TPP dividend foreseen
American businesses expect trade pact to spur more investment in Asean, even though its passage in their own country remains highly uncertain.
The Trans-Pacific Partnership (TPP), the gigantic free-trade agreement signed by 12 countries including the United States, has brightened the outlook of American businesses in Southeast Asia as they expect it to spur more US trade and investment in the region.
Even though the outlook for the passage of the TPP by the US Congress is still very uncertain, American businesses operating in Asean believe the pact will lead to more US business engagement in the region where four countries — Brunei, Malaysia, Singapore and Vietnam — are TPP members.
The TPP is also seen as more likely to have an influence on the location of new investments in the region, according to the American Chambers of Commerce (AmCham) in Asean.
The view of opportunities in Asean remains positive despite concerns over the economic slowdown in China and challenges faced by global businesses following the Brexit decision, it added.
“American businesses continue to see substantial commercial opportunity in Asean. [US] companies generally remain optimistic about the profit outlook in the region,” wrote the authors of the 2017 Asean Business Outlook Survey released earlier this month.
The survey, which was conducted between April 25 and May 24, drew responses from more than 500 executives representing US companies in all 10 Asean markets.
“Thirty-four percent of US businesses across Asean expect that the TPP will lead them to increase their investment in the region,” it said, adding that 83% of the respondents believe Thailand should join the TPP.
Thailand, Indonesia and the Philippines have all expressed interest in joining the TPP. However, the commitment of its main backer, the United States, remains in doubt. Republican presidential candidate Donald Trump definitely opposes the TPP, while Democrat Hillary Clinton is now expressing serious reservations about a deal she once called the “gold standard” of trade agreements.
The World Bank estimates that the TPP could raise gross domestic product by an average of 1.1% in member countries by 2030.
Meanwhile, the Regional Comprehensive Economic Partnership (RCEP), which comprises 10 Asean members and six trading partners including China and India, is expected to further expand and streamline trade connections between Asean and the wider Asia Pacific region.
The RCEP aims to consolidate the various “Asean+” FTAs into one broader network. US companies, however, are not convinced that the RCEP
“The Brexit decision raises concerns not only about growth prospects in Europe but about rising protectionist sentiment around the world and the implications for a liberal, rules-based international trading order. The rhetoric in the US election campaign has been alarmingly protectionist”
will ultimately have an impact on their investment plans in Asean.
The survey in general found that US companies maintain a “steady sense of optimism” about growth prospects and commercial opportunities in Asean, which will mark the 40th anniversary of its relationship with the US next year.
More than half of the respondents said the Asean market had become more important in terms of their companies’ worldwide revenue over the past two years and 78% believe profits will increase in 2017. Close to 80% expect that their companies’ level of trade and investment in Asean will expand over the next five years.
This year’s 15th annual survey comes at a challenging and uncertain time for global business. “The Brexit decision raises concerns not only about growth prospects in Europe but about rising protectionist sentiment around the world and the implications for a liberal, rules-based international trading order,” its authors wrote.
“The rhetoric in the US election campaign has been alarmingly protectionist. China’s slowdown, and the related impact on commodity prices, has meant lower growth prospects for some economies.
“Asean plays an increasingly important role in the global and regional economy. [The region] serves as a major manufacturing and distribution hub for the US businesses selling to other countries in Asia Pacific.”
Projected economic growth, the rise in the middle class and the consumer class, and regional integration in Asean are cited as the top three reasons for executives’ positive projections about the region. On the other hand, executives in the banking and finance sectors cite improved laws and regulations related to protection of foreign investors as the main reason for Asean’s growing importance in their companies’ worldwide operations and revenue over the next two years.
“2016 is an important year for Asean. The Asean Economic Community (AEC) was inaugurated at the end of 2015, [and] although it remains a work in progress, survey respondents anticipate that it will provide greater flexibility and efficiency in managing their regional operations,” the survey noted.
Survey respondents, however, emphasise that more work needs to be done to combat the challenges of corruption, low transparency and governance that inhibit greater Asean integration.
“Companies demonstrate a growing interest in the AEC though its impact is not immediately measureable and market stakeholders say that it will take time for its benefits to be realised. Once challenges and priority areas are addressed, the development and maturing of the AEC is anticipated to further improve the environment for doing business in Asean as a region.”
Asked about locations for business expansion in Asean, respondents across the region rank Vietnam as the top priority market, followed by Indonesia and Myanmar. Compared with last year’s survey, respondents this year indicate the greatest increase in expanding into Vietnam, Indonesia and the Philippines.
At the same time, US companies place great emphasis on hiring locally and nearly half of those surveyed expect to increase their Asean workforce by the end of this year. The increasingly well-educated and skilled talent pool in Asean is important to these companies’ ability to expand their investments in the region, it added.
“Most respondents expect their companies will correspondingly increase the size of their workforce this year. A significant minority of respondents in each country expect some diversification of operations from China into Asean.”
The ability of adequate technical and managerial talent is a significant consideration for US businesses seeking to invest in the region. The top skills in short supply across Asean are creativity and innovation, analytical and problem-solving skills, and technical skills.
Looking beyond 2016, several respondents cite shortcoming in areas of government administration as the primary obstacles to full regional economic integration. However, the majority of them indicate that the completion of the AEC will not affect their decisions on where to locate operations.
“Some investments will continue with or without AEC completion to capture growth; however, the AEC and better regional integration will mean we can bring in more high-value manufacturing not currently done in Asean or Apac (Asia Pacific). [This would allow us to] manufacture in one country for the full Asean market,” one respondent stated.