ASEAN Competitiveness Report 2010 | Association Of Southeast Asian Nations | Asean Free Trade Area

ASEAN Competitiveness Report

Foreword by

20 10

Michael E. Porter

Professor Harvard Business School

Photography by Anthon Kiong

Marn-Heong Wong Rakhi Shankar Ruby Toh Christian Ketels
Special Advisor

ASEAN Competitiveness Report

20 10

Foreword by

Michael E. Porter

Professor Harvard Business School

Marn-Heong Wong Rakhi Shankar Ruby Toh Christian Ketels
Special Advisor

ASEAN COMPETITIVENESS REPORT

© Asia Competitiveness Institute 2011 ISBN: 978-981-08-8429-1 This work is subject to copyright. The work may be reproduced in whole or in part for study or training purposes, subject to the inclusion of an acknowledgement of the source.

ASIA COMPETITIVENESS INSTITUTE
The Asia Competitiveness Institute (ACI) is a research centre in the Lee Kuan Yew School of Public Policy, National University of Singapore. ACI aims to become a thought leader on competitiveness in Asia and in doing so influence regional policy-making in this area with the ultimate objective of raising living standards through productivity-driven economic growth. More information on ACI can be obtained from http://www.spp.nus.edu.sg/ACI/home.aspx An appropriate citation for this Report is: Wong, M-H., Shankar, R. and Toh, R., 2011. ASEAN Competitiveness Report 2010, Singapore: Asia Competitiveness Institute.

ACKNOWLEDGEMENTS
This Report was prepared by a research team led by Dr Marn-Heong Wong, Assistant Professor at the Lee Kuan Yew School of Public Policy (LKYSPP), National University of Singapore. Dr Christian Ketels, Special Advisor to the ACI and a member of the Harvard Business School faculty at Professor Michael E. Porter’s Institute for Strategy and Competitiveness, provided invaluable input on the analytical structure of the Report. The research input and support provided by Ng Kwan Kee and Kiran Safwan Malik of the ACI and LKYSPP at various stages of the project is gratefully acknowledged. We would also like to thank Anthon Kiong for providing the photo on the cover of the Report. All views and opinions in this Report remain the sole responsibility of the authors.

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This Report will become a central part of ACI’s portfolio of activities. The Report explores how regional collaboration across the heterogeneous set of ASEAN members can help individual countries to address these challenges. landlocked Laos to rich. The ASEAN Competitiveness Report. Economic development and prosperity can be greatly enhanced by a healthy neighborhood. Collective action. especially among a group of disparate countries. Porter Bishop William Lawrence University Professor. Regions are important because neighbors are a nation’s most natural trading and investment partners. In macroeconomic policy. The region provides accessible markets for local firms. despite its high dependency on exports. my hope is that this first ASEAN Competitiveness Report will achieve this purpose. the region has outlined ambitious goals. the ASEAN Competitiveness Report highlights the importance of regions. or groups of neighboring countries. and collaboration of the private sector. and helps countries to gain greater weight in international relations. especially important for those with limited international experience.ASEAN Competitiveness Report FOREWORD 20 10 The Asia Competitiveness Institute (ACI) was created to provide policy-relevant analysis and recommendations on competitiveness in Singapore and the ASEAN region. These are areas where many ASEAN members are suffering from weaknesses but can benefit from some countries that are leaders. Following the traumatic experience of the Asian financial crisis. Michael E..” i. Whether or not leaders agree with every conclusion or recommendation. there are elements of an “ASEAN production system. the region is now faced with a large and increasingly powerful Chinese economy in the North and a huge Indian economy in the West also making rapid progress. Our ambition at ACI is to provide government and private sector leaders with objective data and powerful analysis to enable more informed policy decisions. But the region will ultimately need to define its role and competitive strengths at the crossroads of these two emerging economic giants.e. ASEAN has already made some steps towards better policy cooperation through the Chiang Mai initiative covering multilateral currency swaps. ASEAN can share policy knowledge and spur improvement in areas like capital market infrastructure. Neighbors almost inevitably affect a country’s reputation and image. following studies on Singapore (2009) and Vietnam (2010). rule of law. Asia Competitiveness Institute ASEAN COMPETITIVENESS REPORT iii . The ASEAN Competitiveness Report highlights the challenging position that ASEAN finds itself in in 2011. Covering a region of ten countries ranging from poor. while offering specific steps for moving forward. is another important milestone in realizing this vision. to competitiveness and economic prosperity at the national level. The recommendations contained in this Report are fully consistent with this vision. island city Singapore. In the ASEAN Charter and the plans for an ASEAN Community. universities. Regional economic integration makes all nations more attractive as locations for FDI. human resource development. In clusters such as information technology. ASEAN has stabilized its position and proven to be quite resilient in the face of the recent global crisis. drawn on rich data and a comprehensive competitiveness framework. and government from throughout the region in advancing this agenda. a set of related clusters in the region that cover different parts of the value chain. and indigenous enterprise development. National productivity can be greatly enhanced through regional coordination of economic policies. However. cluster development. support. We would welcome the guidance. ASEAN can enable the strengthening of linkages among related clusters across the region. the Report also highlights the need for ASEAN to be strengthened as an institution in order to have sufficient weight and influence to move from vision to action. only occurs if there is strong political will and sufficient institutional capacity to make change happen. On behalf of ACI’s International Advisory Panel. Harvard Business School Chair of the International Advisory Panel. I would like to congratulate the ACI team for this important piece of work.

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• ASEAN’s ranking on competitiveness fundamentals. enhancing human resource development and strengthening the rule of law.ASEAN Competitiveness Report KEY MESSAGES 20 10 • ASEAN is facing profound changes in the global economic climate with the rise of China and India and weakened economic prospects in major advanced countries. • To create an attractive environment for local and foreign businesses. as measured by a wide range of macroeconomic and microeconomic factors. strengthen capital market infrastructure. this Report has shown that there is much ground for policy learning and action at the regional level. multi-pronged ASEAN Competitiveness Agenda that focuses on areas where collaboration creates direct benefits for participants. • For ASEAN to successfully move from vision to action. in particular China and India. This position has remained relatively unchanged over the last five years. it is recommended that ASEAN builds on its relative strengths to intensify cluster development. • Collectively. • While the priority issues that each country has to address to raise national competitiveness may differ. • ASEAN can extract greater gains from its integration efforts by adopting an integrated. nurture local enterprises and step up macroeconomic policy dialogue. is 57 of 132 countries in 2010. • ASEAN economies have weathered the global crisis well. to tap opportunities offered by their rapid growth. ASEAN also needs to urgently address its main weaknesses by promoting administrative regulatory reforms. At the same time. which is the outcome of past competitiveness. is behind that of China and much lower than that of world leaders. The political will to adhere to the blueprints for action is also paramount. but a longer-term competitiveness review highlights the need and scope to substantially raise competitiveness across ASEAN economies and for ASEAN as a whole. ASEAN COMPETITIVENESS REPORT v . • ASEAN’s current prosperity or GDP per capita. Its shares of world exports and inward foreign direct investment flows have either fallen or stagnated over the last decade. It is also entering a new phase in its cooperation as members move towards building an ASEAN Community by 2015. ASEAN should expand its cooperation with external partners. its institutional mechanisms and capacity have to be strengthened to enable both the ASEAN Secretariat and member economies to effectively fulfill the tasks required. it is imperative for ASEAN to achieve deeper integration in a timely manner to generate new sources of growth and reduce its reliance on traditional export markets in major advanced economies.

China. China. Australia. India. Singapore. Japan. Malaysia. New Zealand ASEAN Business Advisory Council ASEAN Institute of Strategic and International Studies ASEAN Single Window ASEAN Trade in Goods Agreement Balance of Payments Compound Annual Growth Rate CMIM CPF DB EAFTA EAS EIU EU FDI FTA GCI GDI GDP GEM GNI HDI ICT IMF IT LPI NAFTA NSW PPP R&D ROO SIPI Comprehensive Economic Partnership Comprehensive Economic Partnership for East Asia Common Effective Preferential Tariff Cambodia. Philippines. Thailand and Brunei ASEAN. South Korea ASEAN. Laos.ABBREVIATIONS CEP CEPEA CEPT CLMV AANZFTA ACI ACIA ADB ADBI AEC AEM AFAS AFTA AIA AIF AMRO ASEAN ASEAN-6 ASEAN+3 ASEAN+6 ASEAN-BAC ASEAN-ISIS ASW ATIGA BOP CAGR ASEAN-Australia-New Zealand Free Trade Area Asia Competitiveness Institute ASEAN Comprehensive Investment Agreement Asian Development Bank Asian Development Bank Institute ASEAN Economic Community ASEAN Economic Ministers ASEAN Framework Agreement on Services ASEAN Free Trade Area ASEAN Investment Area ASEAN Infrastructure Fund ASEAN+3 Macroeconomic Research Office Association of Southeast Asian Nations Indonesia. South Korea. Japan. Myanmar and Vietnam Chiang Mai Initiative Multilateralization Central Provident Fund Doing Business East Asian Free Trade Area East Asia Summit Economist Intelligence Unit European Union Foreign Direct Investment Free Trade Agreement Global Competitiveness Index Gender-related Development Index Gross Domestic Product Gender Empowerment Measure Gross National Income Human Development Index Information and Communications Technology International Monetary Fund Information Technology Logistics Performance Index North American Free Trade Agreement National Single Window Purchasing Power Parity Research and Development Rules of Origin Social Infrastructure and Political Institutions vi ASIA COMPETITIVENESS INSTITUTE .

Scientific and Cultural Organization World Institute for Development Economics Research of the United Nations University United States US Patent and Trademark Office World Bank World Development Indicators World Economic Forum Worldwide Governance Indicators World Health Organization World Trade Organization UNU-WIDER US USPTO WB WDI WEF WGI WHO WTO ASEAN COMPETITIVENESS REPORT vii .SME UN UNCTAD UNDP UNESCO Small and Medium Enterprise United Nations United Nations Conference on Trade and Development United Nations Development Program United Nations Educational.

.................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................... 17 Trade and Investment Liberalization and Facilitation ...................................................................................................................................................................................................... 32 The Elements of Prosperity ................................................................................................... 19 ASEAN’s Engagement with Stakeholders ................................................................................................................................................................................................ 16 Towards an ASEAN Economic Community ................................................................ 20 ASEAN-plus Initiatives ......................................................................................................................................................................................................................................................................................................................................................................... 3 Report Outline ................................................................................................................................................................ iii Key Messages .............................. 15 ASEAN Cooperation Model ........................................................................................ Labor Mobilization ........ vi Executive Summary ................................................................................................................................................. 14 Global Rebalancing ................................ 8 Recent Macroeconomic Performance .................................................................................................................................................................................................. 2 Conceptual Approach of the Report .............................................................................................................................................................................................................................................................................................................................. 34 34 Purchasing Power .............. 22 Summary ............................................................................................................... 21 Institutional Framework for Collaboration ........................................................................................................................................... 8 Macroeconomic Policies and Growth Prospects ............................................... 20 Trade and Investment Agreements ........................... 35 viii ASIA COMPETITIVENESS INSTITUTE ................................................................................................................................... 31 Quality of Life ...................................................................................................................................................................................................... 4 Chapter 2: Context for Regional Cooperation Macroeconomic Environment ............................................................................................................... 15 ASEAN’s Trade and Investment Linkages ....................................... 8 ASEAN ................................................ 14 Global Economic Outlook ............................................................................................................................................................................................................................................................................................................................................................................. 23 Chapter 3: Competitiveness Performance of ASEAN Profile of the ASEAN Region .......................................................................................................................................................................................... 20 Financial Cooperation .................................................Contents Foreword .............................................................................................................................................................................................. 30 Prosperity ............................................................................................................................................................... v Abbreviations .............................................................................................................................................. 30 Distribution of Prosperity ....... 33 Labor Productivity ........................................................................................................................................................................... 18 Enhancing ASEAN Connectivity .................................. 12 The Global Context ................................................................................................................................ xiv Chapter 1: Introduction ASEAN’s Competitiveness Challenges ......................................................... 30 Standard of Living ................................................................... 28 Competitiveness Performance .......................................................................................................................................................................................................................................................................................................................................................................................................................................................................................

............................................................................................................................................................................................... 80 Weaknesses ...................................................................................................................................................................................... 85 Strengthening Implementation ............................................................................................................................................................................................................................................................... 69 Summary .......................... 59 Indonesia .............................................................................................................................................................. 36 Exports by Clusters ................................................................................................................................................................................................................................................................................... 39 Inward Foreign Direct Investment ........................................................................................................................................................... 44 Summary ......................................................................................... 43 Entrepreneurship .............................................................................................……………………………………………................................................................................................ China and India ....................................................................................................................................................................................................... 73 Chapter 5: Assessment and Policy Recommendations Key Challenges in a Changing Global Context ............................................................................................................................................................................................................................................................ 40 Outward Foreign Direct Investment ......................................................................................... 50 Macroeconomic Competitiveness ..................................... 86 ASEAN COMPETITIVENESS REPORT ix ........................................................................................ 50 Microeconomic Competitiveness ..................................... 82 ASEAN........................................... 58 Cambodia ...................................................................................................................................................................................................................................................................................................................................................................................................................Contents (continued) Intermediate Economic Outcomes .................................................................................................................................................................................. 81 Prosperity and Competitiveness Fundamentals ................................................................................................................................................................ 65 Vietnam ........................................ 45 Chapter 4: ASEAN Competitiveness Fundamentals Regional Competitiveness ……………………….................................... 86 Conclusion ..................................................................................... 60 Malaysia ............................................................................................................................................................................................................................................................ 80 Main Areas of Strengths and Weaknesses ........................................................................................... 82 Towards an ASEAN Competitiveness Agenda ........................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................ 66 Analysis with Additional Competitiveness Indicators .................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 51 National Competitiveness across ASEAN Countries . 61 Philippines ........................... 80 Strengths ................ 63 Singapore ...................................................................................................................................................................................................................... 36 Exports ........... 58 Brunei ............................................................................................................................................................................................................................................................................. 78 ASEAN’s Competitiveness Performance ........................................................ 64 Thailand .......................................................................................... 38 Domestic Gross Fixed Capital Investment ........................ 83 Building on Strengths ............... 37 Investments ............ 42 Innovation ..................................................................................................................................... 84 Addressing Weaknesses .................................................................................................................................................. 78 ASEAN’s Competitiveness Fundamentals 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......10 Figure 3.................................................................................................................12 Figure 2..................................... China and India ......................................................... Labor Force Participation Rates..................................................................................................................................................................................... World Export Market Shares........................ Inward FDI Performance Index.. Share of ASEAN FDI Inflows from Selected Countries/Regions ..15 Figure 3..................................................................... Selected Countries/Regions ................................................................................................ China and India ............................6 Figure 3.................................................................................. Logistical Performance in ASEAN ...... Competitiveness Framework: Foundations of Prosperity ......................................................................14 Figure 3............................. ASEAN and Selected Countries ....9 Figure 2..... Fiscal Balances.........................16 Figure 3...... Consumer Prices...............................................................................................................................4 Figure 2............................................5 Figure 2....................................................................................................... ASEAN and Selected Countries .................... Labor Productivity Level and Growth.1 Figure 3..15 Figure 3.....5 Figure 3.......... Domestic Investment...................... ASEAN Countries ......................................13 Figure 3.............................. World Export Market Shares........................................................... Exports by Clusters......8 Figure 2....................... ASEAN and Selected Countries ...... Quarterly Real GDP Growth.......................................................1 Figure 2.............................................................. Policy Rates...................................................................... Current Account Balances........................................................... ASEAN ................................. GDP Growth Rates...14 Figure 2.......21 Figure 3......................................... ASEAN Endowments: Natural Resources ...........6 Figure 2.................................................. ASEAN and Selected Countries ................. China and India ..................17 Figure 3..... ASEAN Countries .. Prosperity Level and Growth.......................... ASEAN Countries .............................................................Boxes Box 4.................................................. ASEAN and Selected Countries ...................................................18 Figure 3............................................................................................................................22 Figure 3... ASEAN Countries.. Price Comparisons...4 Figure 3.......23 Competitiveness Profile of ASEAN Region 2010 ....................1 Figure 2............................................. ASEAN Countries............ Laos and Myanmar ............................ ASEAN and Selected Countries .............................10 Figure 2........ ASEAN and Selected Countries ............ GNI Per Capita in 2009. ASEAN Countries................................................................................................. ASEAN Countries .......... ASEAN Countries .................................. ASEAN Countries ........ Economic Freedom in ASEAN . Exchange Rates.3 Figure 3................................................. ASEAN Countries ....13 Figure 2.......................... Ease of Doing Business in ASEAN ... Gender-related Indices......2 Figure 2........................ ASEAN Countries .......................... FDI Inward Stock.2 Box 4............................. GDP Growth Forecasts........................................................... ASEAN and Selected Countries . China and India ...................3 Box 4................. ASEAN Countries.............................. ASEAN Countries ......... 55 68 69 71 72 Figures Figure A Figure 1........................................ Quarterly Merchandise Exports Growth................ ASEAN Countries .. Unemployment Rates...........................................................................................11 Figure 2... World Current Account Balances ....................... Annual Real GDP Growth................ World Share in FDI Inflows................20 Figure 3............. World Export Market Shares.... Poverty Rates..... xvii 3 9 9 10 10 11 11 12 13 13 14 14 15 16 16 17 28 29 30 30 31 32 32 33 33 34 34 35 35 36 37 37 38 38 39 39 40 40 41 x ASIA COMPETITIVENESS INSTITUTE ............ China and India ................................. Share of ASEAN Exports to Selected Countries/Regions .............................................................. Human Development Index................... ASEAN Countries .......11 Figure 3................................7 Figure 2...12 Figure 3........................................................ Domestic Investment................................... Labor Force Participation Rates................. Trends in Labor Productivity.................... ASEAN and Selected Countries .... ASEAN Heterogeneity: Ethnicity . ASEAN Countries ......................................................................... ASEAN and Selected Countries ...............................................................7 Figure 3.....5 ASEAN-China-India .......... Income Inequality............... ASEAN countries .........................................9 Figure 3.............................................................. ASEAN and Selected Countries ........ ASEAN Countries................................................... ASEAN Countries ......2 Figure 3............................ Trends in Prosperity Growth.............................................................................................................................19 Figure 3.............................................1 Box 4.....................4 Box 4.. Share of ASEAN Imports from Selected Countries/Regions ..........8 Figure 3............3 Figure 2.........................

........ Top-Three Areas of Relative Strength.......................31 Figure 3..12 Figure 4........................................................................................ ASEAN and Member Countries .. Economic Freedom in ASEAN Region .........2 Top-Three Areas of Relative Strength within Each ASEAN Country .29 Figure 3........................ World Share in FDI Outflows...........................................Figures (continued) Figure 3..........................................................1 Table 3. xviii xviii 22 31 52 52 53 54 54 56 57 68 70 71 73 81 81 ASEAN COMPETITIVENESS REPORT xi .................. ASEAN Competitiveness Agenda ...............7 Figure 4................................................. ASEAN and Selected Countries ...........................................26 Figure 3......6 Table 4...................8 Figure 4.................. Competitiveness Profile of ASEAN Region 2010 ................................................................................ ASEAN and Selected Countries ................................................... Company Sophistication in ASEAN .......... Top-Three Areas of Relative Weakness within Each ASEAN Country ...................................................................... Share of Outward FDI Flows from ASEAN by Country.. “Competitiveness Gap”: Difference in GDP Per Capita and New GCI Rankings ..........................................................................7 Table 4................... Top-Three Areas of Relative Weakness.. Competitiveness Profile of Indonesia 2010 ........................................ National Business Environment in ASEAN: Context for Strategy and Rivalry .................................................................................................. ASEAN and Selected Countries ................................................... ASEAN and Selected Countries .............................................................. Logistics Performance Index for ASEAN Region ....... Competitiveness Profile of Brunei 2010 ....................................... Outward FDI Performance Index.5 Table 4............. ASEAN and Member Countries . Competitiveness Profile of Thailand 2010 .........................................11 Table 5..........................32 Figure 4..................................25 Figure 3....................................................5 Figure 4.................................... ASEAN and Selected Countries ............................................. Competitiveness Profile of Malaysia 2010 ......1 Table 4...........................................................................................................24 Figure 3............................. ASEAN and Selected Countries ..............3 Table 4..............................10 Figure 4... Top-Five Relative Strengths of ASEAN-China-India ...............................4 Table 4........................28 Figure 3............................................................................................3 Share of FDI Inflows in ASEAN by Country..6 Figure 4............................ National Business Environment in ASEAN: Demand Conditions ................... Doing Business Index... Selected Years ..................................................................10 Table 4.................................................................. Number and Growth of Patent Filings with USPTO........................... Competitiveness Profile of Singapore 2010 .................. National Business Environment in ASEAN: Supporting and Related Industries ............................................ National Business Environment in ASEAN: Factor Input Conditions .... Patent Filings with USPTO................27 Figure 3.................... Competitiveness Profile of Cambodia 2010 ....................................................... Doing Business Index for ASEAN Region .............................. Top-Five Relative Weaknesses of ASEAN-China-India ............................................................................... Number and Growth of Registered Businesses........................................................................... FDI Outward Stock...................................................................................................... ASEAN and Selected Countries .................................................... Clusters in ASEAN ............2 Table 4..................13 Figure 4.....................................................................................1 Figure 4......... Selected Comparative Competitiveness Indicators for Laos and Myanmar . Index of Economic Freedom........................................................2 Figure 5.. 41 42 42 43 43 44 45 45 46 51 53 55 58 60 61 62 63 64 65 67 70 71 73 80 83 84 Tables Table A Table B Table 2.9 Table 4................................. Competitiveness Profile of Philippines 2010 .....................................30 Figure 3.................................................................2 Figure 4.................. Logistics Performance Index.... Microeconomic and Macroeconomic Competitiveness across ASEAN Countries ........ ASEAN Countries ........................1 Table 4...............................................................................................8 Table 4... ASEAN Countries .............11 Figure 4... Competitiveness of ASEAN-China-India ..............................................................14 Figure 5...... CMIM Contribution Ratio ...............................................1 Figure 5...............9 Figure 4............................ Selected Years ............................................. ASEAN Countries..............3 Figure 4. Competitiveness Profile of Vietnam 2009 .................. Number and Growth of New Registered Businesses to Total Registered Businesses............. Changes in Income Classification of ASEAN Countries......................................................................4 Figure 4.............1 Table 5.. 1990-2009 ..........................

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ASEAN Competitiveness Report 20 10 Executive Summary ASEAN COMPETITIVENESS REPORT xiii .

Key Challenges for ASEAN With an ever-shifting competitiveness landscape.and middleincome groups have failed to move up the next rung of the income ladder. The theme for ASEAN in 2010. The Report casts into perspective the dynamics of economic conditions and institutional developments as well as the longer-term economic performance of ASEAN and examines the fundamental competitiveness of the region. What are the policy approaches that can help member countries substantially improve their prosperity and avoid becoming entrenched in a particular stage of development? In the midst of the 2008-2009 global economic crisis. seven of its members in the low. rent. Productivity sets the standard of living through returns on factors of production (wages. ASEAN has ambitious plans to form an ASEAN Community that is politically cohesive. The Report aims to offer suggestions on the direction of policies that can be given emphasis in the ASEAN process. ASEAN’s prosperity. Does ASEAN need a new approach to identify and engage on policy issues in which regional collaboration can have a unique impact? Is the institutional structure and capacity of ASEAN in line with the tasks it is charged to tackle? Conceptual Approach The competitiveness analysis in this Report adopts the competitiveness framework developed by Michael Porter. It also reviews the competitiveness of each member country to identify areas of strengths and weaknesses that prevail across more of the ASEAN countries that are well suited for policy sharing and common policy action at the regional level. Despite the diversity that remains among members in levels of economic development. However.) that xiv ASIA COMPETITIVENESS INSTITUTE . culture. The set of key questions facing ASEAN currently is both at the national and regional levels. The attractiveness of the Porter framework lies in its malleability to the analysis of any situation by capturing the role of various factors on competitiveness without the need for a priori assumptions. economically integrated and socially responsible by 2015. The exception was Vietnam. The competitiveness analysis is organized based on the conceptual framework developed by Professor Michael Porter of the Harvard Business School and Chairman of ACI’s International Advisory Panel. With growth prospects in the major markets of the United States and Europe likely to remain uncertain. which moved from low to lower-middle-income status in 2009. The vision is bold. It is also hoped that analysis at the individual country level will assist policy makers in the identification of areas for priority national action. ‘Towards the ASEAN Community: From Vision to Action’. Since 1997.EXECUTIVE SUMMARY The Association of Southeast Asian Nations (ASEAN) is facing profound changes in the global economic climate as well as undergoing a new phase in its development towards deeper integration. but implementation falls short. the move to deepen and broaden regional integration is not a smooth ride. the ASEAN region suffered the largest plunge in growth not seen since the Asian financial crisis. The global economic environment post2008 crisis is characterized by weakened economic prospects in major advanced countries and the growing economic might of China and India. This underscored the vulnerability of the export-led growth model pursued by many ASEAN economies. Porter’s approach is particularly useful when faced with a diversity of impact factors with varying importance in determining competitiveness. capital and other resources. ethnicity and language. as in the case of ASEAN. From five countries coming together to form an association in 1967 primarily to promote peace and stability in the Southeast Asian region. it is a constant challenge for any economy or region to rethink and formulate policy responses to new circumstances and continually improve its competitiveness. National University of Singapore. as demand from major developed economies plummeted. What do these economic and institutional changes imply for ASEAN’s medium-term competitiveness? What can ASEAN members do collectively and individually to address key challenges? The ASEAN Competitiveness Report 2010 is the inaugural assessment of the region’s competitiveness by the Asia Competitiveness Institute (ACI) at the Lee Kuan Yew School of Public Policy. The Report seeks to explore ASEAN’s global competitiveness position if it were a single economic entity. the analysis is conducted at two levels – overall ASEAN and by individual ASEAN country. runs the full range from high-income to low-income categories. measured in terms of GDP per capita. In recognition of both the varying circumstances across ASEAN economies and ASEAN’s resolve to seek unity in diversity. etc. labor. Competitiveness determines the productivity with which a country or region uses its land. ASEAN has morphed 43 years later into a ten-member organization with a legal personality with the signing of the ASEAN Charter in 2007. when the region was hit by the Asian financial crisis. pinpoints the crux of the problem with ASEAN integration efforts. what growth strategy should ASEAN pursue in the post-crisis global economy? ASEAN has constructed a detailed roadmap towards an integrated economy by 2015 as a means to enhance its competitiveness and generate new impetus for growth.

and develop intra-regional and domestic demand. ASEAN is concurrently considering proposals for an East Asian Free Trade Area for ASEAN+3 countries and a Comprehensive Economic Partnership for East Asia involving ASEAN+6 countries. the picture that emerges for ASEAN overall is one of a region that has ASEAN COMPETITIVENESS REPORT Summary of Findings Context for Regional Cooperation The ASEAN region has rebounded from the 2008 global economic crisis that had affected economies unevenly. it is not the type of industries that a country or region chooses to compete in but how productively it competes in those industries. typhoons and the spread of infectious diseases that result in loss of lives and livelihoods and damage to infrastructural facilities. ASEAN also cooperates with the Plus Three partners of China. infrastructure. Although these factors do not directly affect the productivity of firms. Measures that have not been implemented mainly involve the ratification of important economic agreements by individual members. they are critical in providing support for firm efforts to raise productivity. However. ASEAN has also been expanding its linkages with external partners. the most significant of which is the Chiang Mai Initiative Multilateralization in 2010. Implementation has fallen behind schedule. Japan and South Korea on a number of financial initiatives. Competitiveness Performance of ASEAN ASEAN has several naturally-endowed advantages in building prosperity. rebound in 2010. ASEAN cooperation has made steady progress with a goal to create an ASEAN Community by 2015 that will be built on the three pillars of an ASEAN Economic Community (AEC). which have been concluded with China. are outperforming major advanced economies in economic growth. particularly. These factors include the quality of social infrastructure. which is a comprehensive action plan with clear timelines and targets. with a widening network of free trade agreements. and has abundant natural resources. especially to the developed economies. Prompt macroeconomic policy responses. The indicators are computed and evaluated at both the regional and national levels.a country can sustain. On the flipside. institutions and policies that constitute the environment in which firms compete. resilient domestic demand and a rebound in exports have contributed to the turnaround. The Asian economies.and national-level analysis will facilitate consistent interpretation and meaningful cross-national comparison of the indicators. there is considerable variation across member countries.49 trillion in 2009 at current market prices. The global economic recovery process has been characterized by a duality in the post-crisis growth paths of ASEAN and the rest of developing Asia and major advanced economies. as almost 20 percent of deliverables under the AEC Blueprint for 2008-2009 still have not been achieved by October 2010. There is a need to reduce export dependence. The outlook for ASEAN economies is positive. low public debt. political institutions and macroeconomic policy. as a global rebalancing of current accounts is set in motion. Resource-rich ASEAN countries have also benefited from high commodity prices. Competitiveness factors can be grouped under macroeconomic or microeconomic competitiveness. the Report makes extensive use of a set of New Global Competitiveness Indices (‘New GCIs’) aggregated at different levels using a methodology developed by Professor Porter and his research team. To attain competitiveness and prosperity. which is the multilateralization of a currency swap arrangement established to address short-term liquidity problems among participants and strengthen regional financial stability. and this is precipitating changes in the structure of the global economy that would require ASEAN to adjust its own economic structure to enable it to maximize its competitiveness and find complementarities with other high-growth economies in the region. Australia and New Zealand. which reflects the outcomes of its past competitiveness. ASEAN Political-Security Community and ASEAN Socio-Cultural Community. The imperatives of deeper regional integration may bring into question the informal and consensual ASEAN Way of working adopted by ASEAN and require greater powers under the Charter to monitor and ensure compliance. The use of a common competitiveness framework and set of parameters for both the regional. It has a relatively large combined market of 592 million people with a combined GDP of US$1. primarily from raw data collected by the World Economic Forum in its annual Executive Opinion Survey. and progress in implementation is tracked through an AEC Scorecard. Macroeconomic competitiveness delineates the overall context in which firms operate and create the potential for high productivity. On ASEAN’s economic performance. although growth is expected to moderate in 2011 from the sharp xv . The region is strategically located at the crossroads of world shipping and air routes within an economically vibrant Asian region. The region is relatively prone to natural disasters such as earthquakes. These are fault lines that may give rise to potential conflicts. Factors that may dent ASEAN’s growth prospects include the risk of economic instability as capital inflows to the region surge. The goal to form an AEC is executed through the AEC Blueprint. Japan. All these factors have a direct impact on productivity. ASEAN is very heterogeneous in cultures and traditions. Using this broad framework. Korea. and India to-date. Microeconomic competitiveness identifies operating practices and strategies of firms as well as business inputs. China and India. as well as soaring food and oil prices in the world. there are a few fundamental conditions that can potentially disrupt ASEAN’s development.

ASEAN has not recovered its global position in export and inward Foreign Direct Investment (FDI) shares achieved before the Asian financial crisis. It has been overtaken by China in world export market share since 2005. At the more disaggregated levels.9 percent in 2007 and 2008. Entrepreneurship in ASEAN is not as strong as in advanced economies.4 percent of total patents filed in 2009. the productivity leader. In 2008. except for macroeconomic policy. it is shown that ASEAN has worsened competitiveness rankings across most sub-categories and sub-areas to different extents. ASEAN’s share of world exports of goods and services has remained around the 6 percent mark over the last ten years. which is one of the underlying factors contributing to prosperity. ASEAN’s ranking is computed as the GDP-weighted ranking of eight ASEAN countries for which data are available and excludes Laos and Myanmar. as ASEAN’s competitiveness ranking has hovered around the 57th to 60th percentile mark over the last five years. and between 25 to 30 percent the productivity of Japan and the EU.1 percent).3 percent over the last decade. The entry rate of new businesses in ASEAN in 2005 was 11. Assessed over a ten-year period. ASEAN is relatively weak on innovation outcomes. This compared with 13. ASEAN’s business density was 2. ASEAN’s share fell to 2.4 percent in the US. 23.5 percent).739 in constant international dollars adjusted for purchasing power. assets and market value. ASEAN’s share is similar to India’s but lower than China’s 1. This points to ample scope for ASEAN to advance the region’s prosperity. None of ASEAN’s homegrown companies was placed within the top 100 on the Forbes 2010 Global 2000 list.5 percent of companies from India. the latest year available.6 percent in 2009.8 percent) companies from China and India respectively. This was less than one-fifth the level of the US. This was 11 percent that of the United States and 76 percent that of China. ASEAN’s GDP per capita in 2009.1. ASEAN Competitiveness Fundamentals Based on New GCI data for a constant sample of 132 countries. where ASEAN’s competitiveness has clearly improved between 2009 and 2010 (Figure A). profits. This slight deterioration is largely due to a six-rank drop in microeconomic competitiveness to 49th place. ASEAN’s prosperity level was also below the world average by half the amount. ASEAN’s global competitiveness in 2010 is three places behind its rank in 2009. ASEAN has a dearth of large locally-owned companies.2 percent of the total and compared with 113 (5.7 percent but this increased to 3. ASEAN falls significantly behind China and India over the 1997-2009 period. ASEAN’s overall competitiveness position is 57th (or in the 57th percentile) in 2010. Overall. with Singapore having the highest entry rate. Measures of human development and gender-related development show huge variations across ASEAN countries.not performed as well post-1997 Asian financial crisis than in the period before the crisis. 16 percent or 32 of them were homegrown companies from ASEAN economies. With the exception of Singapore. 63 homegrown companies from ASEAN were in the Forbes Global 2000 list.035 in the US. with five of eight ASEAN countries where data are available posting a Gini coefficient above 0.5 percent. This compared with 32 percent of companies from China and 19. Of the 200 top-performing small and midsize companies in the Asia Pacific on Forbes’ 2010 “Best Under a Billion” list with sales between US$5 million and US$1 billion. was relatively low at US$11.4 percent. the region’s competitiveness as measured by the New GCI has improved from being nine places below the global average in 2001 to 13 places above the global average in 2010. Macroeconomic competiveness is little changed at 64th place. However. xvi ASIA COMPETITIVENESS INSTITUTE . Japan (19. This was 3. ASEAN’s labor productivity. compared with a doubling of its world export share in the ten years before the Asian crisis. China has overtaken it since 1993.350 in Japan and 22.505 businesses per million economically active population in 2005 compared with 28.8 percent) and EU (13. There is significant room to grow entrepreneurship in ASEAN. whether this is the start of a sustained increase remains to be seen. The significant gap between current prosperity and overall competitiveness might point to the potential of current competitiveness fundamentals in raising future prosperity. is 79th place. ASEAN’s GDP per capita in 2009 was $4. with four ASEAN countries having about a fifth or more of their population living below the income poverty line. ASEAN’s labor productivity has not been rising as fast as China’s over the last decade and China has caught up with ASEAN on labor productivity. ASEAN’s prosperity is also not evenly spread.2 percent. with the highest ranked at 196. which is measured by GDP per capita. In terms of growth rate of patent filing in the US on a per capita basis. China’s share of world FDI inflow in 2009 was 8. business density in ASEAN economies is relatively low. which ranked companies in 62 countries in terms of size based on an equal weighting of sales. Income inequality as measured by the Gini coefficient is relatively high. far behind the US (49.3 and 4. Throughout the years. only slightly above the world average rate. Similarly.114 in 2009. The number of ASEAN’s patents filed in the US was just 0. ASEAN’s world export market share has increased to 6. This is in contrast to its prosperity growth that was rising much faster than the world average before the Asian crisis.423 in the EU.4. The region also has large pockets of poverty. In total.2 percent in 2009 from 5. ASEAN’s advantage has been more in microeconomic competitiveness fundamentals than macroeconomic competitiveness factors. ASEAN’s share of world FDI inflows in the last ten years has been below its share before the 1997 crisis.7 percent) and 56 (2. 10. ASEAN’s prosperity. has been rising at an annual 2. EU and Japan respectively. This largely reflected progress in the first half of the 2000s.

Executive Opinion Survey 2009. On the other hand. ASEAN COMPETITIVENESS REPORT xvii . (52) Change in Rank (09-10) Improve ≥ 10% Improve + 1 rank to <10% + 1 or . the region’s foremost competitive strength lies in its supporting and related industries and clusters. There is indication that ASEAN’s restrictions on investments might be higher than the assessment in New GCI. particularly in the ease of financing through local equity market. Tables A and B. while capital market infrastructure and macroeconomic policy are areas of relative strength in three ASEAN countries. The other areas of particular weakness are in the macroeconomic competitiveness sub-category of social infrastructure and political institutions. Institutions (66) Political Institutions (57) Rule of Law (72) Human Development (72) Macroeconomic Policy (55) Quintile Rankings 1 (Top 20%) 2 3 4 5 Source: Authors’ analysis based on unpublished data in Delgado et al. Practices (48) Internationalization (45) Social Infrastructure and Pol. while its significant positive gap with India has arisen in 2010 mainly as a result of deterioration in India’s competitiveness position from 2009. 2010. while it is ahead of India by 13 places. although the gap in microeconomic competitiveness is relatively small. Analysis using alternative datasets covering ASEAN’s performance on economic freedom. ASEAN’s negative gap with China has persisted over the last few years. The tables also highlight that there are several areas of relative strength or relative weakness that are common across a few countries. in particular the latter. rule of law and communications infrastructure. especially in factors related to the control of corruption and the lowering of business costs of crime and violence.FIGURE A: COMPETITIVENESS PROFIlE OF ASEAN REGION 2010 GDP pc (79) Micro (49) New GCI (57) Macro (64) National Business Environment (49) Related and Supporting Industries (37) Demand Conditions (56) Context for Strategy and Rivalry (53) Company Operations and Strategy (45) Strategy (44) Org. ASEAN is weaker than China on both micro and macro competitiveness fundamentals. The rule of law within ASEAN also requires strengthening. (68) Innov. Compared with China and India. Across the eight ASEAN countries where New GCI data are available. Supporting and related industries and clusters is an area of relative strength in five ASEAN countries. ASEAN is ranked behind China by 18 positions on the New GCI 2010. Its capital market infrastructure is also relatively strong. alternative indicators give a more positive depiction of infrastructure quality and customs efficiency in ASEAN compared with the New GCI. ease of doing business and logistical efficiency support the assessment using New GCI data that corruption and administrative regulations are major areas of weakness for ASEAN. (2010). It has a competitive edge over India in both micro and macro competitiveness fundamentals. Both countries fare better on macroeconomic policy. ASEAN is least competitive in its administrative infrastructure. Administrative infrastructure and human development are areas of relative weakness in four ASEAN countries.1 rank Worsen + 1 rank to <10% Worsen ≥ 10% Comparing across competitiveness categories within ASEAN in 2010. raw data from World Economic Forum. Factor Input Conditions (59) Admin (75) Capital (42) Logistic (64) Comm. point to areas that each ASEAN economy could focus attention on to boost national competitiveness. where the sharing of experiences and action at the collective level would be especially beneficial. Another area of particular strength for ASEAN is company strategy and operational effectiveness. ease of access to loans and venture capital availability. with strong cluster policy. which place the top three areas of relative strength and top three areas of relative weakness within each country side by side. while rule of law and communications infrastructure are weaknesses in three ASEAN countries. either in consolidating strengths or addressing weaknesses. where urgent attention has to be paid to reducing the time and number of procedures required to start a new business and in improving the efficiency of customs procedures. there is a broad range of competitiveness. ASEAN’s human development is weak and more effort is needed to lower the incidences of tuberculosis and malaria and raise secondary education enrollment rate. cluster development and collaboration and local availability of process machinery. with Singapore among the top ten countries in the sample and Cambodia in the bottom 25 percent. An analysis of the competitiveness of Laos and Myanmar based on limited key indicators suggest that both countries share similar areas of relative weakness with other ASEAN countries in human development.

