ASEAN Awareness Fondazione Economia Tor Vergata

Transcription

1 ASEAN Awareness Fondazione Economia Tor Vergata

2 This report is the result of the research carried out by the Tor Vergata Economics Foundation team, coordinated by Angelo Airaghi and composed of Federico Ceschel, Antonella Cianciotta, Alice Cortignani, Giuseppe Galloppo, Elena Giachin Ricca and Andrea Salustri. Tor Vergata Economics Foundation President Luigi Paganetto The views and the data expressed in this Report are those of the Tor Vergata Economics Foundation and do not involve the responsibility of the Ministry of Foreign Affairs. 2

3 Contents EXECUTIVE SUMMARY... 5 ASEAN Awareness - Macro The Association of South-East Asian Nations (ASEAN) The ASEAN economy The productive networks of the South-East Asia The Free Trade Agreements (FTAs) Trade facilitation & logistics The expectations of the firms operating in Asia Intra and extra ASEAN trade and foreign direct investments ASEAN-European Union relations ASEAN attractiveness Political and economic relations between Italy and ASEAN countries ASEAN Awareness - Sectorial Analysis Manufacturing Production Trade Trade with Italy Consumer goods Textile and wearing apparel sector Production Trade Trade with Italy Leather and footwear sector Production Trade Trade with Italy Agro food industry Production Trade Trade with Italy Engineering industry Machinery and equipment Production Trade

4 2. Electrical engineering sector Production Trade Machinery trade with Italy The automotive sector Production Trade Trade with Italy High technology Electronics and computers Production Trade Trade with Italy Aerospace Production Trade Pharmaceuticals and secondary chemicals Production Trade Infrastructures Construction industry Infrastructures The state of the art The ASEAN Connectivity Master Plan Comprehensive Asian Development Plan (CADP) Financial aspects

5 EXECUTIVE SUMMARY 1. ASEAN countries and the Blueprint for Development This Report aims at: 1. documenting the characteristics and describing the evolution of the economies of the Association of Southeast Asian Nations (ASEAN); 2. finding the match between the evolution of this Organization and the Italian System, paying particular attention to the priority sectors in order to promote forms of commercial and productive integration. ASEAN territory has an extension of 4.5 million sq Kilometers, with a population of around 600 million people and has been experiencing an incredible growth. From being essentially a rural area, ASEAN has undergone an intense process of industrialization that, even if still fragmented, is reshaping the region. Since 1992, the free trade agreement negotiated in the region (AFTA) has been one of the main drivers of this change. The liberalization of trade and services, the inflow of investments and, since 2007, the idea of a common market and production base to be realized within 2015, are rising the confidence on the economic integration process of the 10 ASEAN Member States even if there are still some disputes, such as the one about the state borders between Thailand and Cambodia, which can negatively affect the development. There are important differences among the ASEAN countries. Indonesia, Malaysia, Philippines and Thailand are medium size economies; Singapore is a rich commercial economy; Vietnam is rapidly growing; Brunei is a small country but rich in petroleum. Myanmar, Cambodia and Lao PDR have been growing at a lower grow rates, but signs of change are emerging. In spite of the diversities, all countries have been participating in the ASEAN development process. The average income of the ASEAN countries provides a good basis for consumption. The starting point of this Report is the adoption of a Blueprint that foresees the rapid integration of the 12 priority sectors with a clear Roadmap designed for each of them. In the first part of the ASEAN Awareness Report the main features of the ASEAN evolution are highlighted, while in the second part a focus on the main priority sectors (mechanics, electronics, automotive, infrastructure, textile, leather, agro food, aerospace, pharmaceutics, constructions), as well as the overall manufacturing sector, is provided. 2. The ASEAN economy The ASEAN strength is the growing integration of its member states as well as the intensification of relations with China, Japan and Korea through specific bilateral agreements. This allowed ASEAN 5

