Indonesia and Australia in the ‘Asian Century’

The rise of Asia is being driven by the unprecedented transfer of wealth from the West to the East, from the Atlantic to the Pacific which is likely to continue into the foreseeable future. This seismic shift, driven by the spectacular economic growth of China in particular but also by the rise of India, the continuing economic strengths of Japan and South Korea in addition to the growing potential of Indonesia and Vietnam, constitute an historic global turning point to which Australia must respond if we are not to find ourselves left behind.

It has recently become something of a cliché but we do live in a greatly changed and much more interconnected world now. The Asia Pacific is the region where the world’s major power relationships most closely intersect. It is where the template for the United States/China relationship will be shaped. It is also the crucible in which the inter-relationships on Asia Pacific issues between Indonesia, Australia United States, China, Japan, Russia, South Korea and the main other ASEAN countries will be forged.

In this rapidly changing world, we need to put outdated Cold War thinking behind us. Australia needs to decide whether it wants to cling to a historic past or be actively engaged in Asia’s future. I believe we need to develop a more comprehensive and integrated strategy for the future and then secure bipartisan political support and much wider public acceptance of the strategy.

I recall when I was posted in Moscow travelling by train on the Siberian railway between Omsk and Kharborovsk listening to two Russians talking about the future of the Soviet Union. One said “we are building a new communist society”. His more cynical and realistic companion replied “yes, only in the media”. This remark 50 years ago has a resonance for me in Australia today.

The fact is that we are not doing as well with our Asian engagement as the regular rhetoric and diet of “spin” emerging from Ministerial offices would have the public believe. For example the study of Asian language, especially Bahasa Indonesia, in our schools and universities has substantially diminished in recent years.

Australianeeds a fundamental change to its national psyche, focused more on Asia than on our traditional links with the United States, the United Kingdom and Europe. We also need a continuous and sustained, rather than a spasmodic approach to the countries of Asia.

The idea that Australians do not have to choose between our history and our geography is simplistic and has been a politically expedient cliché to avoid considering in depth our relationships with the United States and China. Our history is our past; some of it noble and some of it shameful. The reality is that our future lies in our geography. The steadily increasing importance of Asia and the need for Australia to adjust to its geographical environment is of course not new. Successive governments have advocated this but their responses, so far, have yet to reach stated outcomes or government rhetoric and have been far from adequate.

A key task for the Australian Government which comes to power in September will be to determine a more appropriate and updated balance in our relations with the United States and China, the emerging super power. Another will be to reinforce with action and funding, the Government’s rhetoric about our role in the Asia Pacific region.

The United States, traditionally a major importer of natural gas and coal, is now undergoing a great change. Its production of shale gas means that the United States will overtake Saudi Arabia as a producer of oil and gas by 2020. Problems which seemed insurmountable five years ago will now be surmounted. So although the United States faces considerable domestic financial problems it would be wrong to assume that it is in economic decline and will prove unable to maintain a strong role and presence in Asia.

In respect of China, there is no intrinsic reason why China, under its system of authoritarian capitalism, through which some four hundred million people have been lifted out of poverty, cannot continue to rise peacefully, provided that the new leadership under Premier Xi Jinping, established earlier this year, manages the major social and economic problems which China will need to address.

In the Asia Pacific Region Australia must maintain an unambiguous signal to the Australian public as well as to the United States and Chinese Governments that, while we are in a long standing alliance relationship with the United States and while we have different values from China, we welcome the rise of China and oppose policies directed at the containment of China. A failure to accommodate a rising China if mismanaged could lead to instability and frustrate progress towards Asia Pacific Regional co-operation. All countries in the region need continued peace and stability if they are to continue to grow economically and deal with competition within the region for resources, including food and water.

The present debate about China mainly assumes that Australia has no choice but to support American primacy in Asia against a perceived threat of a rising Chinese hegemony. Former Prime Ministers Hawke, Keating and Fraser have all argued that this is a simplistic notion which should be challenged. Similar concerns have been raised by a number of Australian business leaders, academics and commentators.

