The Benefits And Challenges Of Singapore’s Economic Relationship With ASEAN
The benefits Singapore gained from the ASEAN economic growth
The full form of “ASEAN” is The Association of Southeast Asian Nations, which is a regional group that helps member countries to promote their political, economical and security cooperation. These member countries are Cambodia, Singapore, Indonesia, Brunei, Thailand, Laos, Malaysia, the Philippines, Vietnam and Myanmar. Total number of population in this association is 640 million and these countries generate total $ 2.57 trillion of total gross domestic product (Visvanathan and Anbumozhi 2018). ASEAN stimulates economic integration through signing six different free-trade agreements with other regional blocks (Nimtrakoon 2015). The association was formed in 1967 in order to reduce the regional hostilities. Another chief vision of ASEAN was to face various potential threats related to communist-led insurgencies during the war between the US and Vietnam. The chief founding members of this association were Malaysia, Indonesia, Singapore, the Philippines and Thailand. These countries intended to promote social and political stability accompanied by increasing instabilities among the post-colonial states of the Asia-Pacific.
Singapore is one of the founding members of ASEAN. According to economists, the country needs to maintain a positive relationship with the association to achieve various advantages. These benefits come in the form of huge market potential, which further can help Singapore to experience significant economic growth (Davenport 2017). The report will analyse these benefits briefly in the following sections along with some challenges. In addition to this, the project will analyse various economic strategies for strengthening the relationship between Singapore and ASEAN.
In 2018, Singapore becomes the chairman of ASEAN. The government of this country is one of the strongest supporters of this association. In this context, it could be beneficial to discuss economic and political benefits that Singapore has gained from the ASEAN. The market under this association is considered as the fastest growing one and consequently earns the position of seventh largest economy. According to market researchers, this market will possess the fourth largest position by 2030 (Kim 2018). In addition to this, ASEAN contains a large section of growing and developing middle class people among which a large section of people belong to young population. As a result, Singapore receives a large domestic market containing with 628 million consumers (Das 2017). The ASEAN represents its commitment to regional integration, free trade and open economies. According to economists, the New ASEAN Economic Community (AEC) could increase the gross domestic product of Singapore to 9.5 percent by 2030. In 2015, the leaders of ASEAN formed the AEC whose one of the main aims was to promote free movement of trade as well as capital within regions. Economists expected that the community could influence Singapore firms to shift their production of goods of lower value to other countries; where labour is comparatively cheap (Narine and Lyon 2018). Therefore, creation of the AEC gives the Singapore economy an opportunity to increase internationally. In addition to this, the economy brings a standard procedure of customs, which in turn helps the country to make an easy shipment of goods. This further helps the Singapore economy to outsource production processes to other countries.
Merchandise exports and imports within ASEAN countries
It is also essential to understand that whether ASEAN has brought any political benefits in Singapore in terms of peace or not. Without peace, it becomes impossible for any economy to develop significantly. Instable economic condition negatively influences policymakers to utilise the resources in an efficient way. It could be difficult for Singapore to shift from the Third World country to the First one without maintaining peace (Booth and Smith 2018). Through considering the history of ASEAN it could be said that the association has maintained peace in South-east countries successfully. The association has also provided another political benefit to Singapore. The country has successfully established partnerships with 10 major economies, such as Australia, New Zealand, Japan and Canada and so on. As ASEAN is known as a successful regional organisation, it possesses an inclusive as well as open attitude for its stakeholders, who have external link. The association has helped Singapore from other aspects as well (Visenescu 2018). ASEAN can be considered as a regional organisation that operates in a diverse way in this world. Instead of cultural differences, the association helps Singapore to develop its solidarity and regional identity.
In addition to this, the environment of low trade-growth influences many companies to increase their margins for protecting their bottom lines. As a result, firms could receive advantage from the AEC for shifting production to cheaper sections. Therefore, some clothing companies intend to move their production to Thailand and Vietnam, where labour costs are comparatively low. Similarly, many companies intend to shift their production to Malaysia. Moreover, creation of this community helps various services and investments of Singapore to move in a cross-border direction. This further can help financial products as well as services of Singapore to expand and consequently the position of this country could become a financial hub (Findlay and Garnaut 2017). However, some companies related to high value sectors such as computing and pharmaceuticals have influenced by the creation of this association. These companies remain in the country because of a higher quality of labour force as well as better protection of intellectual property. According to economic experts, the pace of movement of Singapore companies in abroad can increase slightly during 2016 and 2017. This speed can increase more during 2018 and 2020 (Vu 2017). Therefore, as the government intends to implement more policies on free trade, Singapore companies intend to move abroad for better opportunities.