However. the analysis has also shown that there is much ground for policy learning and action at the regional level. Singapore Brunei Malaysia Thailand Indonesia Philippines Vietnam Cambodia ! Supporting & Related Industries & Clusters !Administrative Infrastructure !Human Development ! Political Institutions ! Administrative Infrastructure !Administrative Infrastructure ! Macroeconomic Policy ! Communications Infrastructure ! Internationalization of Firms !Internationali zation of Firms !Rule of Law ! Rule of Law ! Communications Infrastructure !Human Development !Logistical Infrastructure ! Administrative Infrastructure ! Human Development ! Strategy & Operational Effectiveness !Supporting & Related Industries & Clusters Communications ! Infrastructure ! Human Development !Political Institutions ! Logistical Infrastructure !Rule of Law xviii ASIA COMPETITIVENESS INSTITUTE . the implementation of measures towards an AEC. 2010. 2010.TABLE A: TOP-THREE AREAS OF RElATIVE STRENGTH WITHIN EACH ASEAN COUNTRY Source: Authors’ analysis based on unpublished data in Delgado et al. (2010). raw data from World Economic Forum. whether measured by economic outcomes that reflect its past competitiveness or by its positions on fundamental factors that portend its medium-term competitiveness. investments and production and generate new sources of growth. ASEAN should reduce its reliance on the Western-oriented export-led model as the main driver of its economic growth. ASEAN has in the last few years intensified its efforts towards implementing a wide-ranging collective agenda to achieve deeper integration as a means to raising the region’s competitiveness. ASEAN in the 2000s has been overshadowed by China and India. the high-growth. This Report has identified areas of strengths for ASEAN economies that should be further consolidated as well as areas of weaknesses that have to be improved. It has set a goal to form an AEC by 2015. ASEAN not only has to carry out existing tasks more effectively but also define new approaches and new tasks. has not been impressive in recent years. ASEAN needs to move towards a new growth model that is driven by intra-ASEAN and intra-Asia demand. Executive Opinion Survey 2009. is behind schedule. To make a leap in its competitiveness. Given the region’s eclectic mix. ASEAN’s competitiveness. While there are country-specific issues that must be addressed at the national level. Commitments by each country to implement agreed collective actions will also help to boost national competitiveness. (2010). Executive Opinion Survey 2009. Singapore Administrative Infrastructure Brunei Macroeconomic Policy Malaysia Supporting & Related Industries & Clusters Capital Market Infrastructure Thailand Macroeconomic Policy Indonesia Supporting & Related Industries & Clusters Strategy & Operational Effectiveness Philippines Organization -al Practices Vietnam Supporting & Related Industries & Clusters Capital Market Infrastructure Cambodia Context for Strategy & Rivalry Context for Strategy & Rivalry Rule of Law Internationali zation of Firms Macroeconomic Policy Political Institutions Logistical Infrastructure Human Development Organization -al Practices Supporting & Related Industries & Clusters Capital Market Infrastructure Supporting & Related Industries & Clusters Political Institutions Logistical Infrastructure Assessment and Policy Recommendations Analyzed as a single economic entity. to reap scale economies in production and to enhance its attractiveness as a consumer market. The deepening of ASEAN integration to establish a single market and production base will stimulate intra-regional trade. In the post-crisis environment. This raises the question of whether ASEAN can step up to the challenges posed by the external environment and by itself. the priority issues that each country has to address in raising national competitiveness may be quite different. as well as domestic demand. Regional prosperity rests on individual countries being competitive and prosperous. As ASEAN strives to build a TABLE B: TOP-THREE AREAS OF RElATIVE WEAKNESS WITHIN EACH ASEAN COUNTRY Source: Authors’ analysis based on unpublished data in Delgado et al. From being a part of Asia’s miracle in the early 1990s. which started in 2008. raw data from World Economic Forum. big economies of China and India also present a source of new demand even as they pose competition for ASEAN with regard to export markets and resources. At the same time.

homegrown firms with no publicly-traded companies among the top 100 in Forbes’ Global 2000 list. ASEAN has recently unveiled its Master Plan on ASEAN Connectivity. The proposed ASEAN Exchange Linkage. macroeconomic policy coordination would become increasingly important in ensuring that policy instruments work effectively in promoting economic stability. Several elements of a Competitiveness Agenda that would build on strengths and address weaknesses in ASEAN’s competitiveness fundamentals are illustrated below. ASEAN could explore a more coordinated regional approach to the development of clusters. Chiang Mai Initiative Multilateralization agreement. Macroeconomic Policy Macroeconomic policy is an area where a few ASEAN countries are particularly strong in while others are relatively weak in and thus can be a prime area for policy learning among members. agricultural products. ASEAN can also move beyond the Southeast Asian region to tap into synergies with its bigger neighbors. Towards an ASEAN Competitiveness Agenda In the past. and ASEAN has strong clusters in a number of industries such as information technology. Capital Market Infrastructure Capital market infrastructure is a relative strength in a number of ASEAN countries and regional collaboration to integrate the capital market infrastructure within ASEAN as well as with the world would help to build on this strength as well as encourage FDI inflows and promote local enterprise. which included the enhancement of physical connectivity as a key element. oil and gas products. serves to highlight the importance of building competitiveness through an integrated. A well-implemented Strategic Plan of Action for ASEAN SME Development 2010-2015 will contribute to this objective. as economies become more interdependent. Policy coordination would have been extremely difficult given the vast difference in situations in each country. by analyzing a multitude of competitiveness factors that span the economic. as there are relatively few top-performing locally-owned companies. This Report. This may reflect mainly the practices of foreign multinational enterprises. by ASEAN and its dialogue partners: China. Presently. Supporting and related industries and clusters has been identified as an area of relative strength for ASEAN. is a welcome initiative in this direction. which have a substantial presence in ASEAN economies. transport and logistics. Over the long term. metal mining and manufacturing. it is important that growth is achieved through environmentally sustainable and equitable ways and also in parallel with the expansion and deepening of its economic ties with the rest of Asia and beyond. However. with no coordinated effort at the regional level. An improved regional capital market infrastructure would also help to mobilize the high savings in the region. ASEAN has a dearth of large. Such negotiations over reciprocal market access are typically politically difficult and the extent of market opening achieved is often less than satisfactory.more integrated and competitive region. ASEAN COMPETITIVENESS REPORT xix . although the region’s small and medium enterprises are better represented in Forbes Asia Pacific’s “Best Under a Billion” list. Japan and Korea (ASEAN+3) to address short-term liquidity difficulties of members. ASEAN countries could do more to leverage their mutual strengths and competitive advantages and engage in collaboration to create or strengthen integrated regional value chains of clusters. since developing physical infrastructure is both capital and time intensive. ASEAN could intensify its efforts to nurture local enterprises. political and social dimensions. and business services. Singapore and Thailand are proposed to be linked in the second half of 2011 with the Philippines’ stock exchange expected to join the common electronic platform in the first half of 2012. multi-pronged ASEAN Competitiveness Agenda. ASEAN’s macroeconomic policy responses to the 2008 global crisis have involved national strategies. including promoting the transfer of management knowledge from foreign to local companies and also facilitating the regionalization and globalization of local companies. Such a Competitiveness Agenda would focus on areas where collaboration creates direct benefits for participants. the prioritization of infrastructure development to facilitate cluster development could be explored. Local Enterprise Development Another area of relative strength for ASEAN is company operations and strategy. in which the stock exchanges of Malaysia. on cluster development to integrate the economies more closely. China and India. ASEAN also provides an important platform for policy learning and the sharing of best practices across a wide range of areas. Given the region’s diversity where a weakness in one country may be a strength in another. However. ASEAN integration efforts have tended to focus on trade and investment liberalization. ASEAN could extract greater gains from regional cooperation by placing more emphasis on activities that yield significant cross-border externalities and direct mutual benefits. Building on Strengths Cluster Development ASEAN’s diversity in endowments and economic development means that it possesses resources and capabilities that practically span the whole production process. A step towards greater coordination would be through an enhanced ASEAN+3 Economic Review and Policy Dialogue process. the crisis did strengthen regional financial cooperation through expediting implementation of the multilateral currency swap arrangement.

ASEAN has to ensure the timely implementation of agreements and decisions within a rulebased framework to maintain its credibility. Acknowledgement of the limitations of the Charter necessarily moderates expectations of the ASEAN cooperation process. ASEAN has established a norm in its interactions that is based on the ASEAN Way. This requires the strengthening of both institutional mechanisms and capacities and political will. Its weakness lies in its inability to deliver on provisions in its agreements. Various mechanisms to enhance compliance are in place but they have been largely ineffectual. it could engage in a more urgent and concerted endeavor to raise its human capacity and upgrade the skills of its labor in recognition of its greater weakness in this area. Given the diversity in stages of development and policy priorities across ASEAN countries. Although the Secretariat’s resources and research capabilities have been boosted and less developed members are assisted with capacity building programmes. for instance. As the Charter carries no reference at all to sanctions should compliance fail. While strengthening the rule of law remains very much the domain of national processes.2 Plus X . Indonesia. For forty years. The Charter provides for an ASEAN Minus X formula but this is the only formula that is endorsed. The AEC Scorecard in its current form requires improvements to strengthen its monitoring function. An important initiative that will reduce administrative requirements in trade is ASEAN’s plan for an ASEAN Single Window for customs clearance that integrates ten National Single Windows of individual member countries. Singapore and Thailand) have activated their National Single Windows after a two-year delay from the initial schedule. xx ASIA COMPETITIVENESS INSTITUTE . Strengthening Implementation ASEAN does not lack well-defined goals and plans. while CLMV countries (Cambodia. For instance. ASEAN can also consider adopting another formula . but it might also be a bane to ASEAN achieving greater success in its regional integration efforts. at least in terms of timeline. Its labor productivity is also relatively low. which emphasizes consultation. This informal and consensual approach has succeeded in maintaining peace and stability in the region.Addressing Weaknesses Administrative Infrastructure ASEAN’s least competitive area is its administrative infrastructure. members have traditionally preferred to resolve their economic disputes through political channels rather than in a more rules-based manner through the 2004 Enhanced Dispute Settlement Mechanism. it leaves to the leaders to decide what action to adopt should there be any breach of principles and objectives. and to develop more pilot projects involving participation by countries that are ready. The successful implementation of ASEAN’s Roadmap for an ASEAN Community by 2015 also hinges on the ASEAN Secretariat as well as member countries having adequate capacity and tool kits to effectively fulfill the tasks required. consensus and non-interference in internal affairs. Philippines. There is also scope to strengthen the coordination of education and skills development initiatives across various ASEAN bodies. and the public version of the Scorecard should contain more detailed information by individual country to increase the transparency of the compliance review process. Human Resource Development ASEAN has very weak competitiveness in basic health and education. particularly on the indicators of corruption and crime. Malaysia. Many of the ASEAN countries are particularly weak in their administrative infrastructure due to the time and procedures required to start businesses as well as burdensome customs procedures. ASEAN should strengthen its provisions for and the use of flexible participation arrangements so that members could move at a different pace. Laos. Myanmar and Vietnam) have until 2012 to do so. more needs to be done to upgrade ASEAN’s ability to act institutionally. The ASEAN countries have signed in the second half of 2010 the Memorandum of Understanding on the Implementation of the ASEAN Single Window Pilot Project and the Protocol on Electronic Customs Facilitation (Single Window) to test the infrastructure and procedures. but the organization’s effectiveness in coordinating and executing policies is not going to improve vastly overnight. Rule of Law Many of the ASEAN countries received unfavorable assessments for rule of law. ASEAN members could engage in information sharing and also contribute to the establishment of certain norms such as transparency in its interactions and policy implementation. Efforts should be directed to expediting the establishment of the ASEAN Single Window. and it can only be adopted if there is consensus to do so. Urgent action is required for ASEAN countries to work towards clearlydefined targets in reducing administrative red tape.that had previously been utilized. so as to progress initiatives. The ASEAN-6 countries (Brunei. Such regulatory reforms will also enhance ASEAN’s attractiveness as a business investment destination. Although ASEAN has ongoing cooperation in many aspects of human resource development mainly under the social and economic pillars building an ASEAN Community. The ASEAN Charter has established a legal and institutional framework for making ASEAN more rules-based. through the Education and Science and Technology Ministers working together to develop science and technology human resources and promote collaborative research and development in the region. ASEAN could strengthen basic health through the control of infectious diseases in partnership with the World Health Organization and other development agencies and dialogue partners.

ASEAN COMPETITIVENESS REPORT xxi . it has not taken big strides unlike in the period before the 1997 Asian financial crisis. Suggested elements of an ASEAN Competitiveness Agenda would involve a greater emphasis on building strengths through coordinated cluster development. any payoffs from measures already implemented are not as yet evident in the data analyzed in this Report.Conclusion The assessment of the competitiveness of ASEAN as a whole and its member countries has been conducted against the backdrop of profound changes in the global economic landscape following the 2008 global crisis. The imperatives of deeper regional integration may bring into question the ASEAN Way of working and require greater powers under the Charter to monitor and ensure compliance. an integrated capital market infrastructure. but its ranking has remained relatively unchanged over the last five years. ASEAN has already undertaken a broad range of initiatives towards forming an ASEAN Economic Community. ASEAN’s economic performance has been stable. healthcare and education and rule of law. the nurturing of local enterprises and enhanced macroeconomic policy coordination. social and political areas to generate synergistic benefits for the region. but the assessment in this Report serves to further inform a more nuanced approach to boosting regional competitiveness that moves away from a traditional focus on trade and investment liberalization. the extent of benefits that ASEAN will reap from deeper regional integration will depend on how willing member countries are in adhering to the blueprints for action. This provides the basis for the development of an ASEAN Competitiveness Agenda with a focus on building on strengths and addressing weaknesses across a range of economic. Weaknesses for intensified improvement include raising quality in the areas of administrative infrastructure. More also needs to be done to upgrade the capacity of the ASEAN Secretariat and member countries to fulfil their responsibilities. The effective execution of plans of action is crucial in delivering results for ASEAN. Over the last decade. and it will be worthwhile to conduct similar competitiveness analyses on a regular basis to see if ASEAN’s integration efforts have translated into enhanced competitiveness performance. Each member nation needs to have a clear strategic focus on the integration agenda while minimizing ideological socio-political differences in order for ASEAN to move from vision to action. ASEAN’s cooperation has moved onto a higher plane and the regional integration process is progressing. the analysis has also revealed areas of common competitive strengths and weaknesses among the member countries. While individual ASEAN countries vary widely in their competiveness and each country would need to chart its own national agenda for improving competitiveness. Regardless of current limitations in ASEAN’s institutional framework and mechanisms. As implementation towards an AEC has started only since 2008. Ultimately. However. ASEAN’s position on competitiveness fundamentals as measured by a wide range of macroeconomic and microeconomic factors is above the world average.

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ASEAN Competitiveness Report 20 10 Chapter 1 Introduction ASEAN COMPETITIVENESS REPORT 1 .

measured in terms of GDP per capita. the deadline to realize an AEC was brought forward to 2015. ASEAN. Through closer cooperation. The post-crisis global economic landscape is characterized by weakened economic prospects in major advanced economies and a heralded shift in global economic power to Asia. ASEAN has emerged as a recognized voice in the global economic and political arena. Quick countercyclical rescue measures by ASEAN’s policy makers have helped to reduce the impact of the global financial crisis and minimize downside risks to economic growth. The ASEAN region has weathered the 2008 global financial crisis well. Despite the considerable diversity that remains among member countries. A comprehensive review of ASEAN’s competitive position will better enable policy makers to assess the challenges ASEAN’s Competitiveness Challenges ASEAN is facing a new era in its development. the other two being an ASEAN Political-Security Community and an ASEAN Socio-Cultural Community. the group has expanded from five member nations comprising Indonesia. The Association of Southeast Asian Nations (ASEAN) has evolved remarkably since its inception in 1967. ASEAN’s prosperity. Philippines. Lao PDR (1997). ASEAN further adopted the ASEAN Political-Security Community and ASEAN SocioCultural Community Blueprints to achieve an ASEAN Community by 2015. industrial production has recovered and capital inflows have resumed. rules and values is instituted in the ASEAN Charter that was signed in 2007 and came into force the following year. By setting clear targets to be achieved by ASEAN members for the ASEAN Community. The set of key questions facing ASEAN is both at the national and regional levels. The region is now the fourth-largest trading entity in the world with a combined population of 592 million and GDP of US$1. Rapid prosperity growth before the Asian financial crisis propelled two ASEAN economies .INTRODUCTION the region faces in a world economy that is becoming increasingly complex and interdependent.up the income ladder.49 trillion in 2009 at current market prices. a fresh look at the data is needed to examine the key challenges confronting ASEAN in the longer term. At the 2003 Summit in Bali. Vietnam (1995). In 2009. trade has normalized. was adopted. the AEC Blueprint. Singapore and Thailand to include Brunei (1984). Myanmar (1997) and Cambodia (1999). Since late 2009. In 2007. which moved from low to low-middle-income status in 2009. analysis and a conceptual framework to evaluate ASEAN’s competitive position and adopt the relevant policy priorities at both the national and regional levels to steer the region towards its vision of increasing prosperity. the Charter serves as a basis for accountability and compliance. ASEAN has demonstrated a resolve to negotiate these differences to be one community. This is one of three pillars that will build an ASEAN Community. and a comprehensive action plan. the rise of China and India economically and the flare-up of the global financial crisis in late 2008. It is hoped that this Report adds value to the discourse on ASEAN competitiveness and helps to furnish policy makers with data. Deeper regional economic integration is recognized as a potent answer to ASEAN’s challenges of having to generate new impetus for growth and enhance competitiveness. Economic realities have changed dramatically in the past 15 years with the onset of the Asian financial crisis in 1997.Malaysia and Indonesia . runs the full range from high income (Brunei and Singapore) to low income (Cambodia. ethnicities and languages. This Report aims to track a myriad of indicators of ASEAN’s competitiveness over time for the region as a whole as well as for individual member states in an international perspective. despite being hard-hit initially due to the intensification of member economies’ export-led growth strategies in the 2000s. has recovered at a faster and stronger pace than the major advanced economies. The legal framework for ASEAN norms. ASEAN countries can leverage on a wide diversity of its resources and development 2 ASIA COMPETITIVENESS INSTITUTE . The challenge for ASEAN is to maintain growth momentum in a post-crisis world environment and to move towards a new growth model that rebalances growth away from traditional markets in the West towards newer and more sustainable growth that is driven by intraregional and domestic demand. along with the rest of Asia. A key challenge is for each ASEAN country to address the issues that boost competitiveness and propel it further up the ladder of economic development. ASEAN has set a goal to integrate its members’ economies further and faster as a way to enhance the region’s competitiveness. with the exception of Vietnam. Geopolitically. most countries have reduced or withdrawn stimulus measures. Laos and Myanmar). Given the turnaround of the ASEAN economies. With a changing global economic environment defining new challenges and the ASEAN Charter outlining new ambitions. In recognition of both ASEAN’s heterogeneity and its ambition to seek unity in diversity. the analysis in this Report is conducted at two levels – overall ASEAN and by individual ASEAN country. ASEAN Leaders agreed to establish an ASEAN Economic Community (AEC) by 2020. From a fragmented group that was ridden with political and ideological conflicts and imbued with narrow nationalistic objectives. Over the past decade. which are at varying levels of economic development and with dissimilar cultures. none of the other ASEAN countries has substantially improved prosperity. Malaysia.

geographical location and the size of the home market. Harvard Business School and Chairman. The theme for ASEAN in 2010. Competitiveness determines the productivity with which a country or region uses its land. The vision is bold.1 COMPETITIVENESS FRAMEWORK: FOUNDATIONS OF PROSPERITY Macroeconomic Competitiveness Microeconomic Competitiveness Social Infrastructure and Political Institutions Basic Political Human InstituCapacity tions Strategy and Operational Effectiveness Macroeconomic Policy Company Operations and Strategy National Business Environment Cluster Development Rule of Law Monetary Policy Fiscal Policy Supporting Factor Context for and Related Demand (input) Strategy and Industries Conditions Conditions Rivalry and Clusters Communications Infrastructure Administrative Infrastructure Capital Market Infrastructure Innovation Infrastructure Organizational Practices Internationalization of Firms Logistical Infrastructure Endowments Source: Adapted from Porter. Figure 1. but implementation falls short. etc. Ensuring timely implementation of agreements and decisions within a rules-based framework and strengthened institutional mechanisms is another challenge that ASEAN has to tackle. Productivity sets the standard of living through returns on factors of production (wages. C. (2008). Porter. Delgado. the move towards greater regional integration is not without difficulties. labor. Competitiveness factors can be grouped under macroeconomic or microeconomic competitiveness. ACI International Advisory Panel. as in the case of ASEAN.. Ketels. pinpoints the crux of the problem with ASEAN integration efforts.) that a country can sustain. What is important to attain competitiveness and prosperity is not the type of industries that a country or region chooses to compete in but how productively it competes in those industries. Conceptual Approach of the Report The analysis in this Report adopts the competitiveness framework developed by Michael E. S. “Moving to a New Global Competitiveness Index”. All these factors have a direct impact on productivity. Although these factors do not directly affect the productivity of firms. M.. thereby enhancing the region’s capacity for intraregional production. The attractiveness of the Porter framework lies in its malleability to the analysis of any situation by capturing the role of various factors on competitiveness without the need for a priori assumptions. political institutions and macroeconomic policy. ‘Towards the ASEAN Community: From Vision to Action’. Porter’s approach is particularly useful when faced with a diversity of impact factors with varying importance in determining competitiveness. These factors include the quality of social infrastructure. ASEAN COMPETITIVENESS REPORT 3 . investment and trade. M.E. they are critical in providing support for firm efforts to raise productivity. Microeconomic competitiveness identifies operating practices and strategies of firms as well as business inputs.FIGURE 1. capital and other resources. in The Global Competitiveness Report 2008-09. However. rent. World Economic Forum. infrastructure. Macroeconomic competitiveness delineates the overall context in which firms operate and create the potential for high productivity. Bishop William Lawrence University Professor. institutions and policies that constitute the environment in which firms compete. Natural Resources Geographical Location Size Prosperity by accelerating the migration of value chain within the region.1 depicts the schematic diagram of the competitiveness framework and foundations of prosperity. Endowment affects prosperity directly through natural resources. and Stern.

Indicators include institutions. Factor conditions are established by a set of infrastructural conditions faced by a firm. the Report makes extensive use of a set of New Global Competitiveness Indices (‘New GCIs’) aggregated at different levels using a methodology developed by Professor Porter and his research team (Porter et al. The first part discusses the recent macroeconomic performance of individual ASEAN countries as well as the changing global economic context post-global crisis. The use of a common competitiveness framework and set of parameters for both the regional. as well as compared with the performance of China and India. 2008). innovation and entrepreneurship. • Macroeconomic and microeconomic competitiveness that determine the medium-term trends of the preceding economic outcomes identified. business environment and the state of cluster (agglomeration) development. and the analysis is organized according to the following groups of indicators: • Economic performance that determines the quality of life of individuals as a consequence of fundamentals in the economy. and innovation capacity (science and technology) are important factor conditions that determine a firm’s productivity. ASEAN’s competitiveness performance will be benchmarked against that of the major developed economies of the US. The first part of the chapter assesses the ASEAN 4 ASIA COMPETITIVENESS INSTITUTE . which are measured by the sophistication with which the firm competes. are analyzed. More developed SIPI enable firms to compete on efficiency and innovation while weak SIPI make it necessary for firms to compete on resources or cheap labor. with a focus on economic initiatives. macroeconomic policy. primarily from raw data collected by the World Economic Forum in its annual Executive Opinion Survey. The last section assesses the region’s intermediate economic outcomes through indicators such as exports. an increase in prosperity or the standard of living of people in the region is assessed using the income measure of GDP per capita as well as measures of the distribution of prosperity and quality of life that relate to poverty reduction. Factors in the two building blocks that lay the foundations for competitiveness as identified in Porter’s framework.In the macroeconomic area of competitiveness are social infrastructure and political institutions (SIPI) and macroeconomic policy. quantity and quality of human resources. the quality of local demand conditions and the presence of related supporting industries (represented by well-developed clusters). SIPI is a proxy for the overall stage of economic development. political institutions (decision making and efficiency of policy executives) and rule of law (corruption and efficiency of legal process). income inequality and human capacity development. equality and measures of economic development. the context of rules in which firms compete. The factors that affect business environment quality are depicted by four interrelated dimensions or Porter’s diamond. Chapter 3 provides a profile of the region and analyzes trends in the competitiveness performance of ASEAN and individual member countries over the last two decades. however. necessitate the exclusion of the third category in the measurement of microeconomic competitiveness. namely. Firm productivity is affected by its strategies and operational practices. its corporate governance structure and the sophistication of company operations and strategy across countries. The structure of this Report is adapted from Ketels (2009). Data limitations in the independent measurement of cluster variations. and assist in the identification of areas for priority national action as well as for policy sharing and common policy action at the regional level to improve competitiveness. Firm productivity is also influenced by the quality of its business environment. logistical. physical infrastructure. In the microeconomic area of competitiveness are company operations and strategy. domestic and foreign investment. capital markets and innovation. administrative. investment. For example. labor mobilization and purchasing power. business environment. communications. Competitiveness fundamentals that drive the longer-term competitiveness performance of ASEAN and its member countries are evaluated in Chapter 4. The second part reviews the state of regional cooperation among member countries and between ASEAN and its external partners. These indicators include prosperity. namely. The indicators are computed and evaluated at both the regional and national levels. The diamond comprises the quality of factor (input) conditions. A second section examines the main elements of prosperity growth: labor productivity. Chapter 2 presents the macroeconomic and institutional contexts for regional cooperation. macroeconomic competitiveness and microeconomic competitiveness. The ultimate goal of competitiveness. innovation and entrepreneurship.and national-level analysis will facilitate consistent interpretation and meaningful crossnational comparison of the indicators. Using this broad framework. It also assesses the institutional framework for cooperation. • Intermediate economic outcomes that contribute to competitiveness but may not be the ultimate goal of economic policies. dynamism of clusters and company sophistication. EU and Japan. SIPI indicators include basic human capacity (basic health and education). This approach would enable an examination of the strengths and weaknesses of ASEAN as a whole and of individual members. namely. Report Outline The rest of the Report is organized in four chapters. efficient access to capital. Indicators include trade. Macroeconomic policy comprises monetary and fiscal policy.

The purpose of this analysis is to provide an understanding of the competitiveness fundamentals of the region. Porter. (2009).htm Ketels. Mercedes Delgado. The second part reviews the competitiveness fundamentals of individual member countries to identify specific areas that need to be addressed at the national level.region as a whole on these parameters to identify the relative strengths and weaknesses of ASEAN. Michael E. which can then serve to formulate an agenda for regional collaboration. ASEANstats. http://www. Chapter References ASEAN (2010). in The Global Competitiveness Report 2008-2009.. This is then put into perspective with respect to China and India.org/22122. World Economic Forum. State of the Region Report 2009: Boosting the Top of Europe.aseansec. ASEAN COMPETITIVENESS REPORT 5 . “Moving to a New Global Competitiveness Index”. Additional analysis is conducted using indices that are compiled from other data sources in the aspects of economic freedom.M. Christian Ketels and Scott Stern (2008). ease of doing business and logistical efficiency as a limited means to validating the findings using New GCI data. Christian H. Chapter 5 gives an overall assessment and puts forth policy recommendations based on the evaluation done in the preceding chapters.

6 ASIA COMPETITIVENESS INSTITUTE .

ASEAN Competitiveness Report 20 10 Chapter 2 Context for Regional Cooperation ASEAN COMPETITIVENESS REPORT 7 .

The second section of this chapter discusses developments in ASEAN and ASEAN-plus cooperation. but it also recovered most rapidly among the ASEAN countries. among which are prompt macroeconomic policy responses. with a focus on economic initiatives. GDP Growth Available data show that ASEAN economies have recorded strong growth in 2010. recovering from a contraction of 0. rebounding from a contraction of 2. Postcrisis. buoyed by robustness in the economies of China and India.2 percent from negative 1. The country slipped into a technical recession with two consecutive quarters of contraction through September with slower exports undermined by an appreciating baht and global economic uncertainties. are outperforming major advanced economies in economic growth. which variously registered a sharp contraction or slow expansion in the first three quarters of 2009. Thailand’s economy expanded strongly in the first quarter of 2010. Macroeconomic Environment ASEAN Recent Macroeconomic Performance ASEAN has registered fairly strong growth along with the rest of Asia in 2010. and this is precipitating changes in the structure of the global economy that has consequences for the ASEAN region due to the interdependent nature of ASEAN’s growth model. There were also country-specific factors that impacted on macroeconomic performance. particularly in the first half of the year (Figures 2. they were also driven by a rebound in global trade and a broad-based 8 ASIA COMPETITIVENESS INSTITUTE .7 percent in 2009. Output in the last two quarters was bolstered by an increase in domestic private final consumption expenditure and investment on the demand side and expansion in the manufacturing and services sectors on the supply side. ASEAN countries were affected to different extents by the global crisis in 2008 and 2009. Although the ASEAN region experienced its largest slowdown in annual growth in 2009 of just 1. The Philippines posted strong growth throughout 2010 to record an annual GDP growth rate of 7. The ASEAN region has rebounded from the 2008 global economic crisis that had affected economies unevenly. with the impact more severe on the real economy rather than on the financial sector. Strengthened capital adequacy ratios of banks in ASEAN following the Asian financial crisis also helped to minimize the region’s direct exposure to subprime assets (only about 0. The first describes the macroeconomic environment within ASEAN and the changing global economic context of ASEAN cooperation.2 percent since the Asian financial crisis of 1997-98.CONTEXT FOR REGIONAl COOPERATION Regional cooperation does not happen in a vacuum. Malaysia. was the hardest hit. Fixed capital investment also contributed significantly to output growth. An impressive revival in domestic demand contributed nearly all the GDP growth in the first half of 2010. particularly in durable equipment.2 percent in 2009. and registered exceptional growth in the first half of 2010 before its rate of expansion moderated in the second half.8 percent in 2009. This chapter comprises two main sections.1 percent in 2009 and was driven by a rebound in international trade and increased government expenditure ahead of the elections in May.2). the Asian economies. Singapore emerged from recession in the third quarter of 2009. Those with greater export orientation were affected more severely.8 percent. increase in domestic demand. Its GDP growth for the whole of 2010 reached 14. low public debt and resilient domestic demand.5 percent. but slowed in the second quarter. as the most open economy. posted positive growth from the fourth quarter of 2009. Although the higher growth rates were partly due to the lower base in 2009 and the stimulus measures implemented by governments. Singapore. quarterly growth figures have shown that affected economies started to register positive growth from the fourth quarter of 2009. Full-year growth stood at 7. tourism and trade-related services amid strong external demand. registering its highest growth rate since 2000. the Philippines and Thailand. Various factors have underpinned the economic turnaround in ASEAN. and assesses if ASEAN’s current cooperation model is adequate for the region to rise collectively to the challenges of a new economic landscape. but quarter-on-quarter growth returned to positive territory in the fourth quarter on the back of solid exports and private consumption. This was significantly up from 1. as well as buoyant consumer spending for the whole year. particularly China and India. to give Malaysia a full-year growth of 7. It develops and responds to changing world economic and political circumstances and national imperatives.3 percent.09 percent) resulting in comparatively less pressure on its balance sheets compared with the rest of the world at the onset of the 2008 crisis.1 & 2. Malaysia’s GDP grew strongly in the first half of 2010 before slowing in the second half as exports cooled amid a weaker global economy and an appreciating local currency. which was the highest in 34 years. as the country’s political turmoil during April to May dented growth but by less than expected. The economy was buoyed by a surge in electronics and biomedical manufacturing output and robust growth in finance.