6 countries to create an international network for the production of parts and components, which is particularly relevant in the mechanics and electronics sector. The fragmentation of the production chain has reached its maximum expansion inside the region pushed by increasing demand, in particular from China, which has the function of regional assembler and re-exporter rather than the one of final consumer. The main advantages of this product sharing organization are: 1) lower wages than in Eastern Europe and other areas; 2) wage differentials among the ASEAN countries which justify the division of labour within the area; 3) promotion policies for trade and investment within the ASEAN Economic Community; 4) upgrading of the transportation and communication systems due to consistent investments in infrastructures; 5) agglomeration increasing returns mainly in Singapore, Thailand, Malaysia; 6) a strong economic integration aiming at satisfying the increasing demand coming from Korea, China and Japan also via free trade agreements (FTA). In recent years, the ASEAN s growth process has been undermined by the instability of the exchange rate of domestic currencies and by the reduction of global demand (mostly in the electronic sector). In the case of Vietnam, the two-digit inflation, due to the strong growth in recent years, required a devaluation of the dong, an increase of interest rates and interventions containing the deficit. Except for these trends, ASEAN countries have macroeconomic policies positively assessed by the International Financial Institutions. Chinese role in treatment and re-export of ASEAN products makes ASEAN vulnerable to changes in Chinese economy. Moreover the resilience of Chinese economy to the financial crisis has been a stability factor for ASEAN. The development process has continued and all the ASEAN Member States have intensified their efforts to reduce the obstacles to trade and investments. Indeed, the foreign direct investments (FDI) have been increasing over the years even though less than in the past, coming both from within the region and from the rest of the world. The attractiveness of the area mainly depends on the agglomeration advantages that allow for an availability of skilled labour force also at managerial levels. Growth and export prospects are positive. According to a recent survey run by Jetro 1, based on a sample of Japanese entrepreneurs doing business in the ASEAN region, there are quite high perspectives of growth and exports increase: 60 % to 75% of the interviewed entrepreneurs expect an expansion of the manufacturing sector, financial sector, wholesale and retail sector and ICT sector. 1 Japan External Trade Organization. 6

7 3. The ASEAN challenges ASEAN is today facing several challenges; among which we point out: 1) the structural changes of the intra ASEAN trade, experienced during the last 10 years. Indeed, its exports towards China have grown by 8 times, while imports from China have grown by 6 times. At the same time, imports from the EU have doubled since 2000, imports from the US have increased by one third and that from Japan have decreased (mainly because of the displacement of Japanese enterprises to the ASEAN region). On the other side, the intra ASEAN trade has more than doubled. Over the last 10 years, imports from Italy have remained stable.italian export to ASEAN represents about 1.4% of the total Italian export (while its export towards China represents 3%); 2) the strong dependency from export that has increased its magnitude over the GDP in 8 out of 10 ASEAN countries (excluding Singapore and Myanmar). Indeed, among these countries the ratio of export over GDP is 63% on average, while the worldwide average is 30%. At the same time, the proportion of the intra-regional trade (24%) is much lower than in the EU- 27 (over 60%); 3) the increasing competition of China, Korea and Japan on global market, which is one of the reasons inspiring the ASEAN policy action; 4) the decline of its position as one of the main recipients of FDI among developing countries. Indeed, in 2008 the flows of FDI towards the ASEAN countries were lower than 10% over the total FDI realized in the world, showing a sharp recovery in Moreover 50% of the regional FDI is hosted by Singapore, 10% by Thailand, 12% by Malaysia, and 2.5% by Philippines; 5) changes in the comparative advantage structure of the ASEAN Countries. Thailand is today the country with the highest number of manufacturing sectors accounting for a sectorial comparative advantage in the region. It provides 30% of the global supply of rice. In the attractiveness classifications, Thailand is just after Singapore and Malaysia thanks to its business environment. At the same time, Vietnam is improving its international position, mostly in the textile, apparel and footwear sectors, while Cambodia is performing better in the leather and textile sectors. This sector employs 300,000 people and generates 90% of country export. Indonesia has an important role in the region as major supplier of natural resources. Indonesia and Malaysia produce 90% of palm oil in the world. In spite of high and increasing labour costs, Singapore maintains its high rank. On the other side, Malaysia lost global market shares, although this decline might be explained by temporary structural macroeconomic adjustments. Philippines are experiencing an expansionary phase and a growth rate of 7.5 in the last two years. Thailand has gained market share in the textile and apparel sector. In this sector, which is one of the main components of Italian export, rising labour costs have boosted investment in capital intensive production technologies. Therefore, the production of wearing apparel has moved to the countries with lower cost of labour such as Vietnam and Cambodia (even if Bangladesh represents a dangerous competitor for the ASEAN countries). Supported by Thailand, Myanmar aims to a revolutionary project: the port of Dawei, which could offset the maritime traffic that passes 7

