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Asia’s missing link: how Myanmar could complete the Asean picture

As Myanmar is welcomed back into the international fold, the implications for the Association of South-east Asian Nations, and Asia as a whole, could be huge if the country's economic and logistical potential is delivered upon.
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Asia’s missing link: how Myanmar could complete the Asean picture

Once the outcast of south-east Asia, Myanmar is rapidly becoming the region’s darling. As the country – still known as Burma in some areas of the Western world – comes out of isolation, the international community is allowing itself a degree of optimism about its potential. And it is not just excitement about Myanmar’s prospects as a frontier economy that is stoking this excitement, but also its role as the missing piece of south-east Asia's jigsaw puzzle.

With an open Myanmar, the Association of South-east Asian Nations (Asean) becomes stronger, and regional integration more likely. This integration, which is expected to culminate in the form of the Asean Economic Community, is pushing the region to the fore as an economic bloc that can counterbalance the other heavyweights in Asia.

New Myanmar, new Asean?

The region’s spotlight has been on Myanmar since late 2010, when the countrys new government began a number of reforms, which included the end to pro-democracy leader Aung San Suu Kyi’s years of house arrest. In April 2012, she went on to win a parliamentary seat along with other members of her National League for Democracy party. And in recent months there has been a flurry of diplomatic visits, trade delegations and a partial lifting of sanctions.

This Myanmar mania, however, has been dampened by ethnic clashes in the western Rakhine province that threaten to spiral out of control and unravel the reforms the country has made so far.

Despite such reasons for caution, Asean observers remain optimistic that Myanmar will continue to liberalise and open its economy. During its isolation, Myanmar had been the missing link that has prevented Asean from being physically and economically connected. And now that Myanmar is plugged in, “the lights are going to come on”, says John Pang, CEO of the CIMB Asean Research Institute (CARI), of the bright prospects for Myanmar and south-east Asia. With this linking up of transportation and logistics, argues Mr Pang, “it really alters the economic geography of Asean – it opens it up.” 

“Myanmar is exciting and fresh untouched territory,” says Kobsak Pootrakool, executive vice-president at Bangkok Bank. Once sanctions are fully lifted, he says, “Myanmar will become a noticeable driving force in this region”.

Mr Pang also stresses Myanmar's strategic importance. “For China, Myanmar represents Indian Ocean access,” he says. Ambitious plans are in place to build a port at Dawei in south-eastern Myanmar. The $50bn project, which is being led by Thai contractor Italian-Thai Development, aims to create a major Indo-China trading hub. By opening up access to Myanmar’s coastline in this way, cargo would no longer have to be shipped around Malaysia via the Malacca Strait, and will be loaded at Dawei and transported overland instead.  

Myanmar is also strategically important for possible road connections between China’s Yunnan province with north-eastern India. “The neglected north-east corner of India is now accessible via Myanmar,” says Mr Pang. “India is also taking advantage of this to build its own links up through Myanmar.”

Making a connection

Integration and connectivity have long been issues for south-east Asia. Asean has often been criticised for being an entity where ministers agree on the principles of integration, and make public statements to that effect, yet when they return home they go back to serving their own country's interests. “The region is now more interconnected,” says Mr Pootrakool. “The roads have been completed – from Thailand to Laos,  Vietnam and China – and are changing the way we do business and changing the opportunities presented to us.”

Kunio Senga, director-general of the south-east Asia department at the Asian Development Bank (ADB), says that while Asean integration may have been something of a “talk show” in the past, he now sees a change. “Now we see the difference in terms of the faster pace at which things are moving, particularly from the bottom up,” he says. He points to the Master Plan on Asean Connectivity, which was adopted by Asean’s leaders in October 2010, as well as a number of ADB initiatives that have helped to connect the region.

