Anne Rodrigues, President, Malaysian Association of Corporate Treasurers:
The governments of the ten countries that make up the Association of South East Asian Nations (ASEAN) subscribe to the formation of the ASEAN Economic Community (AEC). The AEC will see the integration of all ten ASEAN economies into “a single production base with free movement of goods and services, capital, investments and skilled labour.” The deadline for the integration has been set at 31st December 2015.
The full realisation of such an economic community will bring considerable economic benefits to corporates who operate within it, as it will see the creation of an entity with a combined population of around 600m, a GDP of $2.4 trillion, making it the seventh largest trading economy in the world. Additionally, if we include a free trade area (FTA) with dialogue partners (Australia, New Zealand, India, Japan, China and South Korea) and also FTAs with the EU and US, the benefits would be even greater. From these corporates will be able to obtain considerable benefits from economies of scale as well as cross border synergies from ASEAN integration, not to mention a rising of the levels of efficiencies and reduction in all manner of costs with the reduction in tariffs, related administrative and banking costs, as the theory of competitive advantage kicks in. Overall, the full realisation of AEC as envisioned will definitely result in an overall ease of doing business within the region.
The task of implementing the AEC in accordance with the ASEAN Economic Blueprint, which is a master plan for the establishment of the AEC, is entrusted with the ASEAN secretariat. The update provided by the secretariat in July 2013 stated that the implementation rate of the AEC Blueprint was 79%.
I believe that corporates in the region, particularly in the case of Malaysia, who are involved with operating businesses and trading within the ASEAN region are not yet fully aware of the potential impact and benefits of AEC implementation for whatever reason. This could be because of insufficient focus and publicity by the entities involved or because there are other more pressing issues to be tackled, or even a lack of conviction that such a blueprint will finally take off.
Likewise, in respect of the progress of a Pan ASEAN clearing and settlements system, there has been very little information forthcoming from the ASEAN Secretariat and a more detailed framework for banking under the AEC scenario has yet to be disseminated.
David Morton, Regional Head of Corporate Banking – Asia Pacific, Commercial Banking, HSBC:
Anything that brings together larger groupings of businesses and populations on a single or common regulatory framework, normally leads to greater efficiency and reduced operating costs for businesses. This is especially true in Asia Pacific, a region containing 17 contrasting countries growing at different rates and operating under different political systems. The further integration of the ASEAN region and the creation of the ASEAN Economic Community (AEC) therefore has the potential to offer a number of benefits to corporates with operations in the region.
The major benefits which further ASEAN integration may bring, include; further trade and investment liberalisation, the ability to transfer funds across border more efficiently and without delay, the ability to take advantages of developments such as RMB internationalisation which the ASEAN region will be heavily involved in and also take advantage of the new technologies developed in the region which can be utilised by treasury. In addition, the region and its benefits are not just open to large multinationals. SMEs will also be able to take advantage of ASEAN at the same speed, if not quicker, than large multinationals.
However, a pan-ASEAN clearing and settlement system is currently not something which corporates will readily be able to benefit from, as all parties are still a long way from reaching an agreement. While some countries have taken steps to pave the way for this, such as Singapore launching its FAST payment system, and we expect further countries to adopt similar methods as a way to modernise their own domestic payment infrastructures there is still a significant amount of work to be to create a pan-ASEAN system and this will take some time.
To take full advantage of ASEAN integration it is vital that corporate treasurers stay close to development in the region by keeping up to date with releases from the official bureaucratic sources within the region. Corporates should also look to their home embassies and government trade organisations who will also release information. The challenge for the treasurer however lies in being able to filter the plethora of information to ensure that what they are looking at is up to date and relevant to their operations.
Despite the benefits which further ASEAN integration can offer corporates, there are a number of challenges they may continue to face. These include: cash remaining non-transferable, both in and out, in a number of countries, there being degrees of non-convertibility across the region, continuing complex regulatory frameworks and a lack of harmonisation in technological systems making integration of these challenging. While we are hoping that many of these issues will be resolved in time, the challenge remains that legal harmonisation may not keep up with rapid technological and regulatory change.
The deadline for the integration of the AEC is 31st December 2015 and while we remain optimistic, the reality is that historically multilateral negotiations are prone to deadline slippages. We are also currently seeing a trend in the establishment of bi-lateral agreements between nations in the region, compared to a ‘big-bang’ regional agreement. The danger of this is that over time this may make it harder to reach common agreement on issues in the region.
Usama Delorenzo, Director, Asia Policy and Advocacy, SWIFT:
The debate surrounding ASEAN integration is dense and comprises of a swathe of studies, reports and other documents categorised broadly under terms such as ‘regulation’, ‘industry segments’ and ‘regional financial infrastructure options’. These collectively outline the vision of ASEAN and the nations within it. For many, this information can be impenetrable and the true facts can be hard to attain. So what does ASEAN integration mean for those organisations that either have or are looking to have business operations there?
For us, what ASEAN integration creates is a single window – a harmonised and standardised community with an integrated and connected ecosystem in which corporates can freely operate efficiently and effectively. The overall benefits for corporates stem from a number of different concepts and initiatives – which all contribute to this overall goal.
Firstly, standardisation across the region is vital and in the last year or two Asia Pacific as a region has taken great strides towards this. In the ASEAN region more specifically, ISO 20022 has been selected to facilitate payments across the region and also to be the recognised standard for the bond market. The specifics of exactly how it will be used are still unclear and currently being decided upon by both banks and central banks. The adoption of ISO 20022 as a standardised financial messaging format across the region can offer corporates numerous benefits including local language support and the ability to carry more reference data, standards which cater to the diversity of the ASEAN region. The adoption of ISO 20022 will also assist with the creation of a regional clearing and settlement system and a fully integrated financial system.
Secondly, further ASEAN integration offers corporates numerous benefits surrounding trade. Again looking at the idea of a single window, the integration of the ASEAN region aims to allow corporates to obtain faster financing, improve trade document transfer and increase transparency, allowing for better governance and risk management. The use of technology and a shift to Supply Chain Finance (SCF) oriented transactions will allow corporates to greater leverage the trade benefits which ASEAN integration brings.
These benefits are not only open to large multinationals, but also to SMEs. For example, we have seen the ASEAN trading link recently created by the ASEAN Exchanges, a collaboration of seven exchanges from Singapore, Thailand, the Philippines, Indonesia, Vietnam and Malaysia designed to create more investment opportunities and to attract more investors into ASEAN capital markets. The ASEAN trading link offers a gateway for easier access to the exchanges which can be utilised by SMEs and other similar companies allowing them to trade in other ASEAN capital markets just as easily as they do in their own.
Overall, the future of corporate treasury in the region depends on the development of its financial market infrastructure. Currently, many corporates lean towards Singapore as a base for their treasury operations as it has the healthy advantage of being both the region’s financial and commercial centre. However, as other countries emerge, such as Malaysia and Thailand which are growing quickly, we may see these become more appealing to corporates as locations for their treasury operations.
The next question:
“With more and more technology creeping into our treasury department, I’d like to know how to tackle cyber security. What are the main threats and what practical steps can treasurers take to help mitigate cyber risk?”