There is a danger that adversarial attitudes towards China could become a self fulfilling prophesy. While China can be expected to resist American “hegemony” over the Asian region it welcomes a constructive United States involvement in Asia. China is not a natural enemy of the United States. It is essential that both countries and other major countries in the region, including Indonesia and Australia, develop further the habit of frankly discussing difficulties as they arise within existing cooperative frameworks, such as the G20 and the East Asian Summit which is becoming a de facto emerging Asia Pacific community. No regional problem can now be resolved without the involvement of the United States, China, Japan, Russia and Indonesia.

It is clear that the Australians and Indonesians need to know much more about each other. It is regrettable that many Australians still regard Indonesia as a mysterious, chaotic and corrupt country in which the rule of law is very weak. According to the Lowy polls many Australians still see Indonesia as a potential threat. This is largely because of historical fears, its size, its proximity, its potential instability and its activities in West Papua.

Many Indonesians also see Australians still as part of the Anglosphere, as uncouth in terms of their own culture and still harboring undertones of racism and religious intolerance. These suspicions go back of course to the days of the White Australia Policy and statements of politicians such as Pauline Hanson. Many Indonesians I have encountered also remain uncertain about the depth and sincerity of our commitment to our Asian and South West Pacific neighborhood. I have always found on visits that we are on a sort of “good behavior bond” in the eyes of many.

While Indonesia, like Australia, welcomes a constructive continuing United States involvement in the Asia Pacific there is some concern about the so called “pivot to Asia” – now referred to as “rebalancing”. Australians in particular need to know what this will involve for us in United States strategic thinking. In respect of Indonesia there will be some concern for example as to the extent to which the Cocos Islands – so close to Indonesia and Malaysia yet now part of Western Australia – might be used for security purposes in respect of the South East Asian and the Southern China region.

While the present Government maintains that Australian strategic cooperation with the United States is not related to any containment policy, the Government’s rhetoric should not be contradicted by our actions. Also we should, as a matter of course, keep Indonesia informed of what involvement we may be entering which may affect them. Australians themselves are not fully informed. Ministers, advised by their spin doctors, often obscure issues and mislead the public at press briefings and even at press conferences. This reflects residual Cold War thinking which needs to be put to one side.

It is of course of great importance to Australia that Indonesia will have parliamentary elections in April next year for the Indonesian parliament (DPR) followed by the presidential election in June. So there will be a major political change in Indonesia next year. It is too early to predict who the new President will be. Unfortunately it will not be Susilo Banbang Yudhoyono (SBY) as under the revised Indonesian constitution the President is limited to two terms.

I was disappointed that the Republic was not mentioned in the White Paper on Australia in the Asian Century. It should not have been overlooked. Australia is still a work in progress. The next constitutional step in the unfolding story of Australia should be the establishment of the Republic which will be, like Federation itself in 2001, a defining moment in our history.

Our anachronistic links with the English Monarchy and the fact that our Head of State is still the Queen of England, does limit the understanding overseas of Australia’s place in the world.

This is not simply a constitutional issue. The establishment of an Australian Republic will have both Foreign Affairs and Trade advantages. It will also reinforce the Australian identity throughout the world.

To conclude the importance of our relations with Indonesia in the future and in the context of the Asian Century cannot be over-stated. It is essential that each country comes to know more about its neighboring country.

As a nation we need to be genuinely and continuously engaged – not in a rhetorical sense or going through the motions – with our great neighbor of increasing global and regional importance. We shall both share this neighborhood for the rest of time.

http://www.onlineopinion.com.au

FP’s 500 Most Powerful People

As many as six Indonesians are among the world’s 500 Most Powerful People, according to noted publication Foreign Policy magazine.