8 through the Strait of Malacca. Moreover the creation of a highway and a railway from Dawei to the Thailand border and a large industrial area near to the port have been planned. Lao PDR has a huge hydropower potential. It could store a great potential of energy that could serve an area wider than the country, if the Xayaburi dam project turns out to be successful. The Blueprint policy choices have to be addressed in a dynamic context which increases the political trade-offs uncertainty. However, ASEAN policy makers have to adopt urgent measures in order to tackle the following issues: The improvement of infrastructures and logistics, which is a priority of the ASEAN Roadmap, including highways, railways, ports and airports, electricity, communications and internet. Indonesia, Philippines and Malaysia have developed important infrastructure projects. The increase of the use of energy resources. Brunei, Indonesia e Malaysia export petroleum. Liquefied natural gas is an important resource of Malaysia which collaborates with China in its use. The reduction of trade tariffs. Even if the actions taken so far have given significant results, there are still differentials in the cost per container and differences in authorizations among the ASEAN countries. The reduction of non-tariff trade barriers, including technical requirements, labour standards requirements, investment restrictions. Also in this case, the differences among the ASEAN countries are relevant. The facilitation of the procedures related to incoming FDI. 4. ASEAN attractiveness and policy priorities The degree of openness to FDI can be evaluated through the analysis of the existing restrictions applied to ownership, the differences in national treatments, the assessment and approval procedures involving the economic activities and other factors like, for instance, the performance requirements. According to a recent classification of the degree of openness realized by the World Bank, Singapore is at the top of the list, followed by the Philippines, Cambodia and Thailand, while Malaysia and Myanmar can be found in the bottom positions. Looking at the FDI source, the EU ranks first with 33 billion of USD, followed by China and Korea with, respectively, 8 and 7 billion of USD. In the service sector, restrictions to competition are quite heterogeneous: according to the World Bank indicators, in the air transportations Vietnam has the more restrictive regulation, followed by Lao PDR, Malaysia and Cambodia. The less restrictive is Singapore, followed by Thailand. In the telecommunication sector the more liberalized countries are Singapore, Thailand, Indonesia and Vietnam, while the more restrictive are Lao PDR and Myanmar. In the trade of goods there are many differences among the ASEAN countries. Singapore is placed first in the global openness ranking according to the WB indicators. Malaysia and Thailand follow at 8

9 the 27 th and at the 31 st position; Vietnam holds the 53 rd position and the other countries are in the bottom positions (i.e. Lao PDR and Cambodia rank 127 th and 168 th ). The ASEAN Single Window (ASW) is broadly considered the most relevant initiative in terms of custom efficiency and simplification of import-export activities. Indeed, it insures a unique procedure for all the custom operations, with the aim of speeding up the procedures and lowering the costs of doing business in ASEAN. The ASW has strong potentialities in terms of higher trade flows both at intra and extra-regional level. The ASW should be operative soon, even if, since it was approved in 2005, its concrete realization has been delayed. Again the state of play is very different from country to country, with Lao PDR, Cambodia, Myanmar and Vietnam still lagging behind and Philippines, Malaysia, Thailand and Indonesia in the leading positions. With the institution of the ASEAN Economic Community new and more ambitious initiatives have been introduced with the aim of realizing a process of development based, as in the case of the EU, on the realization of a single market within 2015 and on a consistent increment of competitiveness through a higher availability of new technologies and new investments in infrastructures. The following initiatives are part of this framework: 1. The PEMUDAH 2, a dedicated task-force aiming at identifying the bureaucratic obstacles to business (delays in opening new activities, licenses, ownership registrations, foreign trade procedures). 2. The Public-Private Partnership (PPP) for the development of new infrastructures. The PPP can be realized through several options and structures according to the different needs, like services agreements, management agreements, concessions and grants, leasing and with different time lengths during which actors comply with the infrastructure realization. 3. The Comprehensive Asia Development Plan (CADP) which aims at designing a territorial plan for large infrastructures and industrial locations linked to the system of fragmentation and to the productive network that is a peculiar feature of the ASEAN s economies. The CADP implies the creation of new clusters of innovation with a high value added and new territorial clusters organized around logistic and infrastructural systems supporting the innovative activities. 5. Priority sectors and trade flows According to Asian Development Bank estimates, the infrastructure sector needs investment for 60 billion of Euro each year. The issue of how to finance infrastructures in the region has been managed with the creation of the ASEAN infrastructure Fund. This Fund has a budget of 335 million of USD, and aims at supporting and sustaining the projects approved in the region

