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Focus on: ASEAN International Business Report 2012 – Economy focus series About this report The ASEAN economy This report looks at one of the fastest growing and most dynamic regions in the world – Southeast Asia – drawing on economic data from the International Monetary Fund (IMF) and business sentiment data from the Grant Thornton International Business Report (IBR), a quarterly survey of 3,000 businesses in 40 economies. In 2011, the combined economies of ASEAN accounted for 3.1% of global output. The largest members are Indonesia, which accounts for 39% of regional output, Thailand (16%), Malaysia (13%), Singapore (12%) and the Philippines (10%). Despite the slowdown in the global economy as a result of the continuing sovereign debt crisis in the eurozone, the region is expected to grow robustly in the medium-term. In the period 2012-16, these economies are expected to expand by 10% per annum on average, double the rate of the global economy. This growth is expected to account for 6.5% of total global growth over the next five years, increasing the share of global output of the ASEAN region to 3.9% in 2016. The Association of Southeast Asian Nations The Association of Southeast Asian Nations (ASEAN) was established on 8 August 1967 by Indonesia, Malaysia, the Philippines, Singapore and Thailand. Brunei Darussalam, Vietnam, Laos PDR, Myanmar and Cambodia have since joined the group, the aims of which includethe acceleration of economic growth and the expansion of trade. FIGURE 1: GROWTH RATES IN THE ASEAN REGION GDP GROWTH (%) 6.0 7.4 Myanmar 8.4 9.3 Laos 5.6 8.9 Vietnam 5.5 7.0 4.2 7.1 Thailand Philippines 6.2 10.3 Cambodia 4.4 8.1 Malaysia 3.2 0.4 Brunei Darussalem 2.7 4.5 Singapore 2012 6.1 14.5 2012-16 Indonesia SOURCE: IMF 2012 International Business Report results FIGURE 2: STAYING POSITIVE NET PERCENTAGE OF BUSINESSES INDICATING OPTIMISM OVER PESSIMISM (NEXT 12 MONTHS) 60 50 40 30 20 10 0 Q2: 2012 Q1: 2012 Q4: 2011 Q3: 2011 Q2: 2011 Q1: 2011 Q4: 2010 Asia Pacific (excl. Japan) 33 29 23 25 49 60 50 ASEAN 23 27 0 52 50 61 57 Global 23 19 0 3 31 34 23 SOURCE: GRANT THORNTON IBR 2012 FIGURE 3: BUSINESS OPERATIONS NET PERCENTAGE OF BUSINESSES INDICATING AN INCREASE (NEXT 12 MONTHS) 86 80 78 70 70 60 59 53 50 51 52 40 30 48 50 46 42 38 44 38 40 34 27 20 20 19 22 20 19 14 12 10 0 Vietnam Revenue Profitability APAC ex. Japan Singapore Global ASEAN Thailand Malaysia Exports SOURCE: GRANT THORNTON IBR 2012 Business confidence Revenue & profit Business optimism slipped slightly in the ASEAN1 region in Q2-2012, falling from net 27% to net 23%. Globally, business confidence picked up slightly to net 23%, up from net 19% in Q1-2012 on the back of improvements in mainland China and the United States. Within the region there are some significant variations in business confidence. Businesses in the Philippines remain very optimistic about their economy over the next 12 months (90%), behind only Peru. Businesses in Malaysia are much less confident (0%), with Singapore (12%), Thailand and Vietnam (both 8%) also lower down. Net 51% of ASEAN businesses expect to see revenues rise over the next 12 months, very similar to the global average (net 52%), but well below the APAC (ex.Japan) figure of net 70%. Businesses in Vietnam are the most positive about seeing revenues rise (86%), and those in the Philippines the least (44%). Businesses in Singapore are not expecting huge rises in profits over the next 12 months. Just 19% expect to see profitability increase, compared with 78% in Vietnam and the ASEAN average of 42%. Businesses in Malaysia are the most positive about increasing exports (34%). 