Burma ‘Not Ready’ for Asean Single Market by End of 2015

By William Boot 27 January 2015

The Asean goal of creating a single business market among the regional grouping’s 10 member countries is unlikely to happen for some years and certainly not by the target start date of the end of this year, analysts warn.

Burma is one of several countries in the bloc that lacks sufficient infrastructure to benefit from the planned beginning of the Asean Economic Community (AEC), they say.

And the dream of a single, joined-up market with unrestricted movement of labor—similar to the European Union—will be dogged by national self-interest for years to come, it is predicted.

“The short-term benefits of reduced trade and investment barriers for less developed states have perhaps been overplayed,” Asia analyst Hugo Brennan at business risk assessors Verisk Maplecroft told The Irrawaddy.

“Even without these barriers, weak infrastructure, endemic corruption and a low-skilled labor force will continue to undermine the business and investment climate in countries such as Myanmar [Burma].”

Burma, Cambodia, Laos and Vietnam will be slower to achieve their targets for trade liberalization than the other more affluent members, said the Wharton business school at the University of Pennsylvania in an assessment on the AEC this month.

The other six Asean members are Brunei, Indonesia, Malaysia, the Philippines, Singapore and Thailand.

“Moreover, the risk of political instability looms, especially in Thailand and Myanmar,” Wharton said.

Meanwhile, the AEC countries are already facing their first and unexpected economic hurdle, Wharton said: sharply falling crude oil prices.

“Lower oil prices will help some Asean oil and gas importers like Thailand, which is the biggest beneficiary in Asia because it is the most dependent on road transport. Lower oil prices hurt Malaysia, a net oil exporter, and Myanmar, which is a net gas exporter.”

Most Asean countries will be unable to comply with AEC objectives for more relaxed rules on foreign ownership and freer movement of workers by the end of this year due to domestic political constraints, international law firm Allen & Overy said in its latest quarterly report on business.

“However, international and regional investors are thinking more in terms of this as one region, as evidenced by the increasing numbers of companies establishing regional offices in Asean locations, primarily in Singapore.

“One other noticeable growing trend is the increasing amount of intra-Asean investment from the more developed Asean member states. We are also seeing a trickle of outbound Vietnamese investment, although Vietnam remains primarily an inbound destination, as do Myanmar [Burma] and countries in Indochina.”

Allen & Overy said Japanese trading and industrial companies were becoming the most “significant” investors in Asean.

One of Burma’s leading businessmen, Serge Pun, spoke on the AEC at the annual World Economic Forum in Davos last week. Protectionist impulses were strong in government and business, but there now seemed to be a determined effort to make the AEC work, he said.

The disparity in development between the 10 member states could be an advantage to an emerging economy such as Burma, which “would welcome the unskilled jobs that more developed Asean members are shedding,” Serge Pun said.

Thailand’s deputy prime minister, Pridiyathorn Devakula, defied the general opinion at Davos: “Some in the audience may not believe it, but believe me, we will have a single market by the end of the year,” he said.

Murray Hiebert, the deputy director of the Sumitro chair for Southeast Asia studies at the Center for Strategic and International Studies (CSIS) in Washington, told the Wharton study that the liberalization of financial services and freer movement of capital and labor would be slow to develop.

“Some Asean countries are anxious about opening up financial services and capital markets out of fear of financial contagion and exchange rate volatility, even though integration would provide opportunities for risk-sharing,” Hiebert said.

A more unified market will eventually lead to a more organized industrial division of labor, some analysts believe. Not all member countries could afford to develop or sustain a car-building industry, for example.

At present Thailand is “Asean’s Detroit.” But Indonesia is fast catching up in production volume, which leaves little room for emerging players such as Burma to attract major investment in vehicle construction.

Commercial nationalism looks likely to impede full open markets for some time.

“National interest is expected to take precedence over the common goal for the foreseeable future,” Brennan told The Irrawaddy. “Indeed, President Jokowi [Joko Widodo] of Indonesia said this explicitly at a recent Asean summit when he told member states that he would not allow economic integration to harm his country’s national interest.

“In Indonesia’s case, the government is reluctant to liberalize its investment market in some key sectors, for fear that its domestic companies will not be able to compete with those from Asean’s more developed economies, particularly Singapore and Malaysia.

“The current gulf that exists between member states, in terms of wealth and economic development, will certainly act as a drag on progress toward creating a single market. It is likely to be years, if not decades, before we see a truly integrated market across Asean,” Brennan said.

Burma poses two potential problems for the AEC, said Wharton: Uncertainty following parliamentary elections later this year, and the prospect of more violence between majority Buddhists and the country’s minority Muslim Rohingya population.

Hiebert disagreed: “Myanmar [Burma] is still only a minor player in Asean’s economy so it is not likely that the election in 2015 will have a major impact on Asean. But Thailand’s political instability could have a bigger impact.”

In the longer term, the AEC is likely to bring greater cohesion between the member states, but this is “likely to be a long and arduous process,” Brennan said.

“What Asean needs more than anything is a powerful supranational body, something akin to the Commission in the European Union, which could compel its disparate and self-interested members to comply with their promises.

“However, the organization’s commitment to the principles of non-interference and consensus-building makes this an unlikely prospect,” Brennan said.