In the Greater Mekong sub-region (GMS) – an area that includes Myanmar, Thailand, Cambodia, Vietnam, Laos and China’s Yunnan province – the ADB has been focusing on three corridors: east-west, north-south and a southern corridor. “We are already seeing tangible results in the region,” says Mr Senga, adding that the physical transport links are now bringing an increase in economic activity. “The importance of the connectivity is that the GMS is now serving as a gateway to China and India, the two economic powerhouses in the region,” he says. Being adjacent to these large economies presents opportunities for the whole of the Asean region, especially as there is increased focus on demand coming from Asia rather than the US and Europe. “Now it is time to rebalance the economic activity,” says Mr Senga.

On the opening up of Myanmar, Mr Senga says: “This will cement the links to the south Asia side because at the moment Myanmar represents the missing link between south-east Asia and south Asia. With Myanmar linked in, the picture is completed.”  

how Myanmar could complete the Asean picture MAP

Banks at the ready

In August, the ADB, which has not had operations in Myanmar for more than 20 years, opened an office in the country. Many other banks are planning to follow the ADB in entering, or re-entering, Myanmar.

Gilles Planté, CEO for Asia at Australian bank ANZ, says: “We see Myanmar as an opportunity,” though he adds that the bank is still governed by sanctions on the country. “When the time is right, and there is an appropriate opportunity, we will extend our franchise to Myanmar,” he says. This expansion would complement ANZ’s strategy for the GMS. “Myanmar will fit very well,” says Mr Planté.

When asked to comment on Myanmar, Jaspal Bindra, Standard Chartered’s CEO for Asia, says: “I am extremely bullish. We have conducted several high-level business delegations to Myanmar and are we working to better understand the country’s plans to re-integrate into the international community.” He adds that he is also optimistic over Myanmar’s economic reforms, its trade prospects, its resources and the opportunities it offers to south-east Asia. Standard Chartered has previously had a presence in Myanmar – it was one of the first countries that the bank set up in, back in 1862 – but it had to withdraw because of the sanctions.

The world is increasingly looking to Asia as the engine for global economic growth, viewing the continent as providing the consumers and producers of the future. This makes Myanmar particularly attractive to companies seeking to expand in south-east Asia, as it has strong potential to be used as a manufacturing base, with its relatively cheap labour, not to mention the fact that it has a consumer market of some 60 million people. Observers also argue that because Myanmar is plugging such an important gap in the Asean community, it will develop more rapidly than its neighbours.

Malaysian presence

Malaysian banks Maybank and CIMB are particularly active in the Asean region, keen to take advantage of its growth potential. Both market themselves as pan-Asian players, with Maybank’s slogan being 'Humanising financial services across Asia', and CIMB 'Asean for you'. Both banks have had representative offices in Myanmar since the 1990s and, as is the case with many foreign banks, are waiting to see whether changes in the country will enable them to expand their franchise further.

Nazir Razak, CEO of CIMB Group, is a prominent advocate for Asean integration and says that Myanmar is an integral part of Asean. In February he led an Asean Business Club delegation to Myanmar on an exploratory visit. This club, which is administered by CARI, is a platform for business leaders to initiate regional integration from the bottom up.

The target for Asean leaders is to establish an Asian Economic Community in 2015, which will be a single market and production base that can compete in the global economy as a single bloc, rather than individual countries that will be dwarfed by other Asian economies.

While this is a top-down vision, the business leaders give a hint of what it would mean in practice. The club’s advisory council includes prominent businessmen such as Jaime Augusto Zobel de Ayala, CEO of the Philippines-based Ayala Corporation, Tony Fernandes, group CEO of regional airline AirAsia, and Chartsiri Sophonpanich, president of Bangkok Bank. The latter has been particularly keen in expanding across the Asean region, and its executive vice-president, Mr Pootrakool, says that its strategy has been to follow its customers, particularly the overseas Chinese community, as they have expanded their businesses into south-east Asia. 

At CIMB, Mr Razak said at the bank's Asean conference in June that the region presents a stark contrast to the political paralysis in Europe, the gloomy outlook in the US and concerns over the economies of China and India. “Against this bleak backdrop, the Asean region shines brightly,” he said.