2 6.0 7.8 percent for the whole of 2010.5 4.4 5.1: QUARTERlY REAl GDP GROWTH.7 1.5 7.6 -1. GDP growth stayed in positive territory and strengthened from the fourth quarter of 2009 to reach 6. up from 4.FIGURE 2.8 -1. For the rest of the ASEAN countries where periodic 2010 GDP growth data are unavailable.9 percent year-on-year in the fourth quarter of 2010. driven by solid private consumption.2 2009 -1.8 Source: EIU. lifted by foreign investment in the hydrocarbon sector. Philippines. Brunei is estimated to register modest growth of 1.4 percent from a year earlier was the highest reached since February 2008.0 percent in 2010.7 5.9 8.6 percent in 2009 on the back of significant increases in mineral production and expansionary government policies. up from 5.5 -9.1 3.1 2. year on year Indonesia Malaysia Philippines Singapore Thailand 08Q1 6.1 7. a modest recovery in agriculture.7 1.5 6. and an increase in election-related public expenditure. The country’s garment exports and tourist arrivals.8 -2. Vietnam’s strong economic performance in 2010 was supported by the improved global economy as well as residual effect of the massive government stimulus spending in 2009. which were hit by the global crisis.2 10. ASEAN COUNTRIES 25 20 15 10 5 0 % change.5 7.2 5.1 8. as high commodity prices and resilient domestic demand bolstered growth.5 3. -10 ASEAN COMPETITIVENESS REPORT 9 .1 8. Singapore. Laos was relatively unaffected by the global downturn and maintained solid growth of 7.2 2.3 14.1 6.5 2. Cambodia posted an annual GDP decline of 1.0 9.4 08Q2 6.2: ANNUAl REAl GDP GROWTH.0 3.2 3.0 -7.2 7.9 08Q4 5.2 2. in particular the hotels and restaurants sub-sector.9 09Q3 09Q4 10Q1 10Q2 10Q3 10Q4 6.8 6. Full-year growth was 6.5 3.5 percent in 2009.1 -0.2 0. FIGURE 2. Manufacturing output rose substantially while the services sector.3 0.3 7.2 5.9 4.4 19. Thailand and Vietnam are updated from national sources.8 6.8 8.2 08Q3 6. year-on-year 0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 -5 Brunei Cambodia Indonesia Laos Malaysia Myanmar Philippines Singapore Thailand Vietnam 2007 0.5 -6.9 5.8 percent in 2009 compared with 1.2 6.8 -4.5 percent in 2009 but is estimated to have expanded by 4.1 7. have recovered in the first half of 2010 and the government has sought to develop other sources of economic growth.1 percent in 2010.5 1.4 -4.8 -2. strong performance in the manufacturing sector and continued growth in earnings from the garment and tourism sectors.3 7. Its growth is premised on a small increase in oil and gas production amid improving global energy demand and higher oil prices.9 4.4 7. ASEAN COUNTRIES 20 15 10 5 % change.6 5.8 17.3 6.9 12. which was Indonesia’s strongest pace of growth in six years. 2010 growth is expected to be 3.5 2008 -1.6 3. an increase in investments and accelerated exports led by commodities.2 6.8 4.8 6.2 4.7 07Q1 07Q2 07Q3 07Q4 08Q1 08Q2 08Q3 08Q4 09Q1 09Q2 09Q3 09Q4 10Q1 10Q2 10Q3 10Q4 -5 Source: EIU.1 8.8 -1. Its GDP growth in the fourth quarter of 7.9 5. 2010 figures for Indonesia.1 0. supported by higher-than-expected minerals output. -10 -15 The less open economy of Indonesia saw GDP growth weakening only slightly between the third quarter of 2008 and the third quarter of 2009.0 4.2 5. Vietnam’s GDP expanded by 6.1 -3. -15 Malaysia.2 09Q1 4.0 6.6 3. 10Q4 figures are updated from national sources.7 2. also expanded at a more rapid pace.7 6.9 1.0 percent.1 09Q2 4. Myanmar registered an estimated growth of 1. after two years of contraction from a decline in the economy’s dominant production of oil and gas.0 7. particularly in the agricultural sector. the start of production and exports of methanol at the end of May 2010 and ongoing construction activities to build a port and a power line from Sarawak to Brunei.1 percent a year earlier when the economy suffered substantial losses from Cyclone Nargis.3 2010 1.2 4.2 -1.1 percent.8 -2.9 7.5 12.8 1.1 percent in 2010.5 10.4 10.2 4.6 -0.3 percent in 2009.8 4. new hydropower generation. Its GDP growth in 2010 is estimated to be a robust 8.7 1.

which has been described by the World Trade Organization (WTO) as the fastest-ever annual expansion recorded in global commerce in a data series going back to 1950.0 percent in the second quarter of 2010. Vietnam’s key export products.2 percent in 2010 (Figure 2. Source: EIU. year on year 07Q1 -20 -40 07Q2 07Q3 07Q4 08Q1 08Q2 08Q3 08Q4 09Q1 09Q2 09Q3 09Q4 10Q1 10Q2 10Q3 Source: EIU.2 percent by the third quarter of 2010. the WTO revised its forecast for world trade growth in 2010 from 10 to 13. From double-digit contractions in exports over the first three quarters of 2009.4 percent in 2008.FIGURE 2. The robust export performance of ASEAN countries was in line with the broader global trade recovery in 2010.3 percent in fourth quarter 2009. The Philippines’ unemployment rate moderated towards the end of 2009 but climbed to 8.4: UNEMPlOYMENT RATES.3: QUARTERlY MERCHANDISE EXPORTS GROWTH. but fell to 2. 0 2006 Indonesia Singapore 2007 Malaysia Thailand 2008 Myanmar Vietnam 2009 Philippines 2010 e 10 ASIA COMPETITIVENESS INSTITUTE . Unemployment reached a fiveyear high of 3. Vietnam’s unemployment rate has remained relatively stable at 4. % Note: ‘e’ refers to EIU estimates. Vietnam’s exports increased by 35. Malaysia’s unemployment rate declined to 3.25 percent in 2008.5 percent in 2009 and 1.5 percent.5 percent. which has the highest unemployment rate between 2006 and 2009 among the ASEAN countries FIGURE 2. up from 2.3). before falling to 6. Thailand’s unemployment rate has been relatively low. most of the countries registered double-digit export increases in the first half of 2010 of between 34 and 55 percent before moderating in the third quarter (Figure 2.0 percent.3 percent in the third quarter of 2009. at 1. and has been around 2. -60 Cambodia Indonesia Laos Malaysia Myanmar Philippines Singapore Thailand Vietnam Export Growth The export growth of ASEAN countries affected by the global crisis rebounded strongly from the last quarter of 2009.0 and 7.3 percent in the third quarter. ASEAN COUNTRIES 140 120 100 80 60 40 20 0 % change. Malaysia and the Philippines saw slight increases in unemployment in 2009. Indonesia. The dip in export growth in Vietnam in first quarter 2010 was due to more than $1 billion earned in the first quarter of the previous year from re-exporting gold and also due to reduction in exports of crude oil and coal. the rest of the world is expected to register an export growth of 16. While the exports for developed economies are expected to grow by 11. In September 2010. ASEAN COUNTRIES 12 10 8 6 4 2 Average. Unemployment With healthier economic conditions from late 2009.6 percent in 2009 from 4.5 percent. worries over escalating unemployment have diminished. with the highest quarterly rates of 4.7 percent respectively in first quarter 2009.9 percent in the third quarter.4). Compared with the other ASEAN countries. Singapore’s average unemployment rate in 2009 was 3.7 percent in 2008.

higher food and fuel prices and a surge in capital inflows to the region (Figure 2. Vietnam has been posting the highest inflation rate in the region in 2010. 80 70 60 50 40 30 20 10 0 -10 -20 % of GDP 48 39 37 46 27 16 18 16 2 2 1 3 2 19 18 19 12 8 5 5 5 5 6 1 -7 -5 -12 8 5 0 0 -0. The current account balance of a majority of ASEAN countries deteriorated in 2008 but improved in 2009 (Figure 2.6 percent in third quarter 2009.41 percent in February 2010 from 8. ‘e’ refers to EIU estimates for all countries in 2010. inflation has been climbing as the economy improves and commodity prices rise. Two countries in particular – Cambodia and Vietnam . inflation moderated from a peak of 27. FIGURE 2. -10 Brunei Cambodia Indonesia Laos Malaysia Myanmar Philippines Singapore Thailand Vietnam where data are available. 2009). Figures for Brunei (2008).saw dramatic price movements over the past few years. but prices spiked in the last quarter. started to ease in the third quarter of 2008 with the onset of the economic downturn. ASEAN COUNTRIES Notes: 1.1 percent in February 2009. finishing the year with an inflation rate of 7. Cambodia (2008. year-on-year 07Q1 -5 07Q2 07Q3 07Q4 08Q1 08Q2 08Q3 08Q4 09Q1 09Q2 09Q3 09Q4 10Q1 10Q2 10Q3 Source: EIU.6).7 percent in third quarter 2008 to a low of 2. 2009) are EIU estimates. 2008.5: CONSUMER PRICES.2 percent over the first nine months of 2010. Current Account Balance Most of the ASEAN countries have been running current account surpluses over the years. ASEAN COUNTRIES 45 40 35 30 25 20 15 10 5 0 % change. Prices rose 7 percent in the first quarter of 2010 but moderated in subsequent quarters to register an increase of 4. However.5).6: CURRENT ACCOUNT BAlANCES. increasing 11. Source: EIU. laos (2009) and Myanmar (2007.75 percent in December from a year earlier on the back of economic expansion. saw its unemployment rate dip to 7. Cambodia registered consumer price deflation in the second and third quarters of 2009. Inflation was more restrained in the third quarter with policy tightening and a good rice harvest. higher food costs and a weaker currency.4 3 3 2 -6 -10 -8 -8. in contrast to consumer price increases of over 30 percent in the second quarter of 2008. Although inflation rates in 2010 have remained below the pre-crisis peaks.FIGURE 2. stoked by economic recovery.5 -10 Brunei 1 Cambodia 1 Indonesia Laos 2007 1 Malaysia 2008 2009 Myanmar 1 Philippines Singapore Thailand Vietnam 2010 e ASEAN COMPETITIVENESS REPORT 11 .0 percent. In the case of Vietnam. Inflation Inflationary pressures that had become a major concern for ASEAN economies in the first half of 2008. the lowest rate achieved in six years. they are again fanning concerns as rates have been climbing. although to different extents.

as concerns over soaring inflation in the first half of 2008 dissipated to be replaced by concerns over sagging demand. In general. A continuing trend of appreciation of major ASEAN currencies against the US dollar would contribute to correcting the global current account imbalances that exist between the developed and developing countries. Malaysia and Vietnam made several reductions in the policy interest rates. The devaluations were necessitated by the widening spread between the black market exchange rate and the reference rate of Vietnam’s central bank. which has been depreciating since early 2008 and has continued on a downtrend. the governments have scaled down or lifted their stimulus policies. due largely to exports of oil and gas and also to income inflows from assets held abroad. which was due to the high trade deficits and inflation and the shifting preference for US dollars and gold over local-currency assets. Exchange Rates Nominal exchange rates in most ASEAN countries depreciated in late 2008 and early 2009.7). Source: EIU. ASEAN currencies were cushioned against major disruptions in the foreign exchange market due to the region’s low exposure to subprime assets and high foreign exchange reserves. Singapore dollar and Thai baht have exceeded their pre-crisis levels in the first half of 2008.FIGURE 2. The Vietnamese authorities devalued the dong thrice between November 2009 and August 2010 by about 11 percent against the US dollar. As shown in Figure 2. central banks in Indonesia. The currencies of most ASEAN countries have been appreciating since the second half of 2009 and into 2010. while the Philippine peso has yet to recover its value (Figure 2. which had faced surging inflation rates in the first half of 2008. as inflationary pressures built again on the back of robust economic growth. Macroeconomic Policies ASEAN’s policy response to the crisis has involved national strategies with an absence of coordination at the regional level. although the effect may be moderated by reduced export competitiveness if other currencies in the region do not also appreciate. By the third quarter of 2010. The prime rate was further raised to 9 percent in 12 ASIA COMPETITIVENESS INSTITUTE . In countries such as Malaysia and Singapore. policy measures have been targeted and comprehensive.7: EXCHANGE RATES. ASEAN COUNTRIES 120 115 110 105 100 95 90 85 80 US$ per local currency unit (Jan 2008=100) Note: The Brunei dollar is pegged to the Singapore dollar at a 1:1 ratio. to reduce its impact and minimize downside risks to economic growth. Between November 2008 and August 2009. 75 70 08Q1 08Q2 Cambodia Philippines 08Q3 08Q4 Indonesia Singapore 09Q1 Laos Thailand 09Q2 09Q3 Malaysia Vietnam 09Q4 10Q1 Myanmar 10Q2 10Q3 Brunei runs the largest current account surplus among ASEAN countries. Macroeconomic Policies and Growth Prospects One of the factors contributing to ASEAN’s relatively robust recovery is the prompt countercyclical measures that were implemented by ASEAN’s policy makers with the onset of the global crisis. Vietnam. The challenge for ASEAN is to maintain growth momentum after fiscal and monetary stimulus are withdrawn and to develop sustainable sources of growth. Philippines. Thailand. some of the ASEAN countries also introduced other policy measures to increase the flow of credit. raised its prime rate to 8 percent in December 2009 to rein in credit growth. in concert with the deterioration of current account balances. Besides rate changes. Vietnam has been running a current account deficit arising mainly from its huge trade deficit with China even as it maintains a trade surplus with most of its other trading partners. As ASEAN economies turn around. Philippines and Vietnam.8. reserve requirements on deposits were reduced to free up capital and boost lending. ASEAN’s monetary authorities had shifted towards a more expansionary policy with the onset of the global crisis. In Indonesia. the Indonesian rupiah. the central banks have begun a rollback of their expansionary monetary policies with policy rate rises at various points in time since the second half of 2009. Malaysia. Malaysian ringgit. An exception is the Vietnamese dong. rather than piecemeal as in Laos and Myanmar.

particularly since most ASEAN countries do not have automatic stabilizers such as unemployment insurance. government consumption spending fell in the first half of 2010 as the country began to unwind its fiscal stimulus and also because of delays in budget disbursements. Vietnam and Laos. The fiscal balance of each ASEAN country is given in Figure 2.5 percent of GDP in 2009 in contrast to pre-crisis levels of 2. In Indonesia.1 1.0 -3.9.1 percent in 2007 and 2.9 -2.9 -6.6 -0.3 -3. Fiscal stimulus policies have also been critical in encouraging economic recovery. where tax cuts have made up a large component. ASEAN COUNTRIES Policy interest rates (percent) 16 14 12 10 8 6 4 2 0 J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J 2010 J A S O N Philippines Thailand Malaysia Vietnam Indonesia Note: Policy interest rates are Bank of Indonesia rate (Indonesia).0 -3.3 0 -2. a number of countries have emphasized infrastructure investments in the stimulus packages. based on the simple averages of forecasts by the Economist Intelligence Unit.8 -7. In Vietnam.5 30 20 10 3. Growth Prospects The outlook for ASEAN economies is positive. overnight lending rate or repo rate (Philippines) and prime rate (Vietnam). overnight policy rate (Malaysia).1 -4. FIGURE 2.2 -2. both of which had registered growth rates of above 5 percent even during the crisis. ASEAN governments (excluding Brunei) ran budget deficits averaging 4. which will benefit growth well beyond the short run. International Monetary Fund and the World Bank (Figure 2.5 -4.4 -1.2 -4.9: FISCAl BAlANCES. is expected to expand at the slowest rate of just above 1 percent.9 -1. In line with the region’s pro-growth stance. 2008 2009 November 2010. An exception has been Indonesia. Malaysia raised its policy interest rate three times between March and end-August 2010.10).0 percent in 2011 and 2012. are expected to be among the fastest-growing ASEAN countries over the next two years. Source: Central bank websites.3 percent in 2008. ASEAN COUNTRIES 40 % of GDP 31. one-day repo rate (Thailand).0 Cambodia Indonesia Laos Malaysia 2007 2008 Myanmar Philippines Singapore 2009 Thailand Vietnam Source: EIU. most of the fiscal stimulus expired at the end of 2009.8: POlICY RATES.4 -5.5 to 7. Following V-shaped rebounds in 2010. the growth rates of most of the ASEAN economies are forecast to be in the range of 4. with the balance tilted towards higher spending.7 -0. ASEAN COMPETITIVENESS REPORT 13 .4 -7.9 22.FIGURE 2. As with monetary stimulus.3 -10 Brunei -20 -9.8 -2.0 -3. countries have also begun to withdraw their fiscal stimulus.3 -0. while Thailand raised its policy rate twice in July and August 2010. In response to the global crisis.6 27.8 -3.6 -1.5 -0. Brunei on the other hand. The stimulus packages have comprised a mix of public spending and tax cuts.9 -2.

ASEAN is forecast to expand by more than 5 percent a year in 2011 and 2012 (based on FIGURE 2.1 7.4 6.2 6. Another risk is the buildup of inflationary pressures from rising world food and oil prices. ASEAN overall recorded a slight growth of 1. as the need to contain social unrests from rising prices through the provision of subsidies or the lowering of import tariffs would pose a strain on their fiscal sustainability.5 7.6 1.2 5.1 4.0 4.5 7. stock and bond markets and has raised concern over the buildup and eventual bursting of asset price bubbles.4 4.FIGURE 2.3 4.2 5.4 1.9 7.5 6. IMF (I) and World Bank (W) for each country or region. Hot money has driven up prices in the property.2 5.5 7.2 1.8 6.0 5.0 5.3 4.10: GDP GROWTH FORECASTS. year-on-year 15 10 6.3 5.6 3.5 5.6 5 Note: The figures for 2011 and 2012 refer to the simple average of growth forecasts from EIU (E).0 4.3 4.5 6.1 6.0 6. 16 14 12 10 8 6 4 2 0 % change.4 5.2 percent in 2009 and robust growth of around 6.2 - Brunei Cambodia Indonesia Laos Malaysia Myanmar Philippines Singapore Thailand Vietnam 2011f 2012f 5. China and India maintained strong growth in 2009 and are estimated to have further expanded by 10.0 6.0 5. Sources: EIU. the long-run impact of the 2008 crisis depends not only on corrective measures implemented by ASEAN countries but also on policies adopted by countries ASEAN trades with.3 6.4 6.0 5.0 2012f E I W 1. SElECTED COUNTRIES/ REGIONS 20 % change.5 4.6 percent in 2010.3 4. 0 2007 -5 2008 2009 2010 2011f 2012f -10 ASEAN China India EU Japan US World 14 ASIA COMPETITIVENESS INSTITUTE . Hence.8 4. and major advanced economies.8 percent in 2010 respectively.5 7.8 6. Unlike the 1997 Asian crisis.5 5.3 6. The quantitative easing by the US has prompted the IMF to issue a warning of currency wars sparking trade wars.5 6. IMF and World Bank.0 7. Sources: EIU. The pressure on ASEAN currencies to appreciate has also prompted countries such as Thailand to stem capital inflows by imposing a 15 percent withholding tax on interest and capital gains earned by foreign investors on domestic bonds.8 5.4 4. ASEAN economies in the 2008 crisis suffered from a lack of global aggregate demand.7 7.2 6. IMF and World Bank.2 6. IMF (I) and World Bank (W) for each country.8 6.0 -2 -4 2007 2008 2009 2010 A risk that may derail ASEAN economies’ growth is the surge in capital inflows to emerging markets in Asia in search of higher returns amidst low interest rates in developed economies.7 4. “–” indicates data not available. The Global Context Global Economic Outlook The global economic recovery process has been characterized by a duality in the post-crisis growth paths of ASEAN and the rest of developing Asia. The table provides the forecasts from each source. year-on-year 2011f E I W 1. The sustainability of growth of ASEAN thus also depends on how well the ASEAN countries can adjust to the changing global economy.3 7.0 3. This is in particular a challenge to developing countries.0 4.11: GDP GROWTH RATES.0 4. Other countries have not implemented capital controls but are monitoring capital inflows and considering how best to regulate and direct such inflows to ensure financial stability.2 5.0 percent and 8. ASEAN COUNTRIES Notes: The figures for 2011 and 2012 in the chart refers to the simple average of growth forecasts from EIU (E).5 5.

Economic growth in the major developed countries is likely to remain subdued over the next few years. Of the surplus-running countries. sovereign debt woes and lower maneuverability for implementing stimulus policy measures are likely to have long-lasting effects. Improvements in overall living standards as the economies develop would also spur greater consumer demand and help to shift resources toward production for local as well as regional consumers. This underscores the scope for expanding intra-ASEAN trade and investments while at the same time also emphasizes the need for ASEAN to remain open. The shares of ASEAN’s merchandise exports to and imports from the US. 34 percent of ASEAN’s exports to China were in parts and components1. in particular China.50 2. at 0. scale back on spending and imports with expected lower income growth. -0. Source: IMF. World Economic Outlook Database. In 2009. Thus.00 1. the oil-exporting countries in the Middle East in particular saw a marked reduction in surplus in 2009 to 0. global rebalancing would require the surplus countries. to develop new sources of demand.14). a considerable share is still tied to final demand from the West. EU and Japan have been decreasing.00 ASEAN China India EU Japan United States Middle East Rest of the world a simple average of forecasts by the EIU. EU and Japan experienced contractions in 2009. dropped to 0. was less than half its level in 2006. The changing pattern of ASEAN’s trade can be attributed partly to developments in production networks for manufactured goods in East Asia. On the other hand. the current account imbalances are projected to grow again. In the coming years. although there have been changes in the relative importance of external partners over time. particularly the US. narrowed during the crisis as world trade plunged and commodity prices fell. the share of exports to these three destinations has fallen from a combined 42 percent to 31 percent and the share of imports from 42 percent to 32 percent (Figures 2.18 percent before the crisis. Global Rebalancing Widening global current account imbalances. but are expected to remain lower than before the crisis (Figure 2.09 percent of world GDP.12). while China and India are forecast to continue with their strong performance (Figure 2.7 percent of world GDP.FIGURE 2. ASEAN’s shares of exports to and imports from China and India have been increasing.1 percent of world GDP in 2009 from 0. ASEAN’s Trade and Investment Linkages The region’s trade and investment linkages have been predominantly with countries outside ASEAN. In the case of China. which had been an underlying cause of the 2008 global economic turmoil. The current account surpluses sustained by ASEAN and the rest of developing Asia over the last decade have been the outcomes of these countries’ successful outwardlooking export-oriented growth strategies. the shares have doubled between 2002 and 2009. China’s surplus also fell.50 -1.00 % of world GDP 2006 2007 2008 2009 2010e 2011e 2012e 2013e 2014e Note: ‘e’ refers to IMF staff estimates. but remained a considerable 0. ASEAN’s trade is mainly in goods (83 percent in 2009) rather than in services. developing Asia would need to look beyond exports to developed markets in the West towards greater intraregional trade and greater domestic consumption and investment. as the damage to the financial sector and the household balance sheets.11).00 -1.12: WORlD CURRENT ACCOUNT BAlANCES 2. where ASEAN countries supplied components for final assembly in China and then export to developed market destinations. From 2002 to 2009. October 2010.00 0.5 percent of world GDP. and their recovery has been in the main weak and halting.50 -2.50 0. which has been relatively modest. while trade between ASEAN and China has expanded significantly. ASEAN’s current account surplus. it is necessary for governments to provide better social safety nets so that there would be less need for precautionary savings. IMF and World Bank). ASEAN COMPETITIVENESS REPORT 15 . In this regard. With global economic recovery.50 1. As the economies with sizeable current account deficits. On the other hand. The current account deficit of the US in 2009. the developed economies of the US.13 & 2.

6 (22.2 22.FIGURE 2. This is followed by Japan (15 percent) and the US at a distant third (8 percent).0 14. Intra-ASEAN share of FDI inflows averaged 13.2) in 2002 and averaged 25. However.7 India 24.1 22.5 9.3 US 10.2 28.6 30. To an even greater extent than trade flows. Intra-ASEAN trade has increased in the 2000s.1 3. A significant milestone was the agreement in 1992 to establish an ASEAN Free Trade Area (AFTA) in 15 years.7) percent between 2003 and 2009. which is around 6 percent.6 10. if intra-ASEAN trade share is compared with ASEAN’s share of global world trade. authors’ analysis. The pressure on China to reduce its current account surplus and increase spending would provide an opportunity for growing exports from ASEAN.3 24. authors’ analysis. ASEAN’s comprehensive economic cooperation agreements with China and India (covered later in this chapter) would also contribute to closer economic linkages. These shares are relatively low compared with the regional blocs of the EU and NAFTA.4 16. the bulk .8 EU 11.4 Japan 13. The largest share of FDI inflows to ASEAN is from the EU.5 percent between 2003 and 2008.6 11.3 percent in 2009 respectively. China’s FDI flows have exceeded 1 percent from 2004. 2009 9.3 ASEAN 29.over 80 percent . From an initial imperative to address political and security concerns.1 Rest of the world 16 ASIA COMPETITIVENESS INSTITUTE .15).3 China 1. the spotlight in the 1990s turned to economic cooperation.6 27. then intra-ASEAN trade is four times higher than would be the case if ASEAN countries were randomly distributed countries. should also help ASEAN to gain access to India’s market in the long term. where the share of intra-regional trade was 65. and accounted for 2 percent of FDI inflows between 2004 and 2008. ASEAN’s trade ties with China and India are expected to continue to strengthen even as export demand from developed country markets remains weak. which has seen a resurgence since the 1990s.8 US EU Japan China India ASEAN Rest of the world In the post-crisis period.5 (24. ASEAN Cooperation Model The context for cooperation among countries in the Southeast Asian region has changed dramatically since ASEAN’s inception in 1967. which accounted for 25 percent of total inflows between 2003 and 2008.1 11.0 1. 2009 10.of ASEAN’s foreign direct investment inflows are from outside ASEAN rather than from other ASEAN members (Figure 2.6 5. particularly from 2002 onwards although the percentage point increases in intra-ASEAN shares of ASEAN’s total exports and imports have been moderate and have not been sustained from year to year. Intra-ASEAN share of exports (imports) was 22.14: SHARE OF ASEAN IMPORTS FROM SElECTED COUNTRIES/REGIONS % 2002 13.0 2004 2006 2008 Source: ASEAN Merchandise Trade Statistics Database. FIGURE 2.9 2004 2006 2008 Source: ASEAN Merchandise Trade Statistics Database. India’s “Look East” policy.1 7.1 2.13: SHARE OF ASEAN EXPORTS TO SElECTED COUNTRIES/REGIONS % 2002 16.6 percent and 39.2 12.

the other two being an ASEAN Political-Security Community and an ASEAN Socio-Cultural Community. prosperous and highly competitive region with equitable economic development.FIGURE 2. and reduced poverty and socio-economic disparities.3 39. (ii) a competitive economic region. e-ASEAN.6 2004 2006 2008 5.0 17. The AEC would be one of three pillars that would build an ASEAN Community in 2020. electronics. Huge regional trading blocs were formed in Europe and North America. In 2007. ASEAN Investment Area (AIA) (1998).6 12. US EU Japan China India ASEAN Rest of the world ASEAN Leaders further articulated their resolve to forge closer economic integration through the ASEAN Vision 2020 in December 1997. wood-based products. ASEAN Leaders accelerated the creation of an AEC to 2015 and adopted a comprehensive action plan. automotives. The Charter was ratified by all member countries and entered into force in December 2008. The case for an AEC is evident from several viewpoints. In 2009. which aspired to transform ASEAN into a stable. actions and timelines for the implementation of various measures from 2008 to 2015. ASEAN Leaders declared an ASEAN Economic Community (AEC) to be the goal of regional economic integration by 2020.and extra-regional trade and overall welfare gains. ASEAN needed to make a concerted move towards greater economic integration and at the same time raise workers’ productivity and cut costs across the production value chain. ASEAN further adopted the ASEAN PoliticalSecurity Community and ASEAN Socio-Cultural Community Blueprints towards a shared responsibility for regional security and global integration and to enhance cooperation in human development and narrow the development gap between members. healthcare. Through further liberalization and facilitation measures. ASEAN aims to realize a single market and production base in 2015.4 41. The theme in 2009 was ‘ASEAN Charter for ASEAN Peoples’ and the target was to achieve an ASEAN Community by 2015. rubber-based products. and the emerging economies of China and India were posing stronger competition. Investors were largely deterred by subscale. (iii) equitable economic development and (iv) integration into the global economy. An integrated economic community enjoys economies of scale. To track progress towards the AEC 2015. authors’ analysis.6 20.5 0. and the ASEAN Framework Agreement on Services (AFAS) (1995).15: SHARE OF ASEAN FDI INFlOWS FROM SElECTED COUNTRIES/REGIONS % 2002 -1. Towards an ASEAN Economic Community The AEC as envisaged would comprise four key interrelated and mutually reinforcing characteristics: (i) a single market and production base. lower production and transaction costs. Accelerated liberalization and integration is identified for 12 goods and services sectors.5 21. a scorecard mechanism was developed to monitor and assess implementation. With freer movement for goods.2 21. skilled labor and freer flow of capital.0 0.7 2. tourism and logistics services. They also signed the ASEAN Charter at the Singapore Summit in November to establish ASEAN as a rules-based entity with a legal personality that is separate from its member states. These are: agro-based products. The ASEAN Vision was set against the severe fallouts from the 1997 Asian financial crisis and an increasingly competitive global marketplace. textiles and apparels. fragmented markets in ASEAN and unnecessary costs resulting from differing product standards across the region. investment. services. which had clear timelines and targets. particularly the former. enhanced intra. To regain competitiveness. ASEAN had lost its competitive edge in terms of labor costs and foreign direct investments to China. These building blocks include the ASEAN Free Trade Area (AFTA) (1992). The AEC would establish ASEAN as a single market and production base characterized by free flow of goods. the AEC Blueprint.6 Source: ASEAN Foreign Direct Investment Statistics Database. The AEC Blueprint sets clear targets. labor and capital among member countries. there would be more efficient allocation ASEAN COMPETITIVENESS REPORT 17 . The plan for an AEC builds on earlier ASEAN initiatives to establish closer cooperation in trade and investment.7 18. fisheries. At the 2003 Summit in Bali.

Through domestic economic reforms and strengthened political cohesion. that their products have satisfied the ASEAN origin criteria and can claim preferential treatment and tariff concessions under the AFTA. The agglomeration of Southeast Asian nations has a magnified voice. While economic integration would bring undeniable benefits to the region in the longer term. Malaysia. an integrated economic and trade bloc with no market and trade barriers and harmonized regulations is more attractive to investors than one that is fragmented. the AEC reaps greater common interests for the region while presenting each member with a larger stake in the region’s progress and prosperity. On 1 November 2010. From 1 January 2010. infrastructural and communications systems would need longer execution timelines for integration plans. on a commercial invoice. Labor mobility may also lead to less disparity in wages across member countries and create more opportunities for workers within the region to find jobs. However. Economies with weaker and less transparent economic systems and less advanced institutional. A single window provides one entry point for traders to lodge information with government to fulfill all import. 73. under which certified exporters can declare. Moreover. the anti-protectionism line has not been as clear at the individual country level. Trade and Investment Liberalization and Facilitation In the area of realizing a single market and production base through trade and investment liberalization and facilitation. Members were urged in that document to step up implementation. Singapore and Vietnam were among those with the highest compliance. This saves documentation delays and costs. it is also behind schedule. According to the first AEC Scorecard compiled by the ASEAN Secretariat and published in April 2010. and Indonesia introduced a buy local policy in March 2009 for the country’s four million civil servants. with a Work Programme until 2015 to address systematically non-tariff issues such as customs. which sets the conditions for goods manufactured or produced in ASEAN countries to enjoy preferential tariff concessions when exported to other ASEAN destinations. In May 2010.9 percent of tariff lines remained for products on the Sensitive. A Trade Facilitation Framework has been adopted by ASEAN. Trade expansion within the region is also a means to foster higher growth in less developed economies in ASEAN and help them to catch up with the more developed economies in the region and reduce the magnitude of poverty in the region.6 percent of measures scheduled for implementation between January 2008 and December 2009 were implemented by ASEAN member states. Malaysia launched a Buy Malaysian Campaign in January 2009. and ASEAN members have to manage the integration process to ease adjustment pains and also to ensure that resistance from entrenched domestic interests does not impede progress.or export-related regulatory requirements. ASEAN-6 (Brunei. to expedite customs clearance of goods across the region. despite provision under the AEC for an ASEAN Single Aviation Market by 2015. It is expected to make 18 ASIA COMPETITIVENESS INSTITUTE . Singapore and Thailand) countries have eliminated all tariffs among members for products in the Inclusion List of the Common Effective Preferential Tariff (CEPT) Scheme for AFTA. Notwithstanding selected individual country measures. The road to an AEC would be bumpy. standards and conformance and sanitary and phytosanitary measures. Myanmar. The 2008 global crisis has raised concerns that the regional integration process would be derailed as governments accorded priority to national interests and resorted to protectionist measures to keep local industries afloat and preserve jobs. and they have consistently taken an anti-protectionism stance in official ASEAN statements and speeches. The ASEAN Single Window is an environment where ten National Single Windows (NSWs) of individual member countries operate and integrate. Only 0. especially in advanced economies such as the US. The next step in the streamlining of ROO procedures is for all member states to implement an ASEAN Self Certification Scheme by 2012. Indonesia. ASEAN has made the greatest stride in tariff reduction. considerable work remains for ASEAN in the elimination of non-tariff barriers and trade facilitation. ASEAN has also taken significant steps to revise and simplify the Rules of Origin (ROO). the AEC Council noted that almost 20 percent of deliverables under the AEC Blueprint for 2008-2009 still had not been achieved. Measures that were not implemented mainly involved the ratification of important economic agreements by individual members. Highly Sensitive and General Exclusion Lists. since the crisis flared up. A key initiative in trade facilitation is the plan for an ASEAN Single Window (ASW). trade procedures. ‘to avoid a backlog of unimplemented commitments with the onset of more new commitments and measures … in the years to come. Greater external competition may cause some industries that previously enjoyed domestic market protection and subsidies to struggle for survival resulting in business failures and unemployment.’ In October 2010. However. Although tariff barriers have been substantially lowered and ROO simplified. For instance. Malaysia. The CLMV countries will eliminate tariffs on all products in the Inclusion List by 2015. influence and leverage in global economic affairs. It was reported that Brunei.of factors of production resulting in higher productivity. Indonesia indicated that it was prepared to open up only five of around 30 key airports to ASEAN member carriers by 2015. three participating members – Brunei. ASEAN leaders and ministers have been conscious of protectionist threats not only from member countries but also from elsewhere in the world. Malaysia and Singapore – commenced a pilot project to kick-start the self-certification system. there are shortterm transition costs. Philippines. ASEAN overall has not stopped implementing measures towards an AEC over the last three years.

In the area of services liberalization. There were also reports that some countries had proposed many sectors for protected investment. Besides traditional modes of financing from multilateral development banks. some countries had yet to ratify the ACIA and finalize the reservation list. ASEAN also has additional packages of commitments on financial services and air transport. Prioritized projects include completion of the ASEAN Highway Network. It remains a challenge to work towards timely full implementation of the ASEAN Single Window. would secure a specialaccess arrangement for rice shipments of 367. through provisions for investment liberalization. It seeks to enhance physical. bilateral development partners and national governments. According to the AEC Scorecard. Thailand.000 metric tons annually. enhanced Information and Communications Technology (ICT) infrastructure and a regional energy security framework. The CLMV countries have until 2012 to set up their respective NSWs and they are undertaking preparatory work to do so. Indonesia. distribution and maritime transport services. completion of the Singapore Kunming Rail Link missing links. and tariff liberalization commitments would be implemented retroactively from 1 January 2010. The dispute was resolved when the Philippines was allowed to keep its 40 percent tariff on rice imports from ASEAN up to 2014 and reduce it to 35 percent only on 1 January 2015. The ACIA is aimed at benefiting both ASEAN and ASEAN-based foreign investors. protection and investment promotion and facilitation. which could impede timely implementation of ACIA. In October 2010. Various provisions related to tariff reduction and facilitation of trade in goods have been consolidated into a single legal instrument: the ASEAN Trade in Goods Agreement (ATIGA) to make it more user-friendly and reduce the transaction time and costs of doing business. which calls for the upgrading of existing infrastructure. ASEAN COMPETITIVENESS REPORT 19 . The Agreement was signed in February 2009. Regulatory reforms are integral to trade and investment facilitation. ASEAN has concluded the seventh package of services commitments under the ASEAN Framework Agreement on Services (AFAS). establishment of an ASEAN Broadband Corridor. The AFAS aims to liberalize 128 service sub-sectors and the latest package brings up the commitments to cover 80 sub-sectors so far. construction of new infrastructure and new logistics facilities and harmonization of regulatory framework. The Asian Development Bank (ADB) and Asian Development Bank Institute (ADBI) estimate that Asian countries would need to invest US$8 trillion in national infrastructure and US$290 billion in regional infrastructure from 2010 to 2020 to achieve pan-Asian connectivity. but there was a delay in the ratification of the Agreement by all ASEAN member states due to a dispute between Thailand and the Philippines on rice tariffs. Although the AEC Blueprint has set 2008 as the latest year for ASEAN-6 countries to operationalize their NSWs. and furthering the development of the ASEAN Power Grid Network through the implementation of interconnection projects between Peninsular Malaysia and Sumatra. such as in business services. it has been suggested that administrative reforms are easier to accomplish and will have substantial positive impact on the AEC. Of these. The ATIGA was signed in February 2009. To this end. innovative infrastructure financing mechanisms are also integral to the Connectivity plan. The infrastructure needs of ASEAN and Asia in general are great.shipment of goods faster by about 40 percent. The ATIGA entered into force in May 2010. Enhancing ASEAN Connectivity The Master Plan on ASEAN Connectivity has been adopted by the ASEAN Leaders at the 17th ASEAN Summit in Hanoi in October 2010. The commitments under the AFAS go beyond the requirements of the WTO. and West Kalimantan and Sarawak. ASEAN countries have signed in the second half of 2010 the Memorandum of Understanding on the Implementation of the ASEAN Single Window Pilot Project and the Protocol on Electronic Customs Facilitation (Single Window) to test the infrastructure and procedures. services liberalization and investment facilitation. Physical connectivity is a challenge for the region. education. Seven strategies have been drawn up to establish seamless regional connectivity through a multimodal transport system. where members pledged commitment to allow higher foreign equity ownership in various sectors. ASEAN Economic Ministers have agreed to an ASEAN Regulatory Reform Dialogue at the senior economic officials’ level in early 2011 to address some of the regulatory issues pertaining to trade facilitation. institutional and people-to-people connectivity between members to reduce the development gap and enhance competitiveness by improving production and distribution networks in the region. A variety of internal and external financing sources are needed to address the different financing and technical assistance needs across ASEAN economies. In return. ASEAN Economic Ministers signed the Protocol to Implement the Eighth Package of Commitments for the liberalization of 15 new sub-sectors. Connectivity could be financed by innovative mobilization of the region’s large aggregate private savings and foreign exchange reserves with involvement of the private sector particularly in the form of public-private partnerships. considered a major supplier of rice to the Philippines. ASEAN has consolidated its 1998 Framework Agreement on the ASEAN Investment Area and the 1987 ASEAN Investment Guarantee Agreement into the ASEAN Comprehensive Investment Agreement (ACIA). it was only in August 2010 that ASEAN Economic Ministers noted at their meeting that these countries had activated their NSWs. In investment.

massive infrastructure investments will serve to mobilize the region’s savings and boost regional demand at the same time that they lay the foundations for long-term growth. services and investments. A list of entities has been identified in an annex of the Charter for engagement. ASEAN Economic Ministers (AEM) have started to hold Public-Private Sector Policy Dialogues with representatives not only from ASEAN-BAC but also from among the 12 sectors that have been identified for priority integration towards an AEC.One financing mechanism being developed is the ASEAN Infrastructure Fund (AIF). Trade and Investment Agreements In addition to intra-ASEAN trade and investment cooperation. ASEAN has made some progress in its efforts to engage with stakeholders by making it a part of the ASEAN Charter. The ASEAN-BAC was formed in 2003 and up to three business leaders from each of the ASEAN countries can be nominated to the Council. In 2002. The entities include the ASEAN Inter-Parliamentary Assembly. which plans for a total fund of US$10 billion and has raised US$1 billion by April 2010. Malaysia. ASEAN civil society organizations and a few others such as the Working Group for an ASEAN Human Rights Mechanism. Todate. To encourage the active participation from all stakeholders. Japan. However. While engagement with civil society is more relevant for achievement of ASEAN’s people-centric ASEAN Community as a whole. The main business organization that ASEAN consults for private sector feedback is the ASEAN Business Advisory Council (ASEAN-BAC). The ASEAN-BAC holds an ASEAN Business and Investment Summit annually on the sidelines of the ASEAN Summit. where ASEAN seeks to maintain “ASEAN Centrality”. will be established to provide a forum for networking as well as for deliberating and providing inputs on SME-related regional flagship projects and policy matters to the Ministers. engagement with the business community is specifically important for achieving an ASEAN Economic Community by 2015. various ASEAN business organizations. If the required investment in transport. Indonesia. Since 2009. automotive and logistics sectors. the Agreement on Trade in Services was signed in 2007 and the ASEAN-China Investment Agreement in 2009. Under this framework. ASEAN has been developing a network of extra-regional economic agreements covering trade in goods. Japan and Korea on a number of financial initiatives. The ASEAN-BAC holds regular meetings across ASEAN and participates in ASEAN and national level forums. Japan and South Korea. Singapore and Thailand) and China to create the world’s third-largest free trade area. ASEAN’s Engagement with Stakeholders While the ASEAN Charter recognizes the need to engage other stakeholders in order to achieve its vision of an ASEAN Community by 2015 and be a people-oriented organization. 20 ASIA COMPETITIVENESS INSTITUTE . In October 2010. after the EU and NAFTA. the approach to engagement varies across ASEAN countries from those that are more open to engaging with diverse stakeholders and those that prefer a more managed form of engagement. The AEM has so far held dialogues with representatives from the textiles. environmental degradation and pollution among other cross-border issues and mechanisms to address these are also part of the Master Plan on ASEAN Connectivity. ASEAN and China signed a Framework Agreement for Comprehensive Economic Cooperation for the establishment of the ASEAN-China Free Trade Area. telecommunications and energy infrastructure were made during 2010-2020. Korea. The ADB has been requested to support the establishment of the AIF. illegal immigration. the ASEAN Economic Community Council announced that an SME Advisory Board. Australia and New Zealand. which has gained momentum over the last decade starting with China’s proposal for an ASEAN-China Free Trade Area in November 2001. Closer connectivity would also bring its share of problems such as transnational crimes. which was initiated by ASEAN Finance Ministers in May 2010 on the sidelines of the Asian Development Bank’s annual meeting. ASEAN has concluded agreements with China. The need to communicate with and to involve stakeholders in the process is mentioned in the AEC Blueprint. The ASEAN-China FTA was fully implemented in January 2010 for ASEAN-6 (Brunei. ASEAN-plus Initiatives One of the four key pillars of the ASEAN Economic Community is integration into the global economy through free trade agreements (FTAs) and comprehensive economic partnership (CEP) agreements with ASEAN’s dialogue and major trading partners. The Fund targets to have an initial capital of US$800 million with contributions from ASEAN members and the Plus Three countries of China. and India. ASEAN could also tap on other evolving sources of infrastructure financing such as the ADB’s Asian Infrastructure Fund and the China-ASEAN Investment Cooperation Fund announced by China in April 2009. developing Asia could enjoy real income gains of about US$13 trillion during that period and beyond (ADB and ADBI 2009). In the context of the need for Asia to rebalance growth post-global crisis. The CLMV countries will complete tariff eliminations on most goods by 2015. the Agreement on Trade in Goods was signed in 2004. ASEAN also cooperates with the Plus Three partners of China. consisting of the Heads of ASEAN SME Agencies and private sectors representatives. Philippines. think tanks and academic institutions which are part of the ASEAN-ISIS Network. a seminar was held in December 2010 in Vietnam to unveil the Master Plan on ASEAN Connectivity to the public.

