One Asean or many?

• Nov 27, 2017

A melting pot of diverse cultures and home to a rich bounty of resources, Asean has grown into a large and attractive destination for foreign investment in the five decades since its founding in 1967.

While it is now the world’s seventh largest economy with a collective gross domestic product of US$2.3 trillion, Asean still relies heavily on foreign investment to hasten the pace of development in each country, notably for infrastructure and improving quality of life. A market of 630 million people in 10 countries, it has come to represent a potential gold mine for powerful nations such as Japan, the United States and China.

However, according to public and private institutions that are major participants in regional infrastructure work, obstacles to investment in the region can at times be a difficult pill to swallow for even the most ambitious of global superpowers.

Varying levels of development in member nations, frequent transnational spats and underlying protectionism stemming from territorial disputes and nationalism, have plagued Asean throughout its five decades. These shortcomings, experts say, are preventing Asean from reaching its true potential.

From the perspective of outsiders, Asean overall lacks true unity despite its status as a cooperative, intergovernmental organisation. Feel-good photo opportunities and handshakes at the innumerable meetings of the bloc mask a lot of problems.

These problems are the result of the wide variations in the pace of development in individual member states, says Wouter Van Wersch, president and chief operating officer of the Asean branch of General Electric (GE).

This has resulted in a collective lack of sturdy foundations for infrastructure and transnational cooperation, which can lead to hesitancy to invest in the region, he said.

“Asean is made up of 10 different countries that are in different stages of development,” Mr Van Wersch told the 10th Asean and Asia Forum (AAF) held in Singapore last month.

“The respective governments are thus often involved with their own countries’ affairs. It’s very difficult to invest somewhere where the rules often change, so I would encourage more cooperation among all parties.”

GE, a multinational conglomerate with US origins, is one of the largest investors in Asean, with machinery and power generation among its extensive offerings.

According to company data, GE has invested a cumulative $4.7 billion in Asean. Its generating machinery produces about 20% of the power in Indonesia, where it also has supplied a lot of medical equipment. In the transport industry, GE began supplying State Railway of Thailand (SRT) with locomotives in 1963, and more than half of them are still in use today.

TRANSNATIONAL FRICTION

Aside from unequal levels of development, inability to address longstanding territorial disputes and deal with preventable natural disasters undermine regional unity, observed Victor Mallet, Asia news editor of The Financial Times.

“Asean has been extraordinarily ineffective in dealing with transnational issues,” he said. “If the region can’t deal with them, it’s inevitable that the individual countries will find ways to deal with them in whichever way they can.”

Unresolved issues such as human trafficking in Thailand, the annual Indonesian forest fires that bring choking haze to Singapore and Malaysia, and the current crisis involving the Rohingya minority in Myanmar are just some of the problems that have impeded the building of strong diplomatic relations in Asean for years.

“These are huge issues that have barely even begun to be tackled in the region,” Mr Mallet said. “This is inevitably where nationalistic feelings and the rise of populism can surface.”

Participants at this year’s AAF also raised questions about the prospect of more unstable governments and widening income disparity.

The Singapore Institute of International Affairs (SIIA) estimates that 500 million residents of Asean will be middle-income earners by 2030. However, the region still lacks a form of nation-to-nation dependence and collateral, something that other unions, namely the European Union (EU), currently possess, according to Mr Mallet.

This has resulted in several Asean governments exercising policies focused only on their own respective countries, he added.

Mr Mallet said one concern that could surface is a lack of jobs, stemming from rapid advances in technology that will greatly reduce the need for human labour — not all of it low-skilled — in manufacturing as well as some service sectors.

“If there are no longer any jobs for younger people in Southeast Asia because the jobs can be done either outside the region or in an automated fashion, it could result in a demographic disaster,” Mr Mallet said.

The region will need to see significant developments in the education sector to produce a higher-quality workforce overall, he added.

According to Mr Van Wersch of GE, more than 7,000 of its 12,000 employees are currently working on projects outside their home country. This includes employees in Asean countries.

UNTAPPED POTENTIAL

Unresolved issues aside, Asean is soon set to climb higher in the global economic power rankings, with a projected GDP of $2.5 trillion by 2025. However, the region still has much to work on if it wants to be a true economic superpower, particularly in energy production.

According to Mr Van Wersch, more than 90 million of Asean’s 630 million residents still lack access to electricity. With a lot of natural resources still untapped, the region possesses significant potential, with hydroelectric and solar power among the options.