ASEAN helps Singapore companies to expand their business in international market. This process of integration gives producers opportunities to produce their products at comparatively lower prices. However, the country also experiences some challenges, such as higher costs, in order to implement economic integration for expanding businesses in other ASEAN countries (Yeung 2017). These are economically and culturally diverse from that of Singapore. Most of the countries in this association belong to low middle income countries while some other possess comparatively better economic positions. According to economic forecasts of economists, each country possesses a large gap of income inequality. However, some countries may experience negative impacts after the AEC integration. In addition to this, some other ASEAN countries also experience higher inflation. Due to this economic phenomenon, companies of country experiences dissimilar levels of price as well as unequal purchasing power on other ASEAN countries. As a result one country enjoys more purchasing power compare to others.
Joint government projects within ASEAN
In addition to this, various levels of inflation lead different countries to invest different amount of money. This further helps some sectors to develop while some sectors cannot develop due to lack of investment. However the governments of respective countries do not provide sufficient support to recover these economies (Lieng, Yagi and Ishihara 2018). Therefore, some ASEAN countries experience economic instability while some other countries enjoy economic progress. Singapore also experiences such difficulties due to integrated economies. In this context, it can be said that different member countries of ASEAN possess different stages of development. Some countries, such as Malaysia, Brunei and Singapore enjoy high-saving economies while some other countries like Laos, Cambodia and the Philippines enjoy low-saving economies.
Member countries of ASEAN also experience higher level of diversity in political and socio-cultural contexts. As a result, each member country experiences this economic integration as a challenge. Each country experiences different levels of development in capital market. In addition this, each country also experiences different financial regulations though some countries do not possess proper regulation and infrastructure in financial sector (Lee and Itakura 2018). Therefore, economists observe that Singapore and other member countries of ASEAN may experience challenges in the context of capital market development, liberalisation of financial services as well as liberalisation of capital account. Singapore incurs costs for institutional strengthening, evaluating and monitoring regional systems within its economic framework. Moreover, countries bear costs in order to develop and manage the regional systems that are essential for an effective economic integration (Culpeper 2018). Economists also predict that Singapore experiences other costs associated with urbanisation. In Singapore, economic activities grow and expand significantly and consequently migration happens. This further increases the cost of urbanisation by large extend.
Moreover, it becomes difficult for Singapore companies to operate their businesses in low-saving economies, as this provides comparatively lower capital formation. In addition to this, Singapore experiences unequal economic development, exchange rates and interest rates with its partner countries. As a result the government may experience difficulties to implement proper macroeconomic strategies while firms experience difficulties to implement proper business strategies. Therefore, financial conditions in this integrated system of the association create some difficulties for Singapore and other member countries of ASEAN.
Therefore, it can be said that Singapore experiences both advantages as well as challenges for AEAN. Hence, it would be beneficial to discuss various economic strategies that can help the country to overcome such challenges. This further helps the economy to strengthen the relationship with other member countries of ASEAN.
To strengthen the relationship among member countries of ASEAN, the government of different countries implement various economic strategies, which can be described briefly. These strategies are related to bilateral tie between two countries regarding free trade agreement.
The free trade agreement (FTA) within ASEAN was formed in 1967 with six member countries while more countries were included in this association later. Singapore also does free trade agreements with other countries of ASEAN through bilateral collaboration. For instance, such collaboration can be observed between Singapore and Indonesia. The Indonesia-Singapore Working Group on Investment is considered as one of the six government-to-government Economic Working Groups (Liu, Li and Parkpian 2018). This group helps both countries to experience flow of investments between Indonesia and Singapore using investment promotion with the help of various marketing platforms. This free trade strategy leads the Singapore market to expand further, as companies of this country can conduct their business in Indonesia without experiencing any trade related restrictions policies or regulations.
Growth of manufacturing industries within ASEAN countries
The finance minister of Singapore along with the Monetary Authority of this country takes various initiatives related to the ASEAN Finance Track. The association strengthen financial integration for facilitating intra-ASEAN trade as well as investment to develop the role of indigenous banks of ASEAN. This financial integration helps insurance sectors to integrate and connect with capital markets. Moreover, ASEAN countries promote financial inclusion in order to deliver financial products as well as services to those communities, which have not developed yet, for instance, small enterprises. The ASEAN countries provide financial stability for improving regional infrastructure, financial surveillance and microeconomic along with prudential international for best practices.
The local companies of Singapore and other developing countries experience various advantages for the strategies that ASEAN has made. Free trade agreement helps these companies to expand their business in international market; this in turn helps these companies to obtain more consumers for other countries (Dindin Abdurohim, Si and Si 2017). As a result, companies earn significant amount of revenues from other countries, which further help them to develop significantly.
Conclusion:
Thus, after the entire discussion it can be said that Singapore has experienced both advantages and disadvantages from ASEAN. This association has been formed to help Asian countries to conduct trade freely with other trade blocks across the world. In addition to this, member countries also experience bilateral trade relationship, such as Singapore and Indonesia and others. Due to free trade opportunity, various companies of Singapore conduct their business in other countries for lower labour costs. However, this country also experiences various challenges. Different economic conditions of member countries create huge trouble. Some countries enjoy economic benefits due to inflation while other countries experiences difficulties.
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