SINGAPORE companies should focus on ASEAN economies such as Thailand and Indonesia that are most ready to gain from integration, and zoom in on sectors that tap the region's manufacturing and consumer strengths, says International Enterprise (IE) Singapore.
But it also cautioned that local firms should take a long-term view and weigh political and regulatory risks against the positive spinoffs from ASEAN Economic Community (AEC) integration efforts, before investing in Singapore's South-east Asia neighbours.
In a publication discussing AEC 2015 and how businesses here might benefit, IE Singapore noted the uneven success of efforts to turn diverse ASEAN into a single market and production base so far. AEC 2015 "should not be viewed as a deadline, but an ongoing process", it said.
As the government agency responsible for promoting trade and the overseas growth of local companies, IE believes the benefits of eventual integration will outweigh challenges of heightened competition since Singapore's economy is already highly liberalised.
And to prepare for that future, the report suggests that Singapore companies adopt a "pan-South-east Asia strategy", as some industrial park players have done, and enter different markets to get ready to tap stronger regional trade and investment flows.
But it did add that companies ought to focus on partnering firms in economies that are most ready and likely to gain from integration, highlighting Thailand and Indonesia.
Singapore firms could take advantage of Thai conglomerates' strong networks in neighbouring Cambodia, Laos, Vietnam and Myanmar. And Indonesia, which has the largest population in South-east Asia, is a good bet for infrastructure demand, and growth in foreign investment and consumer demand, the report said.
In the same vein, IE Singapore also advised Singapore companies to pay attention to the manufacturing and consumer sectors - natural beneficiaries of deeper integration and South- east Asia's growing urban middle class.
Sounding a note of caution, however, the agency added that political, legal and economic frameworks are still evolving in many ASEAN nations. Investors thus need to factor in political and regulatory risks, taking on a long-term view to investments rather than "succumb to a knee-jerk reaction".
In terms of progress towards AEC 2015, most physical goods already flow without tariffs between the major ASEAN economies - Brunei, Indonesia, Malaysia, the Philippines, Thailand and Singapore. But the elimination of non-tariff barriers "continues to be difficult", especially in non-commodities sectors, due to varying standards and regulations.
Progress towards a freer flow of services has been slower too. "Local governments face domestic pressure or resistance against the liberalisation of sectors dominated by strong local players or deemed critical to national security," the report said.
A final tranche of commitments to the ASEAN framework agreement on services is expected to be secured this year. That should liberalise investment into 12 broad services sectors and allow at least 70 per cent foreign equity participation.
Five of the 12 have been marked out as priority ones - e-ASEAN, air transport, health care, hospitality & tourism, and logistics. Others include business services, construction and engineering, education, finance and environmental services.
"Singapore companies should however be aware that each country is still allowed to exercise some flexibility, and that implementation progress also differs," the IE report said.
This article was first published on May 23, 2015.
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