Today marks the first day of the much-touted ASEAN Economic Community integration. The 10-member association will now function as a single economic bloc, with free flow of labour, capital and trade.
The Post’s Ananth Baliga spoke to Thomas Hugger, CEO and fund manager at regional investment firm Asian Frontier Capital, to discuss how this will impact countries in the region and what does Cambodia have to gain on the investment and trade fronts.
Come January 1, we will have the ASEAN Economic Community. Will we see any changes regionally in the short term?
We think that there will be two short-term changes: travel between the 10 member states and the three countries China, Japan and South Korea should become visa free. This will increase tourism in the region and benefit, especially Cambodia. The second change will be [trade of] imported goods. By the beginning of 2016, countries like Cambodia, Laos, Myanmar and Vietnam will have reduced tariffs for about 8,000 goods or about 90 per cent of trade.
Which countries do you think will benefit the most from this new community?
Due to the free trade agreement between ASEAN and China, countries with low labour cost, especially Indonesia and Vietnam, will see more foreign direct investment inflows or companies shifting their business from China away.
Coming to Cambodia, do you think it is ready for the AEC, keeping in mind that it’s been third on the preparedness ranking? Or does the country already have an attractive incentive policy?
We believe that Cambodia in the future needs to provide more incentives given that other ASEAN member countries will be more or less at the same incentive level. But, countries like Thailand and Vietnam (along with incentives) also provide much better infrastructure.
Is there a worry of over-exposing the countries and should the government be more selective in the kind of investments it looks to attract or will that be considered protectionist?
With the start of AEC, there should be less protectionism. We believe that (with the loosening of protectionist measures) Cambodia’s farming sector might be a loser.
Will the lack of quality infrastructure be one of the reasons investors could give Cambodia a miss?
Yes, especially since electricity is too expensive when compared with its neighbouring countries.
One of the big hopes here is there will an influx of investment into the country? Do you think that this is a realistic expectation?
Countries like Indonesia and Vietnam are expected to benefit the most. Cambodia needs to invest more in infrastructure in order to attract more foreign direct investment in the industrial sector.
Are there any specific sectors you think will see increase incoming investment and trade from other ASEAN members?
Cambodia’s tourism and agriculture sector will see more investments from other ASEAN members. But also sectors like banking and insurance might benefit. China, Japan and South Korea might increase their investments in textiles and shoes production.
On the flip side, what export opportunities can Cambodia look at, given that other countries will have to drop import barriers?
Cambodia will be able to export some of its agricultural produce to other countries. In the future, Cambodia could become a manufacturing destination for imported unfinished products that can be later re-export back to a certain ASEAN countries.
This interview has been edited for length and clarity.