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PwC 2015 APEC CEO Survey The ASEAN cut Vote of confidence in the promise of ASEAN www.pwc.com/apec Preface The ASEAN cut of the PwC 2015 APEC CEO Survey summarises the measures of business confidence and analysis of notable trends, risks and opportunities from the perspectives of executives based in the 7 APEC economies which are also member states of ASEAN, i.e. Brunei Darussalam, Indonesia, Malaysia, The Philippines, Singapore, Thailand and Viet Nam. This report highlights a number of key findings for the ASEAN region, and we hope that the information contained in this report stimulates discussion and provides clarity on newer avenues for engagement with the private sector, public sector and policymakers in the ASEAN region. In this report we have presented descriptive key findings in our 2015 survey for the 7 APEC economies in ASEAN. It covers a variety of indicators, measuring levels of business confidence, allocation of business investments, estimation of the demand for services, effects of possible disruptive scenarios, outlooks of the business environment in 2020, and factors that foster connectivity and inclusive growth. Where possible, comparisons with 2013 and 2014 have been presented. The ASEAN promise remains attractive to business leaders. Following the establishment of the ASEAN Economic Community (AEC) in December 2015, the full implementation of strategic measures for the AEC in the coming years will integrate ASEAN as a single market and product base, making the region highly competitive regionally and globally. 60% of the business leaders in 7 APEC economies in ASEAN identified this as the key game changer for their organisations. Their belief in the ASEAN promise is also seen in their investment plans for the next 12 months, which sees 6 out of 7 APEC economies in ASEAN expecting increases in investments from ASEAN compared to the views a year ago. However, it is worth noting that executives in the region are less optimistic on reduction of trade barriers and red tapes in the wider APEC business environment, and any escalation of geopolitical tension in the region will certainly cause them to be on edge about the future of their businesses and investments. Despite the recent market volatility and uncertainties in the growth outlook in major economies China and the United States, business confidence in revenue growth remained high among business leaders in the 7 APEC economies in ASEAN compared to their peers from the rest of APEC. 79% of them are confident of the prospects for the 12-month timeframe while 94% says the same for the 3-5 year horizon. Riding on their confidence, a large majority of business leaders plan to increase their organisations’ headcount across the Asia Pacific in the coming years, and demand more advanced computer systems and technologies for their operations and participation in the digital economy. Vote of confidence in the promise of ASEAN | 1 Key findings D | PwC 2015 APEC CEO Survey – The ASEAN cut 1. Confidence in revenue growth consistently higher in the 7 APEC economies in ASEAN than the rest of APEC Business confidence in revenue growth over the next 12 months remained high among business leaders in the 7 APEC economies in ASEAN (79%) compared to those from the rest of APEC (61%), despite the market volatility in the recent months and uncertainties in the growth outlook in China and the United States. About 94% of business leaders are confident about the prospect for revenue growth in the 7 APEC economies in ASEAN over the next 3-5 years, with Confidence in revenue growth consistently higher in the 7 APEC economies in ASEAN insignificant differences compared to the levels of confidence recorded in our 2013 and 2014 surveys. than the rest of APEC Confidence in revenue growth in the 7 APEC economies in ASEAN versus the rest of APEC over the next 12 months Confidence in revenue growth in the 7 APEC economies in ASEAN versus the rest of APEC over the next 3-5 years 94% 93% 95% 94% 86% 79% 88% 89% 95% 90% 80% 61% 2013 2014 2015 2013 2014 7 APEC economies in ASEAN 2015 Rest of APEC Vote of confidence in the promise of ASEAN | 3 2. APEC economies remain attractive to business leaders in the 7 APEC economies in ASEAN APEC economies remain attractive to business leaders in the 7 APEC economies in Business leaders in the 7 APEC economies in ASEAN are more inclined to increase their investments globally in the ASEAN next 12 months (58%) compared to their peers in the rest of APEC economies (51%). They also plan to allocate a larger proportion of the increase to APEC’s 21 economies than the rest of the world. Proportion of the increase in business investments in the next 12 months by business leaders in the 7 APEC economies in ASEAN 27% 73% Rest of the world APEC's 21 economies Proportion of the increase in business investments in the next 12 months by business leaders from the rest of APEC 34% 66% Rest of the world APEC's 21 economies 3. Business leaders in the 7 APEC economies in ASEAN plan to increase their investments more within ASEAN For business leaders in the 7 APEC economies