Author: Tim Burroughs
Asian Venture Capital Journal | 12 Jul 2012 | 13:03
Tags: Asian development bank | Axiom asia private capital |Southeast asia
The Association of Southeast Asian Nations is gradually bringing the region’s economies closer together. Private equity investors stand to benefit but not all businesses are suited to cross-border expansion The trouble-hit euro zone is hardly a poster child for regional economic integration, but it has yet to dent similar single-market efforts underway in Southeast Asia. Although the Association of Southeast Asian Nations (ASEAN) has been around for 45 years, it is only in the last half decade that policies have been put in place to bring the 10 member economies closer together. Tariff barriers have been torn down, investment channels opened up and promises made to create a level commercial playing field for companies throughout the region. The idea of an integrated Southeast Asian market is compelling. Taken as a single entity, Indonesia, Malaysia, the Philippines, Singapore, Thailand, Brunei, Myanmar, Cambodia, Laos and Vietnam are the world's ninth-largest economy, with a GDP of around $2 trillion. Annual economic growth is expected to be at least 5% through 2015. Their collective population is 600 million, larger than that of the EU. If they buy into the ASEAN story, private equity firms looking for scale opportunities in Asia suddenly have an alternative to China and India. But do they buy into it? It comes down to assessing where the marketing campaign stops and reality begins. And establishing whether, even with the support of greater economic integration, private equity firms are able to build cross-border businesses within the region. "Many PE firms look at the region from a country level but we look at how we can leverage this single market," says Karam Butalia, executive chairman of Southeast Asia-focused GP KV Asia. "When we invest in a company in Thailand, for example, we might want to use it as a platform to enter Laos, Cambodia and perhaps now Myanmar." At the same time, though, there is recognition that one size doesn't fit all. While the ASEAN members are inextricably moving closer together, cultural and political differences - if not real rivalries - are profound. Any manner of local incongruities or obstacles might prevent the seamless transition of a company from one location to another, although such challenges are by no means unique to Southeast Asia. "ASEAN member countries are at peace with each other, trade freely, and allow visa-free travel for short stays - other than that, I cannot think of many issues that they are fully aligned on" says Nicholas Ashby, CEO of Malaysia-based advisory firm Celadon Capital. "ASEAN is a convenient geo-political grouping, but it is an acronym for a collection of extremely contrasting economies, spanning from one of the world's richest (Singapore) to one of the poorest (Myanmar)." Building blocks
The ASEAN Vision 2020, signed in 1997, laid the groundwork - and set a target date - for broad-based integration covering political-security, economic and socio-cultural issues. A decade on, the member countries agreed to speed up the process, targeting the creation of an ASEAN Community by 2015. By the time a blueprint for an economic community was adopted, also in 2007, a free trade area (FTA) was already in the process of being established, and tariffs on a majority of selected products were reduced to 0-5%. Efforts on trade have been bolstered by a comprehensive investment agreement (ACIA) intended to facilitate capital flows. Regular exchanges and policy frameworks also exist for energy and natural resources, food and agriculture, finance, telecom and tourism. Last year, in collaboration with the Asian Development Bank (ADB), ASEAN launched an infrastructure fund, with initial capital of $485.2 million, to address the logistical challenges to regional trade. "Is ASEAN more integrated...