1 Businesses in five ASEAN economies are interviewed in IBR: Malaysia, the Philippines, Singapore, Thailand, Vietnam Philippines “The Philippines has made significant gains in improving its standing not only in the ASEAN community, but globally as well. The government’s prudent fiscal management has paved the way for a succession of credit rating upgrades that are expected to attract even more foreign direct investments into the country. Local business leaders feel this momentum, so we expect this upbeat atmosphere to continue.” MARIVIC C. ESPAÑO PUNONGBAYAN & ARAULLO GRANT THORNTON, PHILIPPINES FIGURE 4: HIRING WORKERS NET PERCENTAGE OF BUSINESSES INDICATING AN INCREASE (PAST 12 MONTHS) 60 50 50 48 44 40 40 42 40 36 33 30 27 27 25 26 20 20 14 22 12 10 0 Malaysia Q2: 2012 Philippines Thailand ASEAN Singapore Global APAC ex. Japan Vietnam Q1: 2012 SOURCE: GRANT THORNTON IBR 2012 Employment The proportion of businesses in the ASEAN region expanding their workforce climbed to net 40% in Q2-2012, up from net 27% three months previously. The largest rise was observed in Malaysia, where hiring climbed from net 20% in Q1-2012 to net 50% in Q2-2012. Prospects for jobs creation are also more positive in the ASEAN region than elsewhere. Globally, net 29% of businesses plan to hire more workers over the next 12 months, rising to net 31% in APAC (ex.Japan) and net 35% in ASEAN. In Thailand, net 42% of businesses plan to expand their workforces in the coming months. Investment Despite huge uncertainty in the global economy, the results suggests that ASEAN businesses are far from reluctant to invest in the future growth of their operations. Net 24% expect to increase investment in new buildings over the next 12 months, and net 39% are planning to increase investment in plant & machinery, both above the global average. A further net 28% plan to increase R&D spend, although this is well below the APAC (ex.Japan) figure of net 50%. Within ASEAN, 34% of businesses in Thailand are planning investment in R&D over the next 12 months, followed by Vietnam (32%) and the Philippines (30%). FIGURE 5: INVESTING IN R&D NET PERCENTAGE OF BUSINESSES INDICATING AN INCREASE (NEXT 12 MONTHS) APAC ex. Japan 50 Thailand 34 Vietnam 32 Philippines 30 ASEAN 28 Malaysia 28 Global 25 Singapore 16 SOURCE: GRANT THORNTON IBR 2012 “Recent measures to boost access to finance for small and medium sized businesses is welcome. However, whilst these pro-growth measures could run the risk of reintroducing destabilising rates of inflation this outcome is considered unlikely.” KEN ATKINSON GRANT THORNTON VIETNAM FIGURE 6: INFLATIONARY PRESSURES NET PERCENTAGE OF BUSINESSES INDICATING AN INCREASE (NEXT 12 MONTHS) 80 80 78 79 75 70 73 68 66 70 60 50 40 30 30 24 24 Vietnam Global 20 20 31 33 37 38 10 0 Malaysia Selling prices Philippines ASEAN APAC ex. Japan Singapore Thailand Increase salaries SOURCE: GRANT THORNTON IBR 2012 Inflation Inflationary pressures look set to be slightly higher in the ASEAN region than globally over the next 12 months. Net 31% of ASEAN businesses plan to increase selling prices, and a further 75% plan to raise employee salaries at least in line with inflation. Businesses in Thailand (38%) and Singapore (37%) are planning the biggest price increases. Meanwhile, workers in the Philippines (80%), Singapore (79%) and Malaysia (78%) are most likely to receive a pay rise over the next 12 months. Those in Vietnam (66%) are least likely although this is only marginally below the global average (68%). Constraints A lack of skilled workers is the key constraint on growth for businesses in the ASEAN region, cited by 43% of businesses. It is also cited as a major constraint by businesses in the wider APAC (ex.Japan) region (37%), well above the global average (28%). This lack of talent is a particular problem for businesses in Singapore (53%), Malaysia and Vietnam (both 46%). FIGURE 7: LACK OF SKILLED WORKERS NET PERCENTAGE OF BUSINESSES CITING AS A MAJOR CONSTRAINT ON GROWTH Singapore 53 Vietnam 46 Malaysia 46 Thailand 44 ASEAN 43 APAC ex. Japan 37 Global 28 Philippines 24 SOURCE: GRANT THORNTON IBR 2012 The cost of finance is also cited as a major growth constraint by ASEAN businesses (32%), led by Vietnam (50%). Globally, regulations and red tape emerges as the top growth constraint (34%), but only Thailand in the ASEAN region comes in above this figure (40%). In Vietnam, the slowdown in global trade is a particular concern – shortage of orders/reduced demand emerges as the top constraint (56%). The ASEAN Economic Community (AEC) The ASEAN nations are committed to regional economic