'ASEAN should buck up or risk losing investments'

'ASEAN should buck up or risk losing investments'

P. Parameswaran, Agence France-Presse, Phnom Penh

Resource-rich Southeast Asian economies have failed to
capitalize on their strengths and face a serious competitive
challenge, warned an independent study presented to ASEAN leaders
at their summit here Monday.

The study was done by international consulting firm McKinsey
and Co. on a request by the 10-member Association of Southeast
Asian (ASEAN) leaders, concerned by the erosion of the region's
economic competitiveness.

The firm conducted microeconomic analyses and sector studies,
including interviews with more than 100 investor executives, with
the findings benchmarked with the European Union (EU) as well as
free trade areas being developed in North America and Latin
America.

The study found the cost of doing business in ASEAN
"unnecessarily high."

The no-holds barred report was expected to be adopted by the
leaders at their two-day summit, which opened Monday, and was to
be used by a high-level task force set up by ASEAN's economic
ministers to deepen integration beyond a free trade area being
set up in the region, ASEAN secretary-general Rodolfo Severino
told reporters.

Malaysian Foreign Minister Syed Hamid Albar, commenting on the
report, said ASEAN leaders realized certain "bold and cohesive
political decisions" should be made to ensure the region
progressed.

ASEAN, with a total population of 500 million people, is
implementing a free trade area in which its senior members --
Brunei, Indonesia, Malaysia, the Philippines, Singapore and
Thailand -- will totally abolish tariffs for intra-regional trade
by 2010.

Newer members Cambodia, Laos, Myanmar and Vietnam are to
dismantle all tariffs 10 years later.

The McKinsey study stressed that ASEAN, once the world's
fastest investment-driven region, "faces a serious
competitiveness challenge" even though more than 75 percent of
its exports were in the highest growth sectors globally.

Also, despite its vast natural resources, human resources
potential and a total market size comparable to coastal China,
ASEAN had "failed to fully capitalize on its strength," the study
said.

It also noted ASEAN's investment and export trends were
"worrying as investors are deterred by problems created by the
limited integration of ASEAN, with few viewing the region as a
single market."

"ASEAN's small, fragmented markets are not attractive to
investors compared to the large Chinese market and more
integrated regions elsewhere in the world," the study said.
Consumer electronic firms were moving both manufacturing and
research and development to China, taking suppliers with them, it
noted.

On the high cost of doing business in ASEAN, the report cited
as an example consumer goods companies, which it said incurred
costs as high as 15 percent of sales due to different product
standards and customs red tape.

The McKinsey report also said trade barriers in ASEAN
prevented companies from specializing and achieving economies of
scale across the region.

Citing the automotive industry as an example, the study said
"no automotive manufacturer in ASEAN has met the minimum
efficient production scale".

McKinsey identified two key sectors that required an ASEAN
push towards economic integration -- the electronics and consumer
goods industries.

ASEAN secretary-general Severino, in his report to the ASEAN
leaders, said while the ASEAN free trade area was on track, the
process of regional integration had slowed.

"Regional economic integration seems to have become stuck in
framework agreements, work programs and master plans," he said.