Implementation of Asean Economic Community 2015

AEC (Asean Economic Community), New Capitalization in South East Asia?

It was only 10 years ago in 2003, when ASEAN leaders concluded a new joint force of economy named AEC (Asean Economic Community). Indonesia as leading country for ASEAN had also participated to conclude this agreement. Initial target to implement AEC was 2020, yet in 2007, these ASEAN leaders had agreed to accelerate it by 5 years. Within 2 years from now in 2015, AEC will be fully implemented and integrated among ASEAN members. 

The AEC concept is adopting similar concept to European Union (EU), which its concrete policy and benchmark can be seen through its currency (Euro). During the endorsement of EU, there were also many obstacles and barriers among the European countries. There were also many debates from each country delivering their argument and objection of this community, yet these days, EU has become greater power in Europe and ultimately a prominent contender to other similar organization including ASEAN.

The main concept of AEC is "Single Market" which will cover the main 5 elements known as:

1. Free Flow of Goods (Elimination on Import Tariff)

To date, import tariff among ASEAN Countries have nearly reached 100% including sensitive and     non-sensitive products). There are still few products imposed with import tariff from origin country to protect local industry. However, when AEC is fully implemented in 2015. We can expect that all tariffs will be eliminated to zero. (Elimination on Import Tariff)

2. Free Flow of Services

3. Free Flow of Investment

4. Free Flow of Capital

5. Free Flow of Skilled Labor

Indonesia is indeed has achieved global significant recognition from investor rating agency as a an Invested Country. Massive population with more than 245 million people drive the Indonesia's Economy as the 17th biggest economy countries in the world, highest economy growth in ASEAN with average of 6%, driven by young productive worker, abundant natural resources and other absolute advantage. 

Investment realization to Indonesia has been increasing from the last five years which these three countries remain as the biggest investors (Singapore, Japan and Korea). The second and remaining parts of ASEAN single market talks about free flow of services, free flow of investment, capital and skilled labor. 

Especially for services and skilled labor, industry which focuses on services such as financial, logistics, healthcare and tourism are concrete targets to hit for the implementation of AEC. Foreign hospital is likely to be seen in Indonesia, foreign doctors and added with numerous expatriates from ASEAN countries work in Indonesia as part of the agreement. This statement has been debated by many people and raised a question? How ready Indonesia is to prepare the implementation of AEC?

The Free flow services is not new thing in Indonesia, numbers of foreign services based company which serving passenger such as Air Asia, Jet Star and others have expanded their market into Indonesia and serve domestic market flights. Foreign hospital joint cooperation between Lippo and Siloam was also another impact of the implementation of AEC. Soon, there will be more foreign providers from ASEAN offering their technology, product and services as part of the commitment. 

ASEAN as single market will focus on 12 industries such as Agro Based, Automotive, E-Commerce, Electronics, Fishieries, Food Agriculture Forestry, Healthcare, Rubber Based Products, Textile, Travel, Tourism and Wood Based Products. All these industries will be targeted during the implementation of AEC to enhance the captive market size of 600 million people. 

While, Indonesia is still debating on increasing the labor wage (Minimum Provincial Wage) and preparation for the Presidential Election in 2015, other countries such as Singapore, Malaysia, Thailand and others are preparing their strategy and increase their competitiveness into entering global market in ASEAN including Indonesia. 

ASEAN members such as Singapore with 5 million people, Malaysia with 30 million people and others will enjoy the new single market covering 600 million people and 40% among that figure is Indonesia. The fact that Indonesia enjoys stable economy growth of 6% is a good one. Yet, domestic consumption and investment mostly contributed to the growth. Domestic consumption from middle class group has become a target for other ASEAN countries. Investment from local and foreign companies have also boosted the Indonesia's economy growth. Yet, it is fragile......

The new fiscal policy sets by Federal Bank in US has caused massive stock sell and created panic in the financial market. India and Indonesia especially suffered the big lost. Many investors sold their stake and choose to cash carry and resulted in declining of Indonesia's rupiah. Indonesia has not yet transformed into Industrial based country, many raw materials are still needed to produce the final good especially for manufacturing industry. The depreciation of Rupiah against USD has created even massive panics in the market as Indonesia is still highly dependent with local consumption and domestic market.

Source, Wikipedia, Processed by Invisindo

Indonesia will enjoy "only" 2.5x market expansion during the implementation of AEC. Singapore with 5 million people with enjoy 120x bigger, Malaysia itself will enjoy nearly 30x times bigger and other countries as well. While other countries are seeing Indonesia as their target, how about Indonesia? How prepared is Indonesia to face this AEC? The impact has not yet seen now, however within 3 years from now, it would probably seen.

In terms of balance of trade with ASEAN countries, Indonesia suffered deficit nearly USD 11.8 billion resulted from export-import activity within ASEAN countries. Indonesia only gained trade surplus from countries such as Philippines, Myanmar, Cambodia and Laos. Whilst, Indonesia's closest neighbor, Singapore, Malaysia and Thailand have shown its absolute advantage against Indonesia. Even PM of Thailand, Yingluck Shinawatra has made clear statement that 2013 is the year of Thailand.

Source, BPS (Indonesia Statistics), Processed by Invisindo

Despite of its trade deficit, Indonesia needs to improve in many things, acceleration of economic growth master plan known as MP3EI has been well setup to accelerate Indonesia's economy growth. Yet, there are still plenty of barriers need to improve such as infrastructure, logistic cost, political stability, security, labor issue and other things. Whilst, other ASEAN Countries are preparing their competitiveness in product and services, Indonesia is still striving to eliminate these barriers / obstacles.

As the implementation of AEC is within the distance, Indonesia's government is obliged to provide socialization of AEC to local community (private company, state owned company, student and others) to increase global competitiveness and sustainable environment of Indonesia's product and services within ASEAN countries.

Foreign countries such as USA, UK, Korea, Japan, China and countries such as Spain, Georgia, Ukraine, Italy, France and Germany have also dispatched their ASEAN Ambassador to Indonesia in order to cope and adjust when the implementation of AEC takes place. These Ambassadors will have focus on ASEAN Single market known as AEC. Some supports have been shown by several countries like Thailand by launched a new site for AEC Tourism.

Source: http://en.aectourismthai.com/

There are many rooms to socialize the AEC concept to community not only for Indonesia's people but also other ASEAN countries. After all, the main concept of this Single Market is for community needs not government. If community knows nothing or lack of information of this AEC, should it called failure? For further information about trade, investment and country news, please refer to below site:
1. Indonesia Trade News
2. Indonesia Investment News
3. Invisindo Country New

Invisindo is regularly updating trade and investment news for global stakeholders as well as country profile for our readers. Stay updated by visiting our website.

Invisindo is a market research company and investment consulting agency, visit our website at http://www.invisindo.com/indep.php for more details. For further information about AEC, please visit ASEAN's website.