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Is Philippines ready for AEC?

Publication Date : 26-08-2014

 

The vision is the integration of the economies of the 10 member-countries of the Association of Southeast Asian Nations (Asean) whose combined gross domestic product is $2 trillion, to create a new economic powerhouse where there is free movement of goods, services, investment, skilled labor and capital. The goal is the establishment of the Asean Economic Community (AEC) by 2015. That’s next year, obviously pretty close, given the challenges still to be met. The AEC commits to form a single market and production base.

Although framed by the Asean Economic Blueprint that was adopted by the region’s leaders at the 13th Asean Summit held in Singapore way back Nov. 20, 2007, some members are still wary about its impact on their businesses. But others seem already well-prepared for it.

To push awareness of the AEC, the Asean Business Advisory Council (Abac) launched in 2007, the Asean Business Awards (ABA). Abac is considered the official voice of the private sector in communicating with the Asean leaders.

ABA initially only recognised outstanding and large homegrown businesses that have made significant contributions to Asean’s economic landscape. Its scope, however, was broadened in 2008 to include small and medium enterprises (SMEs), a vital economic force and engine of growth for the region. This year, the awards were again modified—to honor young entrepreneurs and women leaders to highlight their importance to regional economic and social development.

In September, six national champions from each of the 10 Asean countries will be announced. The following month, the regional board of judges, one from each Asean member-state, will gather in Yangon, Burma (Myanmar) to select the six Asean champions. The awards will be presented at the gala dinner of the 2014 Asean Business and Investment Summit, scheduled in November this year in Nay Pyi Taw, Burma.

How ready are Philippine companies for the AEC? The Aquino administration insists that the Philippines is ready for the AEC. Two sectors that are expected to face difficulties in a “borderless” region are agriculture and financial services. Standard & Poor’s, for one, believes that Philippine banks are not yet ready for tougher competition. In one of its publications early this year, S&P said Philippine banks, although profitable and stable, have a much smaller business scale compared with their regional counterparts and this would make it difficult for them to preserve market share with the free entry of foreign competition.

An official of the Bangko Sentral ng Pilipinas admitted that the asset and capital size of the country’s banking system pale in comparison to those in the region. One reason is, the country has the lowest provision for foreign ownership, which is capped by constitutional limitations at 40 per cent. Compare this with the 99 per cent in Indonesia, the lack of a “hard limit” to foreign ownership in Malaysia and Singapore, and a “flexibility clause” that allows foreign ownership beyond 50 per cent in Thailand. For perspective, the BSP official noted that the total assets of all Philippine banks would be equivalent to only one big bank in Malaysia; the combined assets of the three biggest banks in the country would approximate one bank in Thailand; and the total capitalisation of the entire Philippine banking system would be the size of just one Singaporean bank.

For agriculture, the government is set to get a reprieve from the quantitative restrictions on our rice imports. The local sugar industry, however, is deemed vulnerable once tariff on the commodity is slashed to only 5 per cent in 2015 from 18 per cent in 2013.

Moreover, it is common knowledge that local firms in general continue to face high cost of production (electricity in particular is very expensive here) and the seemingly perennial problem of weak regulatory institutions and policies, not to mention the country’s vulnerability to climate change and disasters.

But a number of Philippine businesses, SMEs and entrepreneurs are, no doubt, ready for regional economic integration and are prepared to compete in the AEC. In fact, a total of 56 Philippine companies are vying for the awards. This should inspire and motivate more Filipino businesses to participate and become key players in the broader regional market.

But there are those, too, that need to adapt to the changing economic environment where the inefficient will surely perish. These enterprises better emulate the Asean business awardees if they are to survive the inevitable economic integration.

 

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