By Mike Vinkenborg
With the government of Myanmar recently passing its new Investment Law, taking effect in April 2017, the country is showing its continued commitment to attracting foreign investment. After reopening its economy in 2012 following several political reforms beginning the year before, Myanmar has been receiving significant increases in foreign direct investment, reaching a high of US$9.5 billion in the 2015/2016 fiscal year ending in March. To put this in perspective, the total amount of FDI added up to only US$329.6 million in 2009/2010, the year before the military ceded power. While oil, gas, and energy remain the sectors with the highest FDI inflows, investments into Myanmar’s manufacturing industry are rapidly gaining traction, having risen from just US$33.2 million to over US$1 billion in the same period, and hitting a high of US$1.8 billion in 2014.
As China strives to move up the value chain and focus more on high-end manufacturing, the country’s wages have risen to the point where many garment manufacturers are looking to invest elsewhere. Cambodia and Vietnam have already established themselves as alternatives, and now Myanmar is bringing a new labor force to the competition. Clothing exports have already gone up from US$337 million in 2010 to US$1.46 billion in 2015. And now that the economic sanctions by the EU and US have been lifted, the Myanmar Garment Manufacturers Association (MGMA) has set a target for exports to increase to US$12 billion by 2020. Doing so would create an estimated 1.25 million new jobs, a sharp increase from the approximately 250,000 people currently working in the garment industry.
By Dezan Shira & Associates
US president-elect Donald Trump’s opposition to the Trans-Pacific Partnership (TPP) is well-known and the future of the trade deal is now on tenterhooks. For the supporters of the TPP, Trump’s victory has meant that their worst fears are now going to unfold. Opponents of the trade deal are rejoicing at their expectation that Trump will now move quickly to fulfill one of his most controversial campaign promises – to abandon the TPP. Any prospects of the US renegotiating the TPP are not only bleak but also impractical – the trade deal was seven years in the making, meticulously negotiated and involved compromises from several countries on both sides of the Pacific.
Implications for ASEAN
So now if the US does ultimately withdraw from the TPP, what implications will this have for free trade in the ASEAN region? Before analyzing this, it should be kept in mind that TPP’s potential failure is unlikely to have any significant immediate economic impact on the region. It was not a trade deal in force, but only offered prospects of newer free trade rules coming into effect in the near future. Instead of being a step backwards, it is more a lack of further progress as far as development of free trade in the region is concerned.
By: Dezan Shira & Associates
Among a myriad of factors which determine competitiveness within ASEAN member states, rates of taxation are a particularly salient judge of character for the treatment of foreign investment. In recent years, corporate income tax (CIT) has become the standard bearer for tax benchmarking, however, foreign investors will be faced with a variety of different taxes in the event that capital is committed. For those importing and exporting, indirect taxation, including value added taxation (VAT) and goods and services tax (GST) are significant forms of tax that should not be disregarded.
In essence, an indirect tax adds to the price of a purchasable product or a payable service, thereby increasing the cost of that product or service and causing consumers to indirectly pay its rate of taxation. Indirect taxes thus differ from other forms of taxation, such as corporate income and individual income tax; both of which require a business or an individual to pay the applicable amount directly to a government.
By: Maxfield Brown
In a victory that stunned analysts around the world, the UK has voted to exit the European Union (EU) by a margin of 52 to 48 percent. In addition to producing significant implications for investors across Europe, the interconnected nature of the global economy leaves businesses across the world exposed. ASEAN is no exception. Currency markets within the South East Asian bloc have already seen swift valuation changes, and the pending exclusion of the UK from the EU’s network of trade negotiations in ASEAN is likely to have a long term impact on trade within the region.
For European investors maintaining operations throughout ASEAN or British parties considering investment, it will be of utmost importance to monitor developments within the region closely in order to ascertain their likely exposure to Brexit fallout.
Short-Term Considerations: Foreign Exchange Volatility
As markets within ASEAN know all too well, currency volatility is one of the most immediate externalities associated with economic crisis. Despite the Pound Sterling being separated from the Euro, the mere threat of a Brexit was enough to depreciate the Pound by 7 percent against the US dollar during voting. As polls closed, ASEAN currencies have also seen substantial rises in their value against the United Kingdom.
By: Aysha Nesbitt
Though more companies than ever are making strides to manage and improve the image of their operations, the constant appetite for cost reduction exposes supply chains to the reputational risk of worker exploitation. With some of the world’s most cost competitive hubs, ASEAN and its regional competitors offer a diverse array of labor conditions. Investors choosing ASEAN as a means of gaining an edge over competitors must therefore be cautious of where they choose to commit capital and the characteristics of the markets in which these investments are made.
