ASEAN must accelerate integration to remain top EU investment choice-report

European businesses still see the Association of Southeast Asian Nations (ASEAN) as the region with the best economic opportunity, but their optimism is tempered not just by the COVID-19 impact but also the delay in regional integration.

This is among the key findings of the latest Business Sentiment Survey, a barometer for European business outlook in Southeast Asia published by the EU-ASEAN Business Council (EU-ABC), the primary business body for European businesses in ASEAN.

The survey found that 53% of respondents see ASEAN as the region with the best economic opportunity, down from last year’s 63%.

Some 73% of respondents also expect to expand their current levels of trade and investment in ASEAN in the next five years, but this is significantly lower than the 84% recorded in last year’s survey.

The reduced optimism should be a cause for concern among the region’s leaders, especially with the rising interest in other regions, Donald Kanak, chairman of the EU-ABC, said.

“There is a small but growing proportion of respondents who see regions such as North Asia and Africa as areas with good economic opportunities in the next 5 years,” said the report.

Moreover, while ASEAN topped the regions in the post-COVID-19 era that would most attract more investment in supply chains, others such as Europe and China also received many votes.

“Respondents are looking to source more from ASEAN post-pandemic but are also considering Europe and China at the same time. ASEAN faces stiff competition from other regions/countries for investment and creation of new manufacturing jobs,” said Kanak.

Another major insight is that faith in ASEAN’s economic integration, which appears to be at a standstill, has waned.

Fewer respondents believe the ASEAN Economic Community (AEC) has made a positive impact on their business in the region, the report said. Furthermore, only 2% feel that ASEAN economic integration is progressing fast enough.

Only 14% find that non-tariff barriers to trade in ASEAN have decreased, and only 4% find ASEAN customs procedures to be speedy and efficient, down from 8% last year.

“Overly complex and burdensome customs procedures, the continuing prevalence of non-tariff barriers to trade and the slow speed in which ASEAN is achieving these goals are obstacles for the region’s economic development,” said the report.

“As such, there is a perceived lack of need to put in place strategic plans based on the AEC-local business strategies are already sufficient,” it continued.

“Overall, European businesses shows continued optimism towards ASEAN. However, ASEAN must also address the underlying concerns expressed by respondents in a time of heightened competition for trade, investment and jobs post-pandemic,” the report recommended.

Kanak stressed that more than ever, ASEAN “needs to drive forward economic integration, sweep away the intra-ASEAN barriers to trade and investment, and make itself the go-to region for post-pandemic supply chain redistribution.”

At the same time, the survey found that calls for a region-to-region free trade agreement (FTA) remain high.

European businesses are “very concerned” about the lack of progress on further FTAs with the ASEAN region, particularly the region-to-region FTA which eight out of 10 see as potentially delivering more benefits that a series of bilateral FTAs.

“European businesses clearly want the European Commission to step up the pace of negotiations and engagement with Southeast Asia,” said the report.

The EU-ABC survey was conducted online from April 2020 to July 2020 and garnered 680 responses.

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