the stock exchanges of Malaysia. Singapore and Thailand are slated to be linked in an ASEAN Exchange Linkage that is expected to go live in the second half of 2011. Another element of ASEAN+3 financial cooperation is the Asian Bond Markets Initiative. movement of natural persons. The detailed breakdown in contribution is given in Table 2. ASEAN and Korea signed the Framework Agreement on Comprehensive Economic Cooperation. Under the CMIM. the ASEAN-India Agreement on Trade in Goods was signed in 2009 and entered in force in January 2010. Malaysia. while the two Working Groups on Customs Procedures and Economic Cooperation were still in the process of discussions. the East Asia Summit has been convened annually and includes the ten ASEAN countries. This is ASEAN’s first multi-country FTA and the AANZFTA is considered the most comprehensive FTA agreement ever signed by ASEAN and its dialogue partners. ASEAN COMPETITIVENESS REPORT 21 . signed four more agreements that form the legal instruments for establishing the ASEAN-Korea Free Trade Area. Under this framework. As of 1 October 2010. Brunei and Indonesia have implemented the Agreement. The size of the reserves pool was initially planned for a minimum of US$80 billion in May 2008. China. The East Asia Summit (EAS). arose from a decision of the ASEAN+3 Summit Meeting in November 2004. Korea. Thailand. Two studies have been conducted by separate teams of experts on these two proposals for further East Asian integration. first held in 2005. Singapore. ASEAN+3 cooperation is now being pursued in 20 areas. which came into effect on 24 March 2010. were ready to engage ASEAN FTA partners in September 2010. on Rules of Origin and Tariff Nomenclature. Japan and South Korea to address shortterm liquidity problems among participants and strengthen regional financial stability. Japan and Korea have been in progress since December 1997 when the Asian financial crisis underlined the need for greater regional cooperation. a Credit Guarantee and Investment Facility was established in May 2010 as a trust fund of ADB with an initial capital of US$700 million. The Leaders of Russia and the United States have been invited to participate in the EAS starting from 2011. The unit. economic cooperation. which aims to promote local currency-denominated bond markets and enhance macroeconomic and financial stability. which was a bilateral swap network launched in 2000 in response to the 1997 Asian financial crisis. investment. To support the issuance of corporate bonds in the region. This endeavor is expected to provide regional companies with a platform for exposure to global investors. There are plans to initially offer collective investment schemes to non-retail investors by the first half of 2012 and then graduate to complex products by 2013. standards and technical regulations. but was enlarged to US$120 billion in February 2009. Since then. Financial Cooperation A centerpiece of ASEAN financial cooperation is a currency swap arrangement established jointly with the Plus Three economies of China. The Chiang Mai Initiative. Vietnam. with 80 percent contributed by the Plus Three countries and 20 percent by ASEAN members. intellectual property rights and competition. electronic commerce. with provisions for tariff eliminations by ASEAN-6 and Japan within ten years and negotiations for services and investment to commence one year from entry into force of the Agreement. In addition to the above-mentioned initiatives.1. sanitary and phytosanitary measures. a key element is the establishment of an independent regional surveillance unit. Four ASEAN Plus Working Groups have been tasked to look into the recommendations in the studies on the EAFTA and CEPEA in parallel. To further enhance surveillance. in the wake of the global financial turmoil. ASEAN is concurrently considering the proposal for an East Asian Free Trade Area (EAFTA) for ASEAN+3 countries put forth by China and the proposal for a Comprehensive Economic Partnership for East Asia (CEPEA) involving ASEAN+6 countries as suggested by Japan. India. and subsequently. The Philippines’ stock exchange is expected to join the common electronic platform in the first half of 2012. implementing remedial actions and contributing to effective decision-making by the CMIM. has a total size of US$120 billion. ASEAN and India are currently working towards the early conclusion of the ASEAN-India Trade in Services and Investment Agreements. In 2005. India. Australia and New Zealand (ASEAN+6). Two of these Working Groups. The ASEAN-Korea Free Trade Area was realized in January 2010 with tariffs eliminated by ASEAN-6 and Korea on more than 90 percent of products. A comprehensive agreement for an ASEAN-Australia-New Zealand Free Trade Area (AANZFTA) was signed in 2009 and came into force in January 2010. is called the ASEAN+3 Macroeconomic Research Office (AMRO). was multilateralized in 2010. China. ASEAN+3 Finance Ministers also agreed to improve the Economic Review and Policy Dialogue process.The ASEAN-Japan Comprehensive Economic Partnership Agreement entered into force in December 2008. ASEAN Plus Three initiatives. The Chiang Mai Initiative Multilateralization (CMIM). It will monitor and analyze regional economies with the aims of detecting risks early. The Agreement covers trade in goods and services. Japan. ASEAN and India signed a Framework Agreement on Comprehensive Economic Cooperation in 2003. to be located in Singapore. involving the ASEAN countries. dispute settlement mechanism and specific provisions on customs procedures.

The extent to which ASEAN will succeed in this undertaking depends on several factors. Press Release. ASEAN Economic Community Council and ASEAN Socio-Cultural Community Council. ASEAN’s cooperative mechanism of mutual noninterference is supported by an organizational structure that is both decentralized and geographically dispersed.552 4. This system of regular meetings helps to promote consultations. ASEAN had few legally binding agreements in its earlier years and it was only with the organization’s growing emphasis on economic cooperation from the 1990s that an active period of institutional development followed. consensus and non-interference in internal affairs. The institutional framework emphasizes maximum participation and control by members and operates on the principle of equal sharing of administrative burden.40 38. The Secretary-General of ASEAN and the ASEAN Secretariat have an enhanced role in facilitating and monitoring progress in the implementation of ASEAN agreements and decisions. Summit meetings are held twice annually and may be convened as special meetings whenever necessary. An ASEAN Coordinating Council. foremost of which are the political will of member countries as well as the strength of the institutional structure and enforcement mechanism.00 Source: ASEAN (2010). ASEAN has adopted the ASEAN Way to decision making. This is an approach that relies on informality and personal relationships and reinforces state sovereignty. Three ASEAN Community Councils are established. The Secretary-General is appointed by the ASEAN Summit for a non-renewable term of office of five years from among nationals of ASEAN member states based on alphabetical rotation. Historically. ASEAN Political-Security Community Council.1: CMIM CONTRIBUTION RATIO Countries China Japan South Korea Brunei Cambodia Indonesia Laos Malaysia Myanmar Contribution (US$ billion) 38. efficiency and cooperation among them. For forty years since its inception. this framework has facilitated political consultation and consensus-building in a hostile security environment and contributed to the prevention of conflict in the region.552 0. namely. which comprise councils related to the three pillars of the ASEAN Community.TABLE 2.552 1. Critics point to the Charter’s enshrinement of the principles of non-interference in the internal affairs of member states and decision making based on consultation and consensus as an indication that ASEAN’s effectiveness 22 ASIA COMPETITIVENESS INSTITUTE . marked a key step in ASEAN’s institutionalization.40 19. 2010. which was signed in November 2007 and entered into force in December 2008. with rotating stewardship among intergovernmental bodies. liaise with the ASEAN Secretariat and facilitate ASEAN cooperation with external partners. The ASEAN Charter.20 0.552 0. While the Charter has established structures and strengthened institutions and mechanisms. Each Council has under its purview the relevant ASEAN Sectoral Ministerial Bodies.12 4. confidence. who resides in Jakarta. as the supreme policy-making body of ASEAN. The Committee is made up of a Permanent Representative with the rank of Ambassador from each member state. Philippines Singapore Thailand Vietnam Institutional Framework for Collaboration While deeper regional integration would enhance ASEAN’s competitiveness and pave the way for higher rates of growth and wealth creation. by providing the organization with a constitutional foundation for the building of an ASEAN Community. A Committee of Permanent Representatives to ASEAN is set up to support the work of the ASEAN Community Councils and ASEAN Sectoral Ministerial Bodies.06 4. He is assisted by four Deputy Secretaries-General. May 2.552 4. is tasked to assist ASEAN Leaders in preparing for the Summits and coordinate with the ASEAN Community Councils to enhance policy coherence. it is not without deficiencies. The Charter formalizes the ASEAN Summit. which emphasizes consultation. The Joint Ministerial Statement of the 13th ASEAN+3 Finance Ministers’ Meeting. which comprises ASEAN Heads of State or Government. goodwill and participation among members.03 4. the vision of an ASEAN Economic Community cannot be achieved without a concerted effort by ASEAN members towards realizing AEC targets in a timely manner. cooperation. two of whom are nominated and the other two from open recruitment.03 0. comprising ASEAN Foreign Ministers.

The resource rich ASEAN countries also benefited from the high commodity prices. Acknowledgement of the limitations of the Charter necessarily moderates expectations of the ASEAN cooperation process. ASEAN cooperation has made steady progress with a goal to create an ASEAN Community by 2015 that comprises the three pillars of a political-security community. through closer trade. research capabilities and human capital development are being strengthened. clear targets and timelines have been set out in the AEC Blueprint but more needs to be done to ensure timely and full implementation of commitments. participation from the private sector. There is a need to reduce export dependence. The imperatives of deeper regional integration may bring into question the ASEAN Way of working and require greater powers under the Charter to monitor and ensure compliance. as a global rebalancing of current accounts is set in motion. The outlook for ASEAN economies is positive. They took issue with the Charter allowing a formula for flexible participation to accelerate the implementation of economic commitments only when there is a consensus to do so and its apparent endorsement only of the ASEAN Minus X formula over another formula – 2 Plus X . Summary The ASEAN countries weathered the recent global crisis fairly well due to the safeguards adopted during the Asian financial crisis. The ASEAN countries thus need to strengthen regional trade in final goods and domestic demand. while newer members are assisted in establishing the appropriate capacity building programmes. Milestones and targets of the AEC Blueprint. investment and financial cooperation. especially for regional infrastructure projects.in implementing agreements might not differ much from its unimpressive past record. Besides the AEC Scorecard. ASEAN COMPETITIVENESS REPORT 23 . especially to the developed economies. the ASEAN Secretariat has been tasked with expanded responsibilities to review and monitor the progress of the AEC and disseminate the information to member countries. To support the expanded role of the ASEAN Secretariat. translated into national objectives. Technical studies or training programmes are conducted on specific issues. The changing structure of the global economy with the economic center of gravity shifting from the developed economies of the US. which insulated them from a shock to the financial sector although the real sector suffered some setbacks particularly in the more export-oriented economies. economic community and socio-cultural community. Factors that may dent ASEAN’s growth prospects include the risk of economic instability as capital inflows to the region surge as well as soaring food and oil prices in the world. Within member countries. particularly economies in Asia. This reluctance to specify explicitly penalties for non-compliance signals that ASEAN is not ready to demonstrate the greatest resolve in enforcing compliance. dialogue or trading partners and multilateral development agencies such as the ADB and World Bank is particularly important. In this regard. The Charter carries no reference to sanctions should compliance fail and leaves the ASEAN Summit to decide on cases relating to a serious breach of the Charter or non-compliance. Continuing efforts to expand and deepen external economic relations with an approach that maintains ASEAN centrality are equally vital to giving ASEAN a stronger united voice in regional and multilateral forums and fostering its competitiveness in the global supply chain and global markets. ASEAN has also deepened its ties with external partners. have been incorporated into the national development plans of individual countries. The regular dissemination of accurate information to ASEAN Leaders helps to ensure that any difficulties or bottlenecks in the compliance to the AEC Blueprint can be quickly addressed. although growth is expected to moderate in 2011 from the sharp rebound in 2010. its research and planning capabilities and resources have been strengthened in recent years. On the economic front. This places ASEAN in a good position to benefit from opportunities in a growing Asia. at least in terms of timeline. which include the implementation of comprehensive economic partnership agreements and multilateral currency swap arrangements. EU and Japan to China and India would require ASEAN to adjust its own economic structure to enable it to maximize its competitiveness and find complementarities with the high-growth economies in the region.that had also previously been utilized. To ensure the successful implementation of the AEC Blueprint. a set of statistical indicators such as an integrated tariff and trade data system is being maintained to monitor and assess the progress of implementation of the various programmes and measures for the AEC. Expansionary monetary and fiscal policies as well as a rebound in exports contributed to the recovery.

Endnotes
1

Authors’ calculations using data from UN Comtrade database.

Chapter References
ADB (2010a). Asian Development Outlook 2010: Macroeconomic Management Beyond the Crisis, Mandaluyong City, Philippines: Asian Development Bank. _____________ (2010b). Asian Development Outlook 2010 Update: The Future of Growth in Asia, Mandaluyong City, Philippines: Asian Development Bank. _____________ (2010c). Key Indicators for Asia and the Pacific 2010: The Rise of Asia’s Middle Class, Mandaluyong City, Philippines: Asian Development Bank. _____________ and Asian Development Bank Institute (2009). Infrastructure for a Seamless Asia, Tokyo: Asian Development Bank Institute. AFP (Agence France Presse) (2011). “Indonesia posts 6.1% GDP growth in 2010: official”, February 6, 2011. ASEAN (2009a). “ASEAN Charter for ASEAN Peoples”, Statement by the ASEAN Chairman of the 14th ASEAN Summit, http://www.asean.org/22389.htm. ____________ (2009b). Joint Media Statement of the 41st ASEAN Economic Ministers’ (AEM) Meeting, Bangkok, 13-14 August, 2009. ____________ (2010a). The Joint Ministerial Statement of the 13th ASEAN+3 Finance Ministers’ Meeting, Press Release, May 2, 2010. ____________ (2010b). Master Plan on ASEAN Connectivity, October 2010. ASEAN (2010c). ASEANstats, http://www.aseansec.org/22122.htm ASEAN Secretariat (2008a). ASEAN Economic Community Blueprint, Jakarta: ASEAN Secretariat. _____________ (2008b). The ASEAN Charter, Jakarta: ASEAN Secretariat. _____________ (2009). Roadmap for an ASEAN Community 2009-2015, Jakarta: ASEAN Secretariat. _____________ (2010). FTA Agreements, Jakarta: ASEAN Secretariat, http://www.aseansec.org/Fact%20Sheet/AEC/ AEC-12.pdf _____________ (2010). Charting Progress Towards Regional Economic Integration: ASEAN Economic Community Scorecard, Jakarta: ASEAN Secretariat. Bernama The Malaysian National News Agency (2010). “Mustapa: Changing Trends in Trade Liberalization Negotiations”, October 7, 2010. Borneo Bulletin (2010). “Pilot Project for ASEAN Self-Certification Begins”, November 2, 2010. Cockerham, Geoffrey B. (2010). “Regional Integration in ASEAN: Institutional Design and the ASEAN Way”, East Asia, 27:165–185. Desker, Barry (2008). “Where the Asean Charter Comes Up Short,” The Straits Times, July 18, 2008. Economic and Social Commission for Asia and the Pacific (ESCAP) (2009). Economic and Social Survey of Asia and the Pacific 2009: Addressing Triple Threats to Development, United Nations. Economist Intelligence Unit (EIU) (2007-2010). Online country statistics, www.eiu.com _____________ (2010). “Vietnam: The Trade Account Continues to Post Enormous Deficits,” September 5, 2010, http:// country.eiu.com/article.aspx?articleid=857437070

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Hew, Denis (2007). “Introduction: Brick by Brick - The Building of an Asean Economic Community”, in Hew, D. (ed.), Brick by Brick: The Building of an ASEAN Economic Community, Singapore: ISEAS. International Monetary Fund (IMF) (2010a). World Economic Outlook April 2010: Rebalancing Growth, Washington, DC: International Monetary Fund. ___________ (2010b). World Economic Outlook October 2010: Recovery, Risk and Rebalancing, Washington, DC: International Monetary Fund. Malaysia Department of Statistics, “National Product and Expenditure Accounts Fourth Quarter 2010”, Statistical Release, February 18, 2011. Philippine National Statistical Coordination Board, “Annual GDP Sizzled to its Highest Growth Rate in the Post Marcos Era at 7.3. Percent; Q4 2010 GDP Growth Grew by 7.1 Percent”, Press Release, January 31, 2011. Plummer, Michael G. and Chia Siow Yue (2009). “Introduction”, in Plummer, M. G. and Chia, S.Y. (eds), Realizing the ASEAN Economic Community: A Comprehensive Assessment, Singapore: ISEAS. Pushpanathan, Sundram (2010). “ASEAN’s Readiness in Achieving the ASEAN Economic Community 2015: Prospects and Challenges”, Keynote Address at the ISEAS ASEAN Roundtable 2010, April 29, 2010, http://www.iseas.edu.sg/ aseanstudiescentre/N-ART10-Keynote-29-04-10.pdf. Schwartz, A. and Roland Villinger (2004). “Integrating South-east Asia’s Economies”, McKinsey Quarterly, 1: 36-47. Singapore Ministry of Trade and Industry (2011). “MTI Forecasts GDP Growth of 4.0 to 6.0 Per Cent for 2011 Following Strong Rebound in 2010”, Press Release, February 17, 2011. Thailand Government Media Center (2010). “MOU on Implementation of ASEAN Single Window Pilot Project to be Signed”, October 4, 2010. The Business Times Singapore (2010). “ASEAN Exchange Link to Kick Off in H2 Next Year”, December 1, 2010. Vietnam News and Information Portal (2010). “Vietnam’s GDP Surpasses Target with 6.78% Growth in 2010”, December 30, 2010. World Bank (2011). Global Economic Prospects: Navigating Strong Currents, Volume 2, January 2011, Washington DC: The World Bank. World Trade Organization (WTO) (2010). “Trade Likely to Grow by 13.5% in 2010, WTO Says”, Press Release, September 20, 2010. Xinhua General News Service (2010). “ASEAN Should Put Mechanism in Place to Boost Trade”, November 22, 2010. Yuvejwattana, Suttinee and Shamim Adam (2010). “Slowing Growth May Create ‘Headache’ for Thailand, Malaysia Central Banks”, Bloomberg News, November 19, 2010.

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ASEAN Competitiveness Report 20 10 Chapter 3 Competitiveness Performance of ASEAN ASEAN COMPETITIVENESS REPORT 27 .

Natural gas. Silver Tin. Lead.7 percent per annum since 2000. Fish. Bauxite Source: Central Intelligence Agency (2009). Gold. Bauxite. ASEAN enjoys close partnerships with countries in the region. Copper. Bauxite. Tin. innovation and entrepreneurship. Coal. Copper. Gypsum. Phosphates. Hydropower PHILIPPINES Timber. Chromate. as well as compared with the performance of China and India. ASEAN is rich in a diversity of unique natural resource endowments (Figure 3. Tantalum.4 million sq km. prosperity accounting is performed through three measures: labor productivity.7 percent are in the post-retirement age group of above 65 years. Hydropower. the region’s economic performance is reviewed using indicators that measure prosperity and the distribution of benefits from prosperity. Precious stones. Fluorite. Deepwater ports INDONESIA 28 ASIA COMPETITIVENESS INSTITUTE .1). Marble. ASEAN’s population is half that of China or India (the world’s two most populous nations) and its GDP is about one-fifth that of the US (the world’s largest economy). Rich in biodiversity. Gini coefficient. Timber BRUNEI MALAYSIA SINGAPORE Petroleum. Copper. accounting for a substantial share of world trade in tin. the Philippines. This locational advantage is set to increase as Asia grows in economic might through the rise of China and India. Silver. Nickel. domestic and foreign investment. Thailand and Vietnam) have oil and gas resources with Brunei. poverty level and human development index. such as GDP per capita. Salt. Myanmar. Manganese. the forests contribute significantly to ASEAN’s timber and tourism trade but heavy deforestation has severely affected the region’s forest resources. labor mobilization and purchasing power. Oil and gas. Tungsten. Tin An mony. Natural gas. Rubber. Timber. copper and nickel (58 percent of world export in refined tin and 16 percent of world export in unrefined copper). Gypsum. Natural gas. with as much as a third of the forests in Cambodia. Malaysia and Indonesia ranking among the world’s top six liquefied natural gas producers. ASEAN’s labor force excluding Cambodia. Fish. Laos and Myanmar was a sizeable 244 million in 2008 and it has been growing at an average rate of 1. The region is also well-endowed with minerals. Gold. Limestone. The World Factbook 2009. Zinc. Hydropower Tin. Japan and Korea in the northeast and Australia and New Zealand in the south. Iron ore. ASEAN is strategically located in Asia at the crossroads of world shipping and air routes within an economically vibrant region that is bounded by India in the west. A quarter of the world’s forests are in ASEAN. Vietnam and Profile of the ASEAN Region ASEAN is home to 592 million people with a combined GDP of US$1. Lead.49 trillion in 2009 at current market prices. Manganese. Gemstones. Fer le soils. Cobalt. Coal. Gold.1: ASEAN ENDOWMENTS: NATURAl RESOURCES Petroleum. Put in perspective. Tungsten. Iron ore. FIGURE 3. Petroleum Timber. Petroleum. Natural gas. ASEAN’s competitiveness performance will be benchmarked against that of the major developed economies of the US. First. Hydropower MYANMAR Oil and gas. Forests. Coal. Cambodia. The labor force is predominantly youthful given that 28 percent of the population are below 15 years of age and only 5. Eight of the ASEAN member countries (Brunei. Lignite. Timber. Malaysia. Timber. EU and Japan. Second. Copper VIETNAM Petroleum. Tin. Nickel. Natural gas. Indonesia. Hydropower LAOS THAILAND CAMBODIA Timber. China. covering some 45 percent of the region’s land area. Gemstones Phosphates. The last section assesses the region’s intermediate economic outcomes through indicators such as exports. As much as 60 percent of the world’s maritime trade passes through ASEAN waters. With a land area of 4. Timber.COMPETITIVENESS PERFORMANCE OF ASEAN How well has the competitiveness of ASEAN and its member countries translated into economic outcomes? This chapter provides a profile of the region and assesses trends in the region’s competitiveness performance over the last two decades.

there are other risks such as piracy and terrorism that are emerging as serious threats to some parts of the region.000 and damaged more than 249. While the relatively large combined market. No ASEAN member has gone to war with each other since the inception of the grouping although there are occasional bilateral disputes. Indonesia in 2009 killed over 1. The World Factbook 2009. there may be potential sources of conflict arising from differences in ethnic interests. has 0.9 on the Richter Scale in West Sumatra. Indonesia alone accounts for about 34 percent of ASEAN’s total GDP and is followed by Thailand (20 percent) and Malaysia (14 percent). religion and economic success. and the region is expected to be increasingly vulnerable to disasters in the face of climate change. a few fundamental conditions within the region pose serious risks of disrupting its development. Despite the historical territorial and political conflicts between border nations.FIGURE 3. The country with the smallest population size. typhoons. Extraordinary major disasters in ASEAN include the 2004 tsunami that killed almost 250. Disasters such as earthquakes. strategic geographic location and abundant natural resources in ASEAN are important positive attributes for building prosperity.2: ASEAN HETEROGENEITY: ETHNICITY Burman 68% Shan 9% Karen 7% Rakhine 4% Chinese 3% Indian 2% Mon 2% Other 5% Thai 75% Chinese 14% Other 11% Malay 50% Chinese 23% Indigenous 11% Indian 7% Other 8% Chinese Malay Indian Other Khmer 90% Viet 2% Chinese 1% Other 4% MYANMAR LAOS THAILAND CAMBODIA Lao 55% Khmou 11% Hmong 8% Other 26% (Over 100 minor groups) Kinh (Viet) Tay Thai Muong Other 86% 2% 2% 2% 8% PHILIPPINES VIETNAM Tagalog 28% Cebuano 13% Hocano 9% Bisaya/Bibisaya 8% Hiligaynon Honggo 8% Boikol 6% Waray 3% Other 25% Malay 66% Chinese 11% Indigenous 3% Other 4% Javanese 41% Sundanese 15% Madurese 3% Minangkabau 3% Betawi 2% Bugis 2% Banjar 2% Other 30% BRUNEI MALAYSIA SINGAPORE Source: Central Intelligence Agency (2009). In terms of population. resulting in a diverse potpourri of rich cultures and traditions on the one hand and wide social-economic inequalities on the other.5 percent of the adult population in Cambodia. the establishment of ASEAN has helped to promote peace and stability in the region through its renunciation of the use or threat of force as a mode of managing relations between states.2 billion. the earthquake measuring 7. and the region has been declared a nuclear weapons-free zone by formal treaty. Myanmar and Thailand are affected by the disease).000 people in ASEAN with 97 percent of the victims in Indonesia alone. Depending on the relations of national governments with regards to minority ethnic groups. landslides and infectious tropical diseases cause significant losses of lives and livelihoods besides damaging infrastructural facilities. 77% 14% 8% 1% INDONESIA Laos being depleted over the last 20 years. With a combined coastal area of about 2. For example. ASEAN COMPETITIVENESS REPORT 29 .100 people.5 percent. injured another 3. Natural disasters have become more frequent and severe.5 million people suffer from HIV/AIDS in ASEAN and over 1. which is 40 percent of ASEAN’s population. Brunei. ASEAN is also an important source for a quarter of the world’s fish supply.4 million people. By reason of the size of its economy. including differences in culture. There are major public health threats in ASEAN arising from communicable diseases like dengue (ASEAN accounts for 52 percent of the world’s dengue risk) and HIV/AIDS (more than 1. In addition. Vietnam is the second most populous country with 86 million people.7 million sq km.2). There is also a large diversity of ethnic groups in ASEAN speaking 17 percent of the world’s languages (Figure 3. ASEAN countries share the same geographical zone but they are very heterogeneous in many aspects. Indonesia is the largest country with 228 million people. Laos is the smallest economy with a GDP share of 0.800 structures with an estimated economic loss of US$2.

000 30. ASEAN’s population increased at a compound annual growth rate (CAGR) of 1. GDP per capita is determined by both population and output. The central measure of prosperity used in this Report is Gross Domestic Product (GDP) per capita adjusted for purchasing power parity.000 5. ASEAN’s GDP per capita in 2009 stood at $4.2 percent and 9. ASEAN AND SElECTED COUNTRIES 15 Annual growth in GDP per capita (%) 10 5 0 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 Notes: GDP figures are in PPP terms at constant 2005 international dollar.000 ASEAN5 World ASEAN India 4 5 China CLMV 6 7 8 9 10 0 1 2 3 Growth of prosperity. authors’ analysis.4 percent to 5.4 percent CAGR for the world). ASEAN AND SElECTED COUNTRIES 50. Over the same two periods.7 percent CAGR respectively (which compared with 2. ASEAN data exclude Myanmar. This measure is a key determinant of the actual standard of living of a country or region.000 35. -5 -10 ASEAN -15 China India EU Japan US World Competitiveness Performance Standard of Living Prosperity The competitiveness of a country or region determines the economic outcomes it achieves. which was only slightly above the world average of 2. One successful economic outcome is an increase in prosperity of the country or region.3).000 10.7 percent and 3. ASEAN data exclude Brunei and Myanmar.7 percent in the pre-Asian financial crisis period from 1990-1997 and 1.1 percent pre.1 percent (Figure 3. ASEAN’s GDP growth rates were 7.3 percent. 20.000 45.4 percent CAGR post-Asian crisis from 1997-2009.4: PROSPERITY lEVEl AND GROWTH. China’s prosperity growth remained vigorous at an annual 10. Population and GDP growth rate at compound annual growth rate (CAGR). 1997-2009 (CAGR %) 30 ASIA COMPETITIVENESS INSTITUTE .4 percent over the two periods. Source: World Bank (2010a).000 15. while India’s prosperity growth improved from 3.1 percent and 3. 2009 (2005 PPP$) US Japan EU Notes: GDP figures are in PPP terms at constant 2005 international dollar. This was about one-tenth that of the United States and half that of the world average FIGURE 3.000 25. In contrast.2 percent respectively).000 40. authors’ analysis. Source: World Bank (2010a). has decelerated over the last decade to an annual 2.000 GDP per capita.3: TRENDS IN PROSPERITY GROWTH.3 percent.FIGURE 3.5 percent and 1. These rates were higher than that of the world average (1. ASEAN’s prosperity.and post-1997.739 (PPP at 2005 international dollars). which was rising faster than the world average between 1990 and 1997 at a yearly rate of 5. Consequently.

465 2.625 1998 <= 760 761-3.945 3. the other ASEAN countries have largely stagnated in prosperity over the past decade (Table 3.5). two ASEAN economies were pushed up the income ladder.360 2003 <= 765 766-3.000 40.466-7. According to World Bank classification.000 refers to 2006. During the period of rapid prosperity growth in 19901997. ASEAN’s GDP per capita was only higher than that of India.000 data is estimated. Indonesia rose from low income to lower middle income in 1993 but slid back to low income in 1998 with the Asian crisis before recovering to lower middle income status in 2003.035 3.000 20.000 25. To find out how ASEAN is doing on this front.031-9.695 2.355 1993 <= 695 696-2.4). Brunei data 10. current US$) Low income (L) Lower middle income (LM) Upper middle income (UM) High income (H) Brunei Singapore Malaysia Indonesia Philippines Thailand 1990 <= 610 611-2.000 Notes: Income classification based on World Bank.786-8.4. With the exception of Singapore and Brunei that are in the high income category. Inequality Income inequality in ASEAN appears to be relatively high. by 60 percent in 2009.036-9. ASEAN COUNTRIES.946-12. Singapore has the highest level of income inequality.385 > 9.195 H H LM LM LM LM LM L L L H H UM L LM LM L L L L H H UM LM LM LM L L L L H H UM L LM LM L L L L H H UM LM LM LM L L L L H H UM LM LM LM L L L LM Note: Countries classified by World Bank wef 1 July each year.000 35. Source: World Bank (2010a). Distribution of Prosperity The distribution of prosperity generated may be uneven with large differences in the standard of living within the same country or region. with five of eight ASEAN countries having a Gini coefficient above 0. Myanmar 5. China progressed from low income to lower middle income in 1997 while India rose to the same level in 2007. Malaysia progressed from lower middle income to upper middle income in 1992.696-8.000 30. Since 2006.000 27050 37220 High Income Upper Middle Income Lower Middle Income Low Income 15.355 > 8.FIGURE 3. 7230 3760 2940 China 2230 1790 1040 India 1010 Vietnam 880 Laos 650 Cambodia 600 Myanmar Source: World Bank (2010a). China’s GDP per capita has been higher than ASEAN’s.360 > 9. US$ at current prices) runs the full range from high income (Brunei and Singapore) to low income (Cambodia.195 > 12.1: CHANGES IN INCOME ClASSIFICATION OF ASEAN COUNTRIES. Among the comparator countries.620 > 7.385 2009 <= 995 996-3.030 3. 0 Singapore Brunei Malaysia Thailand Indonesia Philippines (Figure 3.5: GNI PER CAPITA IN 2009.625 > 8. Cambodia Laos Myanmar Vietnam ASEAN COMPETITIVENESS REPORT 31 . ASEAN’s current prosperity relative to comparator countries points to the need for the region as a whole to exert greater effort to substantially raise the standard of living of its people.1).620 1992 <= 675 676-2. ASEAN’s prosperity based on Gross National Income (GNI) per capita (Atlas method.785 2. 1990-2009 GNI Per Capita (Atlas method. indicators of income inequality and poverty levels are examined below. CHINA AND INDIA US$ current prices (Atlas method) 45. followed by the Philippines and Thailand (Figure TABLE 3. by 31 percent in 2009. Laos and Myanmar) (Figure 3. During this period. Vietnam progressed from low income to lower middle income in 2009.

403 0.4 Thailand 0. The UNDP Human Development Index (HDI) provides the most established attempt to measure such a quality. No data for Singapore.25 per day.489 in 2007. it is as important that a country’s or region’s competitiveness is determined by the broader concept of “quality of life”.30 0. down from a peak of 0.10 0. ASEAN COUNTRIES.9 percent share. which is higher than China’s 15.464 0. Poverty Poverty shows the extent to which growth generated has failed to reach all echelons of a country’s or region’s population.6 44.394 0. Philippines: 2003. Thailand (0.8).25 per day.5 Malaysia China Vietnam Philippines Cambodia India Laos 0 32 ASIA COMPETITIVENESS INSTITUTE . Four ASEAN countries have better levels of human development than China. the latest HDI shows that ASEAN as a whole ranks above India but below China on human development and quality of life. ASEAN COUNTRIES. this proportion is comparable to India’s. Indonesia.469 0.445 0. 50 40 Popula on below poverty line (%) 40.2 41.344 0. there is a large gap in HDI with Singapore being the most developed and Myanmar the least (Figure 3.0 30 21.9 22. Among the ASEAN countries. The key reasons often cited for rising income inequality are technological change providing higher returns to talented individuals and more open markets creating greater opportunities for entrepreneurs to leverage their capabilities across larger markets.420 0.00 Gini coefficient 0.346 Vietnam Laos India Indonesia Malaysia ASEAN Cambodia Thailand Philippines Singapore China 3.5 20 15. A common indicator of poverty is the percentage of population below the income poverty line of US$1. The Gender-related Development Index (GDI) FIGURE 3. Quality of Life Beyond an income measure.5 percent) have among the lowest level of poverty in ASEAN (Singapore does not have an official poverty line) (Figure 3. Inequality is lower in ASEAN than China but higher compared with India.50 0.2 percent) and Laos (44 percent) have a much higher proportion of abject poor than the other ASEAN countries for which data are available.6). 0. Gender An average measure of prosperity across an economy can conceal huge differences of access and participation within the society. Cambodia (40. Based on sub-indices on life expectancy. while eight ASEAN countries rank above India. CHINA AND INDIA Notes: Data are for latest available year from 2000-2007. Sources: United Nations Development Programme (2009) and World Bank PovcalNet (2010b). All data refer to year 2004 except for the following: Indonesia: 2005.409 0.4 percent) and Malaysia (0.20 0. the Gini coefficient is 0.40 0. laos and Thailand: 2002.7: POVERTY RATES. The poverty rates are calculated based on the international poverty line set by the World Bank of US$1. Brunei. Four ASEAN countries have about a fifth or more of their population living below the income poverty line.FIGURE 3.417 0. Sources: UNU-WIDER World Income Inequality Database (2010) and Singapore Department of Statistics (2011).6: INCOME INEQUAlITY.6 10 0. education and GDP.480 for Singapore in 2010.7). According to the latest data available.368 0. and Myanmar. CHINA AND INDIA Notes: Gini coefficient ranges from 0 (lowest) to 1 (highest inequality).

Labor productivity reflects how well the region utilizes its resources to produce output.41 0.4 0. and estimated earned income.0 0. capital stock and total factor productivity. GEM looks at the opportunities for women to participate in the economy and society rather than their capabilities.51 0.2 0. but less than half of the ASEAN countries perform better than China on this count.734 0. one will be able to tell whether a lower labor participation rate indicates incidents of individuals choosing to abstain from entering the labor force. Together with another indicator.3 0. GDI looks at the achievement of women.7 0. the unemployment rate. No data on GEM for Brunei.619 0.3 0. ASEAN COUNTRIES. 1.72 0.56 0. They are important signs of potential problems in local competition or efficiency of the local economy compared to the export sector.73 0.783 0.78 0. prosperity is the result of three factors: labor productivity (output generated per hour). Source: United Nations Development Programme (2009).748 0.0 0.53 Brunei Singapore Malaysia Thailand China Philippines Indonesia Vietnam Laos India Cambodia Gender-Related Development Index (GDI) Gender Empowerment Measure (GEM) ASEAN COMPETITIVENESS REPORT 33 . adult literacy rate. The labor participation rate then tracks whether people of working age are actually economically active.8 0. Laos and Cambodia are much weaker than the rest of ASEAN.91 0. Price levels are less often used as an indicator of economic performance but can have a major impact on prosperity differences across countries.55 0.5 0. labor mobilization (work hours per capita population during the year) and price levels (amount of consumption goods that can be bought for one unit of income). The HDI combines indicators of life expectancy. Source: United Nations Development Programme (2009).9 0.2 0. Singapore has the highest GEM (there is no data for Brunei).772 0.9). and ratio of estimated female to male earned income.612 0. followed by Malaysia and Thailand (Figure 3.725 0.5 0.77 0. followed by Philippines and Vietnam. ASEAN COUNTRIES. combined gross enrollment ratio in education.751 0. GEM includes seats in parliament held by women.61 0.59 0.9 0. The majority of ASEAN countries have lower gender disparities than India. 1.82 0.43 0. FIGURE 3. CHINA AND INDIA Notes: No data on GDI and GEM for Myanmar.59 0.944 0.593 0. share of female professional and technical workers.1 0.FIGURE 3.8 0.0 0. GDI includes life expectancy at birth. CHINA AND INDIA Note: Data is for 2007. It computes male and female indices separately. No data on GDI for Singapore. It is driven by employee skills.9: GENDER-RElATED INDICES.54 0.1 0.75 0.920 0. Labor mobilization is attributable to a combination of factors.7 0.4 0.586 Singapore Brunei Malaysia Thailand China Philippines ASEAN Indonesia Vietnam Laos India Cambodia Myanmar and Gender Empowerment Measure (GEM) are two measures of gender disparity. laos and India.829 0. share of female legislators.0 0. Brunei has the highest GDI of the ASEAN countries (there is no data for Singapore).79 0.6 0. which are the many factors that influence how well inputs are used.6 0. educational attainment and income. senior officials and managers.8: HUMAN DEVElOPMENT INDEX. which are then combined in a way that penalizes differences in achievement between men and women. The demographic profile of the population determines the share of people of working age. The Elements of Prosperity In an accounting sense.