in ASEAN, ASEAN remains the region of choice to increase their investments the next 12 months. After comparing with the results fromto ourincrease 2014 survey, 6 out of 7 APEC economies Business over leaders in the 7 APEC economies in ASEAN plan their investments in ASEAN will see increases in the proportion of business leaders planning to increase their investments in 2016. Outside more within ASEAN ASEAN, China and the United States will see the most increases in investments in the coming year. % investments will increase over the next 12 months in… 49% 43% 44% 41% 37% 22% The Philippines 4 Indonesia Viet Nam | PwC 2015 APEC CEO Survey – The ASEAN cut 33% 26% Singapore ASEAN member states 2014 2015 Non-ASEAN member states 2014 2015 33% 28% 22% 21% People's Republic of China Malaysia 27% 18% The United States 21% 24% Thailand 4. Scientific research and development less demanded among businesses in the 7 APEC economies in ASEAN Business leaders research in the 7 APEC in ASEAN the demand in their organisations for7computer Scientific andeconomies development lessexpect demanded among businesses in the APEC systems (82%), management and technical consulting services (79%), risk reduction services (79%) and legal services (78%) economies in ASEAN compared to the rest of APEC to grow over the next 3-5 years. Demand for services over the next 3-5 years in the 7 APEC economies in ASEAN Computer systems (e.g. design, integration) 51.5% Management and technical consulting 58.8% Risk reduction 55.8% Legal 63.5% Financial services 52.3% Accounting, auditing and book-keeping 60.2% Tax 56.8% Logistics and supply chain 43.2% Advertising 49.2% Construction and related services 32.2% Scientific research and development 33.5% 15.7% 49.2% Architecture and engineering 32.8% 14.1% 46.9% To some extent 30.7% 82.2% 20.6% 23.6% 14.1% 22.0% 12.4% 14.5% 22.4% 9.9% 18.6% 79.4% 79.4% 77.6% 74.3% 72.6% 71.3% 65.6% 59.1% 50.8% To a great extent However, after comparing the demand by business leaders in the 7 APEC economies in ASEAN with their peers from the rest of APEC, research it is worth noting that only 49%less of them expect theamong demandbusinesses for scientific in research and development Scientific and development demanded the 7 APEC services to grow versus 70% of the business leaders from the rest of APEC. This difference between the 7 APEC economies in ASEAN compared to the rest of APEC economies in ASEAN and the rest of APEC is the largest among the list of services we surveyed this year. The 7 APEC economies in ASEAN 33.5% Rest of APEC 41.0% To some extent 15.7% 28.6% 49.2% 69.6% To a great extent Vote of confidence in the promise of ASEAN | 5 5. Businesses in the 7 APEC economies in ASEAN look set to expand in the coming years, riding on their leaders’ strong confidence in talent acquisition 79% of business leaders in the 7 APEC economies in ASEAN expect their organisations’ headcount in the Asia Pacific region to increase over the next 3-5 years, higher than their peers from the rest of APEC (69%). A large majority of them Businesses in the 7inAPEC economies in ASEAN look set toskills expand the coming years, (79%) remain confident securing the right talents with the required in theinregion to perform globally. riding on their leaders’ strong confidence in talent acquisition Expected changes to organisations' headcount in the Asia Pacific over the next 3-5 years 4.5% 8.6% The 7 APEC economies in ASEAN 41.3% Rest of APEC 36.5% Decrease 22.7% 21.8% 14.5% 78.5% 10.8% 69.1% Increase by less than 5% annually Increase by 5-8% annually Increase by more than annuallyin the coming years, Businesses in the 7 APEC economies in ASEAN look set to8% expand riding on their leaders’ strong confidence in talent acquisition Confidence about securing the talent and skills needed to perform globally 79% The 7 APEC economies in ASEAN 6 | PwC 2015 APEC CEO Survey – The ASEAN cut 80% Rest of APEC 6. Most business leaders in the 7 APEC economies in ASEAN fear an escalation of geopolitical tension in the region which will adversely affect their organisations An overwhelming majority of business leaders in the 7 APEC economies in ASEAN (91%) feel that an escalation of geopolitical tension in the region would adversely affect their organisations. Any occurrence of a cyber-attack on Most business leaders in the 7 APEC economies in ASEAN fear an escalation of geopolitical tension in the critical infrastructure in their economies or a food safety crisis will also cause them on edge more than their peers region which will adversely affect their organisations from the rest of APEC, among many possible disruptors that may affect their organisations. 