Of the nearly 21 million people in the world today trapped under forced labor, 56 percent reside in the Asia-Pacific Region. Forced labor refers to any work people are forced to do against their will, including bonded labor, child labor, and all slave practices. Today it is tied closely to construction, manufacturing and agriculture, with 68 percent of forced laborers working in these industries.
For investors in at risk industries seeking to expand into ASEAN and its surrounding competitors, understanding the factors that drive exploitation and creating investment strategies to avoid these risks can provide significant mitigation against future losses. Furthermore, given effective due diligence, the implementation of these strategies can come at a minimal up-front cost.
By: Maxfield Brown
Indonesia has announced its intention to propose a regional minimum wage for ASEAN during a recent World Economic Forum event held on the first and second of June in Kuala Lumpur. During the event, Indonesian officials cited wage disparities between low cost production hubs such as Vietnam and those economies with more expensive labor forces, and expressed concerns that these differences could result in a race to the bottom and ultimately lead to the exploitation of workers. The specifics of Indonesia’s proposal are expected to be released at the upcoming ASEAN manpower ministers’ meeting.
Surprisingly, there has been considerable fanfare behind the idea of an ASEAN minimum wage, with Cambodia and Vietnam among those showing support. However, the extent of regional commitment remains to be seen as nations continue to compete for capital inflows brought on by a number of pending trade agreements and relatively competitive workforces. Beyond doubts over the willingness of nations to implement a minimum wage, questions also arise over the current capacity of ASEAN as a whole to institute regional standards of this magnitude.
From the perspective of investment, collective commitments to a regional wage minimum bring up important questions over the structure of wage floors within ASEAN. With regard to regulation as a whole, talk of a minimum wage also necessitates reflection on the ability of ASEAN’s current treaty structure to institute and enforce regulations of this magnitude.
By the South-East Asia IPR SME Helpdesk
In 2015, the ASEAN Economic Community (AEC) was officially fully established. In some ways similar to the economic unity of the EU, the broad aims of the AEC are to develop (1) a single market and production base, (2) a region of more equitable economic development, and (3) a globally integrated economic region. To achieve these, trade barriers will be removed or reduced and standards across a number of sectors (i.e. cosmetics, pharmaceuticals, agricultural products, and medical devices) will be harmonized.
By: Alexander Chipman Koty
With the establishment of the ASEAN Economic Community (AEC) at the end of 2015, ASEAN achieved a significant milestone in the region’s growing political, economic, and cultural integration. As set out in 2007’s ASEAN Economic Blueprint, the AEC seeks to “transform ASEAN into a region with free movement of goods, services, investment, skilled labour, and freer flow of capital.” While considerable progress has been made in liberalizing and normalizing the region’s standards in most of these areas, establishing the free movement of skilled labor lags appreciably behind.
Although ASEAN has clearly stated its goal to promote skilled labor mobility, current policies not only trail the European Union, where freedom of movement is essentially unencumbered, but also less ambitious regional trade agreements such as the North America Free Trade Agreement (NAFTA) and the Caribbean Community (CARICOM). The lack of a cohesive regional framework, nationalist and protectionist policies, and middling political will impede ASEAN’s skilled labor mobility. However, employers can still take advantage of policies that facilitate the hiring of skilled workers in certain sectors to address the frequent skilled labor shortages found within ASEAN countries.
By: Mareike Entzian
It is important to evaluate current minimum wages across ASEAN every couple of years, as they often fluctuate heavily and impact productivity, profits and ultimately investor decisions. With recent shifts towards a “China Plus” strategy within APAC at large, examining minimum wages across ASEAN is an increasingly useful strategy. Although wages alone will not determine the utility of given markets, minimum wage trends provide valuable insight on whether a country is likely to be a sourcing, production, or sales market for a given product. Trends show sustained inflationary pressures on wages within the region as ASEAN-5 members make an effort to bolster middle class growth and transition their economies away from traditionally export led growth.
By: Mareike Entzian
Much like the European Union, the ASEAN Economic Community is founded on several unchanging pillars. The community is supposed to create a single market and production base, support one another in increasing competitiveness, close gaps of an economic nature and other disparities, and to further integrate with the global economy.
In a previous article , we laid out the relationship between ASEAN’s largest markets and Germany, and we will now explain what investors can do to act on this potential. In a survey conducted by Germany Trade and Invest, German firms operating within ASEAN indicate that they are excited by new opportunities presented by the AEC and are ready to seize them. However, unlike their invested counterparts, companies not yet operating in the region continue to register reservations about committing capital. This hesitance has led German firms to fall behind other competitors, such as Japan, who have been successfully leveraging tariff removals and other benfits of found within the region.
To understand the AEC, it is paramount to be aware of its geopolitical background as well its fundamental differences to the European Union. Once it is clear that, although on paper the AEC looks like the European Union, it remains a long way from the EU’s level of integration, it becomes clear what investors can do to operate successfully.