EU investors are optimistic about their business in ASEAN

According to a recent EU-ASEAN Business Sentiment Survey, two thirds of European investors plan to expand their operations and headcount in ASEAN. Nearly three-quarters (74 %) expect their ASEAN profits to increase in 2016. Just as many project the importance of their ASEAN revenues to increase relative to their global revenues over the next five years. While the overall feedback was positive, criticism of trade barriers hampering supply chain efficiency as well as the lack of an EU-ASEAN region-to-region free trade agreement (FTA) remained.

The survey, which is regularly undertaken by the EU-ASEAN business council, polled more than 200 executives from European companies around Southeast Asia. Overall, more than 85% of investors indicated that their company expects their ASEAN trade and investment to increase over the next five years. This figure is up by 5% year-on-year and can be read as a clear sign of confidence in the ASEAN market, especially considering that less than half of EU businesses seek to expand their operations in China.

When asked why ASEAN’s importance for their bottom line is growing, a majority of investors reported they felt confident about the opportunities arising from enhanced regional integration under the ASEAN Economic Community and improvements in infrastructure. They also stated having changed their business strategy to focus on the ASEAN market in light of cooling growth in other regions.

As for preferences across the region, more than 90% of surveyed EU businesses plan to boost their investments in Indonesia, Myanmar and Cambodia. The strong interest in these locations may, at least for the latter two, be explained by the appeal of the so far quasi-untouched markets. In the case of Indonesia, its predominant position as the biggest regional market gives the country a special advantage. When it comes to ease of doing business, however, other countries took home the crown. Singapore, in line with its status as the most advanced economy in the region, ranked highest on a majority of factors, ranging from customs procedures, to fiscal structures and infrastructure. Philippine-based respondents showed greatest satisfaction with labour-supply issues, while Malaysia outperformed others on indicators measuring ease of trade. Indonesia achieved the lowest scores across the board, except on government stability.

Despite the overall positive picture, executives also pointed out that significant policy challenges keep the ASEAN market from reaching its full potential. More than half of surveyed businesses found persisting trade barriers to negatively impact their supply chain efficiency. 44% of executives furthermore reported unfair competition from local and regional businesses, including state-owned enterprises.

BDG Insights

An EU-ASEAN region-to-region free trade agreement could go a long way in overcoming these hurdles. Indeed, more than half of surveyed EU businesses reported being at a competitive disadvantage compared to Australian or Japanese firms enjoying special treatment under their respective FTAs with ASEAN. The position of EU investors could further deteriorate should the Trans-Pacific-Partnership between the US and 12 Pacific-rim nations, including four ASEAN member states, come into force next year. Thus, almost two-thirds (66%) of European companies urgently want to see an EU-ASEAN region-to-region agreement. Whether the EU will be flexible and open-mined enough for the speedy conclusion of such an agreement remains to be seen. As of now, both the bilateral FTA with Singapore as well as the one with Vietnam are on hold due to an EU internal ratification dispute. Disagreements with ASEAN over rules of origin and the opening of the EU agriculture market are further hurdles to overcome.

Sources: 1