10 The issue of connectivity calls for the maximum of attention as it requires actions not only on the physical infrastructures, but also on the management and regulation mechanisms (as for the PPP). Within 2015, ASEAN foresees the realization of: a) a regional highway system (AHN); b) the railway connection Singapore-Kunming (China); c) better rivers connections; d) 47 strategic ports; e) a multimodal connection system similar to the Mekong-India corridor; f) an extended broadband coverage and an ASEAN web network; g) a trans-asean pipeline and liquefied gas infrastructures. The construction materials sector is experiencing a positive growth rate in the last 10 years. The electronics sector is driven by multinational firms and reveals a clear labor specialization. Singapore and Malaysia generate the highest value added, Philippines and Thailand produce parts and components, Vietnam and Indonesia assemble the final product. This sector employs more than 1 million workers. Italian trade with the ASEAN countries is about 900 millions of USD, and it has not increased over the last years. The industry of PC components confirms Singapore, Malaysia and Thailand as the main FDI recipients. Vietnam should be added to the list of the main FDI recipients thank to the inflow of the recent years. The ASEAN industry of PC components exports towards the world 21% of the final production. This is a leading position, which sees China as the main treat (we recall that China has a major assembling industry). The aerospace sector is dominated by Singapore which employs 20,000 out of the 40,000 workers employed in the sector in the ASEAN region. The pharmaceutics and chemical industries are growing rapidly, with more than 300,000 workers, half of which employed in Indonesia and 100,000 in Thailand. ASEAN imports half of the pharmaceutics and chemical products from the EU and only 7% from Italy. This is one of the most promising sectors for increasing trade between the ASEAN countries and Italy. The mechanics has 470,000 workers in the region, 160,000 of which are employed in Thailand. It represents one of the main import sectors, with 85% of the ASEAN total import. For the electronics sector, imports from Japan, the US and the EU represent 80% of the total value imported by ASEAN. This sector employs 450,000 peoples: 120,000 in Thailand and 100,000 in Vietnam. The mechanics is one of the sector in which the trade with Italy was increasing in the first part of 2000s, and has decreased in In the automotive sector, the intra ASEAN trade has increased substantially (more than 100%) since The sector employs 360,000 workers, half of which in Thailand. The ones working in the other transportation vehicles are 300,000, with 130,000 of them in Vietnam, mostly in the 10

11 shipping components industry. The trade with Italy is almost irrelevant over the total ASEAN trade with rest of the world. The industry of parts and components for the automotive sector has reached the goal of tariffs and non-tariff reduction, thanks to an ad hoc industrial cooperation scheme (AICO). The textile and spinning industry are located mainly in Indonesia and Thailand, which occupies 70% of a million of regional workers. Also the knitted and crocheted fabrics are dominated by Indonesia with 110,000 out of 150,000 workers in the region. The textile sector is characterized by notable comparative advantages, but the trade barriers remain relevant: in 2006 the average tariff on textile was 30.4% in Vietnam (although it is quickly reducing its tariffs barriers), 10.5% in Malaysia, 8-9% in the other ASEAN countries, while in Singapore there is no tariff. Italy exports wearing and apparels articles to Singapore, and textiles articles to Thailand (from the latter Italy imports the wearing and apparels articles). The ASEAN countries are major exporters of footwear articles. The leather and footwear industry employs in the region over one million people: 600,000 of them in Vietnam and 200,000 in Indonesia. Italy remains a net importer of footwear products. Finally, the agro food industry employs 2 million workers in the region. Indonesia has a dominant position in the sector by employing 700,000 workers and having the highest productivity increase over the last 10 years. China and the US are the main markets for the ASEAN products. Italy exports more than half of its regional export in beverages to Singapore. The analysis of ASEAN economy and its sectors shows that: - The infrastructure sector will be very dynamic in all ASEAN countries in following years; - the sector of energy and fossil energy technologies are also becoming favored by Korea and China decision to invest in renewable energies; - many of the ASEAN countries should be considered not only for their specific attractiveness but also for their potential as production platform for the whole Asian world; - there is a shift of labour intensive productions, such as clothing and footwear, toward countries with lower wages, especially Myanmar and Cambodia; - it is likely that there will be increasing investments opportunities in technological sectors in those countries which have already undertaken their development path such as Singapore, Thailand, Indonesia and Malaysia. - In almost all ASEAN countries the young and educated labor force will lead to productivity increments. Singapore represents a unique case with its high salaries, high productivity and modern infrastructures. In the last years, also Vietnam has undertaken major changes and has started probably a long-lasting development process; - Europe is currently negotiating a trade agreement with ASEAN. Recently, 12 Europeans Premiers (including the Prime Minister of Great Britain, Spain and Italy), wrote a letter 11

