Review of the Launch of the ASEAN Economic Community
31 December 2015 witnessed the launch of the long-awaited ASEAN Economic Community (AEC), through which the ten nations of ASEAN commit to a single market and production base with free flow of goods, services, investments, and skilled labor, and fewer limitations on the movement of capital. Whilst regularly mentioned in the press and during business seminars over the past year, there is little consensus over how this transition is likely to impact upon the Cambodian economy.
H.E. Dr. Sok Siphana, an advisor to the Royal Government of Cambodia who was invited to share his views on the matter during a EuroCham luncheon in November 2015, compared the inauguration of the AEC to Cambodia’s 2004 accession to the World Trade Organization [WTO]. His Excellency highlighted how preparation for AEC has served as catalyst for a “second wave of reforms”by the Royal Government, that has placed regional integration at the center of its recently-launched Industrial Development Policy and infrastructure investments.
With the AEC in place, Cambodia will have greater opportunities to benefit from skills-sharing, technology transfer, increased capital, and greater access to ASEAN markets.However, there are some question marks over the Kingdom’s preparedness to capitalize on these opportunities. Thomas Hugger, CEO and fund manager at Hong-Kong-based Asia Frontier Capital,suggested that Cambodia will not immediately see a huge increase in foreign investment due to relatively poor infrastructure making the Kingdom less competitive than competing destinations such as Indonesia and Vietnam. However, visa-free travel within ASEAN plus China, Japan and South Korea will benefit the Cambodian tourism sector, whilst a reduction in intra-regional tariffs could see increased demand for Cambodian agricultural products within ASEAN. In the longer term, Cambodia can realistically hope to integrate into regional production value chain for sectors such as automobile manufacturing, or to benefit from its geographical location in serving as a regional logistics hub.
Furthermore, there are divergent views on whether the AEC’s provisions for free flow of labor will prove challenging for Cambodia. Whilst some worry about a ‘brain drain’ in which many of Cambodia’s more educated and skilled workers take the opportunity to immigrate to more developed ASEAN countries, JayantMenon of the Asian Development Bank doesn’t expect any major change in the number of Cambodians going abroad for work as those with skills have long had the opportunity to get foreign work visas. Indeed, the Ministry of Labor expects AEC to benefit the economy by bringing in skilled labor from elsewhere in ASEAN and exposing Cambodian workers to higher and more varied skills.
Cambodian producers and SMEs should be preparing for AEC by developing a strong understanding of the likely consequences of enhance regional integration for their specific sectors. For example, 2015 saw a significant increase in the number of Cambodian companies registering their brands so as to protect them from being accused of duplicating brands that exist in other ASEAN countries and to ensure that they comply with intellectual property laws. Cambodian companies in general are encouraged tostrengthen their human and financial management in order to be ready for increased competition but also to be able to benefit from greater business and partnering opportunities that are likely to arise from regional integration.
Below are some recent press articles relating to the AEC and its impact on Cambodia:
http://www.aseanbriefing.com/news/2015/11/04/is-cambodia-ready-for-the-aec.html https://www.cambodiadaily.com/news/the-aec-has-arrived-but-benefits-for-cambodia-are-far-off-104187/ http://www.eurocham-cambodia.org/post/88/Luncheon-with-H.E.-Dr.-Sok-Siphana http://www.khmertimeskh.com/news/19338/what-lies-ahead-for-cambodia-and-the-aec-/ http://www.phnompenhpost.com/business/labour-market-unfazed-aec http://www.phnompenhpost.com/business/short-term-benefits-aec-tourism-exception
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