ASEAN: Infrastructure disconnect

Regional economic integration is phrase that’s done the rounds in Southeast Asia for the better part of the last twenty years, but excitement around it has been considerably more palpable over the couple of years only, as the region heads towards its goal of establishing an economic community by the end of 2015.  

The Association of Southeast Asian Nations (ASEAN) has only made slow progress in pretty much all its endeavours over the last four and a half decades, often making it the object of mild ridicule. But frequent comparisons with the European Union notwithstanding, ASEAN has not done too badly. For a region as diverse and disparate as this - with very little in common between member nations except perhaps a love for rice and access to water - ASEAN has actually done well to stand the test of time. 

It now stands on the cusp of its most important development, that of the implementation of the ASEAN Economic Community (AEC) by the end of the year 2015. The formation of this community can have great implications for the region and the world economy as well. If ASEAN today was a single country, for instance, it would be the world’s third most populous with about 600 million people and it would also be among the world’s largest trading powers, behind only the EU, the US, China and Germany. The region had a GDP of $3.31 trillion in purchasing power parity terms in 2011, having more than doubled in the past 15 years.  

ASEAN envisions a single market and production base across the ten member states, which will significantly increase the clout of its economies. This will be done by making ASEAN a region with free movement of goods, services, skilled labour, investments and capital.  

The one major challenge the region faces in meeting these aspirations and then making the most from them is the lack of infrastructure connectivity – physical and mainly institutional. Besides, increased urbanisation and a rapidly growing middle class have only put more pressure on transport, water and power systems in the region.  

Ironically enough, it is the region’s governments that are holding the region back. The biggest obstacle towards greater harmonisation and interconnectivity in ASEAN today is the concept of sovereignty. Southeast Asian governments are reluctant to partake in any initiative that can even be perceived to be an impingement of their sovereignty. Distrust of a regional superstructure is a myopic outlook that could have harsh implications for the region as it attempts to withstand competition from China and India.  

Whilst physical infrastructure has improved significantly across most of ASEAN, the bigger issue relates to harmonisation regulations across borders. ASEAN has a complicated production network with several intermediate goods manufactured in one country often being used in the production of another good in another country. It is a model that has served the region well so far, but as export margins have been squeezed due to the global economic slowdown, these export-oriented economies need to offset falling margins with increased efficiencies. The most obvious way this can be done is by reducing transport costs within the region by improving institutional infrastructure connectivity.  

The cross-border harmonisation of regulations, standards, guidelines and procedures and legal frameworks requires coordination among several stakeholders ranging from government ministries from different member states, multilateral institutions, regional sub-groupings, private stakeholders and donor countries and organisations, making it an extremely challenging and painstaking undertaking.  

It is no easy task. Governments should not make it any harder.

 

(This was a column printed in the Himalayan Times on 17 March 2013)