Source: The Conference Board and Groningen Growth and Development Centre (2010).000 20. the FIGURE 3. This was 17 percent of the level of the world productivity leader. ASEAN AND SElECTED COUNTRIES 70.3 percent).000 40.4 percent).000 50.000 30. the productivity gap between ASEAN and China has been narrowing due to labor productivity in the latter rising much faster than the former. Myanmar (1.000 Indonesia Philippines 5.11: lABOR PRODUCTIVITY lEVEl AND GROWTH.000 55. Over the 2008 global-crisis period. This compares with smaller declines in Thailand (-4.000 GDP per Person Employed. Labor Mobilization Labor mobilization in ASEAN. Malaysia (-1.7 percent).FIGURE 3. Between 1997 and 2007.114 in 2009.000 EU Malaysia 35.000 50. as indicated by the labor force participation rate by the working age population (15 – 64 years old) in 2009. has slightly exceeded that of ASEAN.000 Cambodia 0 -2 0 2 Produc vity Growth.000 70.000 GDP per person employed (1990 US$. ASEAN’s labor productivity. 2009 (1990 US$.000 20. China’s labor productivity.0 percent) and Vietnam (4. Relative to India.000 25. Myanmar -16 -14 -12 -10 -8 -6 -4 10. Compared with China and India. 10.3 percent from 2008 to 2009 (Figure 3.8 percent. ASEAN AND SElECTED COUNTRIES Singapore 80. ASEAN has registered higher labor productivity over the years. in 2009. at US$11. Singapore had the highest labor productivity in the region at US$39.000 0 90 91 92 93 94 95 EU 96 97 98 China 99 00 01 02 03 Japan 04 05 06 US 07 08 09 ASEAN India Labor Productivity Labor productivity in ASEAN is relatively low.863 in 2009.3 percent).000 30.8 percent).322.000 Thailand ASEAN 15. PPP) US Note: ASEAN refers to all ASEAN countries except Brunei and laos.000 Japan 45.7 percent higher over the last few years. was below that in China. As a result. Cambodia (2. the compound annual labor productivity growth rate in ASEAN was 3 percent compared with China’s 8. Within ASEAN. PPP) Note: ASEAN refers to all ASEAN countries except Brunei and laos. as measured by GDP per person employed (in 1990 international dollars) was US$11.000 65.000 40. as is the case with most developing countries. the US. However. ASEAN’s labor productivity dipped 0.000 60. It was also the ASEAN country most adversely affected by the global crisis with productivity falling sharply by 13.10).000 60.4 percent) and Indonesia (-0. and positive but slower productivity growth in the Philippines (0.9 percent while China’s increased 8.000 75. authors’ analysis. 2008-2009 (%) India Vietnam 4 6 8 China 10 34 ASIA COMPETITIVENESS INSTITUTE .10: TRENDS IN lABOR PRODUCTIVITY.11).5 percent. ASEAN’s labor productivity has been around 33. Source: The Conference Board and Groningen Growth and Development Centre (2010). and between 25 and 30 percent of the labor productivity in Japan and EU (Figure 3.

13).6 70.8 US Japan 74.4 71.3 83.e. Purchasing Power The standard of living is determined by the amount of products and services that can be purchased for a given amount of income in a particular country. ASEAN’s affordability is better than that of China and most of the developed countries but worse than India’s. the countries with the highest labor force participation rates were Cambodia (81. The ratio of PPP conversion factor to market exchange rate provides a measure of price levels between two countries by indicating the number of US dollars needed to buy a similar basket of goods and services (typically the basket of goods and services that make up the GDP) in each country. while the Philippines and Malaysia had the lowest rates at 65. 80 90 US and Japan but higher than that in India (Figure 3.3 percent). 2009 China 79.6 percent in 2000 and 72. Source: International labor Organization (2010). Japan’s affordability suffered the most severe impact and deteriorated rapidly during the global crisis. 0 Brunei Cambodia Indonesia Laos Malaysia 2000 Myanmar 2009 Philippines Singapore Thailand Vietnam ASEAN COMPETITIVENESS REPORT 35 . Thailand and Vietnam (77. If the ratio is decreasing over time.2 64.0 74. especially within the CLMV region (Figure 3.6 percent and 64. then a ratio of below one indicates greater affordability due to relatively lower local prices while a ratio above one suggests relatively lower affordability due to higher local prices than the US.6 77.7 percent respectively (Figure 3.0 65. the labor force participation rate has declined between 2000 and 2009 in all countries except Indonesia and Brunei.9 66. affordability is improving while the reverse is true if it is increasing.6 percent in 1990 to 72.1 70.1 70. The global crisis from 2008 to 2009 has improved the affordability among ASEAN countries in particular Brunei.6 81. In 2009.3 69.5 82. its ratios are set to one).12: lABOR FORCE PARTICIPATION RATES. Laos (81. from 73. it can be seen that affordability in ASEAN is relatively high.7 79.14).8 0 10 20 30 40 50 60 70 72.4 percent).9 78. ASEAN’s labor force participation rate has declined slightly over the years.0 percent).6 77.1 India Source: International labor Organization (2010). Using this yardstick.2 81.13: lABOR FORCE PARTICIPATION RATES.1 percent in 2009.5 65. FIGURE 3. If the US is used as a benchmark country (i. Within ASEAN.FIGURE 3. ASEAN COUNTRIES 90 80 70 60 50 40 30 20 10 % 70.1 ASEAN 60.6 77.12). ASEAN AND SElECTED COUNTRIES %.1 73.4 Note: labor force participation rates from IlO estimates.

China has made rapid gains in its share of world exports over the last ten years. Japan’s world export share dipped below that of ASEAN.8 Note: Data for Brunei. However.5 percent of ASEAN’s total exports between 1999 and 2009. Cambodia.5 percent is lower than the world’s 19.9 percent.14: PRICE COMPARISONS.2 0. At the same time. The latter factor is particularly significant as ASEAN is predominantly a goods exporter. The average share of services in total exports in ASEAN over the last decade at 15. India’s export share has been climbing since 2005 but its share remains significantly below that of ASEAN. The EU and US. as its share has hovered around 6 percent (Figure 3.9 percent in 2007 and 2008. which dominate the world market in exports.16).3 percent in 1997). Slovenia and Sweden) are estimates for 2009. 36 ASIA COMPETITIVENESS INSTITUTE . This exposure can be an important driver of higher efficiency as it enables learning from operational practices abroad. Exports A country’s or region’s export market share in the world indicates the extent to which its companies can successfully compete in the world.0 0. whether this reflects ASEAN economies’ relatively better export performance around the period of global crisis or the start of a sustained increase in export shares remains to be seen. ASEAN’s annual share of world export of goods and services has been two to three times higher than its share of world GDP over the years. Unlike ASEAN.15). they are the channels through which the business environment can be enhanced. Brunei Malaysia Philippines Myanmar Improving purchasing power ASEAN Indonesia Thailand Laos Cambodia India Vietnam China 0.6 power 1. authors’ analysis. However. At the same time.2 1. where goods exports account for an average of 84. have been losing market shares (Figure 3. Source: IMF (2010). ASEAN AND SElECTED COUNTRIES Singapore PPP conversion factor to market exchange rate ra o.0 -30 -28 -26 -24 -22 -20 -18 -16 -14 -12 -10 -8 -6 -4 -2 0 2 4 6 8 10 12 Growth rate. Hungary. 2005 was a milestone year when China overtook ASEAN in world export market share.2 percent in 1987 to 6. ASEAN has not made much inroad in increasing its share of world exports in the last ten years. This contrasts with a near doubling of its world export share in the decade before the Asian financial crisis (from 3.2 percent in 2009 from 5. 2009 Worsening purchasing 1. These measures are important enablers of competitiveness. It is noted that ASEAN’s world export market share has increased to 6. 2008-2009 (%) Intermediate Economic Outcomes A country’s or region’s underlying competitiveness and future prosperity can be measured by indicators of exports. Slovak Republic. Czech Republic.4 0. Exports indicate how competitiveness supports current prosperity while investments and innovation provide insights into future prosperity. Entrepreneurship is the mobilization of new combinations of factor inputs for current and future prosperity. that is.6 0.FIGURE 3. The stagnation has been due to a combination of persistently lower share of services exports after 1997 and ASEAN’s inability to raise its share of world export in goods. which reflects the region’s dependence on exports as a source of economic growth. innovation and entrepreneurship. despite the importance of exports. India and some countries in EU (Belgium. the export market share of a country or region also indicates the exposure of its companies to foreign competition in global markets. investments.4 EU US Japan 1.

has fallen over the past ten years from 1.15: WORlD EXPORT MARKET SHARES. employees and consumers. authors’ analysis. although this is still somewhat below the 2.6 percent in 1997 to 0.17).4 percent in 2009.01 percent. 90 91 92 93 94 ASEAN 95 96 97 China 98 99 India 00 01 EU 02 03 04 Japan 05 06 07 US 08 09 ASEAN COMPETITIVENESS REPORT 37 . Source: UNCTAD (2010). Thailand’s market share has remained relatively unchanged at 1. Vietnam has made the greatest gain in world market share over the last ten years. The market share of Malaysia.04 percent respectively. Among these countries.03 and 0. authors’ analysis. Laos has the lowest share at 0.3 percent achieved in 1996 (Figure 3.05 percent.FIGURE 3. Its world export market share fell following the Asian crisis to less than 2 percent but has recovered grounds to between 2.2 percent from 2004 to 2009.1 and 2. Vietnam’s market share doubled from 0. The Philippines experienced the greatest worsening of position among ASEAN countries after the Asian crisis as its global export share declined from 0. CLMV and Brunei have the weakest positions in ASEAN in global export markets.2 percent in 2000 to 0.2 percent in 2009. Brunei’s market share has been little changed at around 0. the second-largest exporter from ASEAN. 90 91 92 93 94 95 96 97 98 Services 99 00 01 Total 02 03 04 05 GDP 06 07 08 09 Goods Among ASEAN countries. ASEAN 8 7 6 5 4 3 2 1 0 World market share (%) Note: Shares calculated from exports and GDP in US$ at current prices and current exchange rates.8 percent in the last two years after dipping to 0.0 percent. ASEAN AND SElECTED COUNTRIES 48 46 44 42 40 16 14 12 10 8 6 4 2 0 Share of world export of goods and services (%) Source: UNCTAD (2010). while Indonesia’s market share has returned to around 0.3 percent in 2009.4 percent in 2000 to 1. Cambodia’s and Myanmar’s global market share has remained at about 0.7 percent between 2003 and 2007. Exports by Clusters Proximity of businesses engaged in similar economic activities results in both competitive effects on the one hand that raise the costs of inputs and drive down profits. and beneficial agglomeration effects on the other that attract suppliers. Singapore has the strongest presence in global markets. and create a pool for FIGURE 3.16: WORlD EXPORT MARKET SHARES.

FIGURE 3. indicate a location’s attractiveness to local and foreign companies. Underlying data drawn from the UN Commodity Trade Statistics Database and the IMF BOP statistics. sp or Pr ta od nd Lo gis Bu cs sin es sS Ap er pa vic re es la nd Te x le s Co m Pl m as un ica cs on sE qu ip t Au to m o ve Fo ot we Fo ar re Po st we Pr od r/P uc ow ts er Ge n Eq ui pt al M Cambodia Philippines Indonesia Singapore Laos Thailand Malaysia Vietnam IT sP Oi la nd Ga dt M s et Ag rP . Indonesia. Clusters include large companies.0 0. Given the right conditions. Outward FDI indicates the ability of local companies to transfer their competitive advantages to foreign locations. M.000 40. ASEAN COUNTRIES 2. agricultural products. authors’ analysis.0 1. and business services. and R. small and medium-sized enterprises.US$m) Note: Export values for laos refer to 2006. Brunei. transport and logistics.000 140.FIGURE 3. Source: UNCTAD (2010). metal mining and manufacturing. partners in the value chain.000 100. Myanmar and Vietnam while IT products are the largest export commodity in Malaysia. Oil and gas products are the largest export item for four of the ASEAN countries. these agglomeration forces can be stronger than the competitive effects and make it more attractive for businesses to be situated close to competitors rather than far away from them. Singapore and Thailand.000 0 Brunei Myanmar 38 ASIA COMPETITIVENESS INSTITUTE dt s Tr in an in g. Harvard Business School. Bryden (2010). Myanmar and laos are for goods exports only. Apparels are a major export in CLMV (Figure 3.18). Investments Investments. namely. Industry-specific agglomeration effects refer to beneficial proximity effects of a narrow set of related economic activities that lead to specialization of specific economic activities within the region.5 Note: For 2009.000 20. Institute for Strategy and Competitiveness.000 120.0 90 91 Brunei Myanmar 92 93 94 95 96 97 98 99 00 01 02 03 Laos Thailand 04 05 06 07 08 09 Cambodia Philippines Indonesia Singapore Malaysia Vietnam knowledge and other positive spillovers.000 Export value (2007. 0.000 160. oil and gas products. 60.17: WORlD EXPORT MARKET SHARES. data for Brunei. both domestic and inward foreign direct investment (FDI). Philippines. 2008. ASEAN COUNTRIES 200. capital providers and other intermediaries.E. research and educational institutes. ASEAN has strong clusters in a number of industries such as information technology (IT).5 Share of world export of goods and services (%) 2. Sources: Porter. International Cluster Competitiveness Project.5 1. laos and Vietnam: EIU Country Profiles.000 180.000 80.18: EXPORTS BY ClUSTERS.

20 15 10 5 0 90 91 92 93 Brunei 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 Cambodia Singapore Indonesia Thailand Malaysia Vietnam Myanmar Philippines ASEAN COMPETITIVENESS REPORT 39 . the investment rates in China and India climbed significantly in the 2000s.2 percent in 2009. which experienced a sharp plunge in investment rate after 1997 and has recorded a much lower investment rate since. Myanmar had the lowest estimated investment rate of 14. Myanmar (2006 onwards). have not returned to pre-1997 levels. This is particularly so for Malaysia. ASEAN’s gross fixed capital investment has been high historically.5 percent of GDP in 2009 (Figure 3. However. In particular. is now the highest among the comparison group of countries. ASEAN AND SElECTED COUNTRIES 50 45 40 35 30 25 20 15 10 Gross investment in % of GDP Source: EIU (2010).7 percent. at 43. amounting to 34. China’s investment rate.20: DOMESTIC INVESTMENT. Data not available for laos. The recent global crisis did not seem to affect the investment rate in ASEAN as a whole as the rate has continued rising in 2008 and 2009.20). The investment rate in the Philippines. The rates of gross fixed capital formation fell in a number of countries after the Asian financial crisis and in most cases.4 percent compared with a peak of 43 percent in 1997.9 percent in 2009. ASEAN COUNTRIES 50 45 40 35 30 25 Gross investment in % of GDP Notes: Data are estimated for the following years for some countries: Brunei (2009).5 percent in 2009. While ASEAN’s investment rate was among the highest in the world before 1997. capital investment helps to drive labor productivity and also ensures future productivity growth through new technology or production processes embedded in new machines. Thailand’s investment rate was on an uptrend in the early 2000s but FIGURE 3. Vietnam’s investment as a percent of GDP has been the highest in the region in the 2000s. Cambodia (2008.19: DOMESTIC INVESTMENT. exceeding 30 percent of GDP before the Asian financial crisis (Figure 3. Within ASEAN.FIGURE 3.19). Malaysia’s investment as a percent of GDP in 2009 was 20. Source: EIU (2010). 2009). was the second lowest among ASEAN members in 2009. 90 91 92 ASEAN 93 94 95 96 97 India 98 99 EU 00 01 02 Japan 03 04 US 05 06 07 08 09 China World Domestic Gross Fixed Capital Investment Domestic gross fixed capital investment signals companies’ positive assessment of current and future business opportunities in a location. The rate has started to recover since 2004 to reach 26. the region’s capital formation fell behind countries such as China and India in the 2000s. at 14. the onset of the Asian crisis caused the region’s investment rate to plunge precipitously. By enhancing a country’s capital stock. which has been declining in the 2000s.

3 percent in 2009. In contrast. in contrast to 8. domestic market (size and/or growth) and export opportunities arising from the location. Inward Foreign Direct Investment Inward FDI is an important indicator of a country’s or region’s attractiveness to foreign companies and is driven by factors such as natural resources. 90 91 92 93 ASEAN 94 95 96 97 98 India 99 00 EU 01 02 Japan 03 04 US 05 06 07 08 09 China World has been falling from 2005. however. Singapore’s investment rate was on a downtrend between 1997 and 2005. the shares are calculated on a threeyear moving average basis. ASEAN’s share of total world inward FDI flows in the 2000s has not recovered to the levels achieved before the Asian financial crisis. but started rising thereafter to reach 28. As a share of world total FDI inflows. ASEAN AND SElECTED COUNTRIES 60 50 40 30 20 10 0 FDI inward stock as % of GDP Source: UNCTAD (2010).9 percent in 2009.7 percent) and 2009 (31.3 percent in 2009 (Figure 3. China overtook ASEAN in its share of total world FDI inflows in 1993 FIGURE 3. Over a longer time horizon. In the 2000s.5 percent between 2003 and 2005. The share of FDI inward stock relative to GDP in ASEAN increased markedly after 1997 following a spate of mergers and acquisitions after the Asian financial crisis. The existence of foreign companies in the domestic market helps to enhance competition through rivalry. The share of India’s FDI inward stock to GDP has been rising rapidly since 2006 to reach 13. knowledge inflow. ASEAN AND SElECTED COUNTRIES 60 50 40 30 20 10 0 Share of world total FDI inflows (%.22).5 times between 2003 and 2009.21). It rose slightly to 10 percent in 2009. This is unlike the EU. FDI inflows to ASEAN exceed outward investments from ASEAN. net FDI inflows to ASEAN plunged amid the global crisis. authors’ analysis. 3-yr moving average) 10 8 6 4 Source: UNCTAD (2010). ASEAN’s share recovered from 2. by an average of 2. injection of capital and linkages to foreign markets. 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 ASEAN China India EU Japan US 2 0 05 06 07 08 09 40 ASIA COMPETITIVENESS INSTITUTE . Indonesia was the only ASEAN country to achieve investment rates in 2008 (27. shrinking by 33 and 22 percent in 2008 and 2009 respectively. which underlines the importance of foreign investors relative to the size of ASEAN’s economy.0 percent between 1994 and 1996 in the 1990s (Figure 3. FDI inward stock as a percentage of GDP is 46 percent.7 percent in 2008 to 3. which is a net outward investor. authors’ analysis. after experiencing a fall in investment rates between 1997 and 1999.22: WORlD SHARE IN FDI INFlOWS.21: FDI INWARD STOCK. In 2009. the share of FDI inward stock relative to GDP in China has been declining since 1997 to 9 percent in 2008. Due to the volatility in annual FDI inflows. ASEAN’s highest share of world FDI inflows was an average of 4. As with the rest of the world.FIGURE 3.1 percent) that exceeded pre1997 levels.

0 90 91 92 93 ASEAN 94 95 96 China 97 98 99 00 01 EU 02 03 04 Japan 05 06 US 07 08 09 India and its share has remained above ASEAN’s since then.0 2.4 7. In 2009. although their shares have dipped below half in 2008 and 2009. Singapore receives the largest share of the region’s FDI inflows.23: INWARD FDI PERFORMANCE INDEX. has risen to 0. due to a plunge in its share to 23. which means that its FDI inflows in recent years have been roughly commensurate with its economic size. India’s Inward FDI Performance Index.0 in 2009 (Figure 3. its share was 40.8 in 2008 and 2009.0 7.1 3.0 5. 1.24: SHARE OF FDI INFlOWS IN ASEAN BY COUNTRY. This is in contrast to the late 1990s and early 2000s.2 5. where Indonesia’s net FDI inflows were negative due partly to huge repayments of intra-company loans by foreign affiliates after the Asian financial crisis.1 in 2008. China received 8.3 21. An Inward FDI Performance Index has been compiled in accordance with the definition of the UNCTAD Inward FDI Performance Index for ASEAN and comparator countries (UNCTAD 2002).6 10. ASEAN’s FDI inflows over the last two years have been just in line with its economic size. The EU and US typically receive over half of total world FDI inflows each year.8 percent).3 6. FIGURE 3. authors’ analysis. China’s Inward FDI Performance Index has fallen below 1 to 0.9 12.FIGURE 3. It can be seen that from attracting FDI inflows that were three to four times more than what could be expected from its size in the global economy in the 1990s.5 Malaysia Laos 22.0 4. Indonesia has seen robust inflows since 2005 and is the third-largest recipient with 13. Source: UNCTAD (2010).9 13. 1.0 3.0 Note: The Inward FDI Performance Index is the ratio of a country’s share in global FDI inflows to its share in global GDP. ASEAN AND SElECTED COUNTRIES 6.6 40.4 Indonesia Cambodia Brunei 16. 3-year moving average Vietnam Thailand 16. which was somewhat lower than its typical share of nearly 50 or over 50 percent in the 2000s. Thailand is the second-largest recipient with 16.2 Singapore Philippines Myanmar 37. although it has lost its position twice in recent years to Indonesia.3 4. Among the ASEAN countries.2 percent.23).2 1. Its share in 2009 of 3. which has been around 0. Between 2007 and 2009. SElECTED YEARS %.6 94-96 01-03 07-09 ASEAN COMPETITIVENESS REPORT 41 .8 53. India’s share of world FDI inflows has increased markedly since 2006.8 in 2008 and 1.0 7.5 or below for many years.2 10. authors’ analysis.4 percent.9 -6.5 percent of world FDI inflows (or a 3-year moving average of 5. Meanwhile. This index is the ratio of a country’s share in global FDI inflows to its share in global GDP.3 Source: UNCTAD (2010).9 in 2007 and 0.2 percent share between 2007 and 2009.1 percent is similar to ASEAN’s.0 0.

25: FDI OUTWARD STOCK.5 percent between 1994 and 1996 and has remained at around 2 percent in recent years (Figure 3. its share was also smaller than that of Indonesia and Vietnam.26). ASEAN AND SElECTED COUNTRIES 60 50 40 30 20 10 0 90 FDI outward stock as % of GDP 91 92 ASEAN 93 94 95 China 96 97 98 99 00 EU 01 02 03 04 05 US 06 07 08 09 Source: UNCTAD (2010). authors’ analysis.FIGURE 3. it was overtaken by Thailand in ASEAN’s FDI share in 1998.25).9 percent and 6. Since then. From being the second-largest FDI recipient. ASEAN China India EU Japan US 42 ASIA COMPETITIVENESS INSTITUTE .3 percent between 1995 and 2001 but spiked in 2002 and 2003. Brunei’s share has been around 2. 3-yr moving average) 3 10 0 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 2 1 0 05 06 07 08 09 Source: UNCTAD (2010). ASEAN’s outward FDI stock relative to its GDP has been increasing steadily since 1993 (Figure 3. Likewise.3 percent in 2009 respectively. the former since 2004 and the latter since 2006. which is lower than its share of around 6 percent in the mid-1990s.24). China and India have been increasing their shares of world FDI outflows. FIGURE 3. Between 2007 and 2009. Myanmar and Laos have been receiving less than 1 percent of total FDI inflows to ASEAN. ASEAN. although the shares have been edging up since 2006 to reach 4. The outward FDI stocks of China and India are quite low relative to their GDPs.2 percent over the last three years. The Philippines’ share has averaged around 4 percent in recent years. Malaysia has been losing its attractiveness as an investment location to its ASEAN neighbors after the 1997 Asian crisis.3 percent and 1. In 2009. Cambodia’s share has exceeded 1 percent in recent years (Figure 3. thereby exposing them to global competition. Outward FDI serves an important role in providing companies with control over a large part of the value chain.0 percent for the two countries respectively. ASEAN’s share of total world FDI outflows peaked at 3. its share has been below 1 percent. foreign markets and access to knowledge. the share was 23. Outward Foreign Direct Investment Outward FDI is an important indicator of the ability of local companies to transfer their competitive advantages to foreign locations. Between 2007 and 2009.26: WORlD SHARE IN FDI OUTFlOWS. China and India all are not significant investors abroad compared with the developed countries. The bulk of ASEAN’s outward FDI stock is accounted for by Singapore and to a lesser extent by Malaysia. India Japan World Vietnam’s FDI inflows have been rising steadily in recent years and it obtained a share of 12. China and India averaged highs of 2. authors’ analysis.5 percent. ASEAN AND SElECTED COUNTRIES 70 60 50 40 30 20 Share of world total FDI ou lows (%.

8 percent of patents filed among non-US based institutions).28).4 4. it was the largest ASEAN outward investor in 2008 and 2009.4 percent of total patents filed in the US in 2009 (or 0.27).0 Note: The Outward FDI Performance Index is the ratio of a country’s share in global FDI outflows to its share in global GDP.0 1.27: OUTWARD FDI PERFORMANCE INDEX. which increases the productive capacities of local companies. are still substantially below what can be expected from their economic size (Figure 3. For a couple of years from 2004. The third-largest ASEAN outward investor has been Indonesia from 2004 to 2008.8 Philippines Malaysia Laos 39.2 percent).28: SHARE OF OUTWARD FDI FlOWS FROM ASEAN BY COUNTRY. Outward investments from China and India.6 1. ASEAN’s outward FDI was 70 percent of what could be expected between 2007 and 2009.FIGURE 3.6 Thailand Singapore 29. Innovation is difficult to measure. but Thailand took this position in 2009. Source: UNCTAD (2010).4 11. The US is the most attractive market for patent use and a commonly used measure is the number of patents granted by the US Patent and Trademark Office (USPTO). Most researchers rely on readily available indicators such as patenting. which is the ratio of a country’s outward FDI flows to its share in world GDP according to UNCTAD definition.6 23. as Singapore registered negative net FDI outflow or reverse investment by residents in 2008 and lower outward FDI in 2009 (Figure 3. Innovation A country’s or region’s innovation capacity is an important indicator of its future competitiveness as it contributes to its stock of knowledge. Japan (19.5 0.6 Source: UNCTAD (2010).1 percent). 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 ASEAN China India EU Japan US The Outward FDI Performance Index. Singapore’s share was the largest in the six years after the 1997 crisis. accounting for just 0. However. Malaysia usually has been the second-largest outward investor from ASEAN with a share of around 20 percent. averaging 79 percent.7 Indonesia Brunei 15. as it has accounted for 60 to 80 percent of total ASEAN FDI outflows. indicates that relative to the region’s size in the global economy.5 4.8 percent) FIGURE 3. 94-96 01-03 07-09 ASEAN COMPETITIVENESS REPORT 43 .0 0.0 10. although rising.5 1. 3-year moving average 6. authors’ analysis.3 81.5 1. Much of the changes in ASEAN’s FDI outflows over time have been due to changes in FDI outflows from Singapore. ASEAN AND SElECTED COUNTRIES 2. This puts ASEAN on par with India in terms of patenting but behind China (1.7 14.0 53.7 0. EU (13.5 2. ASEAN’s outward investment was commensurate with its economic size. ASEAN’s patenting is low. SElECTED YEARS %. authors’ analysis.

8 percent) (Figure 3. none of the companies was placed within the top 100 on the Forbes 2010 Global 2000 list. Japan (4. profits.4 percent in 2005.924 businesses per million capita. China (2. Within ASEAN. Singapore has the highest entry rate of new businesses (19.32).0 percent) and Indonesia (7. As a reflection of the overall competitiveness of ASEAN’s locally-owned companies. Singapore continues to dominate in terms of both the absolute number of US patents filed and on a per million capita basis. Vietnam’s business density is the lowest in ASEAN but it is increasing much more rapidly than the rest of the region at an annual 30. Thailand and Vietnam between 2001 and 2005. The world’s sixth-largest company on the Forbes list was from the EU. The highest ranking company in India.31). and was ahead of the EU (63. Entrepreneurship Entrepreneurship is an important indicator of the effectiveness with which new ideas and technologies are assimilated in a country or region for future prosperity. This is due to low business densities in Thailand (5.292). Indonesia (1. 44 ASIA COMPETITIVENESS INSTITUTE . Advanced economies typically have strong entrepreneurship as indicated by high densities of businesses (defined as the number of registered companies per million economically active population) and high entry rates of new businesses (that is.1) and India (0.29: PATENT FIlINGS WITH USPTO.3) and US (388. The highest ranking company from Japan was Nippon Telegraph & Tel at 41st position. Malaysia filed 181 patents (9. as Singapore has the highest business density among the comparator countries and region of 29. Within ASEAN.3 percent). which ranks companies in 62 countries in terms of size based on an equal weighting of sales. There are very few or no record of patenting in the US from CLMV while patenting growth has fallen in the Philippines. On a per million capita basis (computed as the number of patents per million economically active population). China’s ICBC was the fifth-largest company in the world.30). which is lower than the US (13.7 per million capita). Data for ASEAN’s registered businesses are available for Indonesia. The other ASEAN countries play a relatively small role in patenting. Singapore and Thailand within ASEAN. ASEAN’s business density at 2. ASEAN AND SElECTED COUNTRIES Source: USPTO (2010). assets and market value. Japan and EU.9) but behind Japan (344. data are available only for Indonesia. Singapore filed 493 patents in 2009 or 118. 608) and Vietnam (892).3 percent).505 businesses per million economically active population (or per million capita) in 2005.1 percent) but more robust than the entry rates of EU (10.0 percent) followed by Thailand (12.29). ASEAN has a long way to go to reach the innovative capacity of patenting leaders like the US. Spain’s Banco Santander. namely. was ranked 126.5 patents per million capita). the number of new registered companies divided by total registered companies). ASEAN China India EU Japan US and the US (49.4 percent) and India (5. In terms of entry rates of new businesses.5 percent) (Figure 3. Leading companies in the US took the top four positions with JPMorgan Chase ranked the largest in the world.FIGURE 3. is substantially lower than the business densities in the advanced economies (Figure 3.5). authors’ analysis. Reliance Industries. Singapore. Practically all the comparator countries or regions in this Report have homegrown companies that are larger compared with ASEAN.5 percent between 2001 and 2005. ASEAN’s entry rate of new businesses is 11.1 patents per million capita. ASEAN also falls significantly behind China and India in the growth rate of patent filing in the US on a per million capita basis (Figure 3.3 patents per million capita) while Thailand filed 39 patents (0. Based on these three countries. The growth of new businesses in ASEAN has been relatively faster than that in the developed economies. Taken together.

was ranked 196.000 25. On recent measures FIGURE 3. ASEAN refers to Indonesia. ASEAN AND SElECTED COUNTRIES 550 Patents per million economically ac ve popula on. The analysis of ASEAN’s economic performance over the last two decades.7 29.31: NUMBER AND GROWTH OF REGISTERED BUSINESSES. ASEAN AND SElECTED COUNTRIES Singapore EU Japan US Thailand ASEAN Indonesia India Vietnam 3.0% 0. resource abundance and market size. Malaysia’s CIMB Group Holdings was ranked 493. has shown that while there is considerable variation across countries.FIGURE 3. Summary ASEAN has several naturally-endowed advantages in location. 1997-2009 (CAGR %) ASEAN’s topmost ranking company in the Forbes list comes from Thailand. ASEAN as a whole has not performed as well in the decade after the 1997 Asian financial crisis compared with the heights the region has attained in the years prior to the crisis. 2005 ASEAN COMPETITIVENESS REPORT 45 . 2001-2005 Number of registered businesses per million economically ac ve popula on.000 35. Of the 200 top-performing small and midsize companies in the Asia Pacific on Forbes’ 2010 “Best Under a Billion” list with sales between US$5 million and US$1 billion. which was 3 percent of the total.000 15. was ranked 1080. Singapore.0% 0. Wilmar International. For the other ASEAN countries. authors’ analysis.0 23. 16 percent or 32 of them were homegrown companies from ASEAN economies. was placed 230. 30. 150 Singapore EU 50 Philippines -5 0 Brunei Indonesia 5 Thailand ASEAN 10 Malaysia 15 20 India 25 30 China 35 Growth of patents per million capita.0 22.034.292. 2009 450 US 350 Japan 250 Note: CAGR refers to compound annual growth rate of the number of patents per million economically active population (aged 15 years and above) filed with USPTO. whose largest company.4% 2. Source: World Bank (2010a). Sources: USPTO (2010) and World Bank (2010a). Thailand and Vietnam only.423.8 973. authors’ analysis.5% 2.1 Notes: CAGR refers to compound annual growth rate of the number of registered businesses per million economically active population (aged 15 years and above).2 5.8% 30. PTT Public Company.607.923. Singapore’s highest ranking company.9 1.000 CAGR %. 63 homegrown companies from ASEAN were on the Forbes Global 2000 list.30: NUMBER AND GROWTH OF PATENT FIlINGS WITH USPTO.9% 2. Indonesia’s Telekom Indonesia was ranked 684 while the largest company in the Philippines.504.3 892.9 28. compared with 113 and 56 companies from China and India respectively. but there are also some fundamental conditions related to disaster and health risks as well cultural and ethnic diversities that potentially can disrupt ASEAN’s development.2% 3.350.3% 9.000 20. which would reflect the outcomes of its past competitiveness.000 5. This compared with 32 percent of companies from China and 19.000 10. PLDTPhilippine LDT.5% 2. In total.5 percent of companies from India.

4 5.2005 Entry Rates (Number of new businesses registered / total businesses registered) of economic outcomes in various dimensions. but ASEAN’s share of world exports has remained relatively unchanged since 1997 and is below the levels achieved just prior to the Asian crisis.8 2.5 12.4 19. Exports have been an important source of ASEAN’s growth.3 9. authors’ analysis. Source: World Bank (2010a). ASEAN is relatively weak on innovation outcomes as measured by patent filings in the US and there is much room to grow entrepreneurship.FIGURE 3. but the latter is catching up. ASEAN AND SElECTED COUNTRIES Note: CAGR refers to compound annual growth rate in the number of new registered businesses to total registered businesses. but the third element of prosperity generation – labor productivity – has been relatively low and not improving as fast as that of China over the last decade. although these are below the rates recorded prior to the crisis and lower than that in China and India.3 12. The findings above point to the pressing need as well as significant scope for ASEAN to achieve more competitive economic outcomes.32: NUMBER AND GROWTH OF NEW REGISTERED BUSINESSES TO TOTAl REGISTERED BUSINESSES. The rates of domestic investment in ASEAN fell markedly after the Asian crisis but have been recovering. ASEAN is as yet not a major investor abroad. To the extent that deeper economic integration is effective and results in positive payoffs. Singapore and Thailand only.0 11.2 5. India’s world share is much below ASEAN’s but its share has been increasing quite rapidly in recent years.6 2. ASEAN lags significantly behind advanced economies and has been overtaken by China in a few aspects. 2001 . ASEAN data refers to Indonesia.7 4.3 13. ASEAN’s prosperity as measured by GDP per capita is about half of the world average in 2009 and the distribution of prosperity in the region has been uneven. in the nurturing of ASEAN indigenous companies to become larger players of global scale. China has surpassed ASEAN in world export share since 2005. It should be noted that the analysis stops at 2008 or 2009 and ASEAN has started its implementation of measures towards an AEC from 2008.0 8. ASEAN Singapore Thailand Indonesia US EU Japan India 20 17.3 5 0 5 10 15 20 25 10. Prosperity in the region has been underpinned by moderately high labor force participation rates and affordable local prices. 46 ASIA COMPETITIVENESS INSTITUTE . ASEAN is on the way to redressing its relatively lacklustre competitiveness performance in the 2000s and this should be evident in the data in future analysis.1 13. as its annual share of world total FDI inflows in the 2000s is half or less than its share in the early to mid-1990s.0 7. in particular. ASEAN has become less attractive to foreign investors after the Asian crisis amid stiff competition from China and India. ASEAN has weathered the 2008 global crisis relatively well. This would require both solutions that are tailored to the diverse circumstances of individual ASEAN countries and collective action that derives urgency from the recognition that the region has fared rather unfavorably against the comparison group of advanced and emerging economies post-Asian financial crisis. The region performs better than India.8 15 10 CAGR %. and it has registered an increase in the share of world exports and world FDI inflows in 2009 from 2008. but whether this marks the start of more positive development remains to be seen.

Labor Force Participation Rate.unctad. International Cluster Competitiveness Project.ilo. New York: United Nations Development Programme. The Global 2000. _____________ (2010). Singapore Department of Statistics (2011).Chapter References Central Intelligence Agency (CIA) (2009). ____________ (2010b). FDI Effects of ASEAN Integration. Human Development Report 2009.com ____________ (2008). PovcalNet. Laos and Vietnam: EIU Country Profiles. Underlying data drawn from the UN Commodity Trade Statistics Database and the IMF BOP statistics. The Conference Board and Groningen Growth and Development Centre (2010). and Richard Bryden (2010). www. United Nations Conference on Trade and Development (UNCTAD) (2002). DC: Central Intelligence Agency. World Development Indicators. Michael E.eiu. jsp United Nations University-World Institute for Development Economic Research (UNU-WIDER) (2010).aspx?sCS_referer=&s CS_ChosenLang=en United Nations Development Programme (UNDP) (2009). Harvard Business School. New York and Geneva: United Nations. UNU-WIDER World Income Inequality Database. The World Factbook 2009. Online country statistics. Asia’s Best Under a Billion. Washington. Porter. David and Michael Plummer (2009). United States Patents and Trademark Office (USPTO) (2010). Cheong. MPRA (Munich Personal RePEc Archive) Paper No. Forbes. Patent Statistics. UNCTADstat.org/KILMnetBeta/ default2. Key Household Income Trends 2010.uspto. The Conference Board Total Economy Database. ASEAN COMPETITIVENESS REPORT 47 . United Nations. World Economic Outlook Database October 2010. http://unctadstat. ____________ (2010b). World Bank (2010a). World Investment Report 2002: Transnational Corporations and Export Competitiveness.asp International Monetary Fund (IMF) (2010). 2008.gov/about/stats/index. International Labor Organization (ILO) (2010).com (2010a).org/ReportFolders/reportFolders. Economist Intelligence Unit (EIU) (2010). Institute for Strategy and Competitiveness. http://kilm. http://www. 26004.

