Bernardo M. Villegas
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Rebalancing Strategy
published: Mar 31, 2017

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Just Follow the AEC Leaders

          The year 2015 (or more precisely the beginning of 2016) is only symbolic for the ASEAN Economic Community.  Tariffs for most manufacturing goods have already fallen to very low levels within the ASEAN.  Services, except for some professions like law and architecture, have already been freely flowing from one country to another.  There is already free flow of capital.   For example, the Central Bank did not have to wait for 2015 to allow foreign equity to be invested in local banks.   On the negative side, don’t expect free flow of labor for a long time to come.  It may be only for agricultural commodities like sugar that 2015 has significant implications:  Sugar from Thailand and Malaysia may make many sugar-producing regions in the Philippines like Central Luzon and CALABARZON uncompetitive.  On the positive side, palm oil plantations may move away from Malaysia and Indonesia to the Philippines in greater volumes and at a faster rhythm. 

          Filipino executives and enterprises racking their brains about how to be prepared for and take advantage of the opportunities of the ASEAN Economic Community are well advised to study the experiences, both negative and positive, of Philippine corporations that have been operating in the ASEAN for decades or at least a couple of years.  These intrepid business people did not have to wait for 2015.  As early as the 1980s, some of them were actively investing and doing business in such countries as Indonesia, Malaysia, Singapore and Vietnam.  The accounting firm SGV was omnipresent in Indonesian firms, having trained many Indonesians in the auditing profession.  In fact, many of the SGV professionals took up top executive positions in numerous Indonesian conglomerates.  SGV was one of the first real ASEAN enterprises, having been present in all major ASEAN countries.  The same can be said of the leading pharmaceutical firm United Laboratories.  Its founding father, J. Y. Campos, had the earliest vision of being a major ASEAN player and competed head on with American and European MNCs in leading ASEAN countries.  The same can be said of the San Miguel Corporation that had breweries in more than one ASEAN nation. 

         Much later during the end of the last century and the beginning of the Third Millennium, we saw Philippines-based food and beverage enterprises expanding their operations to select ASEAN countries.  These were the Robinson group, Liwayway Manufacturing (Oishi brand), Century Pacific, Jollibee, Nutri Asia, among others.  As the leading  Philippine global corporation, Ricky Razon’s International Container Terminal Services Inc., was recently cited by Michael Zink, head of ASEAN for City and Citi Singapore CEO,  as having operations in over 20 countries all over the globe.  Admittedly, these already globalised enterprises have been the exception in the generally inward-looking, insular, ultra-nationalist and protectionist Filipino business community.  But times are changing.  Changes can accelerate if, instead of worrying about what Governments will do to promote or block regional integration within the ASEAN, Filipino entrepreneurs just follow the lead of the pioneers who went global or regional even if they had to face uncertainties in government policies and the geopolitical environments.

          For those willing to follow the AEC Leaders, I suggest the following strategic guidelines in their blazing new trails in the AEC:

          -The AEC is a work in process that may take at least twenty years to complete.  It took more than twenty years for the EEC to be a real union and even now there are some members who are threatening to secede.  On the optimistic side, the AEC as an economic union may be realized faster than the EEC because the ten member nations are realistic enough not to get sidetracked by any utopian vision of a political union (which has caused a lot of distractions in Europe).  Because a political union is considered farfetched from the beginning, there will no attempt to have a common fiscal policy and therefore, there is very little chance that AEC will try to evolve a common currency.  To make a monetary union work, there must be first congruence in fiscal policies.  This became very obvious during the recent Great Recession when the Euro got so much flak.

          -There is no such thing as decoupling of the AEC from the rest of the global economy.  Although trade and investment relations among the AEC will definitely grow faster than those with the rest of the world (e.g. Japan, U.S. and Europe), the individual economies in the AEC will continue to be important trade and investment partners with countries outside of their region.  The AEC may also discover major opportunities of linking with other emerging markets like Brazil, Russia, South Africa, Nigeria, Turkey, India, Pakistan and Bangladesh.  Needless to say, China will be a dominant market and source of FDIs for the AEC.  In no time at all, for example, Chinese tourists will lead all other nationalities in the AEC.

          -As mentioned above, it will be the private sector that will take the lead in making the AEC happen.  In fact, expect some States to retrogress by introducing ultranationalistic non-tariff barriers such as Indonesia and Malaysia are wont to do.  This backtracking should not intimidate the private sector who should be creative enough to roll with the punches, so to speak, as the earlier ASEAN companies have already done.  In addition to the Philippine corporations cited above, let me cite the Salim group and CITRA from Indonesia, the Kwok group and Maybank from Malaysia, and Singapore Telecom and Keppel from  Singapore.  All these ASEAN companies have been very active in the Philippines, despite some of the inconsistencies in our government policies.

          -The private sector should do everything possible to pressure the Government, especially after 2016, to move ahead with the amendment of the restrictive provisions in our Constitution against foreign investments and the subsequent legislation to specify the actual liberalization measures.  It is important that the Philippines will have enough flexibility to compete with the other ASEAN countries in attracting FDIs which are completely indispensable in the aggressive infrastructure investment program that we will have to implement in the next ten to twenty years.  We need to make these large investments to be able to catch up with our neighbours in the efficiency of our physical infrastructures, such as airports, seaports, trains and highways.

          The final message to the potential Philippine enterprises venturing into the AEC is that “the perfect is the enemy of the good.”  Don’t expect the most ideal investment environment, especially in such as countries as Vietnam, Myanmar and Cambodia.  Without throwing caution to the wind, try to be in these countries as early as possible in their development efforts.  To use a cliche, the early birds catch the worms.  For comments, my email address is