AEC: Where will investments go?

September 22, 2014 at 13:10

Category: Asean Economic Community 17 Sep 2014

Written by Henry J. Schumacher

IT is important to get ready for the Asean Economic Community, which is scheduled to start on January 1, 2016. The Asean has achieved worldwide recognition for being one of the most dynamic and integrated regions. The growing purchasing power of the 600 million consumer market and the ongoing progress of the regional community offer an integrated market and production base for both business and consumers.

Foreign direct investment (FDI) is a key component of resource flows to Asean countries. Over the last decade, FDI flows into the Asean members grew at an annual average rate of 19 percent.

Within the overall framework, each Asean country has adopted its own strategy to attract FDI. As in the European Union, efforts to create a “level playing field” between the countries in the single market leaves national governments with freedom to provide their own tax and other incentives to investors.

While the Philippines is debating whether fiscal incentives should be offered to investors, Thailand is taking a much more aggressive approach:

Volkswagen, one of the largest car manufacturers in the world, is planning to invest €1 billion in a new plant in Thailand that should produce 300,000 small cars (1.4 liters) by 2019. A part of the production is going to be exported to other countries in the region. Discussions with the new Thai government regarding the incentives are ongoing. Volkswagen is already producing with local partners the models Passat, Polo and Jetta in Malaysia.

Thailand has become the ninth-biggest car producer in the world:

China                     22.1 million manufactured cars in 2013

USA                       11

Japan                    9.6

Germany                5.7

South Korea           4.5

India                      3.9

Brazil                     3.7

Mexico                   3.1

Thailand                2.5

Source: OICA

The daughter company of Audi, Ducati, is building more motorbikes in Thailand than in Bologna. Only in 2012, Ducati started with a capacity of 8,000 units in Thailand; now they have started an expansion to 35,000 units per annum.

These examples of successful investment in manufacturing show that the Asean has to get ready and the Philippines has to make up its mind whether or not it wants this kind of investment; and, if yes, with what kind of incentives.

Other areas in which manufacturing investments are planned in the region are aerospace, machinery and components, life sciences and mobile technologies. It has to be understood that there is competition within the Asean, but China is also watching the “next wave” of manufacturing to allow continuous growth. Again, for the Philippines, the government has to look at the role it wants to play in driving this kind of FDI targeted at “inclusive growth” and has to adjust its economic policies. This is certainly not the time to cut back on investment incentives!

Important for all the Asean countries is the development of skilled labor. In this context, it is essential that universities, companies and the government work together, not only in the development of engineers and scientists, but also in technicians and skilled workers through apprenticeship and dual technical education. The “shopfloor R+D” that the Department of Science and Technology and the European Chamber of Commerce of the Philippines in Cebu developed should be part of this process—to promote the classroom studies into applied practical use.

In conclusion, let’s get ready for manufacturing investments in the Asean (and in the Philippines) now.



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