Indonesia, Islam And Democracy – Analysis

By Bawono Kumoro

During a ceremony at Nanyang Technological University, Singapore, where he received an honorary doctorate, President Yudhoyono tackled the global perception that Islam and democracy could not work together. The president said that he believed Indonesia was a good example to highlight how democracy, modernization and Islam worked hand in hand.
Furthermore, President Yudhoyono said Muslims in Indonesia are very comfortable with democracy and with modernity. Thus, the Indonesian democracy may well offer valuable lessons to Arab Spring countries who are now facing similar challenges.

Debate

The debate over the relationship between Islam and democracy rests not only on Islamic doctrine but also on history. Essentially, democracy is a system of governance where sovereignty lies in the hands of the people. But many will say this contradicts with the doctrine of Islam, since in the Islamic view, sovereignty lies in the hand of God. Advocates of this line of thinking put forward three arguments.

First, there is the fundamentally different view of the nation, or ummah. The view of the nation in modern democracy is tied to a physical space marked by territorial and geographical borders. On the other hand, Islam has its own understanding of a nation that is not bounded by borders, but by aqidah (the basic tenets of Islam). Therefore, for many Muslims, nation is defined by faith, not by geography.

Second, some Muslim scholars see democracy as a worldly value, when spiritual goals are of primary importance. Democracy thus becomes a secondary goal.

Third, a contradiction arises because the people’s sovereignty that lies at the heart of democracy is absolute, meaning the people are the ultimate holders of power. Laws and regulations are decided by the people through their representatives and not by God. But for some scholars, the people’s sovereignty is not absolute at all, since it is bound by the laws of Islam. In Islam, only God’s sovereignty is absolute.

These three interpretations are used by some Muslims to argue that there is no space for democracy in their lives. However, there are many Muslims who take the opposite view, arguing that democracy is inherent in people and in line with Islamic teachings. They base their argumentation on Islamic doctrines —justice, freedom, deliberation and equality— that espouse the basic principles of democracy.

At this level, Islam does not speak about a procedural system but more about the basic soul and spirit of democracy. If the interpretation of democracy is the existence of certain social and political ideals, like the freedom of thought, faith, opinion and equality before the law, there would seem no contradiction, as these are guaranteed by Islam.

There are several cultural factors that have slowed the growth of democracy in the Islamic countries of the Middle East.
First, there is a strong monolithic paradigm of thought over Islam. Such a paradigm stems from Middle Eastern Muslims’ limited understanding of Islam’s nature and essence, both in regards to Koran and Hadith and in regards to history.

Islam is often viewed as a divine instrument to understand the world, and such a perception has prompted some Muslims to believe that Islam offers a complete way of life (kaffah). In this understanding, Islam is an all-encompassing system of belief that offers a solution to all of life’s problems.

This view of Islam as perfect and comprehensive has a number of implications. If Islam is transformed for use at the level of political ideology and political practice, this could lead to the political belief that Islam must become the state’s basis of existence, Islamic jurisprudence must be accepted as the state’s constitution and sovereignty would lie in the hands of God.

In short, in the context of such a perspective the modern political system of rule by the people is in direct conflict with Islam.

Second, the absence of democracy in the Middle East could also be explained by the weak political will of the regimes to accommodate democracy. Leadership has long been based on family ties and regimes would lose this prerogative.
Third, the most ironic thing about the absence of democracy in the Middle East is the often tacit support of the Western world —the United States in particular— for the existence of the authoritarian regimes.

The United States has seemed to care less about whether Middle Eastern autocracies developed any democratic character than about how they were able to secure America’s various economic imperialistic interests. This has nothing to do with the nature of Islam, but it is obvious that the West, particularly the United States, is not always fully in step with its own exhortations to promote democracy globally.

Of special note, however, is the fact that the absence of democracy in countries of the Middle East is not a feature of the wider Muslim world. Indonesia, for example, has seen much success in the transition from an authoritarian regime to a democratic system of governance. While Indonesia still has a long way to go before democracy fully takes root, at the very least it has been quite successful in tearing down the walls of tyrannical power.

