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Capital Markets

Asean: The challenges of regional union

By 2015, the establishment of the Asean Economic Community will lower trade barriers between countries in southeast Asia. The agreement will bring opportunities for increased trade and investment, but for Thailand it also means that in less than three years the country will need to grapple with growing competition from the rest of the Asean region.

At the same time, southeast Asia is becoming a lot more competitive. In China, wages are rising and infrastructure is stretched, making southeast Asia a viable alternative to diversify business.

Thailand stands to benefit in the AEC because of its location and level of development. Geographically, it is surrounded by Laos, Vietnam, Myanmar and Cambodia. Although these countries are relatively small, increased foreign direct investment is likely to help them flourish. As it stands, Thailand exports more to the four smallest (in terms of GDP) countries in Asean – Laos, Vietnam, Myanmar and Cambodia – than it does to the four largest countries in Europe – Germany, France, Italy and the UK. A fact that helped shelter Thailand from the worst of the global financial crisis.

"Infrastructure in the countries surrounding Thailand is limited, and stock markets there are immature, so it makes sense for Thailand to take the lead in the region and become a gateway to these countries, which the government wants to do," says Pumchai Kambhato, head of investment banking at UBS in Thailand. "But we have a long way to go before this can be realized."

Plans to create a high-speed rail network to connect north to south and east to west will provide much-needed lower-cost transport routes in the country and will facilitate trade with Laos, Myanmar, Vietnam and Cambodia.

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