean have been frozen because she thought Asean did not stand up for her. Other non-Asean diplomats have needed to constantly meet her and encourage her to engage with Myanmar.

Her personal distrust of Asean, as a collective group of non-democratic leaders in Southeast Asia, really runs high. Throughout her years of incarceration, Asean was extremely cautious not to upset the military regime, trying to balance its diplomatic efforts to persuade Myanmar to continue reform and to free her. There were times when Asean got tough with Nay Pyi Taw, but not tough enough. Asean criticised the military regime when Suu Kyi was attacked by the government-sponsored mob at Depayin in 2003. At the end of September 2007, Asean upped its ante with the strongest condemnation ever over the armed suppression of monks and civilian demonstrators.

It remains to be seen how Asean-Myanmar relations will evolve in the coming months and years. Although Suu Kyi won the election with the slogan of "Time to Change", so far she has yet to show any sign that she has come to terms with Asean - as she did successfully with the military regime.

Kavi Chongkittavorn


Business & Investment Opportunities 

Saigon Business Corporation Pte Ltd (SBC) is incorporated in Singapore since 1994.