Indonesia’s experience

The general elections in 1999, 2004 and 2009 were testament to the wave of democratization here, and the direct elections of a president and a vice president through indicated a new phase history of Indonesian politics.

However, the most substantial and revolutionary change has occurred at the level of civil society. Muslims in Indonesia, slowly but surely, have grown and developed to become a rational, autonomous and progressive community. They have started to be able to think rationally and critically especially when they are facing the political and religious elite, which tends to be intrusive, manipulative and exploitative.

The basis of Indonesian Muslims’ political preference is more in the courage of their thinking in line with their rational reasoning. The courage to think rationally has contributed to the creation of a free public sphere, and this has been instrumental for Muslims in Indonesia to create the culture of open and fair political participation.

Indonesia would thus seem to prove that Islamic doctrine itself is not in contradiction with democracy. Instead, Muslims’ interpretation of Islamic doctrine and cultural heritage forms their views on the value of democracy and its relationship to Islam.

As the most Muslim-populous country in the world, Indonesia can play a significant role in efforts to promote democratization in the Islamic World. The nation is a real-world example of the compatibility of Islam and democracy, one that could serve as a model for countries in the wider Islamic world.

Bawono Kumoro is political researcher at The Habibie Center. He graduated from State Islamic University, Jakarta, with Political Sciences major. Currently, he is pursuing his post-graduate degree in Political Communications in Paramadina Graduate School.

EurasiaReview.com

Entering the Test of Time

Indonesia’s Special Relationship with Burma Faces Testing Times

BANGKOK — They are both former military officers and now presidents of their respective countries. One of them, Indonesian President Susilo Bambang Yudhoyono, was labeled “the thinking general” at home, and the other, Burma’s President Thein Sein, has been dubbed “the reformist.”

But that is not all that will make a meeting of this unique pair in Southeast Asian politics a moment to watch. There is more at stake: the special relationship that binds the two countries. In the spotlight when Yudhoyono arrives in Burma later this month will be the direction the region’s largest, most vibrant democracy is taking to assist the Thein Sein administration’s edge down the road of political reform.

After all, it is Jakarta’s unique ties with Naypidaw that enabled Indonesian Foreign Minister Marty Natalegawa to become the highest-ranking international visitor to travel to the troubled Arakan State early this year. The two-day visit in January offered Marty a direct glimpse of communities and areas hit by last year’s sectarian violence, leaving the Rohingya Muslim minority as the worst affected.

It was this relationship, furthermore, that opened the door for former Indonesian vice president Jusuf Kalla, in his capacity as the head of the Indonesian Red Cross, to head a relief effort for the Rohingya Muslims last August.

“The Myanmar president asked us to see personally what happened there,” Kalla said of his visit, made in the wake of the first eruption of anti-Rohingya violence. “We are one of the first groups being allowed to enter there.”

In-between these two visits was the exchange Yudhoyono and Thein Sein had on the sidelines of the Asean summit in Phnom Penh last November. By then, the violence in Arakan State offered a grim backdrop, with nearly 200 people killed and over 125,000 people displaced after the Buddhist majority from Arakan State targeted the minority Muslims in two bloody clashes in June and October.

But that is not the only troubling reality the head of the most populous Muslim country in the world faces as he reaches out to help an old regional ally. A new orgy of violence led by Buddhist monks targeting Muslim minorities in central Myanmar since late March has raised the political stakes for Yudhoyono. More than 40 people have been killed and more than 10,000 people displaced in garrison towns such as Meikhtila. Jakarta has already expressed concern about the anti-Muslim rage spreading across predominantly Buddhist Myanmar.

Yet the Yudhoyono administration has placed its faith in quiet diplomacy. It has eschewed the strong statements expressed by the Organization of Islamic of Cooperation (OIC), the Jeddah-based body of 57 Muslim countries, of which Indonesia is a political heavyweight.

