Bernardo M. Villegas
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ASEAN Connectivity

           Thanks to a recent Special Report from CLSA Asia-Pacific Markets, business people, government officials, workers and consumers in the ten member nations of the Association of Southeast Asian Nations (ASEAN) have once again been alerted about the 2015 target for "a more liberalised, competitive and equitable region that is more integrated into the global economy within Southeast Asia."  Since the founding of the ASEAN in 1967, forward-looking leaders in the region have been dreaming of a "single market."  The key to this is the removal of trade and non-trade barriers among the various members and the continuous improvement of infrastructure links. One unique advantage of most of the countries in the ASEAN, with the exception of a few, is its young demographic and an expanding middle class, making the region an attractive investment destination.  In its Special Report, the CLSA Asia-Pacific Markets has identified 23 companies that will most benefit from ASEAN connectivity.  There are three Philippine firms among these magic 23:  ICTSI, Universal Robina and JG Summit.  The other twenty come from other ASEAN nations and should be potential joint venture partners of Philippine firms seeking to diversify into the ASEAN Economic Community.

          According to the Special Report, ASEAN exports enjoyed a respectable 9.9% current annual growth over 2000 to 2011 with the improvements in trade liberalization within ASEAN being dwarfed by the impact of China both as a destination and proportion of global trade.  While market and product diversity grows, ASEAN remains explicitly tied to demand from and industrial production in China.  It is imperative that non-tariff barriers between members be removed if a "single market" is to be achieved in the next decade or so.  The leading countries in growth--the so-called VIP countries (Vietnam, Indonesia and the Philippines)--must seize the opportunity that has recently resulted from China's rising wages and stagnating workforce.  Already, there is a discernible transfer of manufacturing activities from China to these three countries still enjoying the so-called demographic dividend.  Unfortunately for Thailand and Malaysia, the demographic dividend has been cut short and labor shortages are being felt in these two countries. While violent labor unrest has practically disappeared in the Philippines, it is just rearing its ugly head in some industrial centers of China, Vietnam and Indonesia.  There is no better time than now to resuscitate manufacturing in the Philippines.  Director General Lilia de Lima of PEZA has her hands full satisfying the demand especially of Japanese manufacturing firms wanting to relocate their plants to the Philippines.

          Hundreds of billions of dollars will be spent in infrastructures as greater cross-border cooperation creates prospects for the building of roads, rail links, airports and seaports which are essential to achieve ASEAN connectivity, bringing people, goods, services and capital together.  Two flagship projects are the ASEAN Highway Network and the Singapore-Kunming Rail Link.  Improved connectivity will bring benefits to members in diverse ways.  Liberalization will increase the inflow of Foreign Direct Investments into Indonesia.  As a regional hub, Thailand gains from businesses seeking access to emerging ASEAN.  The Philippines is a close competitor of Thailand in this regard because of the Archipelago's very strategic geographical location right smack in the middle of East Asia.  Singapore's strong regulatory framework and open capital markets make it the ideal financial hub, increasingly taking the place of Hong Kong as the financial center of East Asia. 

          CLSA Asia-Pacific Markets focuses on 23 companies that will benefit from greater investment and liberalization.  Among them are Axiata, AirAsia, IHH, SapuraKencana, CP Foods, Super Group, ICTSI, Siam Cement, UEM Land, UOB, Bangkok Bank and Bekasi Fajar.   Air Asia is Asia's largest low cost carrier and has over 140 routes connecting 70 ASEAN destinations.  Our own carriers will have to compete with Air Asia for leadership position after the 2015 liberalization.   Axiata, a telecom company, started expanding across ASEAN in 2005 and today it has top-three positions in four mobile markets:  Malaysia (Celcom), Indonesia (XLAxiata), Singapore (M1) and Cambodia (Hello/Smart).  It also plans to bid for a license in Myanmar, which is liberalizing its telecom industry.  Our own Globe and Smart will have to ready to compete with Axiata.  Similarly, our large banks have to be ready to compete with CIMB, Malaysia's second largest bank.  It already ranks No. 5 in ASEAN in terms of total assets, although it is the region's leading investment bank.  Its core markets are Malaysia, Indonesia and Thailand.  It currently has a presence in nine of the ten ASEAN member countries, and is finalizing its acquisition of Bank Central Asia in the Philippines. Kalbe Farma is the largest pharma play in Southeast Asia.  Sales to the region make up just 2% of the firm's total revenue, but management targets to raise its export contribution to 10% within the next five years.  Its consumer products are present in all ASEAN countries, except Laos; in particular, its energy drink products have a strong market share under the brand "Extra Joss" in the Philippines, where it established a joint venture production plant in 2012.  It is even planning an expansion program in Nigeria.  These are examples of ASEAN conglomerates that should be emulated by Philippine companies that want to be at the vanguard of the ASEAN Economic Community. Those interested in the Special Report may contact CLSA Philippines, Inc. at Tel 860-4000 or FAX 860-4051. For comments, my email address is bernardo.villegas@uap.asia.