Southeast Asian countries, including the Philippines, may need to prepare for the influx of small and medium enterprises (SMEs) with the advent of the Asean Economic Community (AEC) next year.
At a news briefing on Tuesday, Asian Development Bank (ADB) Office of Regional Economic Integration (OREI) Head Iwan Azis said the influx of investments will be coming from the People’s Republic of China (PRC), the Republic of Korea (South Korea), and Japan, which are looking to cut their costs.
“This is my personal prognosis, if you will, I think what is going to happen, there will be massive investment from the Plus 3, China, Japan and Korea to Asean, but it will be different than in the ‘80s,” Azis told reporters.
“Unlike in the ’80s, [in the] coming years it will be SMEs [especially from] Plus 3 [China, Korea and Japan], they are facing increasing cost of production in their own countries,” Azis said.
Azis said international investors are greatly encouraged by the prospects under the AEC, and greater regional integration and cooperation in Asia.
He said investors, however, will be looking to invest in Asean countries to serve the large domestic markets in this side of the world. The Asean has a market of around 600 million people.
“Asean has been growing over the last two decades. The number of middle class has been increasing, so there’s strong demand in Asean. They are coming to utilize the strong regional market,” Azis said.
The ADB official added that these investors will also increase their use of local currencies in the countries they will be investing in.
Azis said this can be done by tapping the local currency bond markets or facilities, such as the Asean Plus 3 multicurrency bond investment facility (MBIF).
The Asean Plus 3 MBIF allows countries in the Asean Plus 3 to have access to the local currency of the other members.
Meanwhile, the ADB believes the economic resilience of Asia will continue to support stronger regional cooperation and integration in the coming years.
The ADB’s Development Outlook Update estimates Asia to post a growth of 6.2 percent this year and 6.4 percent next year.
“Asian integration is and will continue to differ from Europe’s,” Azis said. “Asian integration—and the institutions supporting it—will focus on strengthening national economies by harmonizing rules and regulations in finance and trade, while managing the risks from a very diverse region.”
After the Asian financial crisis of 1997 and1998, the ADB said there was a growth in cross-border trade and investment that led to greater integration on the ground.
To cope with a slower global economy, the region continues to harmonize financial rules and regulations, and further liberalize trade and investments unilaterally or through multicountry free-trade agreements.
The report stated that these pragmatic and market-friendly institutions should help Asia grow strongly as a region, even as individual countries must continue with reforms to overcome structural weaknesses.
Asia is highly integrated, but integration remains uneven. East Asia and Southeast Asia have close links with each other. Both the Pacific and Central Asia trade actively with many other Asian nations.
Countries in South Asia are not closely connected with each other yet, but are increasingly keen to build links, particularly with East Asia.