“The OIC statements on Myanmar have been very harsh. Indonesia has opted to engage with Myanmar rather than isolating it,” according to a foreign ministry official from Jakarta, who spoke on condition of anonymity. “Indonesia has decided to take the lead to help Myanmar through a collaborative effort the way it is done in Asean.”

“Jakarta is sensitive to the messages it has received from Myanmar over the years,” the official told The Irrawaddy. “They [Burmese government officials] are at ease with a government that has ‘military thinking’ and has military issues to resolve in politics.”

The edge Indonesia enjoys over its other Southeast Asian neighbors on this front is obvious. After all, it came out of after a 30-year military dictatorship in the 1990s the way Burma is now doing after 50 years of military oppression.

Jakarta’s approach is in tune with a diplomatic beat it has struck with Myanmar spanning decades. The past 10 years, in fact, has seen significant attempts by Indonesian governments to push Burma’s former military junta down the road to reform.

In September 2007, following the brutal military crackdown of anti-government protests led by Buddhist monks, Yudhoyono sent a respected retired general, Agus Widjojo, to Burma to convince the then junta leader, Snr Gen Than Shwe, to embrace political reform. The close military friend of Yudhoyono flew into Burma under the pretext of attending the funeral of former prime minister Soe Win, a military man with a bloody past.

And before Widjojo, known as a reformist general who helped push the country’s strongman Gen Suharto to retirement, another Indonesian figure with reformist credentials, former foreign minister Ali Alatas, had made inroads into Burma. He did so after being appointed as the United Nations special envoy to Burma in 2003.

“Indonesian efforts to encourage Myanmar to open up during military rule and to help them with reforms since are rooted in a relationship that we do not have with any other country in Southeast Asia,” says Endy Bayuni, former editor-in-chief of The Jakarta Post, an English-language daily in Indonesia. “It goes back to the post-independence history of both countries.”

“Indonesia’s freedom fighters who were looking for international support always flew to Burma as their first stop,” Bayuni noted of a period after 1948, when Indonesia gained freedom from Dutch colonization and Burma from the British. “The connections and the ties made the relationship between the two countries special.”

And if Jakarta’s Buma foreign policy is rooted in such bonds, Indonesia’s history during the Suharto dictatorship drew Burma’s leaders to Indonesian shores. A December 1993 visit by a Burma delegation, led by the then spy chief Lt Gen Khin Nyunt, was typical. The visitors had come to study the role of the Indonesian army performing its dual function—defense and politics—under Suharto’s New Order model.

“Indonesia is best placed to guide Myanmar during these uncertain and difficult times,” remarked a senior Southeast Asian diplomat. “It goes beyond offering advice for the anti-Muslim troubles. There is also Myanmar becoming chair of Asean in 2014, and Indonesia, with Marty, is taking on a bigger regional responsibility.”

http://www.irrawaddy.org

BRIC, BRICS or BRICSI? The Growing Challenge

By DIDI KIRSTEN TATLOW

First it was called BRIC, a group of emerging economies thought up in 2001 by a Goldman Sachs economist, Jim O’Neill, made up of Brazil, Russia, India and China. Then it acquired an “s” for South Africa and become BRICS. Now there’s talk of Indonesia, which has a strongly growing economy, maybe wanting in: BRICSI, anyone?

As the leaders of the BRICS nations met in South Africa this week and announced they would establish a development bank to help fund five-year infrastructure investment sums, plans for a financial “safety net,” or reserve, and a string of councils to add business and intellectual heft to the group, some are wondering if Indonesia should be in.

“You can add it as a sixth BRICS, perhaps, making it BRICSI,” PK Basu, regional head of Maybank in Singapore, told the BBC.

Here’s the argument, from The Jakarta Post: Indonesia is the strongest Southeast Asian economy.

