Regional Focus

Treasury in ASEAN: Are you AEC ready?

Published: Sep 2015

All eyes are on Southeast Asian nations as they prepare for the formation of the ASEAN Economic Community (AEC) by 2015. With opinions mixed on the regional integration timeline, companies are generally optimistic about the positive impact AEC is expected to bring. What does this budding new market mean for companies and how can they seize opportunities?

Melvyn Low

ASEAN and Singapore Country Head, Treasury and Trade Solutions

ASEAN presents rich growth potential. With a combined population of over 600 million, the region’s GDP is projected to reach $3.2trn by 2019. Significant consumer growth will drive expansion, with GDP expected to increase by 5.4% annually over the next four years1.

Unlike Africa’s growth, which is heavily driven by infrastructure investment, ASEAN’s rising middle income classes are expected to spur huge consumer demands. Therefore, multinationals (MNCs) are keen to tap these markets as a major part of their global expansion plans. This is evident in ASEAN’s foreign direct investment (FDI) inflows, totaling $122bn in 2013, which soared 25% per year on average2 over the past 14 years. The inflow of FDI into ASEAN has already surpassed China’s.

The AEC’s objective is to create a single integrated market across the region’s ten countries. This promises to bring significant growth opportunities for ASEAN nations and companies operating in the region – enabling easier movement of goods, services, investment, capital and people. As trade barriers gradually come down with greater regional co-ordination, we expect marked growth in intra-Asia trades, and the emergence of new corridors for ASEAN-China, ASEAN-US, and ASEAN-Japan trades. These opportunities offer new ways for companies to co-ordinate supply chains, or open doors to new markets for established products.

Creating cohesion from diversity

How will the world look with the formation of the AEC? It is early days and questions remain, but the relentless pace of progress continues and new policies brought forward by the AEC will allow nations to reposition themselves by designating investment in certain chosen industries that leverage their expertise and their people’s skillsets. An AEC passport will also allow freer flow of human resources, meaning a greater mobility of talents and intra-region knowledge transfer.

ASEAN nations have already committed investments to develop comparative advantages and augment each country’s expertise. In the long run, diverse specialisations will play to the region’s collective strength as an economic community. For example, Singapore is positioned as the region’s biotechnology hub, while Thailand is focused on becoming a world leader in the automobile and information technology (IT) space.

Each country’s industry focus will hinge on which multinationals they attract to locate their base there. Samsung has made significant investments to expand its mobile phone production in Vietnam. Moreover, the company’s recent investment, making Malaysia its largest offshore base outside Korea, could propel the nation’s IT industry developments. Similarly, multinational companies are starting to make strategic assessments for their ASEAN game plan to determine positioning, investments, and resource allocations. Deciding which ASEAN countries to invest in depends on a host of factors. Many US companies with business process outsourcing and call centre services naturally gravitate towards the Philippines, with its large English-speaking domestic labour force.

Building competitive advantage

Many multinational and large companies are making decisions now to invest and grow in the ASEAN markets in the next five years. They tell us they need solutions today, before the dust over AEC settles. Despite the fact that payment and regulatory barriers remain in place for now, Citi has already been working with leading companies in the fast-moving consumer goods, healthcare and insurance sectors to expand their operations and optimise their treasury structures as they grow in ASEAN. In fact, the rise of MNC investments into ASEAN has resulted in a greater need for transactional banking support for their in-country operations to seamlessly connect with their regional treasury centres (RTCs) and global headquarters.

Banking on deep roots

Since opening our first branches in the ASEAN region in 1902, Citi now has 55 branches covering 22 cities across eight countries and has worked with ASEAN governments to develop their financial infrastructure. This head start has enabled us to continuously introduce market-leading solutions and infrastructure ahead of the curve. Citi also operates one of the largest correspondent bank networks across the region, covering key markets such as Indonesia, the Philippines, Thailand and Vietnam. We have set up 8,000 and 6,000 collection points in Thailand and Indonesia, respectively.

As MNCs expand across ASEAN’s fragmented markets, their treasury management requirements become more sophisticated. Hence, they see value in leveraging Citi’s globally consistent, locally compliant capabilities including cross-border payment solutions for imports, customs duties and corporate taxes, supply chain financing programmes, and corporate card solutions. Through our e-banking platforms such as CitiDirect, companies connect with their regional and global treasuries seamlessly.

Citi’s ASEAN strategy is to leverage our deep roots in the region, sound understanding of local nuances, and unmatched global banking infrastructure to provide value-added solutions that help companies to grow their business – improving efficiency of their finance operations and driving profitability in an increasingly competitive and volatile environment. The ability to provide country insights, digital solutions and working capital advisory is highly valued by clients.

What’s next?

While ASEAN works towards the goal of freer movement of labour and capital, and tighter integration, the free flow of resources will happen gradually, step by step, sector by sector. Nevertheless, the heightened momentum and rhetoric over the AEC has been a catalyst for foreign direct investments.

For companies focused on global expansion, ASEAN has become an increasingly important strategic opportunity. Treasurers need not wait till all business, regulatory and technology frameworks are in place to capitalise on the region’s growth potential. Monitor the competition now and explore the potential cost efficiencies of integrating operations across the region. Treasurers can leverage advanced analytics tools to track payment trends and trade flows, gaining industry benchmarking insights for their businesses in ASEAN.

The Asia growth story is about more than China and India – ASEAN’s growing economic prowess will add new opportunities for sales, investment and engagement within the wider region, and expand its influence on the world stage.

Footnotes
  1. Economic Outlook for Southeast Asia, China and India 2014: Beyond the Middle-Income Trap, OECD Development Centre and ASEAN Secretariat, 2013.

  2. ASEAN Community in Figures (ACIF) – Special Edition: A Closer Look at Trade Performance and Dependency, and Investment, ASEAN Secretariat, 2014.

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