ASEAN Market Watch: AEC Job Growth, Singapore’s Manufacturing Decline, and Pressures on Myanmar’s Currency

AEC to create 14 million new jobs

The recently established ASEAN Economic Community (AEC) will lead to creation of 14 million new jobs by the end of 2015. Datuk lim Chow Hock, chairman of the ASEAN Federation of Engineering Organisation (AFEO) stated, “The birth of AEC will also greatly enhance the free flow of trade in goods and services, investments, professional talents, and skilled labour as well as a freer movement of capital.” The AFEO held an annual conference at Penang, Malaysia.

The creation of the AEC will create a climate that is suitable for mobility of the business growth and conduct cross border work, especially for the engineering community. The engineering sector is one of the emerging service sectors in Asia. The conference stressed on need for formulating, planning and implementing policies that would benefit the engineering sector as this is a highly diversified area, which included wide range of industries from construction to automobiles, from aerospace to energy and from electronics to software.

The engineering sector in Asia is one of the industries that is growing rapidly in the region. Between 2005 to 2011, about 120 engineering companies from Asia, the average revenue grew by 20 percent each year and had a consistent profit margin of 12.5 percent. The technical industry is set to play a major role in changing the socio-economy of the ASEAN community. The GDP of the ASEAN economy was expected to rise from 4.6 percent in 2014 to 7.1 percent by 2025.

Singapore’s Manufacturing Outlook Remains Poor

Singapore’s economy is in a prolonged period of contraction – worse than during the recession period (that lasted six months from October 2008 to March 2009). The current external outlook for the manufacturing sector has been subdued for nine consecutive months, and Industrial Production (IP) declined by 5.4 percent year on year in October. The only exception has been biomedical manufacturing that registered positive growth. IP fell (-1.6 percent) to 6.4 percent year on year upon excluding biomedical manufacturing.

Manufacturing business sentiment continues to be weighed down by weak external demand, and a tight domestic labor market that becomes a supply-side constraint. Also, the top exporting destinations in the Eurozone, US and China continue to be plagued by economic and financial uncertainty, lowering the confidence of manufacturers and exporters. It is hoped that a stronger US dollar and economic growth (higher employment figures, rise in wages) will boost consumption demand. Additionally, macroeconomic policies such as growth of services and construction sectors, easing of monitory policy, and an expansionary fiscal policy could push Singapore’s economy to a growth projection of +2 percent in these consecutive years (+2.2 percent in 2015; +2.9 percent in 2016).

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While the overall manufacturing performance is indeed weak, it is an improvement on the 10.1 percent decline in September. Further, the magnitude of contraction is comparatively smaller than during the 2008/2009 financial crisis when the decline averaged 17 percent year on year. Aside from chemicals, biomedical equipment and general manufacturing, output has declined in most sectors including transport engineering (marine & offshore engineering and land transport segments), electronics (despite gains for data storage, other electronic modules and components), machinery and systems (back-end semiconductor equipment, industrial process equipment and mechanical engineering works), and precision engineering (industrial rubber, wire & cable products, fabricated metal products).

Import Costs Climb In Myanmar: Commodity Prices Up, Exports Decline

Myanmar’s currency (kyat) has reached its weakest since it adopted a managed float in 2012, falling by more than 25 percent to the US dollar this year to reach K1300 (K1315 in the unofficial market). The situation has been exacerbated by a strengthening US dollar, growing government deficits in Myanmar, and the projected forthcoming rise in US Federal rates. 

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As import costs have skyrocketed, they have raised commodity prices in Myanmar. The two are connected as the country has a near total dependence on imports in all its sectors, leading to consumer price inflation. Expensive imports mean expensive products sold on the domestic market, particularly as the kyat has weakened against the Chinese renminbi as well. This has also adversely affected the country’s limited domestic manufacturing capacity. Myanmar imports almost everything – construction materials, petroleum, cooking oil, cars, industrial materials, medicines, threads and textiles, fertilizers, and any number of other basic goods – thereby impacting all local industry.

The worsening financial situation has led manufacturers, importers, exporters and economists to call for a tightening of the monetary policy to combat inflation and stabilize the currency exchange rate. Currently, the depressed international oil prices have provided some respite to the Myanmar economy, but a more sustainable solution is required. To deal with the currency deflation, the Central Bank has been working with the International Monetary Fund, the World Bank, the Asian Development Bank and the Japan International Cooperation Agency. A new reserve requirement ratio will be imposed on local banks in January, and the Central Bank aims to scale up the fortnightly auctions along with a potential increase in interest rates.

The 2015 Asia Tax Comparator
In this issue, we compare and contrast the most relevant tax laws applicable for businesses with a presence in Asia. We analyze the different tax rates of 13 jurisdictions in the region, including India, China, Hong Kong, and the 10 member states of ASEAN. We also take a look at some of the most important compliance issues that businesses should be aware of, and conclude by discussing some of the most important tax and finance concerns companies will face when entering Asia.

Manufacturing Hubs Across Emerging Asia
In this issue of Asia Briefing Magazine, we explore several of the region’s most competitive and promising manufacturing locales including India, Indonesia, Malaysia, Singapore, Thailand and Vietnam. Exploring a wide variety of factors such as key industries, investment regulations, and labor, shipping, and operational costs, we delineate the cost competitiveness and ease of investment in each while highlighting Indonesia, Vietnam and India’s exceptional potential as the manufacturing leaders of the future.

An Introduction to Tax Treaties Throughout Asia
In this issue of Asia Briefing Magazine, we take a look at the various types of trade and tax treaties that exist between Asian nations. These include bilateral investment treaties, double tax treaties and free trade agreements – all of which directly affect businesses operating in Asia.

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