“McKinsey & Co. predicts that Indonesia will be the seventh-largest economy in the world and will add 90 million people to its middle class by 2030. There are 45 million middle-class Indonesians today, and the country ranks as the 16th largest economy in the world,” the newspaper wrote.

For now, though, it’s called BRICS, known in Chinese as “Gold Bricks” (and China is a major, perhaps the major, driving force behind it, some commentators say). The concept of BRICS has been viewed skeptically by some who are asking what these nations actually have in common. But there is a sense it may be strengthening as a group – and growing as a challenge to the established world financial order, crafted principally by the World Bank and the International Monetary Fund.

That sense of change was on view in South Africa this week when the group held its fifth summit meeting in Durban and agreed to some key things, even naming figures.

Infrastructure investment over the next five years: About $4.5 trillion would be needed, as Xinhua, the Chinese state-run news agency, reported from Durban.

A figure for the financial reserves, called a Contingent Reserve Arrangement, would initially be $100 billion, Xinhua reported.

Also in the works are a BRICS Business Council, to provide business-to-business links within the group; a BRICS think-tanks council, to get ideas rolling; a BRICS academic forum as a way to promote specialist dialogue. (India seemed especially keen on this, with its president, Manmohan Singh, urging it at the meeting, according to Xinhua.)

How much of this is a vehicle for Chinese ambitions? China has long complained that the current world financial architecture is too American and European-focused, and said it wants a bigger voice.

Apple Daily, a Hong Kong- and Taiwan-based Chinese-language newspaper, reported that the currency reserve would be heavily financed by China – to the tune of 41 percent of its assets, or $41 billion. That has its own logic – China is after all the world’s second-largest economy.

The report quoted a Peking University economics professor, Xia Yeliang, as saying that China is putting up the money to win influence.

“China is doing it to increase its say; it’s playing the part of investor in many international organizations in the hope of being able to formulate things, even rewrite the rules of the game,” Mr. Ye was quoted as saying.

In another sign of change, China and Brazil agreed in Durban to a $30 billion currency swap, a kind of an insurance policy, to be used to finance trade in case of another global financial crisis such as the one that saw dollar liquidity dry up starting in 2008.

Meanwhile, Indonesia?

In January, its trade minister, Gita Wirjawan, noted that Indonesia did not want a status that it did not deserve, The Jakarta Post reported. But the country had reached the same economic standards as the BRICS countries, Mr. Wirjawan told a panel discussion at the annual gathering of the World Economic Forum in Davos, Switzerland, the newspaper wrote.

http://rendezvous.blogs.nytimes.com

Emerging Indonesia and its global posture

Author: Awidya Santikajaya, ANU

ASEAN the New BRICS?

On a wide range of economic pointers, Southeast Asia is gaining fast.

For 15 years, since the Asian Financial Crisis of 1997 and 1998, the young tigers of Southeast Asia have been looked upon with suspicion by most investors while they struggled to rebuild their foreign currency reserves, signed currency swaps, strengthened their banking systems and made other reforms. In the meantime, the BRICS – Brazil, Russia, India, China and South Africa – have been gaining all of the publicity.

Today, the leaders of the 10-nation association, particularly Thailand and Indonesia but also even the perennially lagging Philippines, are becoming the focus of leading multinationals who see the region’s potential as a production base supplying not just the west but China’s burgeoning economy, with rapidly expanding consumer societies, ample natural resources including extractive industries, and reform and opening up by the region’s less-developed members, although corruption and mismanagement still handicap states such as Myanmar, Cambodia and Laos.

As Asia Sentinel reported on Feb. 20, Thailand, recovering from six years of political chaos and environmental disaster, has been leading the region, recording the fastest growth in the fourth quarter of 2012 since the country began compiling economic data in 1993. While the record 18.9 percent gross domestic product fourth quarter year-on-year growth is admittedly coming off a low base from the disastrous floods that inundated the center of the country in late 2011, extensive infrastructure development is extending rapidly into Laos, Cambodia and Myanmar and toward Kunming in China to make Bangkok the economic and industrial hub of the region. Indonesia, although it is increasingly being dragged back by economic nationalism, is also being driven by investment and growing consumer consumption.

