Thursday, May 26, 2016

ASEAN businesses emphasise stronger private sector engagement in AEC 2025

The ASEAN Business Club and regional companies have again expressed support for the ASEAN Economic Community 2025 Vision to realise a highly integrated community with a people-centred agenda. However their welcome to news of the strengthening of the private sector’s role in the next ten years of ASEAN Economic Community building is tempered by reservations: 

Tan Sri Dr. Munir Majid, President of the ASEAN Business Club, Dato' Sri Mustapa Mohamed, Minister for International Trade and Industry of Malaysia and Pongpiti Ektheinchai, Head of International Relations of the Stock Exchange of Thailand

A SPECIAL DIALOGUE focused on the ASEAN Economic Community 2025, jointly organised by the ASEAN Business Club, the CIMB ASEAN Research Institute and Malaysia's Ministry of International Trade and Industry, attracted over 150 multinationals, regional businesses and media to MITI Tower, Kuala Lumpur on 24 May.

Four panelists introduced discussions on the efforts and challenges in strengthening the private sector's role in the AEC 2025 Vision. In the coming decade, ASEAN has committed to institutionalise within each body a consultative process with lead private sector associations and business councils to support the implementation of various sectors. ASEAN has identified four prioritised sectors, namely retail (including e-commerce), agri-food, healthcare and logistics for the removal of non-tariff barriers.

"Private sector engagement with leaders and ministers in the past has seen insufficient progress in the removal non-tariff barriers," said Tan Sri Dr. Munir Majid, President of the ASEAN Business Club.

"The next phase must focus on tangible outcome, with the private sector working through ASEAN bodies from the bottom up as well. We call for the inclusion of private sector experts in the ASEAN policy making process,” 

At the dialogue, Minister for International Trade and Industry of Malaysia, Dato' Sri Mustapa Mohamed presented key priorities of the AEC 2025 Blueprint which was released during Malaysia’s chairmanship year in 2015.

“The AEC is still a work in progress. There is an urgent need for us to transform ASEAN’s working mechanism and deepen economic integration. We have to be guided by a broader vision of a more inclusive ASEAN. This successor document outlines the strategic measures to be undertaken which will ensure ASEAN becomes a highly integrated and remains a cohesive economy, accords priority towards enhancing economic connectivity, promotes innovation and inclusive growth, and to continue to strengthen linkages with trading partners, regional and international economic groupings,” said the minister.

According to Dato Sri’ Mustapa, ASEAN will release the detailed action plan of the AEC Blueprint 2025 by the end of this year. The expeditious implementation of the new AEC Blueprint measures will be critical in ASEAN’s efforts to remain a hub for global economic activities.

Also speaking at the forum was Pongpiti Ektheinchai, Head of International Relations of the Stock Exchange of Thailand.

As at February 2016, the ASEAN Exchanges has US$2 trillion combined market capitalisation of over 4,000 companies from seven exchanges of six ASEAN countries. The ASEAN Exchanges’ implementation pillars are to promote and market ASEAN as an asset class, and to enhance connectivity by linking all ASEAN Exchanges through the ASEAN Trading Link

In the near future, it plans to organize ASEAN road shows in major financial cities to promote intra-ASEAN-listed companies through research, as well as working with leading index provider to promote regional products.

Wednesday, May 25, 2016

Vietnam, ASEAN and financial services challenges: embracing AEC, RCEP, TPP

By Dr Deborah Elms

Le Minh Hung, the State Bank of Vietnam's Governor, gave an interesting series of interviews in Hanoi about upcoming changes for the financial services industry in Vietnam.  He was speaking in the context of an Asian Banker Summit conference aimed largely at the financial services industry in Vietnam and in the region.A few points were worth highlighting for a wider audience.

SBV Governor Le Minh Hung delivers opening keynote at the Asian Banker Summit. Source: SBV

Vietnam, of course, is in a somewhat unique position within the region.  It is a member of the ASEAN Economic Community (AEC).  It has also signed the Trans-Pacific Partnership (TPP).  It also has a series of new bilateral free trade agreements and many of these deals come with new commitments in financial services.

The gaps between Vietnam’s existing regulatory and competitive environment for the banking sector and what might come in the future could be substantial.  Not all ASEAN member states can boast (or have to worry about) such a constellation of changes on the horizon.

Nevertheless, it is striking how enthusiastically the government is embracing the challenge.  The Prime Minister came to open the conference here before an audience so large they had to open another overflowing ballroom just to try to accommodate all the interested listeners. 