12 supporting development-oriented policies, quoting, among others, the ASEAN as an area to which it is necessary to address trade openness policies; - the competitive advantage due to the market size, particularly with regard to the Asian Pacific area, will determine an increase of productive investments flows not only due to displacement process. - the challenge that ASEAN has to face is to enlarge domestic market stimulating the increase of consumption. This achievement is linked to the reduction of the income gap among ASEAN countries. This will increase in mean time investment opportunities in productive activities within the area; - the industrial presence of Italy is not systematic. Its export flows are 1.4 % of the total Italian export; - small-medium Italian enterprises can find profitable investment opportunities through the comparative advantages that arise from their specific professional and productive skills, not always available in ASEAN countries. Proper institutional arrangements and tools are also needed. - there are still important differences among the ASEAN countries and in many cases, inside the same country, inequalities persist. With the exception of Singapore and Brunei, the majority of the ASEAN countries (i.e. Malaysia, Thailand, Indonesia, the Philippines and Vietnam) are among the recently industrialized countries, while Lao PDR, Cambodia and Myanmar are lagging behind; the reduction of the this gaps is one of the biggest challenges ASEAN is facing today. Structural assistance on the model adopted by the EU (such as the structural funds and the cohesion funds) might be the appropriate policy tool to tackle this issue; - on the other hand, divergences have been among the main drivers of the productive specialization of the industrial system. 12

13 ASEAN Awareness - Macro Fondazione Economia Tor Vergata 13

14 The ASEAN economy 1. The Association of South-East Asian Nations (ASEAN) In 1961 the Philippines, Malaysia and Thailand established the Association of Southeast Asia (ASA). Six years later, in 1967, the ASA countries together with Singapore and Indonesia formed the Association of South-East Asian Nations (ASEAN), which was subsequently joint by Brunei (1984), Vietnam (1995), Lao PDR (1997), Myanmar (1997) and Cambodia (1999). In 2003, the ASEAN countries agreed to pursue a common policy, based on three pillars or communities (Security Community, Economic Community, Socio-cultural Community). From 2007, the goal of AEC is to create a single market and a common productive basis. To achieve the complete efficiency of the AEC within 2015 and the prospects of the integration process, there are some necessary steps indicated in the AEC Blueprint. In order to contribute to the creation of a single market and a common productive basis, the Blueprint focuses on the rapid integration of 12 priority sectors, and a Roadmap for each of them has also been defined. The twelve priority sectors indicated in the AEC Blueprint Agro-food products, Air transportation, Automotive, e-asean, Electronics, Fishery, Healthcare services, Logistics, Rubber based products, Textile and apparel, Tourism, Wood based products. During the four year period from 2011 to 2015, one of the other pillars of the AEC policy is financial integration. As indicated in the RIA-Fin (Roadmap for Monetary and Financial Integration of ASEAN), financial integration in ASEAN is mainly promoted through four initiatives: Financial Services Liberalization, Capital Account Liberalization, Capital Market Development and Chiang Mai Initiative Multilateralisation (CMIM). 2. The ASEAN economy The ASEAN region is an area of approximately 4.5 million square kilometers with almost 600 million of inhabitants. In 2011, the ASEAN countries realized a GDP of approximately 3,500 billion USD, which corresponds to a per capita GDP of about 5,000 USD. Since 1998, the same countries share positive growth rates, even though, the positive impact of the increased trade and of the ongoing structural reforms on the growth of the productive activities located within the area, were mitigated by the global crisis. Despite the integration processes under way, the ASEAN documents illustrate how the entire area is still characterized by a duality. This duality classifies CLMV countries on one side (Cambodia, Lao PDR, Myanmar and Vietnam) and ASEAN-6 countries (Brunei, Indonesia, Malaysia, Philippines, Singapore, Thailand), which have become more developed, on the other. Anyhow, data emphasize 14

15 how only three countries (Malaysia, Singapore and Brunei) have reached a high level of per capita GDP. Cambodia, Vietnam, Lao PDR and Myanmar are those which have benefited of the highest growth rates. Table 1: ASEAN countries overview. Source: EIU, in AA.VV., 2011 (Inhabitants, GDP, per capita GDP), ASEANSEC, 2008 (GDP growth). Country Indonesia Inhabitant GDP (bil USD) Per capita GDP (USD) GDP growth rate 5,20% Filippine ,00% Vietnam ,60% Thailandia ,80% Myanmar ,90% Malesia ,10% Cambogia ,20% Lao PDR ,80% Singapore ,90% Brunei ,00% N.B. GDP growth is measured as the average value for the period Graph 1: Growth rates for ASEAN countries. Source: ASEANSEC database (2008) BRU CAM IND LAO MAL MYA PHI SIN THA VIE ASEAN The next table presents data on intra-asean imports and exports towards the rest of the world for six priority sectors. The importance of electronics as opposed to the rest of the sectors taken into consideration is evident. Table 2: Intra-ASEAN exports and rest of the world exports for six prioritary sectors. Source: WITS data, Integrated Data Warehouse, 2010, in US ITC, Intra-ASEAN exports ASEAN exports to the rest of the world Growth Growth Value (000 $) Value (000 $) ( ) Value (000 $) Value (000 $) ( ) % % Share Share Growth Share Share Growth Agro-based Products 2,41% 3,79% 105% 4,23% 7,31% 135% Automotives 5,82% 10,86% 143% 4,16% 6,97% 128% Electronics 84,79% 77,39% 19% 75,31% 68,67% 24% Healthcare 1,54% 2,72% 130% 1,23% 2,61% 190% Textiles and apparel Wood-based products 3,42% 3,31% 26% 9,87% 9,90% 36% 2,02% 1,94% 25% 5,20% 4,54% 19% 15

