Regional infrastructure the AEC key

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Regional infrastructure the AEC key

As we have previously noted in many articles throughout this series on the upcoming ASEAN Economic Community (AEC), there is much that is imponderable and unknown about what will be the true results of this union.

More and more it appears the AEC will not be the saviour of regional business, although without it the long-term prospects for economic growth would likely be retarded.

It’s interesting to look outside the region at what financial analysts and the like are saying about the AEC and the prospects of the individual countries that will make up the trading bloc.

Getting away from the almost rose-coloured hype of those who have a vested interest in talking up the AEC can maybe give a better idea of what business can hope for come the end of 2015.

Much of the following comes from an analysis undertaken on behalf of Credit Suisse by The Financialist. As the name might suggest, The Financialist is primarily concerned with the economic impact of political and social activities within countries and regions, looking at potential long-term outcomes and suggested solutions.

In an article published at the end of July this year, The Financialist made the salient point that ‘the association [ASEAN] itself has noted that inadequate infrastructure, especially transportation links between countries, is one of the key obstacles to
creating a single Southeast Asian market.”

More poignantly they suggested, “…knocking down tariffs and other legal barriers to trade won’t do anybody any good if the cargo can’t actually get from here to there efficiently.”

Of course the various agencies and organisations charged with the ultimate implementation of the AEC are well aware of this fact. Earlier this year an ASEAN report suggested around US$600 billion was needed to build the necessary infrastructure over the next 10 years to improve trade and maintain growth. Most of this money has to be spent in the smaller and less developed economies such as Cambodia, Laos, and Myanmar.

As The Financialist said, “For Thailand, the second-largest economy in the regional association after Indonesia, the need for infrastructure improvements is particularly acute.”

This isn’t because infrastructure in Thailand itself is all that bad‚ it’s because trade with Cambodia, Laos, Myanmar and Vietnam “is becoming increasingly important to the Thai economy…” and the infrastructure in those neighbouring countries is especially poor.

“Trade with the CLMV countries, as they are called, made up 7.8 percent of Thailand’s exports [in 2012], up from 3.8 percent just five years ago.”

By comparison, presently about 10 percent of Thailand’s exports are consumed by the European Union, so it’s clear that in just half a decade trade with the CLMV countries has accelerated to the point where it’s almost as fundamental to Thailand as the EU.

Continued next issue