Myanmar, once the richest country in Southeast Asia, and the Philippines, long saddled with disastrous economic and political mismanagement, are both on a recovery path. Given the enormous handicaps bequeathed to them by corruption and bungling, it will take a while before they return to anything like true health. But both now appear to have found more competent leadership that, combined with their enormous raw material potential, should put them right unless political disaster strikes again.

In 2011, foreign direct investment in Asean rose 25.7 percent annually to reach a record US$116.5 billion. The International Monetary Fund forecasts that Asean GDP will increase to US$3.8 trillion by 2017, with population rising to 660 million, equating to a per capita GDP of US$5,782, suggesting a significant rise. The economies are spotty, ranging from Singapore, with per capita annual gross domestic product by purchasing power parity of US$59,390 according to World Bank figures, down to Myanmar at about US$500. Industrial development is similarly varied, with countries like Cambodia and Laos at the very edge of development. Laos derives 80 percent of its gross domestic product from the sale of hydroelectric power to Thailand.

While China has gained attention as the factory to the world, Asean’s competitiveness has already surpassed China’s in labor-intensive industries. According to a report issued last week by the Seoul-based Samsung Economic Research Institute, the working age population growing substantially relative to dependent population at a time when China is pricing itself out of the process through rising wages and yuan appreciation. The China-to-Indonesia wage ratio increased to 3-to-1 in 2012 from 2-to-1 in 2005, with the Economist Intelligence Unit projecting a rise to 4.5-to-1 by 2015.

That has driven several manufacturers already to shift operations to Asean, following a decades-long pattern in which Japan’s clothing and textile makers transferred production bases to countries such as Vietnam. In capital-intensive industries, including electronics and automobiles, leading global companies are building production bases in Asean for risk diversification and market entry.

Major Japanese carmakers including Toyota, Nissan, Honda and Mitsubishi have begun a “China+1 strategy” by building factories in Thailand and Indonesia to secure production capacity, according to the SERI report. According to the World Bank’s “Ease of Doing Business” index, Singapore (No.1) and Thailand (18th) rank on a par with advanced countries, while Vietnam (99th) and Indonesia (128th) are at the level of the BRICs countries. The Asean countries, particularly Malaysia, are also providing incentives to foreign investors to facilitate job creation and establish their industries.

“However, Asean members need to improve their infrastructure and stabilize their labor market to replace China as a global factory,” the SERI report notes. “Roads and reliable energy supply are behind China’s level and conditions for parts and raw materials procurement are weak.”

In addition, wages are increasing and labor regulation is strengthening in some Asean countries. For example, Malaysia and Thailand implemented minimum wage systems in 2012 and 2013, respectively. Thus, the stability and better working environment that Asean members offer foreign companies is coming at a heftier price.

Solid domestic demand fueled by burgeoning middle-class populations has helped take up the slack in lower trade on which the early Tigers built their mercantilist economies after the global trade structure collapsed in 2008. Today, private consumption accounted for 53.2 percent of the GDP of the Asean countries in 2012, higher than the 44.6 percent in the BRICs. The number of PCs is expected to increase by 50 million and mobile phone subscribers 110 million between 2010 and 2020.

The so-called Y-generation in the region aged 15-29 stands at 160 million, accounting for 27 percent of the population, higher than the share in China and Russia at 24 percent and 23 percent, respectively. These teenagers and young adults actively use mobile devices to shop and acquire information. Social networking services are increasingly popular, with Facebook users in Indonesia and the Philippines standing at 50 million and 30 million, respectively, ranking fourth and eighth in the world. The mobile marketing industry is projected to more than double by 2016 in Indonesia.