21.0% 29.2% Escalation of geopolitical tension in the region Major disruption of Internet or a cyber-attack on critical infrastructure in your principal economy Food safety crisis in your principal economy The 7 APEC economies in ASEAN 70.2% 56.9% 50.0% 43.7% 35.3% 29.1% 19.3% 14.8% To a great extent To some extent 47.9% 34.6% Rest of APEC 91.2% 86.1% 85.3% 72.8% 67.2% 49.4% To a great extent To some extent Vote of confidence in the promise of ASEAN | 7 7. More needs to be done to remove the barriers and restrictions to facilitate business growth and trade in the Asia Pacific Business leaders in the 7 APEC economies in ASEAN are not as optimistic as their peers from the rest of APEC on the likelihood of fewer barriers and restrictions to facilitate business growth and trade in the Asia Pacific by 2020. The ongoing negotiations to promote free trade and economic integration between economies and trade blocs did not seem to impress as many business leaders in the 7 APEC economies in ASEAN, a signal to governments that they do not foresee the red tapes and policy hindrances which still persist in limiting the growth possibilities in APEC economies are going away any time soon. On the prospect of the Chinese yuan becoming a global and viable reserve currency by 2020, less proportion of business leaders in the 7 APEC economies in ASEAN (26%) felt that it would be likely compared to their peers from the rest of APEC (46%). Although the International Monetary Fund (IMF) has announced the inclusion of the yuan in the On theofprospect the removal of barriers and restrictions to facilitate business growth basket its Special of Drawing Rights (SDR) by September 2016, it remains to be seen whether more central banks will and trade inthe theyuan AsiainPacific, business leaders in the 7 APEC economies in ASEAN begin holding their foreign exchange reserves, as well as the pace of adoption to changeare the composition of not as optimistic as their peers from the rest of APEC their reserves. Likelihood of scenarios about the business environment in APEC Establishment of Free Trade Area of the Asia Pacific (FTAAP) 57% 61% Fewer barriers to procuring a range of services from across the region 56% 59% Fewer barriers to skilled people moving across APEC economies 51% 54% Fewer barriers to importing or exporting goods across the region 50% 67% Fewer restrictions on foreign business investment 46% 60% China's yuan becomes a global and viable reserve currency 26% The 7 APEC economies in ASEAN 46% 8 | PwC 2015 APEC CEO Survey – The ASEAN cut Rest of APEC 8. Expansion of digital infrastructure and trade facilitation more preferred in fostering regional connectivity by business leaders in the 7 APEC economies in ASEAN 31% of business leaders in the 7 APEC economies in ASEAN feel that expanding broadband access and increasing participation in the digital economy will provide the greatest opportunity for their organisations. Agreements to Expansion of digital trade facilitation more preferred fostering facilitate trade and remove infrastructure trade barriers andand tariffs are also more preferred, compared tointhe lower preference for regional connectivity by business leaders in the 7 APEC economies in ASEAN the development of land and maritime transport corridors. Frequency of being ranked first 15% 15% Development of new land transport corridors 31% 27% Expanded broadband access and increased participation in the digital economy 27% 25% 23% 16% Trade Facilitation Agreement (TFA) Regional or bilateral trade agreements 6% 17% Development of maritime corridors The 7 APEC economies in ASEAN Rest of APEC Vote of confidence in the promise of ASEAN | 9 9. If fully implemented, the ASEAN Economic Community will be the ‘mega regional’ game changer for business leaders in the 7 APEC economies in ASEAN The ASEAN Economic Community (AEC) will establish ASEAN as a single market and production base, which will provide abundant opportunities for businesses to grow and expand across ASEAN member states. It is therefore not surprising that majority of business leaders in the 7 APEC economies in ASEAN (60%) identified the full implementation of AEC as the greatest game changer for their organisations. The preference for the direct benefits of AEC in trade and movement of talents trumps that of the wider but less direct promise of the Regional Comprehensive If fully implemented, the ASEAN will be(FTA) the ‘mega regional’ game Economic Partnership (RCEP), which is Economic the proposedCommunity free trade agreement between ASEAN and the six states changer for business leaders in the APEC economies in ASEAN that the regional bloc has existing FTAs with7(Australia, People’s Republic of China, India, Japan, Republic of Korea and New Zealand). 60% 7% 13% 24% 29% ASEAN Economic Community (AEC) Regional Comprehensive Economic Partnership (RCEP) Trans-Pacific Partnership (TPP) 4% 1% 3% Bilateral trade agreements 16% 12% Pacific Alliance (Chile, Colombia, Mexico, and Peru) The 7 APEC economies in ASEAN Rest of APEC 10 | PwC 2015 APEC CEO Survey – The ASEAN cut 10. Expanding access to high-quality education is the most direct enabler to promote inclusive growth in the region Consistent with the view from the rest of APEC, a large majority of business leaders in the 7 APEC economies in ASEAN (84%) believe that the key enabler to promote inclusive growth and reduce inequality is expanding access to high-quality education at all levels. 