integration by 2015, in the form of the ASEAN Economic Community (AEC), its key aims being to develop: • a single market and production base • a highly competitive economic region • a region of equitable economic development • a region fully integrated into the global economy. Business leaders in Singapore, Thailand and Vietnam were asked for their views on the creation of the AEC, and which other countries and regions they would like their governments to develop closer trade links with. 60% of business leaders in these countries are supportive of efforts to develop the AEC, with just 7% unsupportive. The greatest perceived benefit of the AEC is greater integration into the global economy (62%). This is followed by the elimination of tariffs, streamlined customs clearance procedure (both 58%) and easier movement of capital (56%). And a further 51% believe the AEC would help with labour mobility, helping ASEAN businesses overcome the issues they have in finding skilled workers. Indeed, 78% of businesses in Singapore, where businesses are struggling to find talent, believe easier movement of workers will be a benefit of the AEC. Perhaps unsurprisingly given its location, businesses in the ASEAN region would like their governments to improve trade relations most with China (58%). A further 26% want better trade relations with India and 54% mention other APAC economies. The United States (34%) and Europe (33%) also remain attractive for businesses in the region despite their slower growing economies. FIGURE 8: KEY BENEFITS OF THE ASEAN ECONOMIC COMMUNITY (AEC) NET PERCENTAGE OF BUSINESSES Greater integration into the global economy 62 Elimination of tariffs 58 Streamlined customs clearance procedure 58 Easier movement of capital 56 Easier movement of workers 51 Make the region more attractive to foreign direct investment 51 Greater combined economic & political power 41 SOURCE: GRANT THORNTON IBR 2012 The Grant Thornton International Business Report (IBR) is a quarterly survey of over 3,000 senior executives in businesses all over the world. Launched in 1992 in nine European countries the report now surveys more than 12,000 business leaders in 40 economies on an annual basis providing insights on the economic and commercial issues affecting the global economy. In May/June 2012, 250 businesses from the ASEAN region were surveyed across all industry sectors. These businesses ranged from small to large in size with total employment of between 20 and 599. To find out more about IBR and to obtain copies of reports and summaries please visit: www.internationalbusinessreport.com. and to access the full results go to www.internationalbusinessreport.com/results Participating economies Malaysia Argentina Mexico Armenia Netherlands Australia New Zealand Belgium Peru Botswana Philippines Brazil Poland Canada Russia Chile Mainland China Singapore South Africa Denmark Spain Finland Sweden France Switzerland Georgia Taiwan Germany Thailand Greece Turkey Hong Kong United Arab Emirates India United Kingdom Ireland United States Italy Vietnam Japan Contacts Global research Grant Thornton International Dominic King T +44 (0)207 391 9537 E [email protected] Malaysia SJ Grant Thornton Dato’ Narendra Jasani T +60 (0) 3 2692 4022 E [email protected] Philippines Punongbayan & Araullo Marivic C. Españo T +63 2 886 5511 E [email protected] www.gti.org www.internationalbusinessreport.com © 2012 Grant Thornton International Ltd. All rights reserved. References to “Grant Thornton” are to the brand under which the Grant Thornton member firms operate and refer to one or more member firms, as the context requires. Grant Thornton International and the member firms are not a worldwide partnership. Services are delivered independently by member firms, which are not responsible for the services or activities of one another. Grant Thornton International does not provide services to clients. Singapore Foo Kon Tan Grant Thornton Aw Eng Hai T +65 6331 2308 E [email protected] Thailand Grant Thornton Ian Pascoe T +66 (0)22 05 8100 E [email protected] Vietnam Grant Thornton Vietnam Ken Atkinson T +84 8 3910 9100 E [email protected]