Editor: Thibaut Minot
The business environment of the Association of Southeast Asian Nations (ASEAN) has become increasingly favorable for foreign investment in recent years. 2014 was an exceptional year in terms of FDI, which gave way to a slightly less impressive 2015 despite significant FDI flows of about EUR102 billion (US$126.7 billion). FDI flows remained strong in the areas of finance and infrastructure and strengthened in the manufacturing sector. France’s FDI was no exception: the French FDI stock in ASEAN reached EUR17.4 billion (US$21.6 billion) at the end of 2015, with a penchant for large markets (Malaysia, more than EUR 104.7 million) and those with development prospects (Vietnam, more than EUR 81 million).
This is due to the willingness of governments in ASEAN states to promote foreign investment and the increasingly visible economic developments in the region. The weakening of the Chinese and Brazilian markets, the creation of the ASEAN Economic Community in December 2015, and the streamlining of the regulatory landscape greatly improved the perception of investors. Be it SMEs or multinationals, they now want to expand their presence in the economic region through the creation of various investment routes, production networks and regional headquarters. Despite being rich in opportunities, ASEAN remains a difficult region to define. It is therefore crucial to understand the different advantages and disadvantages that each country offers and to choose accordingly.
By Bradley Dunseith
In April, 2017, the World Bank (WB) released their biannual East Asia and Pacific Economic Update, entitled, “Sustaining Resilience.” As the title suggests, the WB anticipates growth in East Asia and Pacific, including ASEAN states, to remain resilient despite risks from global and regional vulnerabilities. In this article, we go through “Sustaining Resilience” and summarize the WB’s forecast for developing ASEAN states generally as well as their country specific predictions for economic growth.
About the report
The WB predicts that large developing economies will continue to grow moderately while smaller regional economies will benefit from the rapid growth of their neighbors as well as high commodity prices. The WB marked that poverty has continued to decline in most countries and will continue to fall with sustained growth and rising labor incomes. However, the WB report noted that global policy uncertainties means that countries must address macroeconomic vulnerabilities so as to prepare for external shocks to the economy. External shocks – such as changes in US policy – disproportionately affect smaller countries; as such, the WB report strongly recommends small economics to improve the efficiency of their public spending in preparation of needed structural changes.
By: Dezan Shira & Associates
An Introduction to Doing Business in ASEAN 2017, the latest publication from Dezan Shira & Associates, is out now and available for complimentary download through the Asia Briefing Publication Store.
What happens in and around ASEAN is one of the key factors increasingly impacting upon China and India trade flows, as well as the rest of Asia. While the ASEAN trade bloc has been in existence since 1967, it has really shown its importance in trade and commercial business flows since the rise of China over the past three decades, and through its response to China’s changing domestic demographics. Those changes – an aging and increasingly consumer demanding China – have been skillfully adapted by ASEAN to place the future of global manufacturing, and where it takes place, firmly within its own orbit.
Simply put, free trade agreements that came into effect with China and India in 2010 changed the face of Asian trade and production, and are continuing to do so. For example, bilateral trade figures between China and ASEAN’s Big Five of Indonesia, Malaysia, Philippines, Singapore, and Thailand have multiplied by factors of 500 percent since the agreement was signed. With the smaller ASEAN nations of Cambodia, Laos, Myanmar and Vietnam coming into line with their own compliance of ASEAN customs duty reductions at the end of 2015, the entire bloc offers close to zero import-export tariffs for much of emerging Asia, including the giant markets of China and India, possessing some 500 million middle class consumers between them. ASEAN therefore represents a massive trade bloc possessing free trade agreements of global strategic importance. The question of accessing ASEAN for the benefit of North American, European and other global purchasing and manufacturing executives is a key function of this report.
An Introduction to Doing Business in ASEAN introduces the fundamentals of investing in the 10-nation ASEAN bloc, concentrating on economics, trade, corporate establishment and taxation. We also include the latest development news in our “Important Updates” section for each country, with the intent to provide an executive assessment of the varying component parts of ASEAN, assessing each member state and providing the most up-to-date economic and demographic data on each. Additional research and commentary on ASEAN’s relationships with China, India and Australia is also provided.
- An introduction to ASEAN
- Country profiles
- Case studies: ASEAN as a platform for Asian growth
Our practice, Dezan Shira & Associates, has taken giant steps into the ASEAN market through the establishment of offices throughout the region, in addition to the creation of a unique alliance of firms. That, coupled with our existing long experience of handling foreign investment into China and India, puts us in a unique position of truly understanding how Asia works and how to maximize its free trade benefits.
Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email email@example.com or visit www.dezshira.com.
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Dezan Shira & Associates Brochure
Dezan Shira & Associates is a pan-Asia, multi-disciplinary professional services firm, providing legal, tax and operational advisory to international corporate investors. Operational throughout China, ASEAN and India, our mission is to guide foreign companies through Asia’s complex regulatory environment and assist them with all aspects of establishing, maintaining and growing their business operations in the region. This brochure provides an overview of the services and expertise Dezan Shira & Associates can provide.
An Introduction to Doing Business in ASEAN 2017
An Introduction to Doing Business in ASEAN 2017 introduces the fundamentals of investing in the 10-nation ASEAN bloc, concentrating on economics, trade, corporate establishment, and taxation. We also include the latest development news for each country, with the intent to provide an executive assessment of the varying component parts of ASEAN, assessing each member state and providing the most up-to-date economic and demographic data on each.
Human Resources in ASEAN
In this issue of ASEAN Briefing, we discuss the prevailing structure of ASEAN’s labor markets and outline key considerations regarding wages and compliance at all levels of the value chain. We highlight comparative sentiment on labor markets within the region, showcase differences in cost and compliance between markets, and provide insight on the state of statutory social insurance obligations throughout the bloc.
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: Maxfield Brown & 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.