As appeared in TheEdge Markets, 3rd March 2017
THE current uncertain global environment is an opportune time for Asean member states to find ways to strengthen and help one another, says Datuk Seri Nazir Razak, chair of both World Economic Forum Asean Regional Strategy Group and Asean Regional Business Council.
“Given the external environment today, we should reflect on internal opportunities and on what we can do to help one another. In the face of a difficult external environment, we should naturally look at leveraging each other’s strengths to make Asean a stronger community to face external challenges and harness internal opportunities,” he tells The Edge from London in a Skype interview.
Nazir, who is also the chairman of the second largest banking group in Malaysia, CIMB Group Holdings Bhd, says there are a number of areas where Asean members can work together to improve growth internally amidst global uncertainty.
“For example, electricity — isn’t this a good time to perhaps look at opportunities, such as collaborative infrastructure, like the Asean grid project? Or take e-commerce — isn’t this a good time to look at pulling the strengths of the entire Asean market to develop e-commerce champions.”
“If you look at the whole area of e-commerce, China is growing some incredibly huge e-commerce companies. We don’t have a 1.4 billion market, but we have a more affluent 629 million [Asean] market, which is very sizeable. Unfortunately, we are still operating as 10 separate economies when it comes to fulfilment. How do we help e-commerce companies fulfil their transactions across Asean so that they truly enjoy economies of scale in this region?”
Nazir believes Asean’s achievements must not be understated, especially in terms of providing peace and stability over a long period.
“Since its inception, Asean has provided that enabling environment for us to conduct cross-border commerce. Obviously, when you look at the whole picture, there is more that we can do together. But don’t forget that the Asean Free Trade Area was only conceived in 1992 and the Asean Economic Community in 2007. All these initiatives have been very helpful in bringing the region closer together, increasing the amount of businesses that we do together, and [giving rise to] the proliferation of multinational Asean companies, such as CIMB, Petron, AirAsia, Fraser and Neave and so on.
“However, if you look at the actual numbers in terms of intra-regional trade, it does seem to have stagnated and perhaps there are constraints that need to be fixed,” he says.
Nazir shares that Asean, as a collaborative platform, does have its fair share of challenges, and he acknowledges that the speed of integration is at a much slower pace than what it was expected to be.
“The first barrier is tariffs and we have brought those down almost completely. The more serious ones are the non-tariff barriers [NTBs]. Bringing down the NTBs requires a lot of detailed execution work; many of them actually require legislation in each country and that is obviously really tough.
“You can agree in principle at the Asean level, but then you are subject to the domestic legislative agenda. One form of NTBs is mutual recognition. For example, the recognition of engineers — Asean has agreed on mutual recognition, but within each country, the local body hasn’t approved it, so it is stuck. These are the kinds of nitty-gritty issues around the NTBs that we have to look at.
“On top of that, there isn’t a legal framework around the implementation of Asean initiatives … you come out with certain initiatives, like mutual recognition of professional qualification, but if a country doesn’t enforce, no one enforces … whereas under the EU [European Union], you actually have legislation and you have enforcement,” he points out.
Nazir strongly believes that the core issue is stronger empowerment of the Asean secretariat to accelerate regional integration.
“Sometimes, the heads of states will come together and everyone will agree at committee level … but someone has to see it through. Nobody follows through. And the private sector also has nowhere to appeal … we don’t know where to go when we have problems or indeed ideas that are region-wide. You have to see 10 governments whereas we should see the Asean secretariat to champion issues on a multilateral basis. That would make it so much easier, and fuel more investments and cross-border flows,” Nazir says.
“At the World Economic Forum in Davos, one of the themes was the disintegrating world. We have gone through a long period of believing that integration and globalisation are good. But what has clearly transpired is that they have side effects and I don’t think we have spent enough time managing those side effects. This has brought us to this point where there are serious challenges to globalisation, liberal democracy and free markets as the dominant narrative,” says Nazir.
“What is important then is to make sure that as we integrate, we carry the population with us and ensure that there is widespread support for Asean,” he adds.
Nazir points out that Brexit (Britain’s exit from the EU) and the rise of neo-populism in Europe have in some ways vindicated the slow pace of Asean integration.
“Asean has always put inclusivity high on its agenda. It has always puts unanimous decision-making as its methodology. All these safeguards have resulted in a slow Asean, but at the same time, people feel safe moving forward with Asean. It [the regional organisation] has managed to keep itself together,” he says.
Nazir does not think the direction of Asean integration will be undermined by what is unfolding in Europe, namely Brexit.
“Similarly, we shouldn’t use Brexit as an excuse for not moving forward with integration and there are many initiatives that have all-round positive benefits that just need execution and follow-through.”
“It is a good reminder of what’s important. When you look at it closely, it is a vindication of our approach,” he says.
“I think when we look at Europe, Brexit is a real existential crisis for the EU, and clearly, events in 2017 on the political front will determine whether the EU breaks up. Conversely, the atmosphere at Davos recently was very positive for Asean. No one talked about the reversal of Asean or exiting Asean in any way. People talked about challenges of integration, but certainly they do not see a future without being part of Asean,” he adds.
This year marks Asean’s 50th anniversary, making it one of the oldest regional groupings in the world. Indeed, Asean has come a long way.
“Asean has tremendous economic strength, with 630 million people, comprising mostly the younger generation. At the start of 2016, the 10 economies of Asean were collectively the seventh-largest economy in the world. By the start of 2017, that rank had improved to sixth, and by 2020 it will be fifth,” said Justin Wood, head of Asia-Pacific at the World Economic Forum, in a press release recently.
More than 100 participants from the region attended the meeting in Davos, Switzerland, from Jan 17 to 20. This record Asean participation was the hallmark of the region’s historic 50th anniversary and its rising importance, said Wood.
Asean cooperation is intended to improve the socioeconomic conditions of its people through better integration and economic cooperation. The member states are working together towards this, but there are views that income inequality appears to be rising in Asean and the pace of economic growth is disjointed among markets.
On this, Nazir says: “We have to be careful in setting Asean against every KPI [key performance indicators]. Inclusivity in the first instance is about Asean helping accelerate the pace of growth of the less-developed Asean members. That’s number one on the Asean inclusivity agenda and indeed the less-developed countries are growing much faster than the mature economies.
“In terms of domestic inequalities, it is on the Asean agenda, but that is more of a domestic policy/priority and not something you should burden Asean integration with as a whole.”
On how the regional grouping should navigate the rising tensions between the US and China, Nazir believes that it is very important for Asean to maintain its neutrality.
“This challenge of being pulled apart by superpowers [during the Cold War] was one of the reasons we came together in the first place, 50 years ago. Asean was formed at the height of the Cold War. There were tensions between the Soviet Union and the US, which were played out in the Vietnam War. Then in the early 1970s, we launched Zopfan [Zone of Peace, Freedom and Neutrality.
“So all along, being neutral has been the bedrock of Asean; the source of our unity and strength, which must be maintained,” he says.