48 ASIA COMPETITIVENESS INSTITUTE .

ASEAN Competitiveness Report 20 10 Chapter 4 ASEAN Competitiveness Fundamentals ASEAN COMPETITIVENESS REPORT 49 .

Given the diversity in development within the region. the ‘competitiveness gap’ or difference in their rankings would offer some indications of the ability of a region or country in improving or sustaining prosperity in the longer term. as well as the extent of improvement or deterioration from their rankings in 2009. the latest year available. ease of doing business and logistical efficiency as a limited means to validating the findings in the earlier sections. In order to give a more complete picture of overall ASEAN competitiveness. as well as in the longer term.ASEAN COMPETITIVENESS FUNDAMENTAlS is. 2009 data were used where available. ASEAN’s overall competitiveness position in 2010 was 57th globally. which are organized under the two building blocks of macroeconomic competitiveness and microeconomic competitiveness in the Porter framework. which was three places behind its rank in 2009. (2008)). and the overall competitiveness index is a measure of competitiveness fundamentals that will impact on future prosperity. UNESCO Institute for Statistics. The competitiveness indices also incorporate selected statistical data from the World Bank’s Worldwide Governance Indicators. ASEAN’s GDP per capita in 2009. it makes extensive use of a set of competitiveness indices aggregated at different levels using a methodology developed by Professor Porter and his research team (see Porter et al. World Health Organization. Regional Competitiveness The competitiveness analysis is organized using the Porter framework and draws on multiple sources of unpublished and published data to assess ASEAN’s competitiveness from various perspectives. was 79th position. This is then put into perspective with respect to China and India. there are obvious limitations in comparability. The significant gap between current prosperity and overall competitiveness might point to the potential of current competitiveness fundamentals in raising future prosperity. The competitiveness ranking for the whole ASEAN region is calculated as a GDP (PPP)-weighted rank of eight ASEAN countries. Macroeconomic competiveness was little changed at 64th place. The 2010 Survey of business executives was conducted between January and May 2010 for 139 economies. The slight deterioration in ASEAN’s overall competitiveness over the past year was largely due to a 6-rank drop in microeconomic competitiveness to 49th place. The effectiveness of political institutions. ASEAN’s macroeconomic competitiveness in 2010 has been better than slightly over half of the countries in the sample. The second part provides an assessment of individual member countries to identify specific areas that need to be addressed at the national level. the World Bank’s Doing Business project. primarily from raw data collected by the World Economic Forum (WEF) in its annual Executive Opinion Survey (see Browne and Geiger (2010))1. International Telecommunication Union and International Monetary Fund. The competitiveness categories are colour coded to indicate their quintile rankings among a constant sample of 132 countries2. safeguards of property and legal rights and adequate provisions in basic healthcare and education are some basic conditions for economic development. firms’ ability to operate in an environment of sustainable government financing and low inflation. It is also noted that data on ASEAN from the WEF’s Executive Opinion Survey are available for only eight of the region’s ten countries. Fiscal and monetary policies affect shortterm fluctuations in economic activity. ASEAN’s competitiveness profile in 2010 is given in Figure 4.1. The region has been stronger on macroeconomic policy and clearly weaker on social infrastructure and political This chapter analyzes myriad factors that drive the longerterm competitiveness performance of ASEAN and its member countries. The macroeconomic competitiveness of countries is assessed in two broad areas: social infrastructure and political institutions and macroeconomic policy. excluding Laos and Myanmar. In particular. the competitiveness of Laos and Myanmar will be evaluated with a limited set of similar indicators in a later section. soundness in these factors is necessary to provide a supportive context for firms’ efforts to raise productivity. ASEAN’s position on GDP per capita among the 132 countries is given alongside its ranking on the New Global Competitiveness Index (New GCI). Although they do not directly affect the productivity of firms. Since GDP per capita is a measure of prosperity or the outcome of competitiveness. that 50 ASIA COMPETITIVENESS INSTITUTE . Additional analysis is conducted using alternative sets of competitiveness indices in the aspects of economic freedom. reliability and comprehensiveness of data sources and a caveat is made here in recognition of this fact. Macroeconomic Competitiveness Macroeconomic factors. which are heavily influenced by government actions. The purpose of this analysis is to provide an understanding of the competitiveness fundamentals of the region that can then serve to formulate an agenda for regional collaboration. The first part of the chapter evaluates the ASEAN region as a whole on these parameters to identify the strengths and weaknesses of ASEAN. determine the broad setting in which businesses operate.

the strength of local clusters that determines the level of positive externalities that can nurture companies. to a decline in national business environment. The rank for GDP pc (GDP per capita) is ASEAN’s position from 2009 data. and the context for strategy and rivalry that promotes investment. Company operations and strategy has deteriorated mainly as a result of poorer assessments for organizational practices such as the extent of staff training.1 rank Innov. This is a drop of 6 ranks from 2009 and can be largely attributed to a worsening of company operations and strategy and to a smaller extent. as the region’s budget deficit has increased as a result of fiscal stimulus packages implemented by ASEAN economies during the global crisis. The quality of microeconomic factors is the outcome of independent decisions made by players in various companies. Executive Opinion Survey 2009. This has been due largely to an improved inflationary environment. Institutions (66) Political Institutions (57) Rule of Law (72) Human Development (72) Macroeconomic Policy (55) Notes: ASEAN’s competitiveness rankings have been computed as the GDP (PPP)-weighted ranks of eight ASEAN countries (excluding laos and Myanmar). Human development has been affected slightly by poorer accessibility of healthcare services. This is particularly in the area of political institutions. (68) Company Operations and Strategy (45) Strategy (44) Org. the general business environment that shapes the productivity of company assets and the opportunities in which these can be used productively. Practices (48) Internationalization (45) Social Infrastructure and Pol. and second.FIGURE 4. incentive compensation and willingness to delegate authority. 2010. Source: Authors’ analysis based on unpublished data in Delgado et al. ASEAN has been ranked above 62 percent of the countries in the sample at 49th position in this dimension. technology transfer and competition. (2010). less efficient legal framework and higher business costs of crime and violence. ASEAN COMPETITIVENESS REPORT 51 . the quality of factor inputs that can be accessed for productive use. namely. Quintile Rankings 1 (Top 20%) 2 3 4 5 Change in Rank (09-10) Improve ≥ 10% Improve + 1 rank to <10% + 1 or . the sophistication of company operations and strategies that directly affect the economic value generated from factor inputs. effectiveness of law-making bodies. (52) Worsen + 1 rank to <10% Worsen ≥ 10% institutions. raw data from World Economic Forum.1). certain aspects have appeared to show a more significant deterioration. and lower government effectiveness in reducing poverty and inequality. Microeconomic Competitiveness Microeconomic factors directly affect the productivity and innovativeness of firms. the demand conditions in which companies operate. Some decline in operational strategy has been the result of factors such as customer orientation. Although ASEAN’s overall macroeconomic competitiveness has remained largely unchanged from 2009. firm-level technology absorption and nature of competitive advantage (Table 4. Internationalization of firms has also worsened from poorer breadth of international markets and fewer foreign technology licensing. government agencies and other institutions in the economy. In 2010. A significant improvement in ASEAN’s macroeconomic stability has served to counter its somewhat weakened position on social infrastructure and political institutions. Ranks are based on a constant sample of 132 countries. The rule of law has deteriorated from weaker protection of property rights. Microeconomic competitiveness is determined by the quality of two dimensions: first.1: COMPETITIVENESS PROFIlE OF ASEAN REGION 2010 GDP pc (79) Micro (49) New GCI (57) Macro (64) National Business Environment (49) Related and Supporting Industries (37) Demand Conditions (56) Context for Strategy and Rivalry (53) Factor Input Conditions (59) Admin (75) Capital (42) Logistic (64) Comm. where there has been a perceived decline in the transparency of economic policymaking. ASEAN’s microeconomic competitiveness is relatively stronger than its macroeconomic competitiveness. The quality of the business environment is in turn determined by four dimensions.

namely. context for strategy and rivalry. A negative sign indicates a worsening in rank. light pink indicates moderate advantage loss. agricultural products.TABLE 4. strong clusters exist in IT. there has been a slight deterioration in cluster development in 2010 and in other aspects of supporting industries especially in the availability of advanced technology. Within this sub-area. metal mining and manufacturing. There has been little change in the ranking of ASEAN’s supporting and related industries. This may reflect the strong presence of regional production networks in electronics and automotive in the region. The region’s context for strategy and rivalry is the next most competitive area. Demand conditions. Darker pink indicates significant advantage loss. but this has been balanced by greater local availability of process machinery (Table 4. 2010.3). 2010. raw data from World Economic Forum. regulatory standards and environmental standards.2: NATIONAl BUSINESS ENVIRONMENT IN ASEAN: SUPPORTING AND RElATED INDUSTRIES Source: Authors’ analysis based on unpublished data in Delgado et al. important drivers to innovation such as government procurement of advanced technology products and ICT promotion have worsened (Table 4.4). this aspect has been placed lower as a result of deterioration in assessments in a wide range of individual indicators. Darker green indicates significant advantage gain. light grey indicates neutral. oil and gas products. reflecting lower rankings across three sub-areas of business environment quality. typically critical for innovation. There has also been some worsening in ICT laws. Across ASEAN.2). Although there has been significant improvement in buyer sophistication. Company spending on R&D Extent of marke ng Firm-level technology absorp on 40 43 48 -4 -2 -4 45 -5 The quality of the business environment in ASEAN has worsened slightly in 2010. but its ranking is significantly behind that of supporting industries and clusters. Suppor ng and related industries 52 ASIA COMPETITIVENESS INSTITUTE . Executive Opinion Survey 2009. transport and logistics and business services (Figure 4. (2010). have also worsened for ASEAN over the past year. light green indicates moderate advantage gain. Source: Authors’ analysis based on unpublished data in Delgado et al. demand conditions and factor input conditions.1: COMPANY SOPHISTICATION IN ASEAN Note: Changes in rank are calculated for a constant sample of 132 countries. raw data from World Economic Forum. The less favorable assessments have been particularly in areas such as FDI rules. which is the region’s strongest competitiveness sub-area. TABLE 4.2). In 2010. Executive Opinion Survey 2009. antitrust policy and trade barriers (Table 4. (2010).

(2010). However. Harvard Business School. Executive Opinion Survey 2009. Underlying data drawn from the UN Commodity Trade Statistics Database and the IMF BOP statistics. M.3: NATIONAl BUSINESS ENVIRONMENT IN ASEAN: CONTEXT FOR STRATEGY AND RIVAlRY Indicator Source: Authors’ analysis based on unpublished data in Delgado et al. International Cluster Competitiveness Project. soundness of banks and financial market sophistication. capital market infrastructure is the strongest because of less exposure to the sub-prime crisis and the stronger regulatory framework after the Asian financial crisis. Bryden (2010). which have worsened in 2010. The other relatively stronger factor condition is innovation infrastructure but this aspect has also suffered losses over the past year due to poorer assessments on the quality of management schools and math and science education.5).2: ClUSTERS IN ASEAN Oil and Gas Agricultural Products Forest products Apparel Forest products MYANMAR Fishing Apparel LAOS Metal Mining & Mfg IT Automo ve Power Genera on Plas c Oil & Gas Agricultural Products THAILAND Metal Mining & Mfg Tex les & Garments Apparel Footwear Footwear Fishing Transport & Logis cs CAMBODIA IT Metal Mining & Mfg Communica ons Equipt Agricultural Products Automo ve Plas cs Business Services VIETNAM Oil & Gas PHILIPPINES Source: Porter. IT Oil & Gas MALAYSIA Agricultural Products IT Communica ons Equipt Oil & Gas Plas cs Business Services Transport & Logis cs SINGAPORE Communica ons Equipt Oil & Gas Metal Mining & Mfg Agricultural Products Plas cs Coal & Brique es BRUNEI Transport & Logis cs Apparel Business Services Jewelry INDONESIA ASEAN’s national business environment is weakest in factor input conditions. ASEAN’s logistical infrastructure has worsened largely from poorer assessments for the quality of domestic transport network. it has weakened somewhat over the past year due to declines in the protection of minority shareholder interests. Ratings for air transport infrastructure and the quality of electricity supply have also weakened slightly. TABLE 4. ASEAN COMPETITIVENESS REPORT 53 . 2010. and R.FIGURE 4. Institute for Strategy and Competitiveness. as well as brain drain (Table 4. raw data from World Economic Forum.E. Of the five dimensions of factor input conditions.

raw data from World Economic Forum. (2010). The region is relatively stronger on internet access in schools but weaker in internet users and telephone lines per 100 population. (2010). 2010. 54 ASIA COMPETITIVENESS INSTITUTE . Finally. It also has cumbersome customs procedures.TABLE 4. Indicator Another dimension in factor input conditions is communications infrastructure. 2010. raw data from World Economic Forum. which have deteriorated over the past year. administrative infrastructure remains one of ASEAN’s weakest factor input conditions and business executives have rated the region’s administrative infrastructure slightly lower in 2010. Executive Opinion Survey 2009. Executive Opinion Survey 2009.4: NATIONAl BUSINESS ENVIRONMENT IN ASEAN: DEMAND CONDITIONS Source: Authors’ analysis based on unpublished data in Delgado et al.5: NATIONAl BUSINESS ENVIRONMENT IN ASEAN: FACTOR INPUT CONDITIONS 53 Source: Authors’ analysis based on unpublished data in Delgado et al. TABLE 4. The region is particularly weak in the time and number of procedures required to start a business. ASEAN’s position in this aspect has been little changed from the previous year.

3). especially in factors related to the control of corruption and the lowering of business costs of crime and violence. Throughout the years. (2010). where it is behind by 18 positions on the New GCI 2010. ASEAN is least competitive in its administrative infrastructure. although the gap in microeconomic competitiveness is relatively small. raw data from World Economic Forum. -15 -30 -10 -6 (Continued on next page) ASEAN COMPETITIVENESS REPORT 55 . internationalization of firms and organizational practices.ASEAN’s main strengths and weaknesses ASEAN’s overall competitiveness is better than 57 percent of countries in the constant sample in 2010. This largely reflected progress in the first half of the 2000s. it is more competitive than India. particularly in the ease of financing through local equity market. cluster development and collaboration and local availability of process machinery. 2010. However. by 13 places. ease of access to loans and venture capital availability. Its capital market infrastructure is also relatively strong. the region’s foremost competitive strength lies in its supporting and related industries and clusters. ASEAN’s advantage has been more in microeconomic competitiveness fundamentals than macroeconomic competitiveness factors. ASEAN has a competitive edge over India in both micro and macro competitiveness fundamentals. Executive Opinion Survey 2009. The rule of law within ASEAN also requires strengthening. The other areas of particular weakness are in the macroeconomic competitiveness subcategory of social infrastructure and political institutions. where ASEAN exhibits competitiveness across the sub-areas of strategy and operational effectiveness.3: COMPETITIVENESS OF ASEAN-CHINA-INDIA China 45 30 Ranking Gap 15 4 0 India Macro New GCI Micro Macro New GCI Micro 21 13 4 -2 -12 -18 2009 2010 -12 -21 2010 Rank ASEAN China India New GCI 57 39 70 Micro 49 37 53 Macro 64 43 85 10 Source: Authors’ analysis based on unpublished data in Delgado et al. particularly the latter. Another area of particular strength for ASEAN is company operations and strategy. ASEAN’s human development is weak and more effort is needed to lower the incidences of tuberculosis and malaria and raise secondary education enrollment rate. ASEAN does better in both macroeconomic competitiveness sub-categories of social infrastructure and political institutions and macroeconomic policy. BOx 4. as ASEAN’s competitiveness ranking has hovered around the 57th to 60th percentile mark over the last five years. Assessed over a ten-year period. FIGURE 4. the region’s competitiveness as measured by the New GCI has improved from being nine places below the ‘global’ (sample) average in 2001 to 13 places above the global average in 2010. ASEAN is somewhat stronger than India on company operations and strategy but ASEAN and India are overall equally competitiveness in their national business environments. Under microeconomic competitiveness. ASEAN’s negative gap with China has persisted over the last few years. ASEAN is ranked behind China on both micro and macro competitiveness fundamentals. with strong cluster policy. while its significant positive gap with India has arisen in 2010 mainly as a result of deterioration in India’s competitiveness position from 2009 (Figure 4. It is less competitive across the two sub-categories of social infrastructure and political institutions and macroeconomic policy under macro competitiveness and the two sub-categories of company operations and strategy and national business environment under micro competitiveness. Comparing across competitiveness categories within ASEAN in 2010.1: ASEAN-CHINA-INDIA ASEAN is less competitive overall compared with China. where urgent attention has to be paid to reducing the time and number of procedures required to start a new business and in improving the efficiency of customs procedures.

6: TOP-FIVE RElATIVE STRENGTHS OF ASEAN-CHINA-INDIA Note: The rank columns show the ‘global’ rankings of ASEAN. India fares better than ASEAN in local supplier quantity and availability of latest technologies. both of which are more competitive than ASEAN. has better tertiary enrollment than both China and India. China is rated significantly higher on capacity for innovation and company spending on R&D while ASEAN has a greater degree of customer orientation. ASEAN has a slight edge over India for strategy and operational effectiveness in many of the aspects especially extent of marketing and value chain breadth. These relate to an aspect of national business environment. quality of scientific research institutions. While ASEAN and India are equally competitive in supporting and related industries and clusters. For company strategy and operational effectiveness and internationalization of firms. (Continued on next page) 56 ASIA COMPETITIVENESS INSTITUTE .6 & 4. the sub-areas are sorted from best ranked to worst ranked within each region or country to identify their relative strengths and weaknesses. ASEAN does better than India for internationalization of firms particularly with respect to control of international distribution. These are presented in Tables 4. raw data from World Economic Forum. China is more competitive than ASEAN in all the indicators for supporting and related industries and clusters except for availability of latest technologies in which ASEAN is stronger. Innovation infrastructure is a relative strength for India and it ranks better in this area than ASEAN (although not as well as China) due to better quality of management schools. that is. China and India are then placed side by side for comparison and discussion. namely. For internationalization of firms. extent of cluster policy. namely strategy and operational effectiveness and internationalization of firms. The top five areas of relative strength for ASEAN. is better than China and India in ease of access to loans. China is ahead of ASEAN. ASEAN has a significant advantage in greater prevalence of foreign technology licensing but fares worse than China for the extent of regional sales and the breadth of international markets. 2010. ASEAN.To facilitate further comparison across sub-areas of competitiveness of ASEAN. China and India share some common strengths in microeconomic competitiveness fundamentals. Executive Opinion Survey 2009. However. supporting and related industries and clusters and two aspects of company operations and strategy. China does better than ASEAN on the majority of indicators. ASEAN is rated better than India on organizational practices. although there are selected indicators where ASEAN seems to be more competitive. India does better than ASEAN in firm-level technology absorption and production process sophistication. China and India. namely. ASEAN Supporting & Related Industries & Clusters Capital Market Infrastructure Strategy & Operational Effectiveness Internationalization of Firms Rank 37 42 44 45 48 China Macroeconomic Policy Supporting & Related Industries & Clusters Demand Conditions Strategy & Operational Effectiveness Internationalization of Firms Rank 1 23 34 38 39 India Capital Market Infrastructure Supporting & Related Industries & Clusters Strategy & Operational Effectiveness Innovation Infrastructure Rank 35 38 48 48 50 Organizational Practices Internationalization of Firms ASEAN. but India has better capital market infrastructure than ASEAN particularly in the laws that facilitate lending. China is clearly more competitive than both. China’s global ranking on capital market infrastructure is comparable with ASEAN’s while it is ahead on organizational practices. among 132 countries in the New GCI sample in 2010 in each sub-area. however. ASEAN does notably better than India for indicators related to cluster development. availability of scientists and engineers and a higher number of utility patents per million population. however. Under strategy and operational effectiveness. Source: Authors’ analysis based on unpublished data in Delgado et al. China’s other relative strengths are in macroeconomic policy and demand conditions. The same is done for areas of relative weakness. (2010). which is ahead of India. China and India. Although these are not among the top five areas of relative strength within China. TABLE 4. regulation of securities exchanges and soundness of banks. ASEAN. ASEAN’s other areas of relative strength lie in its capital market infrastructure and organizational practices. extent of collaboration in clusters and state of cluster development.7.

which is ahead of ASEAN. ASEAN’s performance is generally not as good as that of China’s. the number of procedures and the time required to start a business is lower in ASEAN. which is ahead of India. Rule of law is among the five weakest areas of both ASEAN and China but not India. but ASEAN has higher mobile phone penetration rate. ASEAN Administrative Infrastructure Rank 75 72 72 68 64 China Human Development Rank 60 60 60 52 52 India Macroeconomic Policy Rank 110 108 100 96 72 Rule of Law Human Development Communications Infrastructure Administrative Infrastructure Communications Infrastructure Rule of Law Administrative Infrastructure Human Development Communications Infrastructure Logistical Infrastructure Logistical Infrastructure Context for Strategy & Rivalry ASEAN. Executive Opinion Survey 2009. On the other hand. The burden of customs procedures and the time required to start a business are about the same in ASEAN and India. when analyzed across competitiveness sub-areas. Compared with India. 2010. In summary. India is weakest in its macroeconomic policy. while China is strong on macroeconomic policy. raw data from World Economic Forum. Logistical infrastructure is a relatively weak area for both ASEAN and India. judicial independence and property rights. accessibility and quality of healthcare services and life expectancy. China has better administrative infrastructure than ASEAN with reduced burden of government regulation and customs procedures. ASEAN’s human development is better than India’s on all indicators but the gap is wider for infant mortality. ASEAN is not as competitive as China in many respects. Even for sub-areas that are ASEAN’s relative strengths. primary enrollment and quality of primary education. The communications infrastructure in China is better than that in ASEAN on the indicators of fixed-line telephone penetration rate. Comparatively. that is. China is stronger in human development on almost all indicators of basic health and education except that ASEAN has lower infant mortality and the quality of healthcare is about the same for both. China and India all are weak in the macroeconomic area of human development and the microeconomic factor input conditions of administrative and communications infrastructure. China is more competitive than ASEAN and India on logistical infrastructure. China and India have similar rankings for control of corruption. ASEAN has better quality of roads. Although ASEAN and China share some common relative weaknesses. ASEAN COMPETITIVENESS REPORT 57 . China and India. China. among 132 countries in the New GCI sample in 2010 in each sub-area. ASEAN has better communications infrastructure than India on all indicators except for the quality of telephone infrastructure. China fares better than ASEAN. quality of telephone infrastructure and internet access in schools. ASEAN has much better administrative infrastructure compared with India due to a lower number of procedures required to start a business and lower burden of government regulation. ASEAN in stronger than India in a good number of sub-areas but there are a few sub-areas where it is behind India. although in terms of global ranking. ASEAN and India have the same score for tuberculosis incidence and almost the same for health expenditure. ASEAN is ranked higher on macroeconomic policy than India with regard to inflation and fiscal balance but not for government debt. (2010). electricity supply and air transport infrastructure. However.TABLE 4. Source: Authors’ analysis based on unpublished data in Delgado et al. Context for strategy and rivalry is a sub-area of relative weakness for China. in these three areas. ASEAN and India are in similar positions. while India is rated higher on the quality of railroad infrastructure. China is still more competitive in these sub-areas than ASEAN. although in terms of global ranking. ASEAN’s rule of law is weaker than China and India particularly in the impact and business costs of crime and violence.7: TOP-FIVE RElATIVE WEAKNESSES OF ASEAN-CHINA-INDIA Note: The rank columns show the global rankings of ASEAN. China is ranked higher than India. ASEAN.

Brunei’s macroeconomic competitiveness has worsened somewhat in 2010. (56) Change in Rank (09-10) Improve ≥ 10% Improve + 1 rank to <10% + 1 or . Brunei performs relatively well in its communications. capital and innovation infrastructures. 2010. due to weaker political institutions. 58 ASIA COMPETITIVENESS INSTITUTE . Executive Opinion Survey 2009. (2010).4). deterioration in several indicators such as efficiency of the legal framework and property rights have been balanced by a significant improvement in perceived lower business costs of corruption. ICT promotion and ICT legislation.4: COMPETITIVENESS PROFIlE OF BRUNEI 2010 GDP pc (5) Micro (61) New GCI (40) Macro (33) National Business Environment (58) Related and Supporting Industries (85) Demand Conditions (52) Context for Strategy and Rivalry (45) Company Operations and Strategy (79) Strategy (81) Org. Institutions (37) Political Institutions (42) Rule of Law (36) Human Development (37) Macroeconomic Policy (1) Quintile Rankings 1 (Top 20%) 2 3 4 5 Source: Authors’ analysis based on unpublished data in Delgado et al.FIGURE 4. control of international distribution and extent of regional sales have been rated more poorly. Its logistical infrastructure has deteriorated in practically all aspects. Brunei retains its overall competitiveness position of 40th in 2010 from the year before.1 rank Worsen + 1 rank to <10% Worsen ≥ 10% National Competitiveness across ASEAN Countries Brunei Brunei’s GDP per capita has been maintained at 5th in the world in 2009 and is second highest in ASEAN after Singapore. This is mainly attributable to deterioration in the company operations and strategy sub-category. In particular. Brunei’s national business environment has also weakened following deterioration across all sub-areas within this category. government regulation and the ease of starting a new business. In the rule of law. Among factor input conditions. especially in demand conditions arising from weaker procurement of advanced technology products. indicators related to the internationalization of firms. such as breadth of international markets. Practices (47) Internationalization (104) Social Infrastructure and Pol. Factor Input Conditions (65) Admin (113) Capital (56) Logistic (65) Comm. This is despite a slight weakening of its relative positions within both the macroeconomic competitiveness and microeconomic competitiveness categories (Figure 4. (52) Innov. raw data from World Economic Forum. such as in the quality of port infrastructure. particularly in the transparency of government policymaking and freedom of the press. The rankings of indicators in the human development sub-area have been largely unchanged except for poorer accessibility of healthcare services. Brunei’s microeconomic competitiveness has weakened slightly in 2010. Its administrative infrastructure is weak and has worsened in the past year with poorer assessments for customs procedures. Brunei is strong in macroeconomic policy and is ranked tied-one in this category with 17 other countries.

strategy and operational effectiveness has emerged mainly because of poorer innovation capacity. Brunei is also weak on the internationalization of firms. particularly in antitrust policy and FDI rules. Cambodia’s overall competitiveness position in 2010 is 102nd.Brunei’s main strengths and weaknesses Brunei’s overall competitiveness is above 70 percent of countries in the sample. Another area that requires boosting is supporting and related industries and clusters. in particular. but among subareas. frugality of government spending and impartiality of decisions of government officials. Cambodia’s microeconomic competitiveness has weakened slightly in 2010 following worsened indicators for company operations and strategy. which is currently characterized by limited local availability of specialized research and training services and of process machinery. within the same sub-area. The strength of its rule of law is reflected in the low business costs of crime and improving control of corruption. Brunei’s strength lies particularly in the stability of its macroeconomic environment that has been marked by fiscal sustainability and low inflation. crime and violence and lower quality of primary education and healthcare services respectively. and also rated well on pay and productivity and cooperation in labor-employer relations. The country has also received poorer ratings for organizational practices such as willingness to delegate authority and staff training. which has deteriorated last year. as well as for firm internationalization such as foreign technology licensing and international distribution. It also has relatively sound social infrastructure and political institutions even though there has been some deterioration in the last year. as well as in all factor input conditions with the exception of innovation infrastructure. A decline in company tied-one with seven countries on the lack of rigidity of employment. Brunei is assessed less favorably on the extent of market disruption by state-owned enterprises. weakened rankings in the rule of law and in human development have emerged because of higher business costs from corruption. and it is stronger on macroeconomic competitiveness than microeconomic competitiveness. The quality of the national business environment has remained largely unchanged from 2009. The quality of political institutions is rated lower on the indicators of transparency of government policymaking. In the microeconomic category. There is an urgent need to improve the time and procedures required to start a business. However. which is a fourrank slippage from 2009. the former (Figure 4. ASEAN COMPETITIVENESS REPORT 59 . there has been an improvement in the context for strategy and rivalry. Cambodia’s macroeconomic competitiveness has worsened as a result of declines in all sub-areas of social infrastructure and political institutions. production process sophistication and level of technology absorption. It is ranked Cambodia Cambodia’s GDP per capita has worsened marginally by one rank in 2009 to 110th in the world. and barriers to foreign direct investment. In addition. macroeconomic policy has improved in 2010 with better control over inflation. as well as low local supplier quantity. Brunei’s strength in human development is due especially to the quality of healthcare services and primary education. However. especially in the breadth of international markets and extent of regional sales. Brunei’s weakest area is its administrative infrastructure. Brunei is competitive on indicators related to labor market efficiency within the context for strategy and rivalry sub-area. This reflects a weakening in both its macroeconomic and microeconomic competitiveness.5).

especially on rules that encourage foreign direct investments. Executive Opinion Survey 2009. which is 13 places behind that attained in 2009. If competitiveness categories are compared within the country.FIGURE 4. where the incidence of tuberculosis and infant mortality are high and secondary enrollment is low. Indonesia’s overall competitiveness position is 64th in 2010. efficiency of the legal framework and the protection of property rights.5: COMPETITIVENESS PROFIlE OF CAMBODIA 2010 GDP pc (110) Micro (95) New GCI (102) Macro (112) National Business Environment (93) Related and Supporting Industries (89) Demand Conditions (86) Context for Strategy and Rivalry (72) Company Operations and Strategy (103) Strategy (100) Social Infrastructure and Pol. A range of indicators have relatively strong in its political institutions. Communications infrastructure is also among the weakest areas. unrestrictive regulations on capital flows and low market disruption from state-owned enterprises. among which are the business costs of crime and violence. However. (110) Innov. Cambodia is Indonesia Indonesia’s GDP per capita has improved marginally by one rank in 2009 to 96th in the world. This is on the back of deterioration in both its microeconomic and macroeconomic competitiveness (Figure 4. Institutions (105) Political Institutions (73) Rule of Law (103) Human Development (107) Macroeconomic Policy (104) Org. 60 ASIA COMPETITIVENESS INSTITUTE . Factor Input Conditions (105) Admin (99) Capital (96) Logistic (84) Comm. The deterioration in competitiveness on company operations and strategy has been due especially to sharp drops in the ratings on organizational practices such as incentive compensation and delegation of authority. as well as worsened indicators under internationalization of firms.6). Cambodia is strongest in the context for strategy and rivalry. 2010. The quality of political institutions has weakened with less effective legislative bodies.1 rank Worsen + 1 rank to <10% Worsen ≥ 10% Cambodia’s main strengths and weaknesses Cambodia’s overall competitiveness is ranked among the bottom 25 percent of 132 countries. less transparent government policies. Human development is another area of concern. internet users and personal computers per 100 population. particularly in the control of corruption. Cambodia is also rated more favorably on its logistical infrastructure. particularly in the quality of the national business environment. (113) Change in Rank (09-10) Improve ≥ 10% Improve + 1 rank to <10% + 1 or . so there are many areas where it is weak relative to the world. Practices (92) Internationalization (114) Quintile Rankings 1 (Top 20%) 2 3 4 5 Source: Authors’ analysis based on unpublished data in Delgado et al. In more disaggregated sub-areas. weak company sophistication and the lack of foundations for innovation are probably not of immediate concern. especially on the decentralization of economic policymaking. been rated less favorably in relation to rule of law. as its competitiveness position in the sub-category of macroeconomic policy has improved with a lower rate of inflation. and less government effectiveness in reducing poverty and inequality. in particular the quality of roads and port infrastructure. (2010). raw data from World Economic Forum. Cambodia is ranked lowest on the internationalization of firms and innovation infrastructure. such as extent of regional sales and breadth of international markets. Human development has been affected by lower quality of healthcare services and primary education. given that the country is in an early stage of economic development. More attention should also be focused on improving the rule of law. Under macroeconomic competitiveness. Indonesia’s macroeconomic competitiveness has worsened as a result of poorer assessments in the sub-category of social infrastructure and political institutions. Cambodia performs better on microeconomic competitiveness than macroeconomic competitiveness. where Cambodia is placed in the bottom five percent of countries on telephone lines. Indonesia’s weaker microeconomic competitiveness has been the result of a worsening of all the sub-areas under company operations and strategy and national business environment.

7). requires substantial strengthening. Indonesia’s main strengths and weaknesses Indonesia’s overall competitiveness is better than slightly half of 132 countries in the sample. Indonesia’s competitiveness position in the sub-area of context for strategy and rivalry has weakened the most. Only communications infrastructure has improved due to better internet access in schools.FIGURE 4. 2010. The control of corruption and high irregular payments by firms and increased impact of crime are priority issues to tackle under rule of law. the quality of its domestic transport network. Indonesia is strongest in its supporting and related industries and clusters. Factor input conditions have weakened across all but one area of infrastructure. It also performs well in the area of strategy and operational effectiveness. as well as improved social infrastructure and political institutions. Under political institutions. effectiveness of antitrust policy and efficacy of corporate boards. Its weakest area is administrative infrastructure. Attention has to be given in the area of basic health to improving accessibility of healthcare services and lowering the incidence of tuberculosis and malaria. Indonesia also has to enhance its logistical infrastructure.6: COMPETITIVENESS PROFIlE OF INDONESIA 2010 GDP pc (96) Micro (54) New GCI (64) Macro (70) National Business Environment (54) Related and Supporting Industries (37) Demand Conditions (60) Context for Strategy and Rivalry (59) Company Operations and Strategy (49) Strategy (41) Social Infrastructure and Pol. Factor Input Conditions (72) Admin (96) Capital (51) Logistic (81) Comm. Executive Opinion Survey 2009. Malaysia’s overall competitiveness is 34th position in 2010. This is a gain of four places from improvements in both macroeconomic and microeconomic competitiveness (Figure 4. although improved from last year. where it needs to urgently address the time required to start a business. (2010). company spending on R&D and capacity for innovation. such as value chain breadth. prevalence of trade barriers. particularly on indicators on the extent of cluster policy and collaboration in clusters. especially in capital market and administrative infrastructure. with poorer assessments on a wide range of indicators that include rules on FDI. Its communications infrastructure. higher ratings on public trust of politicians and effectiveness of law-making bodies are countered by less favorable assessments on freedom of the press and decentralization of economic policymaking. Malaysia’s macroeconomic competitiveness has strengthened from better macroeconomic performance in the control of inflation. in particular. Malaysia Malaysia’s GDP per capita has risen by one rank in 2009 to 54th in the world and remains the third highest in ASEAN. port infrastructure and electricity supply. ASEAN COMPETITIVENESS REPORT 61 . (90) Innov. Institutions (73) Political Institutions (45) Rule of Law (83) Human Development (84) Macroeconomic Policy (65) Org. (54) Change in Rank (09-10) Improve ≥ 10% Improve + 1 rank to <10% + 1 or . The country’s political institutions are relatively strong. The gains are particularly in rule of law through lower business costs of crime and corruption and more efficient legal framework. Practices (60) Internationalization (53) Quintile Rankings 1 (Top 20%) 2 3 4 5 Source: Authors’ analysis based on unpublished data in Delgado et al. and it has greater strength in microeconomic competitiveness than macroeconomic competitiveness factors. particularly in the decentralization of economic policymaking and low wastefulness of government spending. Indonesia’s human development and rule of law are also areas of particular weakness. raw data from World Economic Forum. Indonesia is weak in a few dimensions of factor input conditions. the number of tax payments by businesses and the burden of customs procedures.1 rank Worsen + 1 rank to <10% Worsen ≥ 10% As for the national business environment. Comparing across competitiveness areas within the country. Demand conditions has worsened due to reduced government procurement of advanced technology products while industry clusters have deteriorated from lower local supplier quality and quantity. as well as the local availability of process machinery.

The area of particular weakness in microeconomic competitiveness is communications infrastructure. Malaysia’s main strengths and weaknesses Malaysia’s overall competitiveness position is just shy of being in the top 25 percent of countries in the sample. 62 ASIA COMPETITIVENESS INSTITUTE . but there have been gains and some deterioration across sub-areas. ease of access to The context for strategy and rivalry has improved with reduced market disruption from state-owned enterprises. laws relating to ICT and environmental regulation. which is reflected particularly in the extent of cluster policy. enhanced intensity of local competition and lower impact of taxation on incentives to work and invest. Malaysia’s weaknesses mainly are in the macroeconomic competitiveness sub-areas of human development and rule of law. Change in Rank (09-10) Improve ≥ 10% Improve + 1 rank to <10% + 1 or . (25) Worsen + 1 rank to <10% Worsen ≥ 10% Malaysia’s microeconomic competitiveness has improved slightly.1 rank Innov. Executive Opinion Survey 2009. The country is competitive in its capital market infrastructure. where Malaysia is ranked low on telephone lines per 100 population. which are assessed to be relatively high despite improvements in the past year. Malaysia also performs particularly well in the area of organizational practices. such as control of international distribution. Institutions (42) Political Institutions (38) Rule of Law (47) Human Development (47) Macroeconomic Policy (40) Org. Logistical infrastructure has strengthened with better quality of port infrastructure. (2010). 2010. on the other hand. raw data from World Economic Forum. It is comparatively less strong on macroeconomic competitiveness. state of cluster development. Demand conditions. extent of incentive compensation and reliance on professional management. local availability of process machinery and local supplier quantity. The quality of the national business environment has remained largely unchanged overall. More can be done to strengthen basic health and education through lowering the incidence of tuberculosis and malaria and raising secondary enrollment. Malaysia is strong across many aspects in microeconomic competitiveness. loans and financing through local equity market. It is strongest in supporting and related industries and clusters.7: COMPETITIVENESS PROFIlE OF MAlAYSIA 2010 GDP pc (54) Micro (22) New GCI (34) Macro (41) National Business Environment (22) Related and Supporting Industries (16) Demand Conditions (28) Context for Strategy and Rivalry (29) Factor Input Conditions (23) Admin (26) Capital (12) Logistic (21) Comm. have been affected by lower rankings on the effectiveness of government promotion of ICT. Practices (16) Internationalization (20) Quintile Rankings 1 (Top 20%) 2 3 4 5 Source: Authors’ analysis based on unpublished data in Delgado et al. venture capital availability. Capital market infrastructure has improved with better regulation of securities exchanges and financing through local equity market. with small gains in the company operations and strategy sub-category especially in indicators related to the internationalization of firms and organizational practices. math and science education and management schools. and it possesses clear strength in microeconomic competitiveness. such as the extent of incentive compensation and staff training. The rule of law can be strengthened through lowering business costs related to crime and corruption. and innovation infrastructure has been rated higher on the quality of the educational system. especially on the degree to which laws facilitate getting access to credit (where it is ranked 1st in the world).FIGURE 4. (45) Company Operations and Strategy (23) Strategy (25) Social Infrastructure and Pol.