Against perceptions, Muslims, who account for more than one-third of the Asean population, are becoming an important consumer segment, the SERI report says. “Amid the rising Muslim population, demand for halal food, food permitted by Sharia law, and financial products is surging. They strongly prefer global brands, and thus global leading companies are utilizing the region as a test bed.”

After McDonalds’ halal menu succeeded in Singapore and Malaysia, the fast food giant opened units in Australia and the UK. Standard Chartered Bank in 2012 selected Malaysia as a global hub for Islamic consumer finance, and started strengthening entry into the market, the SERI report notes.

Considerable credit goes to the ethnic Chinese, who account for fewer than 5 percent of the population although their invested capital accounts for a large portion of the economy. As of July 2011, the market capitalization of 72 Asean ethnic Chinese businesses was US$411 billion, 20 percent of the aggregate market capitalization of their respective countries. Ethnic Chinese companies also cast a wide net over business sectors. They dominate commodity markets. In the past 10 years, China’s huge appetite for raw materials has solidified the Asean commodity traders.

Based on their long-time operation in Asean, Japanese companies dominate the consumer and infrastructure markets. Japanese carmakers account for 95 percent and 90 percent of the Indonesian and Thailand car markets, respectively. Japanese companies also have been heavily involved in energy development, building road and railway networks and upgrading disaster response systems in ASEAN. Such capacity has helped enable 11 Japanese companies, including Mitsubishi and Hitachi, to participate in a ?3.4 trillion (US$36 billion) Jakarta development project.

Mindful of Korean and Chinese companies pushing into the region, Japanese businesses are focusing on strengthening ties with Asean even more. After relations with China worsened in mid-2000s, the Japanese government began to turn toward Southeast Asia. Japanese Prime Minister Shinzo Abe has followed up on this, choosing Vietnam, Thailand and Indonesia for his first foreign trip after taking office at the end of 2012. During his Southeast Asia tour, Abe announced five principles in his Asean policy, including more trade and investment and exchange among younger generations.

Reform and opening up have ignited investments and growth in Cambodia, Laos, Myanmar and Vietnam, the so-called CLMV countries, the SERI report continues. They account for less than 10 percent of the aggregated Asean economy but they have expanded at annual average rate of 6.1 percent since the 2008 global financial crisis. Their total population — 28 percent of Asean — makes the four attractive markets for consumer goods suppliers. Their strategic position between China and the Indian Ocean supports a pan-Asian infrastructure buildup; and the Mekong River running through the nations has the potential to generate 30,000 megawatts of power.

Still, foreign companies entering the CLMV countries cannot expect a smooth landing. Political risks and underdeveloped institutional frameworks to handle foreign businesses interests can easily upend plans. A comparison of worldwide governance indicators show that systemic risk in CLMV countries is higher than that in Middle East and North Africa, and they have yet to establish a stable market economic system. Vietnam, the first mover of the CLMV, has excessive investments, financially troubled state-owned companies and an unstable banking sector. There is also higher policy volatility, lack of skilled labor and a weak infrastructure in Cambodia, Laos and Myanmar.

The Asean economies should become increasingly attractive despite the risks. A strategy that focuses on specific areas and sectors will raise efficiency as it will be difficult to catch up to Japan in official development assistance and investment. In devising their approach, companies will need to consider the wide range in economic development, income levels and business environment among the member nations.

The first-mover member states, including Indonesia and Thailand, have the potential to become the next BRICs, and their vast domestic demand market should be targeted. By promptly responding to the consumption trends of younger generations and Muslims, new markets should be explored while expanding advancement into industrial and social infrastructure, which are expected to see fast growth. Finally, the government can examine making bilateral free trade deals with major Asean countries, which has greater market opening effects than the current Korea-ASEAN free trade agreement.

http://www.asiasentinel.com/index.php?option=com_content&task=view&id=5203&Itemid=233