One nation looking to capitalise on this potential is Myanmar. A newcomer to the democratic scene, Myanmar is eager to improve the quality of life for its people.

U Win Khaing, Myanmar’s Minister for Construction, told the AAF that Myanmar citizens have been calling for change “as soon as possible”.

“The people are experiencing the country’s first freely elected government,” he said. “They have been put under decades of authoritarian rule, and are now expecting development.”

Energy tops the list of urgent demands, given that only 37% of the population now has access to a regular electricity supply. More than 65% of the country’s 52 million people still live in rural areas where access to electricity is spotty or non-existent.

Hydropower would be the ideal method, said Mr Win Khaing said, noting that the Irrawaddy River alone has the potential to produce 40,000 megawatts (MW) of energy.

However, construction of the Chinese-backed Myitsone Dam on the Irrawaddy was suspended by the former government of Thein Sein because of protests about its environmental impact. Valued at $3.6 billion and originally due to be completed this year, the dam was intended to provide 6,000 megawatts of electricity, but primarily for Yunnan province in southern China.

Nevertheless, Mr Win Khaing said the country continued to welcome foreign investment, adding that Myanmar had the potential to reach 100,000 MW in energy production.

“I’m very clear to investors that the energy option for Myanmar is open,” he said, adding that the country aimed to produce 5,000 MW of energy by 2020. That compares with about 3,500MW of installed capacity now.

UNRELENTING CHINA

Despite the lack of consistent infrastructure development and nagging transnational issues, China has emerged as one of the most steadfast and assertive investors in Asean.

China’s Belt and Road Initiative (BRI) — a 21st century reincarnation of the Asian superpower’s historically significant Silk Road — has the potential to help transform the region, and many governments in Asean have already signed on.

Malaysia, Indonesia, Thailand and Laos have agreed to government-to-government high-speed railway projects, eventually aimed at connecting several countries to mainland China.

Interestingly, Japanese business organisations appear to welcome China’s advances, as they want to see stability in infrastructure plans before making further investments in the region themselves.

Yasuo Hayashi, a special adviser to the Japan External Trade Organization (Jetro), believes it is “very likely” that Japan and China will collaborate on Asean projects in the future.

He said Japanese companies in Asean want to see further infrastructure improvements in the region to minimise the costs and reduce risk of losses by Japanese ventures in the future.

According to Jetro surveys, Japanese companies frequently bemoan a lack of development in roads, electric power, communication and logistics in the region.

A Bank of Japan report put cumulative Japanese investment in Asean at $160 billion from some 7,000 Japanese companies as of 2016, making it among the largest investors in the region.

These investments include contributions to the Southern Economic Corridor (SEC), such as the Sihanoukville Port in Cambodia and Laem Chabang and Map Ta Phut ports in Thailand.

Mr Hayashi said the BRI could be instrumental in helping further develop these areas, which would make investment more appealing for Japan.

“Projects such as the BRI can be considered good chances for Asean to achieve unity,” Mr Hayashi said. “But good governance is crucial to whether these developments will unite Asean or end up tearing it apart.”

This poses a challenge for China, as it aims to integrate the BRI into Asean’s development plans.

SIIA chairman Simon Tay said China must adopt a more “diplomatic” approach if it wants to effectively continue its work in the region.

“Asean wants partners, but it does not want to be dominated by them,” he said. “We would encourage China to learn quickly and be more diplomatic, like the Japanese are.”

Assoc Prof Tay stated that China risks “being pushed back by the Asean countries” if it continues to promote its initiatives “in a pushy manner”.

China appears to be getting the message, with regional development studies now getting more attention on the academic front.

The 21st Century Institute for Silk Road Studies, at Jinan University in Guangzhou, was established in 2014. With 40 faculty members and around 400 students, it was established to promote Southeast Asian studies for China to better connect to the culture of the Belt and Road countries, said Chen Dingding, the institute’s associate dean.

“Understanding the culture of a country is more important than understanding its infrastructure,” he said. “Once we comprehend their culture, we can improve relations with them as well.”

The BRI, according to Prof Chen, was established to address China’s own economic issues, and its spread to Asean reflects Beijing’s recognition of the region’s potential.

“China will need help from other countries to battle its geopolitical threats, and vice-versa,” said Prof Chen. “If we can establish a mutual understanding, it can be the best solution for a better cooperative plan for the future.”

Source: https://www.bangkokpost.com/business/news/1367603/one-asean-or-many-