4 out of 10 business leaders consider it as the best way to enable people who are currently on the margins of the economy to participate in and benefit from growth and trade in APEC. Expanding high-quality education most direct enablerthe toimprovement promote of Close to 80% ofaccess businessto leaders in the 7 APEC economiesisinthe ASEAN have also identified inclusive growth in the 7 APEC economies in ASEAN transportation infrastructure as another key enabler to promote inclusive growth in the region. 84% Expanded access to high-quality education at all levels 73% 79% Improved transport (roads, rail, ferries, airports) 66% 55% Expanded access to healthcare 45% Greater economic incentives for savings and access to financial services 48% More reliable access to power and electricity 47% 49% More stable food prices Raising minimum wages More affordable high-speed internet access Improved access to water and sanitation Expanded worker protections (overtime pay, maternity leave, etc) 60% 40% 28% 39% 35% 37% 48% 32% 38% 29% 49% The 7 APEC economies in ASEAN Rest of APEC Top ranked #1 option in the 7 APEC economies in ASEAN Vote of confidence in the promise of ASEAN | 11 About the 7 APEC economies in ASEAN: ASEAN Member States Population1 GDP (USD)2 Percentages Brunei Darussalam 417,394 $ 17,256,754,269 Indonesia 254,454,778 $ 888,538,201,025 The 7 APEC economies in ASEAN represent: Malaysia 29,901,997 $ 326,933,043,801 • 87.9% of total ASEAN population The Philippines 99,138,690 $ 284,582,023,121 Singapore 5,469,700 $ 307,871,907,186 Thailand 67,725,979 $ 373,804,134,912 Viet Nam 90,730,000 $ 186,204,652,922 Sub-Total: 547,838,538 $ 2,385,190,717,236 Cambodia 15,328,136 $ 16,709,432,403 Lao PDR 6,689,300 $ 11,771,725,798 Myanmar 53,437,159 $ 64,330,038,665 APEC 2,828,142,431 $ 44,045,128,984,835 ASEAN 623,293,133 $ 2,478,001,914,102 APEC member economies Non-APEC member economies • 96.3% of total ASEAN GDP • 19.4% of total APEC population • 5.4% of total APEC GDP • The 7 ASEAN Member States which are part of APEC represent more than 96% of total GDP produced in the ASEAN region. The top 6 ASEAN economies are all APEC economies. Business growth and performance in these economies will have direct impact on the trajectory of the ASEAN regional economy as a whole. Level of confidence among the business leaders in these economies will also affect revenue and investment outlook for ASEAN. • The total GDP produced in the entire ASEAN region are approximately US$ 2,478 billion, ranked just after the GDP of the United States, People’s Republic of China, and Japan. • The total GDP produced in the 7 APEC economies in ASEAN are approximately US$2,385 billion, also ranked just after the GDP of the United States, People’s Republic of China, and Japan. The population numbers were extracted and calculated based on the statistics available on the website: The World Bank Group (2015): Data > Population, total, via http://data.worldbank.org/indicator/SP.POP.TOTL. All population numbers are for 2014. 1 2 12 The GDP numbers were extracted and calculated based on the statistics in the following online publication: The World Bank Group, 18 September 2015: Gross domestic product 2014. World Development Indicators database, World Bank, 18 September 2015. Access via http://databank.worldbank.org/ data/download/GDP.pdf. All GDP figures are for 2014. | PwC 2015 APEC CEO Survey – The ASEAN cut Profile of respondents The PwC 2015 APEC CEO Survey was implemented between June and August 2015. This is an enterprise survey and a mix of quantitative and qualitative methods were used. The sample size for the 7 APEC economies in ASEAN is 262 (Brunei Darussalam 1, Indonesia 44, Malaysia 7, The Philippines 110, Singapore 55, Thailand 6, Viet Nam 39), and the Profile respondents from the 7 APEC economies in ASEAN (cont’d) distributions of theofsample by sector and firm revenue are as follow: 15% Banking & Capital markets 8% Business & Professional Services 41% Others 4% Construction & Civil Engineering Sector distribution of the ASEAN sample 6% Consumer goods 9% Energy (incl. oil/gas) 4% 4% Transportation & Logistics Industrial manufacturing 4% 5% Retail & Distributive wholesale Technology Profile of respondents from the 7 APEC economies in ASEAN (cont’d) 3% 16% Don’t know US$10 billion or greater 32% Less than US$100 million 8% US$5 billion to less than US$10 billion 6% US$2.5 billion to less than US$5 billion Distribution of sample by revenue in the last fiscal year 10% 10% US$1 billion to less than US$2.5 billion US$100 million to less than US$250 million 3% US$750 million to less than US$1 billion 5% US$500 million to less than US$750 million 7% US$250 million to less than US$500 million Vote of confidence in the promise of ASEAN | 13 www.pwc.com/apec At PwC, our purpose is to build trust in society and solve important problems. We’re a network of firms in 157 countries with more than 208,000 people who are committed to delivering quality in assurance, advisory and tax services. Find out more and tell us what matters to you by visiting us at www.pwc.com. This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PwC does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it. © 2015 PwC. All rights reserved. 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