Its competitive positions on strategy and operational effectiveness. raw data from World Economic Forum. with gains in both macroeconomic and microeconomic competitiveness. even while political institutions are rated less favorably. ASEAN COMPETITIVENESS REPORT 63 . the Philippines has improved on the quality of its supporting and related industries and clusters due to better local availability of process machinery and specialized research and training services. Under national business environment. Demand conditions have strengthened due mainly to greater buyer sophistication. Its overall competitiveness has improved by eight ranks in 2010 to 89th position. The Philippines’ better performance on macroeconomic policy has been due to its lowering of government debt as a percentage of GDP.8: COMPETITIVENESS PROFIlE OF PHIlIPPINES 2010 GDP pc (98) Micro (74) New GCI (89) Macro (101) National Business Environment (80) Related and Supporting Industries (55) Demand Conditions (97) Context for Strategy and Rivalry (70) Factor Input Conditions (101) Admin (124) Capital (58) Logistic (118) Comm. Executive Opinion Survey 2009. The quality of rule of law is perceived to have improved. ease of access to loans and more sophisticated financial markets. More intense local competition. The Philippines has made substantial progress in microeconomic competitiveness across all sub-areas in company operations and strategy and national business environment. the latter (Figure 4.1 rank Innov. The Philippines’ slight gain in macroeconomic competitiveness reflects an improvement in both sub-categories of social infrastructure and political institutions and macroeconomic policy. control of international distribution. organizational practices and internationalization of firms have improved with substantial gains in ratings on value chain breadth.FIGURE 4. lower impact of organized crime and greater judicial independence. prevalence of foreign technology licensing. in particular. Factor input conditions have improved due mainly to stronger capital market infrastructure that is supported by greater soundness of banks. (88) Company Operations and Strategy (55) Strategy (57) Social Infrastructure and Pol.8). (85) Worsen + 1 rank to <10% Worsen ≥ 10% Philippines The Philippines’ GDP per capita has risen by one rank in 2009 to 98th in the world. communications and administrative infrastructure have not changed substantially from the year before. The condition of primary education and healthcare has remained little changed. with lower occurrence of irregular payments by firms. Innovation infrastructure has been boosted by vastly lower brain drain. Practices (38) Internationalization (64) Quintile Rankings 1 (Top 20%) 2 3 4 5 Source: Authors’ analysis based on unpublished data in Delgado et al. less distortive effect of taxes and subsidies on competition and more prevalent foreign ownership have contributed to an enhanced context for strategy and rivalry. (2010). extent of incentive compensation and extent of marketing. such as on the indicator of transparency of government policymaking. 2010. Institutions (106) Political Institutions (114) Rule of Law (113) Human Development (95) Macroeconomic Policy (42) Org. Change in Rank (09-10) Improve ≥ 10% Improve + 1 rank to <10% + 1 or . The quality of logistical.

willingness to delegate authority. the Philippines’s strongest area is in organizational practices. local supplier quantity and state of cluster Singapore Singapore has maintained the highest GDP per capita in ASEAN in 2009 at 4th in the world.9). firm-level technology absorption and the extent of regional sales have worsened. Within company operations and strategy. extent of incentive compensation and reliance on professional management receive relatively favorable assessment. The Philippines’ least competitive area is its administrative infrastructure followed by its logistical infrastructure. there has been deterioration in the competitiveness of supporting and related industries and clusters. among others. (7) Company Operations and Strategy (12) Strategy (15) Social Infrastructure and Pol. FIGURE 4. Political institutions and rule of law are also among the weakest areas for the Philippines. In particular.Philippines’ main strengths and weaknesses The Philippines’s overall competitiveness position is below 67 percent of countries in the sample. lessen favoritism in decisions of government officials. Change in Rank (09-10) Improve ≥ 10% Improve + 1 rank to <10% + 1 or . Institutions (7) Political Institutions (4) Rule of Law (3) Human Development (28) Macroeconomic Policy (67) Org. increase government effectiveness in reducing poverty and inequality. reduce the occurrence of diversion of public funds and lower the business costs of corruption. (2010). as well as reduce the number of procedures required to start a business and the burden of its customs procedures. especially in the local availability of process machinery. It is also relatively strong in supporting and related industries and clusters. the ratings on degree of customer orientation. Its competitive position on social infrastructure and political institutions has remained largely unchanged. the sub-areas of strategy and operational effectiveness. raw data from World Economic Forum. there are a considerable number of areas under both categories that require substantial improvement. company operations and strategy and the national business environment. both of which are under factor input conditions. It has to substantially improve the quality of its domestic transport network and port infrastructure. (4) Worsen + 1 rank to <10% Worsen ≥ 10% 64 ASIA COMPETITIVENESS INSTITUTE . Singapore’s macroeconomic competitiveness has improved due to stronger macroeconomic performance as the rate of inflation falls. where its government budget balance and debt are within the core policy ranges. Although the quality of the national business environment has not changed much on the whole. There is an urgent need to raise public trust of politicians. where all the indicators: the extent of staff training. Singapore’s overall competitiveness has been maintained at 7th position in 2010. Singapore’s microeconomic competitiveness has been affected by slight deteriorations in business opinions on development. The Philippines also performs better on macroeconomic policy. Although its microeconomic competitiveness is comparatively stronger than its macroeconomic competitiveness. although a few indicators have received less favorable assessment. with a slight improvement in macroeconomic competitiveness and a slight drop in microeconomic competitiveness (Figure 4. Executive Opinion Survey 2009. Practices (12) Internationalization (16) Quintile Rankings 1 (Top 20%) 2 3 4 5 Source: Authors’ analysis based on unpublished data in Delgado et al.9: COMPETITIVENESS PROFIlE OF SINGAPORE 2010 GDP pc (4) Micro (3) New GCI (7) Macro (10) National Business Environment (2) Related and Supporting Industries (19) Demand Conditions (4) Context for Strategy and Rivalry (1) Factor Input Conditions (1) Admin (1) Capital (3) Logistic (2) Comm. 2010.1 rank Innov. Comparing across competitiveness areas within the country. such as decentralization of economic policymaking and freedom of the press. particularly local supplier quantity and quality. organizational practices and internationalization of firms have all lost competitiveness positions.

Singapore could do more to enhance its supporting and related industries and clusters.1 rank Worsen + 1 rank to <10% Worsen ≥ 10% ASEAN COMPETITIVENESS REPORT 65 . good industrial relations and pay that is linked to productivity. In the social infrastructure and political institutions sub-category. Singapore’s strength in the context for strategy and rivalry is due especially to an efficient labor market with low rigidity of employment. Similarly. reduced government effectiveness in reducing poverty and inequality and some loss in public trust in politicians. However. the lower healthcare expenditures that contribute to Singapore’s poorer assessment in human development is less a sign of weakness but more a reflection of the country’s efforts to keep healthcare costs in check and promote a healthy lifestyle among its people. while the quality of political institutions has worsened significantly with lower transparency of government policy making. particularly the internationalization of firms and strategy and operational effectiveness. (2010). the Central Provident Fund (CPF). local availability of specialized research and training services and availability of latest technologies. efficient customs procedures and the short time required to start a business. GDP pc (76) FIGURE 4. It is highly competitive in a wide range of areas across microeconomic and macroeconomic competitiveness categories.10: COMPETITIVENESS PROFIlE OF THAIlAND 2010 Micro (46) New GCI (49) Macro (56) National Business Environment (45) Related and Supporting Industries (34) Demand Conditions (57) Context for Strategy and Rivalry (50) Company Operations and Strategy (45) Strategy (51) Social Infrastructure and Pol. It is strongest in administrative infrastructure under factor input conditions. is treated. raw data from World Economic Forum. this is not a cause for concern.10). (47) Change in Rank (09-10) Improve ≥ 10% Improve + 1 rank to <10% + 1 or . Singapore is among the best in the world on the quality of its national business environment. the former. in particular. which stems from its low ranking on government debt. Thailand’s basic human capacity has been affected by poorer accessibility of healthcare services. facilitate firm-level technology adoption and strengthen the degree of customer orientation. It could also strengthen its competitiveness position across all subareas in company operations and strategy. particularly in the low burden of government regulation. Institutions (64) Political Institutions (75) Rule of Law (67) Human Development (66) Macroeconomic Policy (18) Org. The country’s microeconomic competitiveness has dipped somewhat (Figure 4. These include policies to encourage more domestic firms to take control of international distribution and measures to develop the capacity for indigenous innovation. CPF contributions are captured as public debt. Practices (56) Internationalization (31) Quintile Rankings 1 (Top 20%) 2 3 4 5 Source: Authors’ analysis based on unpublished data in Delgado et al. the rule of law has improved slightly. 2010. Thailand’s macroeconomic competitiveness has been boosted by a subdued inflationary environment in the Singapore is ranked relatively low in its macroeconomic policy. (53) Innov. However. Thailand Thailand’s GDP per capita has fallen by one rank in 2009 to 76th in the world. although its fiscal balance has deteriorated. namely. Executive Opinion Survey 2009.Singapore’s main strengths and weaknesses Singapore is one of the top-ranked countries on overall competitiveness. Factor Input Conditions (42) Admin (52) Capital (39) Logistic (35) Comm. It is ranked first in two sub-areas. such as in the extent of market disruption from stateowned enterprises and the intensity of local competition. as well as a regulatory environment that is friendly to foreign direct investment and in the strength of investor protection. while the corresponding assets are not taken into account. due to enhanced macroeconomic competitiveness. This is followed closely by logistical infrastructure where the country’s airport and port infrastructures are world class. as it reflects the way in which the country’s social security savings plan. factor input conditions and the context for strategy and rivalry. Thailand’s overall competitiveness has strengthened slightly to 49th position in 2010 from 52nd in 2009. there are a few indicators where Singapore does not do as well. generally on the indicators of local supplier quantity and quality. macroeconomic policy sub-category.

In particular. production process sophistication to degree of customer orientation. On the other hand. while the strength of its company operations and strategy has remained unchanged. Innovation infrastructure has been affected by lower university-industry research collaboration. effectiveness of antitrust policy. where there has been a weakening across most of the indicators. public trust of politicians and government effectiveness in reducing poverty and inequality. Vietnam’s microeconomic competitiveness has worsened considerably due to weakened capacity for company operations and strategy as well as a less favorable national business environment. extent of collaboration in clusters and increased local availability of processed machinery. extent of market dominance by business groups and market disruption from state-owned enterprises. Indicators that have lost competitiveness positions include financial market sophistication. All sub-areas within company operations and strategy have lost competitiveness. logistical infrastructure has weakened the most. The rule of law has worsened from poorer ratings on the ethical behaviour of firms. Organizational practices have been affected by notable declines in the extent of staff training and the extent of incentive compensation. company spending on R&D and nature of competitive advantage. there has been a marked improvement in the control of international distribution but a notable drop in the rankings for firm-level technology absorption. which are weak on a range of indicators such as voice and accountability. decentralization of economic policymaking. It has comparatively better microeconomic than macroeconomic competitiveness fundamentals. transparency of government policymaking. and quality of telephone infrastructure and internet access in schools. Human development can be improved through efforts to lower the incidence of tuberculosis and malaria and raise secondary enrollment. It also ranks well on the internationalization of firms under company operations and strategy. Vietnam Vietnam’s GDP per capita remained at 100th in the world in 2009. The context for strategy and rivalry has worsened with poorer assessments in particular on the indicators of prevalence of trade barriers. factor input conditions have weakened with lower rankings for capital market. the strength of supporting and related industries and clusters has improved due to better ratings on the extent of cluster policy. where the quality of road. Vietnam’s overall competitiveness is 78th position in 2010. control of corruption and reduction in the business costs of corruption. Vietnam’s weakened macroeconomic competitiveness has strength.11). The rule of law needs to be strengthened with better protection of property rights. logistics and communications infrastructure. quality of airport infrastructure and electricity supply. with low inflation rate and modest government debt as a percentage of GDP. an increase in favoritism in decisions of government officials. especially the context for strategy and rivalry. reduced effectiveness of antitrust policy and greater distortive effect of taxes and subsidies on competition. Thailand weakest areas are within the sub-category of social infrastructure and political institutions. strategy and operational effectiveness has been compromised across all the indicators from company spending on R&D. In the latter category. particularly on the extent of cluster policy. reduced 66 ASIA COMPETITIVENESS INSTITUTE . This is mainly due to a decline in microeconomic competitiveness as well as a slight drop in macroeconomic competitiveness (Figure 4.Thailand’s main strengths and weaknesses Thailand’s overall competitiveness is stronger than 63 percent of countries in the sample. Vietnam’s worsened competitiveness in its national business environment has been due to a decline in its rankings across all sub-areas. efficiency of the legal framework and protection of property rights. air transport infrastructures have all been assessed less favorably. Inadequate intellectual property protection is also an area of concern. Within national business environment. The lowest-ranked is political institutions. among others. Within factor input conditions. The quality of political institutions has been affected by greater wastefulness of government spending. Within microeconomic competitiveness categories. The degree of competition has been affected by a perceived increase in market dominance by business groups and market disruption by state-owned enterprises. crime and violence. railroad. which is 4 places behind that in 2009. soundness of banks. Demand conditions have weakened slightly from a deterioration in laws relating to ICT and less stringency on environmental regulations. and erosion of public trust in politicians. on indicators such as the breadth of international markets and control of international distribution. extent of collaboration in clusters and local supplier quantity. Thailand’s macroeconomic policy is also an area of its relative Thailand’s microeconomic competitiveness has weakened slightly due to a less conducive national business environment. business costs of crime and violence. Thailand is strongest in its supporting and related industries and clusters under national business environment. been due to some deterioration in business assessment of its social infrastructure and political institutions as there has not been much change in its ranking on macroeconomic policy. port.

Vietnam’s main strengths and weaknesses Vietnam’s overall competitiveness is below that of 59 percent of countries in the sample. It is stronger in microeconomic competitiveness than macroeconomic competitiveness. raw data from World Economic Forum. are also among Vietnam’s weakest areas.FIGURE 4. market disruption from state-owned enterprises. the extent of cluster policy. Political institutions is another area of relative strength. though much below the runaway rate in 2008. (86) Worsen + 1 rank to <10% Worsen ≥ 10% quality of math and science education and increased brain drain. Its inflation in 2009. (68) Company Operations and Strategy (67) Strategy (71) Social Infrastructure and Pol. there are pockets of particular weakness that require attention. The problem of high budget deficit also has to be addressed. especially in the degree to which laws facilitate getting access to credit. more needs to be done to boost the availability of latest technologies and local availability of specialized research and training services. and weak auditing and reporting standards. although voice and accountability needs to be improved. These include the prevalence of trade barriers. especially in reducing the burden of government regulation. Capital market infrastructure has been rated more poorly from reduced protection of minority shareholders’ interests. Practices (74) Internationalization (71) Quintile Rankings 1 (Top 20%) 2 3 4 5 Source: Authors’ analysis based on unpublished data in Delgado et al. government effectiveness in reducing poverty and inequality. where it is challenged to control inflation. lower venture capital availability and more difficult access to loans. Vietnam’s demand conditions and the state of its supporting and related industries and clusters have also deteriorated. but there are areas within each that need to be substantially enhanced relative to the world. However. and is edging up quickly in 2010. inadequate investor and intellectual property protection. Two dimensions under factor input conditions. namely administrative and logistical infrastructure. the time and number of procedures required to start a business and the burden of customs procedures. It also has to strengthen its logistical infrastructure. Vietnam’s weakest area is its macroeconomic policy. 2010. especially on factors related to cluster development. Vietnam has to improve on a range of indicators under administrative infrastructure. ports and air transport. and falls in the local availability of specialized research and training services and availability of latest technologies. especially its quality of roads. (2010). ASEAN COMPETITIVENESS REPORT 67 . Executive Opinion Survey 2009. has remained high. extending domestic credit to the private sector and financing through the local equity market. state of cluster development and extent of collaboration in clusters. where Vietnam is assessed to be strong in the decentralization of economic policymaking. Change in Rank (09-10) Improve ≥ 10% Improve + 1 rank to <10% + 1 or . the country is strongest on its supporting and related industries and clusters. There has been no change in the position of communications infrastructure and little change in the ranking of administrative infrastructure although the burden of government regulation has increased. from lower ratings on indicators such as government procurement of advanced technology products.1 rank Innov. Within the context for strategy and rivalry. Vietnam’s capital market infrastructure is also relatively strong. public trust of politicians and effectiveness of law-making bodies. Institutions (75) Political Institutions (63) Rule of Law (76) Human Development (78) Macroeconomic Policy (122) Org. that is.11: COMPETITIVENESS PROFIlE OF VIETNAM 2010 GDP pc (100) Micro (73) New GCI (78) Macro (89) National Business Environment (73) Related and Supporting Industries (51) Demand Conditions (71) Context for Strategy and Rivalry (93) Factor Input Conditions (84) Admin (103) Capital (63) Logistic (103) Comm. Comparing across competitiveness categories within Vietnam.

Likewise.5 284. as given by the World Bank’s Worldwide Governance Indicators in the dimensions of voice and accountability. Laos’ and Myanmar’s fiscal deficits have widened in 2009.7 1.0 4.8 50. The two countries are among the worst performers within ASEAN and are in the bottom quintile of sample countries. 2.5 1. Quin le Ranking 2009 2 3 3 2 2008 Macroeconomic Policy Government Surplus/deficit (% of GDP) Government Debt (% of GDP) Infla on (% change per annum) Social Infrastructure and Poli cal Ins tu ons Human Development Malaria Incidence (per 100. World Development Indicators (WDI). World Health Organization (WHO).6 52.4 89.9 4.3 0. Sources: Economist Intelligence Unit (EIU). Laos and Myanmar fare poorly.3 1.0 89. in particular the latter.7 0. as measured by the telephone lines and mobile telephone subscribers per 100 population.8 8 9 8 8 10 10 10 4 5 4 5 5 5 5 32. In the political institutions and rule of law sub-areas. some indicators for which data are available can help to shed light on the competitiveness of Laos and Myanmar in certain areas.0 4.0 82. as with the other ASEAN countries. authors’ analysis.8 2009 -4.6 2.8 presents indicators for Laos and Myanmar in the categories of macroeconomic policy. Laos’ government debt is comparatively high and places it in the fourth quintile.2 23. social infrastructure and political institutions and factor input conditions.9 404. and are in the bottom quintile of sample countries. while Myanmar is ranked in the third quintile on this indicator.0 79. Both countries. Laos Posi on in ASEAN 2009 4 9 3 Approx. control of corruption and rule of law.1 0.000 popula on) 1 Tuberculosis Incidence (per 100.4 6 4 10 9 9 8 8 4 4 5 5 5 5 5 675.6 7. Laos and Myanmar are relatively weak in the sub-area of basic health and education and are placed among the bottom 20 percent of countries on some indicators. The competitiveness profiles of Laos and Myanmar that emerge from this analysis of limited key indicators are that of comparatively uncompetitive economies. World Economic Outlook (WEO).5 0.0 3.8 830.8 312.3 62.1 8 8 5 5 0. On macroeconomic policy indicators. On communications infrastructure. The two countries are among the last placed when compared with other ASEAN countries. Laos and Myanmar experienced relatively low inflation in 2009 from 2008.5 48.0 2008 -3. Approximate quintile ranking if country were among the countries in the New GCI sample.5 18.5 88.8 44.0 88. Quin le Ranking 2009 2 2 4 1 Myanmar Posi on in ASEAN 2009 7 6 6 Approx.8 60.8 1.0 -2.4 0. which place them in the top and second quintile among New GCI sample countries respectively. TABLE 4.5 1.4 43.7 26. However. appear to be stronger on macroeconomic policy than social infrastructure and political institutions under macroeconomic competitiveness.7 9. data on Laos and Myanmar support the observation that communications infrastructure is weak across a number of ASEAN countries.6 10 9 5 5 68 ASIA COMPETITIVENESS INSTITUTE . Data are for 2007 and 2008.2: lAOS AND MYANMAR The data for Laos and Myanmar are quite limited.BOx 4.8 49.6 2009 -3. both Laos and Myanmar receive very unfavorable assessments. Table 4.2 404.000 popula on) Net Primary Enrollment Rate 1 Gross Secondary Enrollment Rate 1 Poli cal Ins tu ons Voice and Accountability (percen le rank) Rule of Law Control of Corrup on (percen le rank) Rule of Law (percen le rank) Factor Input Condi ons1 Communica ons Infrastructure Mobile Telephone Subscribers (per 100 popula on) Telephone Lines (per 100 popula on) 24. It also gives their relative positions among ASEAN countries as well as their approximate quintile ranking if the two countries were included in the New GCI country sample.0 7. Laos performs better than Myanmar in basic health and fares worse on school enrollment rates.8: SElECTED COMPARATIVE COMPETITIVENESS INDICATORS FOR lAOS AND MYANMAR Notes: 1. but their levels are lower than 60 and 40 percent of countries respectively. Worldwide Governance Indicators (WGI). Human development and rule of law have been identified as being among the weakest areas for ASEAN in the New GCI analysis above and the relative positions of Laos and Myanmar on basic health and education and governance indicators reinforce this finding.

‘with that freedom both protected by the state and unconstrained by the state. The Economic Freedom Index subcomponent on restrictions on both domestic and foreign investment indicates that ASEAN has relatively high investment barriers. In particular. This section assesses ASEAN’s performance across components of economic freedom based on the 2011 Index and 2010 Index that are available for a constant sample of 179 countries. while assessment on FDI restrictions in the New GCI. which is slightly improved from 2009. ASEAN is strongest on government spending. ASEAN’s largest gain has been in monetary freedom. which captures the ease of starting. in keeping the level of government expenditure as a percentage of GDP within a reasonable range. Since the 2011 (2010) indices cover primarily data from the second half of 2009 (2008) through to the first half of 2010 (2009). ASEAN is ranked above 47 percent of countries in the sample on overall economic freedom in 2010.12).’ Economic freedom has been shown to be positively related to positive social and economic values such as per capita income and economic growth rates. BOx 4. ASEAN is assessed to be weaker on economic freedom compared with its position on global competitiveness as given by the New GCI. ASEAN is weakest on investment freedom. which combines a measure of price stability with an assessment of price controls (Figure 4. operating and closing a business. Nevertheless. ASEAN’s ranking on investment freedom is substantially weaker than on indicators of FDI restrictions under the New GCI. ease of doing business and logistical efficiency respectively. the data suggest that investment barriers might be another area for ASEAN to monitor more closely. investment freedom and labor freedom compared with similar indicators in the context for strategy and rivalry sub-area under the New GCI. and business freedom. Between 2009 and 2010. which are measured differently.Analysis with Additional Competitiveness Indicators The competitiveness analysis thus far has relied on New GCI rankings. Taken together. Boxes 4. that is. ASEAN’s ranking is constructed as the GDP (PPP)-weighted rankings of nine ASEAN countries (excluding Brunei).5 analyze ASEAN’s performance on economic freedom. FDI indicators are ranked lower relative to other items within the same sub-area of context for strategy and rivalry in New GCI. are more favorable. In summary. the component measuring corruption in the Index of Economic Freedom compiled by The Wall Street Journal and The Heritage Foundation and subindices on the ease of starting and closing a business in The World Bank’s Ease of Doing Business Index support the earlier assessment that corruption and administrative regulations are major areas of weakness for ASEAN. while others organize competitiveness categories differently. This section discusses the competitiveness positions of ASEAN and individual member countries based on indices that are compiled for multiple countries from other data sources and using different methodologies. (Continued on next page) ASEAN COMPETITIVENESS REPORT 69 . their representations of ASEAN countries’ competitiveness in various aspects are useful in serving either to reinforce or qualify the identification of strengths and weaknesses based on New GCI data. These indices are not directly comparable with New GCI – some are more narrowly focused. ASEAN is ranked lower on factors under trade freedom. Nevertheless. but the data used are mainly from different sources and are organized differently. gives a more positive depiction of infrastructure quality and customs efficiency in ASEAN compared with the New GCI. where the region is ranked above 57 percent of countries. which measures restrictions on both domestic and foreign investments. The Index of Economic Freedom covers a broad range of areas similar to the New GCI. the analysis below will refer to changes in ASEAN’s rankings in 2010 from 2009 to reflect the time period captured in the data. which are aimed at measuring the extent to which individuals can engage in economic activities in any way they please and resources can move freely. The World Bank’s Logistics Performance Index meanwhile.3: ECONOMIC FREEDOM IN ASEAN The Index of Economic Freedom compiled by The Wall Street Journal and The Heritage Foundation ranks countries on ten components of economic freedom. The other component where ASEAN is placed worse than its overall economic freedom index ranking is freedom from corruption.3 to 4.

Restrictions measured under investment freedom include whether there is national treatment and prescreening of foreign investment. foreign exchange controls and capital controls. Index of Economic Freedom Cambodia Indonesia Laos Malaysia Myanmar Philippines Singapore Thailand Vietnam 102(5) 116 141 53(6) 174 115(-6) 2 62 139(5) Business Freedom 161 133(6) 123(-5) 74 175 152 4 72 109 Trade Freedom 124 103(-19) 133 85 112(-7) 86 1 94 132 Fiscal Government Freedom Spending 20 58 77 39 64(-5) 84 18 107 101(-5) 4(6) 22(5) 15(5) 59(-5) 1 10(6) 9(-7) 13(10) 77(7) Monetary Investment Financial Freedom Freedom Freedom 57(51) 98 34(39) 27(16) 172(6) 77(7) 5 136 45(127) 62 123 146 103(29) 172 117 26 117 164(-12) 70 106 159 70 172 70 38(31) 17 133 Freedom from Property Labor Rights Corrup on Freedom 99 99 146(18) 52 176 99 2 70 164 160(9) 113(16) 160(-6) 55(-8) 178 141 3 84 122 143(11) 123(11) 134(-30) 35(20) 176 128 1 44(7) 63 70 ASIA COMPETITIVENESS INSTITUTE . Source: The Heritage Foundation and The Wall Street Journal (2010. which are analyzed in the section below.12: ECONOMIC FREEDOM IN ASEAN REGION Notes: (a) Business Freedom: Data used in measuring business freedom are from the World Bank’s Doing Business study. prevalence of foreign ownership and restrictions on capital flows comparatively are more favorable. This ranking. particularly Vietnam. Indicators of FDI restrictiveness are grouped under the context for strategy and rivalry in the New GCI. investment barriers might be another area for ASEAN to monitor more closely. which is derived primarily from Transparency International’s Corruption Perceptions Index. these indicators are ranked lower relative to other items within the context for strategy and rivalry sub-area. transparency of investment laws. which reflects a jump in Malaysia’s rankings. ASEAN’s ranking on freedom from corruption has shown improvement over the last few years but it is still perceived to have more corruption than over 55 percent of countries in the sample. and their ratings have deteriorated between 2009 and 2010. ASEAN’s investment freedom has improved slightly by 1 place from 2009 to 2010. The rankings of ASEAN on business assessments of indicators such as impact of business rules on FDI. ASEAN COUNTRIES Notes: Numbers in brackets indicate changes in ranks in the 2011 Index of Economic Freedom and sub-indices from 2010 ranks. as the positions of the other ASEAN countries. 120 100 80 60 40 20 0 94 (+1) 107 (+1) 93 (-8) 69 (-1) 85 (+17) 109 (+1) 81 (+3) Rank 2011 (Change over 2010) of 179 countries 100 (+4) 90 (+1) 86 (+8) 27 (+4) Index of Business Economic Freedom (a) Freedom Trade Freedom Fiscal Government Monetary Freedom Spending Freedom Investment Freedom Financial Freedom Property Freedom from Labor Rights Corrup on Freedom (b) TABLE 4. restrictions on land ownership.9: INDEX OF ECONOMIC FREEDOM. under the Employing Workers topic. Only rank changes larger than + 5 (improvement) or -5 (deterioration) are reported. FIGURE 4. Nevertheless. reinforces the assessment from indicators on control of corruption and irregular payments by firms from the New GCI. which are among the lowest ranking indicators within the rule of law sub-area. 2011). (b) labor Freedom: Based on data from World Bank’s Doing Business study. 2011). Thus. Source: Authors’ analysis based on The Heritage Foundation and The Wall Street Journal (2010.9). have declined (Table 4. authors’ analysis.

authors’ analysis. which measures the documents required. The region is strongest on trading across borders. that is. ASEAN is particularly weak in the ease of starting a business in terms of procedural requirements. The World Bank’s Doing Business indicators measure business regulations and the protection of property rights and their effect on businesses. where administrative infrastructure. cost and outcome of insolvency proceedings. FIGURE 4. time and cost. the time. Source: World Bank (2009. Singapore retains its top position on overall ease of doing business. which is a slight deterioration from the 2010 Report. authors’ analysis. time and cost to export and import.13: DOING BUSINESS INDEX FOR ASEAN REGION Trading Across Borders Protec ng Investors Dealing in Construc on Permits Registering Property Ge ng Credit 40 (+2) 53 (-1) 66 (-3) 68 (-2) 75 (-2) Rank 2011 (Change in rank from 2010) of 183 countries Note: ASEAN’s rankings have been computed as GDP (PPP)-weighted ranks of nine ASEAN countries (excluding Myanmar). especially small and medium-sized domestic firms. particularly in relation to starting and closing a business. Only rank changes larger than + 5 (improvement) or -5 (deterioration) are reported. The Ease of Doing Business (DB) Index 2011 is constructed from component indicators of nine Doing Business topics. 2010a). OVERALL Enforcing Contracts Paying Taxes Closing a Business Star ng a Business 78 (-3) 89 (-1) 95 (0) 100 (0) 121 (+2) TABLE 4. with the data mainly applicable at June 2010. 2010).BOx 4. The overall DB rankings of the other countries are fairly low (Table 4. Source: World Bank (2009. This is followed by closing a business (44th percentile).4: EASE OF DOING BUSINESS IN ASEAN ASEAN (excluding Myanmar) is rated stronger on ease of doing business than 57 percent of 183 countries in the World Bank’s Doing Business 2011 Report. and protection of investors. is identified as an area of substantial weakness.13). where it is ranked in the 34th percentile.10: DOING BUSINESS INDEX. such as the extent of disclosure and shareholders’ ability to sue officers and directors for misconduct (Figure 4. which is measured by two component indicators of DB on starting a business among others. This is also the message from analysis under the New GCI framework. while Thailand and Malaysia are among the top 12 percent of countries. Indonesia Laos Malaysia Philippines Singapore Thailand Vietnam 171 21 148 1 19 110 59 118 13 25 31 152 1 23 113 108 102 15 128 6 72 4 4 2 12 2 12 173 43 ASEAN COMPETITIVENESS REPORT 71 . ASEAN COUNTRIES Brunei Cambodia Ease of Doing Business Index Contracts 159 Borders 52 Business Property 183 Taxes 22 89 57 Business Permits 74 Investors 120 74 44 182 4 132 147 142 154 47 170 37 183 142 183 55 153 1 12 2 46 124 117 98 163 170 155 146 60 115 Note: Numbers in brackets indicate changes in ranks in the 2011 DB Index and sub-indices from 2010 ranks. ASEAN’s rankings on DB indicators point to substantial scope for the region to lower the burden of administrative regulations.10).

with declines in Indonesia. However. The logistics performance of ASEAN countries are highly varied. It is ranked around the same positions on the other dimensions. where its logistical infrastructure is ranked in the 11th percentile. based on the World Bank’s 2010 Logistics Performance Index (LPI). The LPI is compiled from responses to the LPI Survey of international freight forwarders and is a weighted average of country scores on six key dimensions. while the LPI shows an improvement in the Philippines’ infrastructure from three years ago. Furthermore. The decline is greatest in tracking and tracing of consignments by 15 positions. the logistics performance of Indonesia and Cambodia have deteriorated the most with substantial drops in ranks across nearly all dimensions. For Cambodia. ASEAN’s performance in all six dimensions has declined in 2010 from 2007. The LPI and New GCI also give different depictions of the relative competitiveness of infrastructure quality in individual ASEAN country. followed by customs and logistics quality and competence. the New GCI shows otherwise. For instance.BOx 4. ranging from Singapore in 2nd position to Myanmar in 122nd place in 2010. where ASEAN’s logistics and communications infrastructure are ranked in the 52nd and 48th percentile respectively. Vietnam. the New GCI indicates that the country has improved its competitive position on logistical and communications infrastructure. Thailand and Malaysia. ASEAN’s strongest dimension is international shipments. The infrastructure dimension of LPI assesses the quality of trade and transport-related infrastructure such as ports. (Continued on next page) 72 ASIA COMPETITIVENESS INSTITUTE .11). The customs dimension of LPI and the indicator on burden of customs procedure within the administrative infrastructure sub-area of the New GCI give vastly different rankings for ASEAN. which fell by 13 ranks (Figure 4. while the LPI points to a decline in ranking over three years. Between 2007 and 2010.14). but the analysis in this section will be undertaken with reference to a constant sample of 140 countries in 2007 and 2010. railroads. both data sources suggest that ASEAN’s position on the quality of customs clearance has weakened over the last few years. The 2010 Survey was conducted in 2009 for 155 countries. roads and information technology and is similar to indicators under the logistical infrastructure and communications infrastructure sub-areas under the New GCI. there is significant difference between Vietnam’s ranking on infrastructure under LPI (54th percentile) and its position on logistical infrastructure under New GCI (22nd percentile) in 2010. and is weakest on logistics quality and competence. which rates the competence and quality of logistics services such as transport operators and customs brokers. placing ASEAN in the 61st percentile on customs efficiency in 2010 compared with 39th percentile on the New GCI customs indicator.5: lOGISTICAl PERFORMANCE IN ASEAN ASEAN (excluding Brunei) is ranked 53 or in the 62nd percentile on overall logistics performance in 2010. The quality of ASEAN’s infrastructure is ranked more favorably in the LPI (61st percentile) compared with New GCI. while the Philippines has made the largest improvement (Table 4. The LPI assessment is much more positive. which measures the ease with which competitively priced shipments can be arranged to the country in question. This is a worsened position from the 2007 LPI by 9 places. Philippines’ infrastructure is assessed to be better in the 2010 LPI (56th percentile) than with New GCI data.

was ranked at 57th among 132 countries in 2010. Among more disaggregated competitiveness sub-areas. ASEAN’s advantage has been more in microeconomic fundamentals than macroeconomic competitiveness factors. The strength of competitiveness fundamentals varies widely across ASEAN member countries. authors’ analysis. ASEAN COUNTRIES Note: Numbers in brackets indicate changes in ranks in the 2010 lPI and subindices from 2007 ranks. A negative figure in the bracket indicates a worsening in 2010 rank from the 2007 lPI.Customs FIGURE 4. ASEAN’s competitive weaknesses are in its administrative infrastructure. while at the other end. There are also sub- ASEAN COMPETITIVENESS REPORT 73 . the competitiveness profiles that emerge are that of comparatively uncompetitive economies. five of them are ranked in the top half of the 132 countries on overall competitiveness while three are in the bottom half. authors’ analysis. At the top end. the latest year available. based on New GCI data for eight ASEAN countries (excluding Laos and Myanmar). ASEAN countries share some common relative strengths and weaknesses that provide grounds for collective action. Logis cs Performance Index Cambodia Indonesia Laos Malaysia Myanmar Philippines Singapore Thailand Vietnam 2 35 52 110 29 Customs Infrastructure Interna onal Shipments Logis cs Quality and Tracking and Competence Tracing Timeliness 93 28 53 2 4 35 1 29 6 6 37 54 Summary ASEAN’s competitiveness. human resource development and rule of law.11: lOGISTICS PERFORMANCE INDEX. Singapore ranks among the top ten countries in the world. Sources: World Bank (2007. The significant gap between current prosperity and overall competitiveness might point to the potential of current competitiveness fundamentals in raising future prosperity. the region’s relative strengths lie in its related and supporting industries and clusters. its capital market infrastructure and company operations and strategy. Based on an analysis of limited data from other sources for Laos and Myanmar. ASEAN’s GDP per capita in 2009. Source: World Bank (2007. 2010b). as a whole. Cambodia places in the bottom 25 percent. 48 (-5) 57 (-15) Tracking and Tracing Interna onal Shipments 59 (-13) Logis cs Quality and Competence TABLE 4. was 79th position. Its position has not changed much over the last five years. 2010b). Across competitiveness categories. Only rank changes larger than + 5 (improvement) or -5 (deterioration) are reported. Of the eight countries for which New GCI data are available.14: lOGISTICS PERFORMANCE INDEX FOR ASEAN REGION ASEAN LPI 53 (-9) 60 Rank 2010 (Change in rank from 2007) of 140 countries 55 54 (-13) Timeliness 54 (-4) 50 54 (-6) 45 Infrastructure 40 Note: ASEAN’s rankings have been computed as GDP (PPP)weighted ranks of nine ASEAN countries (excluding Brunei).