16 ASEAN countries are characterized by wide exchange rates volatility. Moreover, ASEAN economic activities are highly dependent on the global demand trends. Graph 2: Changes in local currency rates to the US dollar, in percent (left) and ASEAN economic dependence (right) on the international demand of goods. Imports of consumer goods as percent of total import form that country to USA, Source: World Bank, The high TFP (Total Factor Productivity) growth rate, observed in the last decade, is a positive feature of most South-East Asian economies. We have also to stress that the Asian converging economies, and even more the underdeveloped Asian economies, do not generally have organizations, institutions and policies able to promote and develop the entrepreneurship. Graph 3: TFP levels and growth rates, Source: Centennial calculations,

17 The main drivers to promote the entrepreneurship and the start-up of new companies on a wider scale are the markets openness and the spread of a competitive atmosphere. Graph 4: Asian countries ranking in Ease of Doing Business according to the region and to the convergence in income club. Finally, we have to detect the expansion of intra-asean, ASEAN-China and ASEAN India trade, the decreased importance of Japan and Korea as suppliers of parts and components, and the reduced importance of the USA markets as destination for the ASEAN exports. The next diagram illustrates the changes occurred in the ASEAN trade structure. Figure 1: ASEAN and main partners trade structure (Billion dollars). Source: ERIA - RIETI_TID, Red arrows indicate the major increments in trade with respect to the past decade, the blue ones indicate low increments; arrows direction represents import and export flows. 17

18 3. The productive networks of the South-East Asia In the past thirty years, South-East Asia has been one of the leading actors in the growth of the world economy. The driving force of South-East Asia can be identified in an unprecedented growth of the economic activities, linked to the international networks, particularly in the machinery production sector. Machinery is constructed by assembling parts and components which are produced separately; several inputs and technologies are used in the production process. According to the logic of fragmentation of the productive processes, to place this kind of industry in South-East Asia, it is particularly convenient. The international production networks coordinators operating in the ASEAN region are multinational companies from Japan, Korea, Taipei, Hong Kong and other economies of the area. The intra and extra-regional trade flows generated by the fragmentation processes are impressive. Singapore was the main assembler of standardized components and performer of functionality tests, and now it is acquiring supervising functions, the role of production processes designer and it is the hub for capital and technological intensive activities. South-East Asia components exportations are heavily concentrated in the fields of electrical machinery and semiconductors. Table 3: Trade in parts & components compared to the total manufacturing trade (%). Source: Athukorala, Menon, Exports Imports Trade ASEAN / / / / / /2006 Manufacturing SITC 5 to Machinery & Transport Equipment SITC ICT Products SITC Electrical Machinery SITC Road Vehicles SITC Miscellaneous Manufacturing SITC Thanks to different elements, South-East Asian is now considered a center of global production sharing. First of all, in many ASEAN countries, wages are still significantly lower than in Eastern Europe, despite of the rapid growth in the manufacturing sector. Moreover, wage differentials among South-East Asian countries have encouraged the rapid growth of intra-regional productsharing systems, determining the growth in trans-border trade of components. Secondly, the relative cost, advantages of the South-East Asian countries, was boosted by policies of trade and investment promotion. Improving transportation and communication systems facilitated the conduct of commercial activities reducing at the same time, the cost of link services. Finally, countries such as Singapore, Thailand and Malaysia offer considerable cost advantages due to the agglomeration processes activated by the companies already operating in those countries. Many multinational companies (particularly American companies) which have successfully initiated various productive processes in the region, have endowed their regional production networks with better technology and have assigned higher responsibilities to their local affiliates in the production processes. 18