He added that the region needs to increase intra-Asean activity, particularly in three areas: the pursuit of free-trade agreements, capitalising on the region’s demographic dividend of a young population, and building up the region's infrastructure and connectivity. “If our relevance lies in being the crossroads of Asia, the meeting place and connector, we must make sure our connectivity and infrastructure is up to the task, and our cities are capable of absorbing and channelling the productive energies of millions of new entrants every year into the global workforce," said Mr Razak, adding that the cause of the bottleneck in building this infrastructure is not the availability of financing, but financial intermediation.

“The challenge now is to start acting as one region, to evolve policy coordination into a common framework for managing and growing a regional economy. In particular, I would like to see agreement on an Asean banking framework, the creation of a single Asean stock exchange and greater regional collaboration to strengthen domestic currency bond markets,” he said.

Co-operative approach

Mr Senga at the ADB points to a recent development at the bank that signals increased co-operation in the region. In May, the ADB announced the Asean Infrastructure Fund to finance the region’s road, rail, power and water infrastructure. At the time of the fund's launch, Rajat Nag, the ADB's managing director-general, said: “This is a watershed moment for Asean nations working together to finance infrastructure projects.” The fund is expected to finance about six projects a year, with a $75m lending cap on each. The total lending of the fund through 2020 is estimated to be $4bn,  though with extra financing this figure could rise to more than $13bn. The fund also plans to issue debt that can be used by the region’s central banks as part of their foreign exchange reserves.

Also at this year’s ADB annual meeting, the Asean region announced a landmark decision in the form of the doubling of the Chiang Mai Initiative Multilateralisation, an emergency liquidity provision for the Asean+3 grouping, which includes China, Japan and South Korea. The decision came out of a meeting of Asean+3 finance ministers, and was made more significant because it was the first time that central bank governors also participated – another sign of increased co-operation among Asia's key economies.

“Asean is coming into focus as an integrated region and not a motley crew of disparate economies,” says Mr Pang at CARI.

Big potential

The founding fathers of Asean in 1967 were Indonesia, Malaysia, Philippines, Singapore and Thailand, and the union was created to ensure peace and stability in the region. Now the attention is focused on economic unity, though Asean has been criticised for engaging with Myanmar when it was outcast by the global community. Myanmar joined Asean in 1997, and in November 2011 the grouping showed its faith in the country’s reform path by controversially awarding it the position of Asean chair in 2014.

Asean is keen for Myanmar to integrate so that the region can compete more effectively as an economic bloc. With an estimated gross domestic product (GDP) of $2000bn, Asean has more clout when it is pieced together. And when the region is linked with China and India, the ADB estimates that by 2030 the Asean-India-China region’s GDP could quadruple and exceed that of the US and Europe combined.

It could be argued that greater integration in Asean – and the opening up of Myanmar – has been brought about by a need to balance out China’s weight in Asia. Also, at a time when the US is reasserting its role in the region, Asean forms a neutral middle-ground between all the major pieces of Asia – Japan and South Korea, China and India.

While Asean has previously resembled something of a disparate collection of countries, in a sense this weakness has been its strength. George Yeo, former Singaporean foreign minister and advocate for Asean integration, argues that Asean creates a platform where all the big players can meet. “They feel unthreatened by Asean,” he said at the Fung Global Institute’s Asia-Global Dialogue conference.

However, Asean’s centrality has recently been tested by the flaring up of a dispute between China and the Philippines over claims to islands in the South China Sea. In July, Asean failed to find common ground in the dispute and a meeting of foreign ministers did not end with the customary joint statement.

While the 'Asean Way' of consensus building and co-operation has been credited with bringing Myanmar out of isolation, the South China Sea spat shows that the Asean Way does not always bring about a settlement. This style of decision-making by consensus could be viewed as a weakness, as larger powers could seek to exploit the differences between the countries that make up the grouping.

When it comes to forming an economic union, the Asean Way could prove to be effective in implementing the Asian Economic Community's bottom-up vision. As the region begins to form its economic vision, Myanmar will have a key role in completing the picture of the region’s integration, as well as connecting Asean with the other pieces of Asia. 

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Read more about:  Asia-Pacific , Asia-Pacific , Myanmar