The high-growth. however. 74 ASIA COMPETITIVENESS INSTITUTE . China has a smaller microeconomic than macroeconomic edge over ASEAN. Thus. but rate ASEAN’s investment restrictions to be more stringent than that given in the New GCI. big economies of China and India present some competition for ASEAN with regard to export markets and resources but also present a source of new demand and benefits from wider regional integration. and between ASEAN and India. China and India are all strong in their business environment for supporting and related industries and clusters and greater cooperation in this area may yield mutual benefits. where the former is lagging behind.areas that are relative strengths in some countries but relative weakness in others. more positive about ASEAN’s infrastructure quality and customs efficiency as compared with the New GCI. ASEAN would need to address a range of competitiveness factors in order to close the gap with China. ASEAN is more competitive than India but less competitive than China. ASEAN. which has an even smaller microeconomic edge over India. Alternative datasets covering ASEAN’s performance on economic freedom. This diversity is conducive to policy learning and the sharing of best practices among ASEAN countries. ease of doing business and logistical efficiency support the assessment using New GCI data that corruption and administrative regulations are major areas of weaknesses for ASEAN. There is. competition is close on microeconomic factors. however. In terms of competitiveness fundamentals. where the former is ahead. a much larger gap in the competitiveness of macroeconomic factors between ASEAN and China. ASEAN’s competitiveness also needs to be framed within the larger context of competitiveness of the Asian region. The alternative indicators are.

asp Porter. Mercedes Delgado.htm Browne. DC: International Monetary Fund. World Bank (2010c). John Panzer. Washington DC: The Heritage Foundation and The Wall Street Journal. World Bank (2010a). International Cluster Competitiveness Project. Delgado. Washington DC: World Bank. http://www. 2011). Daniel. org/governance/wgi/index. Porter. Although both approaches use basically the same underlying data. World Economic Forum. Ben Shepherd and Daniel Saslavsky) (2010b). Washington DC: The World Bank. Christian Ketels. individual ASEAN countries. “Moving to a New Global Competitiveness Index”. mimeo. http://info. The Index of Economic Freedom. Aart Kraay and Massimo Mastruzzi (2010). Connecting to Compete: Trade Logistics in the Global Economy. Underlying data drawn from the UN Commodity Trade Statistics Database and the IMF BOP statistics. The competitiveness ranking of ASEAN. as well as distinct differences in the organization and processing of the data and in the methodology used in deriving the Index.Endnotes 1 The Global Competitiveness Index compiled by the WEF and published in its annual Global Competitiveness Report is not directly comparable to the New Global Competitiveness Index compiled by Porter et al. ASEAN COMPETITIVENESS REPORT 75 . World Economic Forum.worldbank. Lauri Ojala. World Bank (Arvis. Kaufmann. World Bank (Arvis. China and India will be analyzed with respect to a constant sample of 132 countries throughout this chapter. Monica Alina Mustra. Ciara and Thierry Geiger (2010). The Heritage Foundation and The Wall Street Journal (2010. Jean-Francois. Christian Ketels and Scott Stern (2008). Risk and Rebalancing. Porter and Scott Stern (2010). Washington DC: The World Bank and International Finance Corporation. John Panzer . Michael E. Jean-Francois. Explaining Prosperity Differences Across Countries: The Determinants of National Competitiveness. Doing Business 2011: Making a Difference for Entrepreneurs. in The Global Competitiveness Report 2010-2011. Washington. Institute for Strategy and Competitiveness. and Richard Bryden (2010). The Logistics Performance Index and Its Indicators. Harvard Business School. Connecting to Compete: Trade Logistics in the Global Economy. Michael E.org/22122. The Logistics Performance Index and Its Indicators. Doing Business 2010: Reforming through Difficult Times.. Michael E. there are some differences in the detailed indicators used. Monica Alina Mustra. International Monetary Fund (IMF) (2010). Washington DC: The World Bank and International Finance Corporation. This sample will be referred to generally as the global set of countries or the world. Lauri Ojala and Tapio Naula) (2007). Worldwide Governance Indicators. ASEANstats. World Development Indicators. World Bank (2009).aseansec. in The Global Competitiveness Report 2008-2009. 2 Chapter References ASEAN (2010). “The Executive Opinion Survey: The Business Executives’ Insight into Their Operating Environment”. Mercedes. World Economic Outlook October 2010: Recovery.

76 ASIA COMPETITIVENESS INSTITUTE .

ASEAN Competitiveness Report 20 10 Chapter 5 Assessment and Policy Recommendations ASEAN COMPETITIVENESS REPORT 77 .

The region performs better than India. However. The region has several naturally-endowed advantages in location. the analysis of ASEAN’s economic performance over the last two decades. Each country. At the same time. The other countries are classified as middle income. has brought this strategy into question as global demand wanes. The safeguards and sound macroeconomic policies put in place in the region pursuant to the 1997 Asian financial crisis have enabled the ASEAN economies to undertake macroeconomic stimulus measures with relatively low public debt during the recent crisis. implementation is behind schedule. ASEAN lags significantly behind advanced economies and has been overtaken by China in a few aspects. Since 1997. where ASEAN seeks to maintain “ASEAN Centrality”. ASEAN needs to find the political resolve as well as ways to strengthen its institutional mechanisms and capacity to enable both the ASEAN Secretariat and member economies to effectively fulfill the tasks required. Cambodia and Myanmar are in the low-income category. ASEAN members share common concerns and face challenges that are posed by the wider global environment that can be addressed through collective action. but the latter is catching up. Within ASEAN. including with China and India. The first section of this chapter offers an assessment of ASEAN’s competitiveness and the second section suggests elements that ASEAN could address in defining a regionwide Competitiveness Agenda. resource abundance and market size and it has achieved a sustained period of rapid economic growth in the 1980s and 1990s. The evolving regional architecture provides opportunities for ASEAN as well as presents challenges and ASEAN needs to maximize its competitiveness as well as develop and deepen complementarities vis-à-vis the emerging Asian powers. as measured by GDP per capita. The Blueprint to form an ASEAN Economic Community has been implemented since 2008. stood at $4. which would reflect the outcomes of its past competitiveness. ASEAN as a whole has turned in a relatively staid performance post-1997 Asian financial crisis. While ASEAN is expected to retain significant ties with major advanced economies. Income inequality is relatively high among ASEAN countries as five of eight members have a Gini coefficient above 0. which is only slightly above the world average. In the longer term. with well-defined blueprints. to achieve rapid economic development over the past few decades.4 percent but this growth rate has decelerated to an annual 2. including those in ASEAN. If successfully implemented. ASEAN now needs to diversify its sources of growth. would need to tailor solutions to the competitiveness issues that are specific to its national conditions. Singapore and Brunei fall under the highincome category while Laos. with Malaysia in the upper-middle-income bracket and the rest as lower middle income. In the short term. which would include stimulating ASEAN’s Competitiveness Performance ASEAN has solid foundations on which to raise its competitiveness. ASEAN is comprised of a diverse group of countries that runs the full range from high-income to low-income categories. The recent global crisis. At present. Key Challenges in a Changing Global Context The ASEAN region has rebounded fast from the global crisis of 2008-2009. On recent measures of economic outcomes. China and India are becoming increasingly important. huge current account imbalances persist and the possibility of protectionism rears its head. economic community and socio-cultural community.739 in 2009 (PPP at 2005 international dollars) at about half that of the world average. However. This chapter provides an overall summary and assessment of ASEAN competitiveness with a focus on developing relevant policy recommendations for ASEAN members to collectively improve regional competitiveness. The level of poverty varies across 78 ASIA COMPETITIVENESS INSTITUTE . ASEAN has to formulate a development strategy that addresses cumulated challenges and responds to changing circumstances to generate sustainable growth.and middle-income groups have failed to move up to the next rung of the income ladder. this will substantially enhance the region’s attractiveness for economic activities. The distribution of prosperity in the ASEAN region has been uneven. The challenges confronting ASEAN are at both the national and regional levels. relatively unscathed. in its quest to improve prosperity.ASSESSMENT AND POlICY RECOMMENDATIONS The earlier chapters in this Report have covered the changing global and regional environment as well as ASEAN’s competitiveness performance and fundamentals. seven of its members in the low. ASEAN has entered a new phase in its cooperation with its goal to establish an ASEAN Community by 2015 that comprises the three pillars of a political-security community. Prior to the Asian financial crisis. domestic and regional demand. however.3 percent over the last decade. ASEAN’s prosperity was rising faster than the world average at a yearly rate of 5.4. ASEAN has established a widening network of free trade and economic partnership agreements with external partners in recent years. has shown that while there is considerable variation across countries. risks to ASEAN’s economic prospects include the buildup of inflationary pressures and asset bubbles. ASEAN’s prosperity. The export-led growth strategy has served as a good model for many developing countries. sustainability of the recovery is important if ASEAN is to continue to grow. At the collective level.

in contrast to a near doubling of its share of world exports in the decade before the Asian financial crisis. agricultural products.2 percent in 2009 from 5. Myanmar and Laos have been receiving the lowest shares of total FDI inflows to ASEAN. the region’s capital formation has fallen below that in China and India. The findings suggest that improving labor productivity is very important for the region. However. ASEAN has over the years developed strong export clusters in a number of industries such as IT.4 percent over the last ten years.9 percent in 2007 and 2008. ASEAN economies have relatively low business densities compared with the advanced economies. although outward investments from these two countries have been rising. The export clusters already developed can be further strengthened and efforts can be directed to raising the export of services. compared with 8. exports have been the backbone of ASEAN’s growth strategy. it is important to maximize the utilization of the resources available to ASEAN such as natural endowments. On nonincome measures. transport and logistics. ASEAN is not a significant investor compared with the developed countries. followed by Thailand and Indonesia. ASEAN COMPETITIVENESS REPORT 79 . This is similarly the case with China and India. ASEAN’s highest world share was 4. ASEAN’s FDI inflows over the last two years has been just in line with its economic size. followed by Malaysia and Thailand. its edge over China has been steadily eroding with China’s labor productivity now slightly better than that of ASEAN. and ASEAN needs to increase its world share of exports. there is a wide gap in the quality of human development across ASEAN countries. which is way behind that of the developed countries. except for Singapore. although ASEAN’s share of world total FDI inflows recovered from 2. Singapore has the strongest presence in world markets with over 2 percent share of world exports while CLMV and Brunei have the weakest positions. ASEAN fares better in the performance of its small and medium enterprises. exceeding 30 percent of GDP. Exports have thus far been a driving force in ASEAN’s growth with ASEAN being predominantly a goods exporter.0 percent between 1994 and 1996 in the 1990s. However. as with the rest of the world. locational advantages. Vietnam and Cambodia are exceptions where domestic investment rates have been increasing over the last two decades. oil and gas products. Most of the outward FDI in ASEAN is accounted for by Singapore and Malaysia. plunged amid the global crisis.3 percent in 2009. accounting for around 2 percent of world total FDI outflows. FDI inflows to ASEAN. Vietnam has the highest investment rate in the region in the 2000s. The entry rate of new businesses in ASEAN is comparatively more robust. which are better represented in the Forbes 2010 Asia Pacific “Best Under a Billion” list. ASEAN is relatively weak on innovation outcomes in terms of patent filings in the US. but it falls significantly behind both countries in the growth rate of patent filing per capita between 1997 and 2009. ASEAN’s companies generally have not been able to grow large on a global scale as homegrown companies account for 3 percent of companies on the 2010 Forbes Global 2000 list. and the region faces stiff competition from China and India in attracting foreign investments.5 percent between 2003 and 2005. they fell markedly during the crisis. while the other countries have no or very low levels of patent filings in the US. ASEAN still has not recovered its share of world total FDI inflows from the decline during the Asian financial crisis. metal mining and manufacturing. ASEAN’s world export market share has increased to 6.ASEAN with Cambodia and Laos having high rates of poverty and Thailand and Malaysia having the lowest levels of poverty (Singapore does not have a poverty line). Other areas where performance can be improved relate to attracting more foreign investments as well as mobilizing domestic investments. In the 2000s. For ASEAN to improve its prosperity. Thus far. and nurturing entrepreneurship and innovation through local enterprises. none of which is among the top 100. while Brunei. In terms of outward FDI flows. While ASEAN has maintained its edge in labor productivity over India.7 percent in 2008 to 3. From attracting FDI inflows that were three to four times more than what could be expected from its size in the global economy in the 1990s. In 2005. whether this is the start of a sustained increase remains to be seen. ASEAN was overtaken by China in world export market share at the same time that Japan’s share dipped below ASEAN’s. Singapore has been attracting the most foreign investments. While ASEAN has moderately high labor force participation rate and affordable local prices. ASEAN is slightly behind China and ahead of India in the number of patents filed with the US Patent and Trademark Office on a per capita basis. ASEAN has not made much progress in raising its share of world exports over the last decade. On the state of entrepreneurship. There are also large differences in the extent of gender-related development and empowerment across ASEAN economies. and business services. large labor supply and favorable price levels. with Singapore performing well on the Human Development Index and Myanmar rating poorly on this indicator. the region has relatively low labor productivity with the exception of Singapore where labor productivity is high. although Vietnam has doubled its world share to 0. which has hovered around 6 percent. Although ASEAN’s investment rate has recovered to 26 percent in 2009. While domestic investments in ASEAN have been high prior to the Asian financial crisis. Singapore has by far the highest number of patent filings in the region.

1: MICROECONOMIC AND MACROECONOMIC COMPETITIVENESS ACROSS ASEAN COUNTRIES Ranking in Micro Compe 100 90 80 70 60 50 veness 40 30 20 10 0 0 Singapore . The overall competitiveness of the eight New GCI-ranked ASEAN countries varies in a broad range with Singapore placed among the top ten countries and Cambodia in the bottom 25 percent.20 Thailand ASEAN Vietnam Source: Authors’ analysis based on unpublished data in Delgado et al. ASEAN’s ranking is computed as the GDP (PPP)-weighted ranking of eight ASEAN countries for which data are available and excludes Laos and Myanmar. Thailand and Indonesia are in the top half of the 132 countries while Vietnam. an analysis was conducted in Chapter 4 on ASEAN and its member countries’ global competitiveness positions on a wide array of fundamental factors that affect longer-term competitiveness. raw data from World Economic Forum. Malaysia. Philippines and Cambodia are in the bottom half. The top three areas of relative strength in ASEAN and each member country are then placed side by side for comparison and discussion. The competitiveness of Singapore. If a country has better microeconomic competitiveness fundamentals relative to other countries. capital market infrastructure and strategy and operational effectiveness. it is likely also to have relatively stronger macroeconomic competitiveness fundamentals. The same is done for areas of relative weakness. Throughout the years. (2010). Malaysia 60 80 100 Indonesia Philippines Cambodia 120 ASEAN’s Competitiveness Fundamentals The review of ASEAN’s competitiveness performance has pointed to the need as well as significant scope for ASEAN to improve economic outcomes. Main Areas of Strengths and Weaknesses A comparative analysis of individual countries’ main strengths and weaknesses will shed light on the common areas that are contributing to the overall strengths and weaknesses of ASEAN and help to identify the grounds for collective action. ASEAN countries have been listed in accordance with the World Bank income classification from high income to low income in order to decipher emerging trends as related to income status.1). based on New GCI data. The exception to this is Brunei (Figure 5. if any. Most of the member countries are ranked higher on microeconomic competitiveness fundamentals than macroeconomic fundamentals. It is further observed that microeconomic competitiveness and macroeconomic competitiveness go hand-in-hand. ASEAN is ranked 57th among 132 countries on overall competitiveness in 2010. To assist in the identification of specific areas that ASEAN can focus on to raise competitiveness regionally and nationally. ASEAN’s competitiveness ranking has lingered around the 57th to 60th percentile mark. Executive Opinion Survey 2009. 2010. Brunei. ASEAN’s relative competitiveness in microeconomic fundamentals is reflected in the relative strengths of individual member countries. It should be noted that an area of relative strength (weakness) within a country can have an absolute ranking that is relatively low (high) among the countries in the New GCI sample and this differentiation will be made where appropriate in the analysis below. 80 ASIA COMPETITIVENESS INSTITUTE Ranking in Macro Compe Brunei 40 veness FIGURE 5. To facilitate this comparison.1). sub-areas of competitiveness are sorted from best ranked to worst ranked within ASEAN and each member country to identify their relative strengths and weaknesses. ASEAN has made good progress in its competitiveness positions in the first half of the 2000s but over the last five years. Strengths The top strengths for ASEAN are in the sub-areas of supporting and related industries and clusters. ASEAN has performed much better on microeconomic competitiveness fundamentals than macroeconomic competitiveness factors. which are predominantly in areas under microeconomic competitiveness although some countries are strong in the subcategory of macroeconomic policy under macroeconomic competitiveness (Table 5.

TABLE 5.1: TOP-THREE AREAS OF RElATIVE STRENGTH, ASEAN AND MEMBER COUNTRIES

ASEAN
Supporting and Related Industries and Clusters Capital Market Infrastructure Strategy & Operational Effectiveness

Singapore
Administrative Infrastructure

Brunei
Macroeconomic Policy

Malaysia
Supporting & Related Industries & Clusters Capital Market Infrastructure

Thailand
Macroeconomic Policy

Indonesia
Supporting & Related Industries & Clusters Strategy & Operational Effectiveness

Philippines
Organization -al Practices

Vietnam
Supporting & Related Industries & Clusters Capital Market Infrastructure

Cambodia
Context for Strategy & Rivalry

Context for Strategy & Rivalry

Rule of Law

Internationali zation of Firms

Macroeconomic Policy

Political Institutions

Source: Authors’ analysis based on unpublished data in Delgado et al. (2010); raw data from World Economic Forum, Executive Opinion Survey 2009, 2010.

Logistical Infrastructure

Human Development

Organization -al Practices

Supporting & Related Industries & Clusters

Capital Market Infrastructure

Supporting & Related Industries & Clusters

Political Institutions

Logistical Infrastructure

The middle-income economies of Malaysia, Thailand, Indonesia, Philippines and Vietnam share a common relative strength in their national business environment for supporting and related industries and clusters. The countries’ absolute rankings out of 132 countries (or ‘global’ rankings) in this sub-area range from 16 (Malaysia) to 55 (Philippines). While supporting and related industries and clusters is among Singapore’s areas of relative weakness, Singapore’s global ranking in this sub-area is 19. Four of the middle-income members of ASEAN (Malaysia, Thailand, Indonesia and Philippines) also are relatively strong in some aspect of the subcategory of company operations and strategy, whether it is organizational practices, strategy and operational effectiveness or internationalization of firms. The global competitiveness rankings of these countries in

company operations and strategy range from 23 (Malaysia) to 55 (Philippines). Again, while this dimension is another area of relative weakness for Singapore, its global ranking is 12. The other notable areas of relative strengths shared by different countries are in the national business environment aspects of context for strategy and rivalry and the factor input condition of capital market infrastructure. ASEAN countries could harness common areas of strengths to build national and regional prosperity. Weaknesses The top three areas of relative weakness for ASEAN are in the sub-areas of administrative infrastructure, rule of law and human development.

TABLE 5.2: TOP-THREE AREAS OF RElATIVE WEAKNESS, ASEAN AND MEMBER COUNTRIES

ASEAN
Administrative Infrastructure Rule of Law Human Development

Singapore
Supporting & Related Industries & Clusters Internationalization of Firms

Brunei
Administrative Infrastructure

Malaysia
Human Development

Thailand
Political Institutions

Indonesia
Administrative Infrastructure

Philippines
Administrative Infrastructure

Vietnam
Macroeconomic Policy

Cambodia
Communications Infrastructure

Internationali zation of Firms

Rule of Law

Rule of Law

Communications Infrastructure

Logistical Infrastructure

Administrative Infrastructure

Human Development

Strategy & Operational Effectiveness

Source: Authors’ analysis based on unpublished data in Delgado et al. (2010); raw data from World Economic Forum, Executive Opinion Survey 2009, 2010.

Supporting & Related Industries & Clusters

Communications Infrastructure

Human Development

Human Development

Political Institutions

Logistical Infrastructure

Rule of Law

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The top areas of relative weakness for the eight ASEAN countries are distributed almost equally between areas related to macroeconomic competitiveness (human development, political institutions, rule of law, macroeconomic policy) and those related to factor input conditions (administrative, communications and logistical infrastructures) in the national business environment. Common areas of relative weakness cut across ASEAN countries in different income brackets from high to low income (Table 5.2). Administrative infrastructure is one of the more frequent areas of relative weakness across ASEAN countries although Singapore is ranked first globally in this sub-area. The four ASEAN countries where administrative infrastructure is among the top three relative weaknesses (Brunei, Indonesia, Philippines and Vietnam) also have poor global rankings in this area, ranging from 96 (Indonesia) to 124 (Philippines) of 132 countries. They generally perform poorly on the indicators for the number of procedures and the time required to start a business. Human development is another common area of relative weakness across ASEAN countries. It is among the top three relative weaknesses in Malaysia, Thailand, Indonesia and Cambodia. The other areas of relative weakness common to two or more member countries are communications infrastructure, rule of law, political institutions, logistical infrastructure and internationalization of firms. Some of these areas are relative weaknesses in some countries but relative strengths in other countries. The limited indicators available for Laos and Myanmar support the general trend of weakness in human development, rule of law and communications infrastructure within the ASEAN region while both countries fare better on macroeconomic policy. Analysis using alternative datasets covering ASEAN’s performance on economic freedom, ease of doing business and logistical efficiency support the assessment using New GCI data that corruption and administrative regulations are major areas of weakness for ASEAN. There is indication that ASEAN’s restrictions on investments might be higher than the assessment in New GCI. On the other hand, alternative indicators give a more positive depiction of infrastructure quality and customs efficiency in ASEAN compared with the New GCI. The common areas of weakness among the ASEAN countries provide common areas of concern for ASEAN that members could improve on through greater cooperation and sharing. The disparity in global competitiveness across the ASEAN countries in some of the sub-areas and indicators provides an opportunity for policy learning from the better-performing members in the corresponding areas. One such area is administrative infrastructure, which is weak in a number of ASEAN countries but where Singapore is rated well.

Prosperity and Competitiveness Fundamentals The current prosperity of a country or region, as measured by GDP per capita, is the outcome of past competitiveness. At the same time, the strength of current competitiveness fundamentals will impact on future prosperity. The current global position of a country or region in prosperity level relative to its ranking on competitiveness fundamentals, or “competitiveness gap”, may offer some indications of the ability of a country or region to improve or sustain prosperity in the longer term. Where a country’s or region’s global competitiveness ranking leads its GDP per capita ranking (positive gap), this may suggest that it is in a relatively strong position to generate future prosperity. On the other hand, where a country’s or region’s competitiveness ranking lags behind its GDP per capita ranking (negative gap), this may indicate that it is in a weaker position to maintain its relative position on prosperity against other countries. ASEAN’s GDP per capita in 2009 (the latest year available) was 79th position out of 132 countries, which was lower compared with its overall competitiveness position in 2010 of 57th place. This positive gap may point to the potential of current competitiveness fundamentals in raising future prosperity. Across ASEAN countries, Singapore has high global rankings in GDP per capita and competitiveness, which points to the strength of its competitiveness fundamentals in sustaining its global position in prosperity. The other high-income country, Brunei, has a significant negative gap, which may indicate that its prosperity may not be sustainable unless its competitiveness fundamentals are substantially improved. The middle- and low-income ASEAN countries all have positive gaps, which suggests that these countries may achieve higher levels of prosperity in future in line with their competitiveness fundamentals. The gap is smaller for the Philippines and Cambodia and these countries may need to do more to strengthen their competitiveness fundamentals in order to climb higher on the world prosperity ladder (Figure 5.2). ASEAN, China and India ASEAN’s overall competitiveness lies ahead of India but behind that of China. ASEAN is ranked lower than China by 18 positions and higher than India by 13 places on the New GCI 2010. ASEAN’s negative gap with China has persisted over the last few years, while its significant positive gap with India has arisen in 2010 mainly as a result of deterioration in India’s competitiveness position from 2009. China is more competitive than ASEAN on both micro and macro competitiveness fundamentals although its lead is higher on macro factors. When analyzed across sub-areas, ASEAN is not as competitive as China in many respects. Even for sub-areas that are ASEAN’s relative strengths, which are supporting industries and clusters, company strategy and

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ASIA COMPETITIVENESS INSTITUTE

Ranking gap

FIGURE 5.2: “COMPETITIVENESS GAP”: DIFFERENCE IN GDP PER CAPITA AND NEW GCI RANKINGS

40 30 20 10

0
ay sia EA ne s un es po na la bo Ca m
-10 -20 -30 -40

ei

N

nd

re

m

ia

AS

on

Br

ai

pi

ga

al

ilip

Th

Source: Authors’ analysis based on unpublished data in Delgado et al. (2010); raw data from World Economic Forum, Executive Opinion Survey 2009, 2010.

Sin

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M

operational effectiveness and internationalization of firms, ASEAN’s performance is generally not as good as that of China’s. Although ASEAN and China share common relative weaknesses in human development, administrative infrastructure, communications infrastructure and rule of law, China is still more competitive in these sub-areas than ASEAN. ASEAN, however, is equally competitive with China in the context for strategy and rivalry and can build on its comparative strengths within this sub-area. In general, ASEAN needs to improve its competitiveness fundamentals vis-à-vis China in most categories. ASEAN has a competitive edge over India in both micro and macro competitiveness fundamentals, although the gap in microeconomic competitiveness is relatively small. ASEAN is stronger than India in the areas of human development, organizational practices, internationalization of firms, logistical, communications and administrative infrastructures. While ASEAN continues to strengthen its competitive position vis-à-vis India in the above areas, it would also need to catch up in the areas of rule of law, capital market and innovation infrastructure.

ASEAN has in the last few years intensified its efforts towards implementing a wide-ranging collective agenda to achieve deeper integration as a means to raising the region’s competitiveness. It has set a goal to form an AEC by 2015, to reap scale economies in production and to enhance its attractiveness as a consumer market. However, the implementation of measures towards an AEC, which started in 2008, is behind schedule. To make a leap in its competitiveness, ASEAN not only has to carry out existing tasks more effectively but also define new approaches and new tasks. In the past, ASEAN integration efforts have tended to focus on trade and investment liberalization. Such negotiations over reciprocal market access are typically politically difficult and the extent of market opening achieved is often less than satisfactory. ASEAN could extract greater gains from regional cooperation by placing more emphasis on activities that yield significant cross-border externalities and direct mutual benefits. Given the region’s diversity where strength in one country may be a weakness in another, ASEAN also provides an important platform for policy learning and the sharing of best practices across a wide range of areas. This Report, by analyzing a multitude of competitiveness factors that span the economic, political and social dimensions, serves to highlight the importance of building competitiveness through an integrated, multi-pronged ASEAN Competitiveness Agenda. Such a Competitiveness Agenda will be guided by a few principles:

Towards an ASEAN Competitiveness Agenda
Analyzed as a single economic entity, ASEAN’s competitiveness, whether measured by performance or fundamentals, has not been as impressive in recent years as before the 1997 Asian financial crisis, and the region risks being overshadowed by the economic might of China and India. Although individual member countries vary widely in their competitiveness and each has different priority issues to address in enhancing national prosperity, the analysis has shown that there is much ground for policy learning and action at the regional level.

Ph

Vi

et

di

a

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and these include interlinked microeconomic competitiveness areas as well as macroeconomic competitiveness factors that provide the broad setting in which businesses operate. ASEAN can also seek to tap into synergies with China and India on cluster development to further integrate the Asian economies. Measures that ensure a more equitable distribution of the benefits of growth are pertinent in minimizing the exposure of the less privileged to external shocks such as escalating food and fuel prices as well as natural disasters. Singapore and Thailand are proposed to be linked in the second half of 2011 with the Philippines’ stock exchange expected to join the common electronic platform in the first half of 2012. given the importance of ASEAN’s external trade and investment linkages and the rise of China and India. Capital Market Infrastructure Capital market infrastructure is a relative strength for ASEAN. Since developing physical infrastructure is a capital and time intensive process.FIGURE 5. Building on Strengths Cluster Development ASEAN is relatively strong in the competitiveness of its supporting and related industries and clusters. Singapore and Thailand.3: ASEAN COMPETITIVENESS AGENDA ASEAN Integra on Building on Strengths Encouraging Local Enterprises Foster SMEs Boosting Clusters Align regional infrastructure development Integrating Regional Capital Market Infrastructure Mobilize financial resources Addressing Weaknesses Stepping Up Human Resource Development Improve basic health and education Upgrade skills Improving Regional Macroeconomic Policy Coordination Enhancing Administrative Infrastructure Expedite the ASEAN Single Window Simplify business procedures Improving Rule of Law Inclusive Growth Source: Authors’ analysis. Recently. • The second is commitment to fostering inclusive growth both within and between member countries. ASEAN has taken a welcome initiative in this direction with the proposed ASEAN Exchange Linkage. in which the stock exchanges of Malaysia. Philippines. Better cluster development would also foster the growth of local enterprises. Active capital markets also encourage the growth of local enterprises. oil and gas products. and apparels are a major export in CLMV. ASEAN countries should strive to align their national interests with the interests of ASEAN as a region to maximize collective gains. Currently the spread of prosperity around the region is uneven with large development gaps. ASEAN can leverage this strength by creating integrated regional value chains of clusters. it would be judicious for ASEAN to explore the prioritization of infrastructure development in line with cluster development. Further regional efforts to improve and integrate the capital market infrastructure within ASEAN as well as with the world would help to mobilize the high savings in the region and attract FDI inflows. IT products are the largest export commodity in Malaysia. metal mining and manufacturing. ASEAN unveiled its Master Plan on ASEAN Connectivity. Asia Pacific and Global Integra on • The first is recognition of the value of regional cooperation in providing synergistic benefits for member countries. agricultural products. transport and logistics and business services.3. resources and capabilities that practically span the whole production process. • The third is continuation of ASEAN’s outward orientation and integration with the rest of the Asia Pacific region and the world. 84 ASIA COMPETITIVENESS INSTITUTE . The Competitiveness Agenda for ASEAN must leverage ASEAN’s competitive strengths while addressing its competitive weaknesses. ASEAN has a wide variety of endowments. The suggested areas of focus for ASEAN are depicted in Figure 5. which included the enhancement of physical connectivity as a key element. It has developed strong clusters in IT. ASEAN should explore a more coordinated regional development of clusters and supporting and related industries with specialization of specific economic activities within the region.

The ASEAN-6 countries have activated their National Single Windows after a two-year delay from the initial schedule while the CLMV countries have until 2012 to do so. the crisis did strengthen regional financial cooperation through expediting implementation of the multilateral swap arrangement. ASEAN has a dearth of large. in partnership with the World Health Organization and other development agencies and dialogue partners. Addressing Weaknesses Enhancing Administrative Infrastructure Administrative infrastructure is ASEAN’s least competitive area. ASEAN could strengthen basic health through the control of infectious diseases with sustained funding and greater coordination of national and regional initiatives. In view of its poor competitiveness in these areas. sharing of knowledge and best practices and research activities. ASEAN has undertaken to establish an ASEAN Single Window for customs clearance that integrates ten National Single Windows of individual member countries. Macroeconomic Policy Macroeconomic policy is an area where a few ASEAN countries are particularly strong in while others are relatively weak in and thus can be a prime area for policy learning among members. This may reflect mainly the practices of foreign multinational enterprises. although the region’s small and medium enterprises are better represented in Forbes Asia Pacific’s “Best Under a Billion” list. To improve ASEAN’s competitiveness and to enhance ASEAN’s attractiveness as a business investment destination. The ASEAN Single Window is an ambitious project and remains a challenge. ASEAN could engage in more urgent and concerted endeavor to raise its human capacity and upgrade the skills of its labor. These issues gain even greater significance given the risks faced by ASEAN countries due to natural disasters and pandemic infectious diseases. Human Resource Development ASEAN has very weak competitiveness in basic health and education. ASEAN has ongoing cooperation in many aspects of human resource development with initiatives mainly in the ASEAN Socio-Cultural Community Blueprint as well as ASEAN Economic Community Blueprint that are under the purview of different ASEAN sectoral ministerial bodies. Rule of Law Many of the ASEAN countries have received unfavorable assessments for rule of law. Presently. Many of the ASEAN countries are particularly weak in their administrative infrastructure due to burdensome customs procedures as well as the number of procedures and time required to start businesses. Given the diversity of the member countries. for instance. ASEAN members could engage in information sharing and contribute to the establishment of certain norms such as transparency to create a more favorable regional culture. ASEAN should thus give more attention to developing its SME sector. Much of the human resource development efforts have entailed capacity building. Over the long term. through the Education and Science and Technology Ministers working together to develop science and technology human resources and promote collaborative research and development in the region. including Health. However. ASEAN could intensify its efforts to nurture local enterprises. China. homegrown firms with no publicly-traded companies among the top 100 in Forbes’ Global 2000 list. In view of ASEAN’s assessed weakness in administrative infrastructure. In the later half of 2010. policy coordination would have been extremely difficult. the ASEAN countries signed the Memorandum of Understanding on the Implementation of the ASEAN Single Window Pilot Project and the Protocol on Electronic Customs Facilitation (Single Window) to test the infrastructure and procedures. Labor. as economies become more interdependent. the Chiang Mai Initiative Multilateralization agreement among ASEAN.Local Enterprise Development Another area of relative strength for ASEAN is company operations and strategy. macroeconomic policy coordination would become increasingly important in ensuring that policy instruments work effectively in promoting economic stability. ASEAN COMPETITIVENESS REPORT 85 . as there are relatively few top-performing locally-owned companies. by promoting the transfer of management knowledge from foreign to local companies and also facilitating the regionalization and globalization of local companies. Japan and Korea to address short-term liquidity problems in the region. A step towards greater coordination would be through an enhanced ASEAN+3 Economic Review and Policy Dialogue process. Its labor productivity is also relatively low. particularly on the indicators of corruption and crime. ASEAN’s macroeconomic policy responses to the global crisis have involved national strategies with no coordinated effort at the regional level. While many of the factors related to rule of law fall under the purview of. For example. as well as grow the size of local companies. and are most effectively addressed at the national level. Science and Technology and Education Ministers. There is also scope to strengthen the coordination of education and skills development initiatives across various ASEAN bodies. urgent action is required to reduce administrative red tape. A well-implemented Strategic Plan of Action for ASEAN SME Development 2010-2015 will contribute to this objective. which have a substantial presence in ASEAN economies. it is worth emphasizing the need to expedite this project.

The Charter provides for an ASEAN Minus X formula but this is the only formula that is endorsed. it has not taken big strides unlike in the period before the 1997 Asian financial crisis. and to develop more pilot projects involving participation by countries that are ready. For instance. The AEC Scorecard in its current form requires improvements to strengthen its monitoring function. ASEAN’s economic performance has been stable. members have traditionally preferred to resolve their economic disputes through political channels rather than in a more rules-based manner through the 2004 Enhanced Dispute Settlement Mechanism. ASEAN’s position on competitiveness fundamentals as measured by a wide range of macroeconomic and microeconomic factors is above the world average. ASEAN has already undertaken a broad range of initiatives towards an ASEAN Economic Community. any payoffs from measures already implemented are not as yet evident in the data analyzed in this Report. This provides the basis for the development of an ASEAN Competitiveness Agenda with a focus on building on strengths and addressing weaknesses across a range of economic. an integrated capital market infrastructure. 86 ASIA COMPETITIVENESS INSTITUTE . but it might also be a bane to ASEAN achieving greater success in its regional integration efforts. Over the last decade. healthcare and education and rule of law. Suggested elements of an ASEAN Competitiveness Agenda would involve a greater emphasis on building strengths through coordinated cluster development. consensus and non-interference in internal affairs. As implementation towards an AEC has started only since 2008. the analysis has also revealed areas of common competitive strengths and weaknesses among the member countries. ASEAN has to ensure the timely implementation of agreements and decisions within a rulebased framework to maintain its credibility.Strengthening Implementation ASEAN does not lack well-defined goals and plans. but the assessment in this Report serves to further inform a more nuanced approach to boosting regional competitiveness that moves away from a traditional focus on trade and investment liberalization. The successful implementation of ASEAN’s Roadmap for an ASEAN Community by 2015 also hinges on the ASEAN Secretariat as well as member countries having adequate capacity and tool kits to effectively fulfill the tasks required. more needs to be done to upgrade ASEAN’s ability to act institutionally. Its weakness lies in its inability to deliver on provisions in its agreements. Weaknesses for intensified improvement include raising quality in the areas of administrative infrastructure. the nurturing of local enterprises and enhanced macroeconomic policy coordination. ASEAN has proven itself thus far to be a viable regional grouping worthy of recognition and has established positive relationships with China. However. Conclusion The assessment of the competitiveness of ASEAN as a whole and its member countries has been conducted against the backdrop of profound changes in the global economic landscape following the 2008 global crisis. Various mechanisms to enhance compliance are in place but they have been largely ineffectual. and it can only be adopted if there is consensus to do so. For forty years. and it will be worthwhile to conduct similar competitiveness analyses on a regular basis to see if ASEAN’s integration efforts have translated into enhanced competitiveness performance. Further progress for ASEAN requires continued commitment from the member countries to the vision of an ASEAN Community and a willingness to tackle difficult challenges as the region adapts and prospers in a changing world. The ASEAN Charter has established a legal and institutional framework for making ASEAN more rules-based. The imperatives of deeper regional integration may bring into question the ASEAN Way of working and require greater powers under the Charter to monitor and ensure compliance. ASEAN can consider adopting another formula – 2 Plus X – that had previously been utilized. The effective execution of plans of action is crucial in delivering results for ASEAN. ASEAN has established a norm in interactions that is based on the ASEAN Way. More also needs to be done to upgrade the capacity of the ASEAN Secretariat and member countries to fulfil their responsibilities. Although the Secretariat’s resources and research capabilities have been boosted and less developed members are assisted with capacity building programmes. Regardless of current limitations in ASEAN’s institutional framework and mechanisms. but its ranking has remained relatively unchanged over the last five years. While individual ASEAN countries vary widely in their competiveness and each country would need to chart its own national agenda for improving competitiveness. ASEAN’s cooperation has moved onto a higher plane and the regional integration process is progressing. which emphasizes consultation. This requires the strengthening of both institutional mechanisms and capacities and political will. This informal and consensual approach has succeeded in maintaining peace and stability in the region. The diversity within ASEAN also requires a flexible mechanism for moving forward since the member countries are at different stages of development and have different priorities thus making it difficult for them to move at the same pace. but the organization’s effectiveness in coordinating and executing policies is not going to improve vastly overnight. and the public version of the Scorecard should contain more detailed information by individual country to increase the transparency of the compliance review process. so as to progress initiatives. social and political areas to generate synergistic benefits for the region. India and the rest of the world.

Health in Southeast Asia Series Paper 3. James W. Lancet Series on Southeast Asia. Richard J. Rudge. Benjamin H. “Emerging Infectious Diseases in Southeast Asia: Regional Challenges to Control”. Hunter..Chapter References Coker. Marco Liverani and Piya Hanvoravongchai (2011). ASEAN COMPETITIVENESS REPORT 87 .

88 ASIA COMPETITIVENESS INSTITUTE .

LEE KUAN YEW SCHOOL OF PUBLIC POLICY NATIONAL UNIVERSITY OF SINGAPORE 469C Bukit Timah Road.lkyspp.nus.sg/ACI .edu. Oei Tiong Ham Building Singapore 259772 www.

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