Governor Le tried to argue that both the AEC and the TPP will lead to a more efficient and sustainable banking sector.

This is not really the case.  The AEC promised “free movement of goods, services, investment, skilled labor, and freer movement of capital.”  The somewhat odd term “freer” came about because the original 2020 deadline for implementation of the AEC was not changed for financial services in ASEAN.  In other words, while the rest of the AEC goals were to have been met on 1 January, banking sector changes are not due for another five years.

It is certainly possible that the AEC, by 2020, will include new provisions on financial services.  Or, as hopeful vendors outside the ballroom at the Hanoi Marriott suggest, new technology may create greater market access and opportunities for millions of companies and customers across Southeast Asian markets long before the AEC deadlines kick in.

At the moment, most of the ASEAN-level commitments for banking, insurance and all other financial services sectors are far from creating an open market.  Services and investment commitments, in general, are also poor. 

Vietnam officially signs up for the 12-nation Trans-Pacific Partnership in Auckland, New Zealand

A trade agreement is not the only way to open markets. Companies can invest now in some markets that are, on paper at least, not open. Conversely, some sectors that appear to be “open” are rife with licensing requirements or manpower restrictions or various non-tariff barriers that make apparently open markets impossible to penetrate.

But a trade agreement does make it easier for companies to operate.  Regional agreements are definitely simpler for firms to use and reduce risk and uncertainty.  They can remove much of the burden for staff.

Historically, financial services and telecommunications have been viewed as essential “backbone” services.  These have always been treated differently than other service sectors with slower liberalization and significantly greater caution in rule making.

The TPP is no different.  The agreement has a specific chapter on financial services.  The interlocking nature of the deal means that some of the benefits for the banking industry can also be found elsewhere including in the investment and services chapters.

When Governor Le talks about the importance of a trade agreement to restructure credit institutions, he really means using the TPP to help Vietnam’s domestic industry level up.

As of May 2016, he pointed out that Vietnam was host to 50 foreign bank branches, 6 wholly owned foreign-invested banks, 52 representative offices, and 2 joint venture banks.  In the future, these numbers are clearly expected to grow.

 "When Governor Le Minh Hung talks about the importance of a trade agreement to restructure credit institutions, he really means using the TPP to help Vietnam’s domestic industry level up"

Financial service players, however, ought not just be thinking about the potential to set up new branches.  Instead, as the TPP gets set to shift up supply chains in Vietnam, companies should be considering how to play a role across a wide range of financial services that will be needed in the near future.

Such services include finding new local partners, offering up new trade financing for companies in Vietnam (and elsewhere) who currently have no access to such financing or have had poor terms, creating markets for insurance products of all types, and financing products that have likely never been offered in the market before, including products for small and medium sized firms that make up the bulk of the companies in Vietnam.

Banks should also be ready to finance infrastructure and to support the inbound investment of many different kinds of companies looking to Vietnam and other TPP member countries.

Firms will need to carefully read the TPP commitments, as the financial services chapter contains many country-specific rules and exceptions.  How TPP rules are implemented at the domestic level will also be important.  In Vietnam, the government is now working on a comprehensive reform of the credit institutional system.

Another promising area of focus for financial service firms that we have been working on is cross border mobile payments as part of the e-commerce negotiations for Regional Comprehensive Economic Partnership (RCEP).  These talks will bring together 16 countries in Asia, including Vietnam with the rest of ASEAN, China, Korea, Japan, India, Australia and New Zealand.

It is not possible to get smaller firms to participate in e-commerce if they cannot be paid for their goods and services.  Mobile payments provisions were not well developed in the TPP, as the agreement closed some time ago (substantive work on most chapters finished as long ago as two years).  In the world of fintech, two years ago is a lifetime.  Hence, there is ample scope for RCEP countries to consider new provisions to let smaller firms buy and sell goods and services across borders using mobile devices.

Financial services are a vital part of trade, as Vietnam’s top leadership has recognized.  Building and sustaining a competitive industry is a laudable goal.  Hopefully, other governments across the region will also embrace this challenge in the future.

Dr Deborah Elms is Executive Director of the Asian Trade Centre, Singapore. She is also a senior fellow in the Singapore Ministry of Trade and Industry’s Trade Academy. Previously, she was head of the Temasek Foundation Centre for Trade & Negotiations and senior fellow of international political economy at the S. Rajaratnam School of International Studies at Nanyang Technological University, Singapore. She publishes the Talking Trade Blog.