What is it that makes ASEAN a preferred destination for FDI? Demographics Of especial interest to manufacturers, ASEAN’s population of more than 600 million is already in the middle of a “demographic dividend”— a period in which the ratio of employable workers rises against the number of dependents. With some 60 percent of the total population of ASEAN under the age of 35, multinationals like Volkswagen and Foxconn have been keen to take advantage of the labor surplus, especially in light of China having spent its own dividend and now entering a period of demographic aging. Consumer Markets Beyond its status as a preferred site for manufacturing, ASEAN is also witnessing vibrant growth in consumer markets throughout the region. Five of its ten member nations have populations of over 50 million, and the leader among these (Indonesia) has nearly as many people as the next three countries combined. Beyond their sheer numbers, the demographics of these populations are also transforming: Vietnam’s middle class, for example, is expected to increase from two million today to 33 million by 2020. Investors eyeing opportunities in ASEAN’s domestic markets would be advised, however, to keep in mind the disparity existing between member states; per capita income among the 52.8 million inhabitants of Myanmar, for example, is only US$900, whereas the equivalent figure for the 5.3 million Singaporeans is US$50,000. Treaty Network International treaties form the basis of ASEAN. In addition to the tariff reductions between member nations as part of the ASEAN Economic Community (see below), the members of ASEAN are also signatories to free trade agreements (FTAs) with some of Asia’s biggest economies — China, India, Japan, and Korea — and commonwealth nations Australia and New Zealand. As one such example, the China-ASEAN FTA ratified in 2011 has reduced tariffs to practically zero on 90 percent of goods traded between the two jurisdictions. For ASEAN-based manufacturers, the agreement facilitates access to China’s gargantuan domestic market, expected to grow to 600 million by 2020, up from 250 million today. Taxes Tax implications for foreign investment into ASEAN vary considerably between specific countries. Although the AEC Blueprint identified the removal of double taxation between ASEAN countries by 2010 as a top priority, several members have yet to meet this target; notably, Cambodia has yet to ratify a DTA with any other nation. Meanwhile, the Common Effective Preferential Tariff (CEPT ) scheme has long since removed customs tariffs on 99 percent of goods traded between the ASEAN-6. At present, tax rates vary between Brunei’s total absence of individual income tax, to Thailand’s maximum bracket of 37 percent; and from Singapore’s ultra-low 17 percent corporate income tax to Myanmar’s exacting rate of 35 percent for some foreign entities. In general, ASEAN members are concentrated toward the lower end of the World Bank’s “Ease of Paying Taxes” rating, with Singapore, Brunei, and Malaysia being exceptions to this trend. Chart-a AB mag 2014 0910_cover_250x350This article is an excerpt from the September-October 2014 edition of Asia Briefing Magazine, titled “ASEAN Investment Horizons: Key Industries for AEC 2015.” In this issue, we forecast the effects of the ASEAN Economic Community on foreign investment into the region. Following this, we highlight what is happening in some of ASEAN’s hottest industries for investment, including electronics, information and communications technology, textiles, and medical devices. Lastly, we examine opportunities for ASEAN-India trade in light of recent historic developments in India.
Posted on: Tue, 25 Nov 2014 02:53:08 +0000
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