19 Graph 5: Average wages estimates for 2012, excluded benefits and allowances. Source: JETRO, Managers - Manufacturing Myanmar (5) Bangladesh (14) Cambogia (4) Vietnam (89) Sri Lanka (10) Indonesia (92) Cina (462) Filippine (67) Pakistan (12) India (82) Thailandia (498) Malesia (191) Taiwan (53) Corea (34) Hong Kong (18) Singapore (47) Nuova Zelanda(24) Australia (41) %$ Workers - Manufacturing Myanmar (6) Bangladesh (14) Cambogia (10) Vietnam (102) Sri Lanka (11) Pakistan (12) Indonesia (97) Filippine (71) India (77) Thailandia (521) Cina (508) Malesia (196) Taiwan (49) Singapore (50) Hong Kong (17) Corea (33) Nuova Zelanda (21) Australia (43) Observing the location of ASEAN firms operating in the manufacturing sub-sectors, we can notice how most of the activities are concentrated in a limited number of areas (Figure 2), particularly in the sub-sectors of automotive, electric & electronic, textile and apparel, food processing, and other manufacturing industries. We can also notice, how only a small number of provinces is heavily involved in the automotive and electronics goods production networks. Other provinces host textile, clothing and food processing establishments, but not always the hosted companies are linked to the regional and global market. Figure 2: Comparative advantages in the manufacturing sector (2005). Source: Kumagai & al., N.B. Red = Automotive, Yellow = Electric & Electronics, Blue = Textile, Green = Food, Gray = Other, White = Nothing. % $ Nonetheless, in the world trade of manufacturing, the South-East Asia industry dedicated to components is the highest respect to all the other regions of the world. For example, in 19

20 2005/2006, South-East Asian economies had the highest share of intra-regional imports and exports in components. Specifically, in 2005/2006 the components' share in manufacturing exports at intra-regional level amounted to 37%, while the same exports to NAFTA countries and UE-15 countries amounted to 17.5% and 18% respectively. The trade of components is particularly concentrated in the sector of transport equipment (SITC 7), which owns a 90% share of trade in combined components. In the SITC 7 sector, the South East Asia exports and imports are heavily concentrated in electronics and electrical industries. Semiconductors and other electronics components (SITC 77) own a 50% share in components exports from the South-East Asia in 2004/2005. A 90% share of total components exports is reached adding SITC 76 and SITC 75 sectors (components of telecommunication equipment and office and automated data processing machines respectively) to the SITC 77 sector. The involvement of South-East Asia in the global production networks happened before the emergence of China as a major economic player in the area. The Chinese rapid growth added a new dimension to the position of South-East Asia in the international labour organization. During the last two decades, the share of China increased significantly in world exports and imports. A data comparison on components share, with respect to the total amount of exports and imports, highlights an important feature which characterizes China with respect to the rest of South-East Asia developing countries: in China, components have a much larger share of imports compared to the exports. 4. The Free Trade Agreements (FTAs) Among the political activities aimed at promoting trade within the South-East Asian region, FTAs constitute the major innovation. Such agreements emphasize the main contents of the General Agreement on Tariffs and Trade (GATT). In order to improve the attractiveness of the area in respect to the foreign investments and to extensively exploit the opportunities offered by the global market, the ASEAN countries signed FTAs with Australia and New Zealand (in a unique FTA), China, India, Japan and Korea. ASEAN countries also signed individual FTA with many countries with which they maintain significant trade relations. Companies from Korea, Singapore and the Philippines, intensely use the trade channels opened by the FTA. However, a wide debate on the impact of the FTAs on the South-East Asian economy broke out. Critics consider the FTAs signed by the ASEAN countries as a dangerous Asian noodle bowl ; i.e. as a series of overlapping acts which undermine the certainty of law and slow down the trade activities. On the other hand, some of economic analysts underline the beneficial effects in terms of trade liberalization which such FTAs have already produced and their being a first step toward a multilateral agreement concerning the entire area. 20

