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A Major Emerging Market: The ASEAN Free Market Area (AFTA) (Informe)

Much has been written about the four emerging economies that will dominate global consumer markets in the next twenty years. Investment bankers have coined the initials BRIC to stand for Brazil, Russia, India and China. With huge internal markets, abundant human and/or natural resources, and significant moves towards market-oriented reforms, these four countries have been attracting an increasing share of foreign investments and have become more integrated into the global economy. As the 2007 ...

Much has been written about the four emerging economies that will dominate global consumer markets in the next twenty years. Investment bankers have coined the initials BRIC to stand for Brazil, Russia, India and China. With huge internal markets, abundant human and/or natural resources, and significant moves towards market-oriented reforms, these four countries have been attracting an increasing share of foreign investments and have become more integrated into the global economy. As the 2007 financial crisis in the United States demonstrated, these emerging economies have served as a stabilizing factor in the global economy, minimizing the ripple effects of the subprime debacle that at first was feared to have the same devastating influence as the East Asian financial crisis of 1997.

Paradoxically, the region most negatively affected by the East Asian financial crisis of 1997--Southeast Asia--has been most resilient in 2007 in the face of the real estate meltdown in the United States. Fortified by monetary and fiscal reforms as well as greater regional market integration within the East Asian region, the ten member countries of the Association of Southeast Asian Nations (ASEAN) have continued their above-average GDP growth rates of 6 to 8 % and maintained hefty current accounts surpluses.

All have experienced increases in Foreign Direct Investments as they are perceived to compete with China and India as attractive sites for labor-intensive manufacturing and service-oriented industries. In fact, the leaders of China and India have been very active lobbying the ASEAN officials to work for free market arrangements referred to as AFTA + China or AFTA + India. If and when these agreements materialize, a free market region of 2.8 billion consumers will emerge.

Taken as one regional market, the ASEAN Free Trade Area (AFTA) deserves to be in the same category as the much-vaunted BRIC countries. Forty year old this year, the ASEAN has succeeded in steps to forge a truly free market area in which investors from outside the region can sell to a market of close to 600 million consumers, bigger than the entire European Union. Although like India and China, there is still much poverty in such huge countries as Indonesia (220 million), Vietnam (90 million) and the Philippines (90 million), the number of middle-class within the ASEAN consumers is estimated to be at 250 to 300 million, not far from the effective consumer markets of China and India. Like their two giant neighbors, the ASEAN countries will be graduating in the next twenty years from low-level per capita incomes of $1,000 annually to about $5,000 (Malaysia's level today). As Engel's law predicts, it is during this transition in per capita income levels that the demand for consumer products and services will grow at double-digit levels.

The Southeast Asian region has some of the richest mineral, forest, agricultural and aquamarine resources in the world. Indonesia and Malaysia are major petroleum producers. Indonesia, Thailand, Vietnam and the Philippines are major exporters of agricultural and fisheries products. In fact, China will be heavily dependent on these countries for its food imports in the coming years as its population of close to one billion poor people can increasingly afford to eat the high-value food items that are found in the tables of the richer Chinese today.

Like India and China, the countries in the ASEAN will have to implement major infrastructure projects that will need financing and technology from the more advanced countries. Indonesia and the Philippines, being archipelagic nations, will be busy constructing airports and seaports. The big countries, including Myanmar (Burma), will see their demand for energy multiply at double-digit rates every year. To make their agricultural sectors truly competitive, these countries will need to construct farm-to-market roads, irrigation systems, post-harvest facilities and other rural infrastructures which are still in a rather primitive stage in such countries as the Philippines, Myanmar, Indonesia, and Vietnam. All these infrastructures will also serve to meet the demands of a burgeoning tourism industry, which is a natural for the region with its very attractive beaches, cultural treasures and tropical climate.

Foreign investors would have an incomplete picture of the emerging markets of the next twenty years if they stop short of the final A word in BRICA.

Equally attractive as Brazil, Russia, India and China for a very productive use of investment capital is the free market area called AFTA, the ASEAN Free Market Area. The next time a foreign investor from Europe, the U.S. or Japan--or for that matter anywhere else in the world--considers alternative areas for expanding his business, he should think and act BRICA.

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