21 Graph 6: Firms using FTAs/EPAs. Source: JETRO, N.B. The number close to the sector/country identifies the sample size. % Total (2132) Large (1394) SME (738) Textiles (74) Motovehicles/Motocycles (270) Chemical/Pharmaceutical (210) Food (90) Wood/Pulp (24) Rubber/Leather (35) Transport (35) Iron/Non-ferrous Metals/Metals (175) General Machinery (81) Wholesale/Retail (503) Electric Machinery (282) Precision Machinery (31) Communication/Software (26) Construction (20) % Hong Kong & Macao (74) Taiwan (52) Cina (291) India (148) Nuova Zelanda (57) Filippine (93) Australia (96) Singapore (155) Malesia (238) Corea (34) Vietnam (106) Thailandia (629) Indonesia (118) Until now, South-East Asian companies had more benefits than costs from the signature of the major FTAs, including AFTA. Major benefits refer to a wider access to the market and higher sales in terms of exports as well as preferential tariff regimes, which facilitate the inputs endowment. A recent survey 3 on a sample of 609 companies operating in the South-East Asia (in Japan, Singapore, Korea, Thailand and the Philippines) confirmed the fact that the Asian noodle bowl does not seem to have damaged the economic activities. The use of the preferential channels opened through the FTAs was higher than expected; only 27% of the interviewed companies declared to have incurred in additional costs due to multiple rules of origin (ROO). Independently from the impact on the economy of the area, the signed FTAs establish different conditions and deadlines for the tariff concession. Moreover, preferential tariffs vary on the basis of products and FTAs, and ROOs and administrative systems change according to FTAs and products. The ASEAN-Korea FTA (AKFTA) is a concrete example of the intense ongoing promotion activities in the area. In 2006, both parties signed a FTA, which will create an area of free trade within 2016 (Thailand did not sign the agreement due to the exclusion of rice trade from the negotiation). Technological transfers activated through trade (imports of durable goods) can create significant benefits for ASEAN, due to the lower technological capacity of the latter with respect to the former. This element is definitely occurred in Cambodia, Lao PDR and Myanmar since these countries, and Korea too, realized the highest growth of trade activities, and their low technological levels determine the greatest opportunities of innovation. This technology diffusion can facilitate technology transfers from Korea to ASEAN. 3 JETRO, Survey of Japanese-Affiliated Firms in Asia and Oceania (FY 2011 Survey), October

22 Graph 7: Bilateral trade growth among Korea and ASEAN countries from 2006 to 2008 (CLM = Cambodia, Lao PDR, and Myanmar). Source: Park, Park, Estrada, Trade facilitation & logistics Trade regulation varies considerably among ASEAN countries. In Singapore, Thailand and Malaysia, trade procedures are relatively easy to follow, but much more difficult in Lao PDR and Cambodia. Also, the quality of logistics (custom brokerage, freight forwarding, and express delivery) is not homogeneous and it is particularly high in Singapore, but much lower in Lao PDR, Cambodia and Myanmar. In addition, in many ASEAN countries a restrictive sector regulation hampers the development of high quality logistics. World Bank data show how trade practices are hampered by numerous requirements, and how Singapore is the only one which requires less trade documents for the goods transportation compared to the OECD countries average (Indonesia is also considered in it). For the ASEAN countries, these data determine a score which is 20% lower with respect to the average score of the OECD countries. Table 4: ASEAN trans-border trade characteristics (2009). Source: World Bank, Doing Business Database, N.B. Data for Myanmar are not available. Country/Region Rank (*/183) Docs to export (number) Time to export (days) Cost to export (USD per container) Docs to import (number) Time to import (days) Cost to import (USD per container) Singapore Thailand Malaysia Indonesia Brunei Philippines Vietnam Cambodia Lao PDR USA East-Asia & Pacific (average) OECD (average)

23 Performances of logistics activities in ASEAN countries, compared to the OECD average, differ by a higher number of inspections and longer customs clearance procedures. The possibilities of rapidly achieving a greater efficiency are low. Regarding the costs of maritime transportation, ASEAN seems to have parameters in line with those of the OECD countries (the sole exceptions are Malaysia and the Philippines). The elimination of the non-tariff barriers (trade facilitation) can significantly increase trade flows in Asia, enabling South-East Asian countries to benefit of the advantages of globalization when the world economy is expanding. We have to keep in mind that non-tariff barriers include factors such as freight costs, delays in customs procedures, payments under the counter, slow port and airport services, inefficient governance processes. Also, significant costs are imposed by institutional bottlenecks (poor quality of administrative, legal, financial, control and logistics infrastructures), information asymmetries and discretionary powers which cause rent seeking activities by part of government officials to different stages of commercial transactions. In the last two decades, trade in Asia, sustained by the improvement of trade facilitation, increased considerably, and China, in particular, have registered an explosive growth. China exports increased more than 20% per year on average between 1987 and 2007, while for the other eight Asia s emerging countries, the ten principal exporters registered more than 10% of growth per year. Even if trade in Asia is increasing, it is also changing qualitatively due to the greater efficiency of the international transactions. Specifically, it is becoming more immaterial and concerned with goods provided with a higher unit value. The ICT revolution generated a more consistent trade of ICT goods and services, as well as more consistent inflows of professional workers. 6. The expectations of the firms operating in Asia JETRO conducted a survey on 3,904 Japanese affiliate companies operating in Asia and Oceania. Empiric results indicate a reduction of 25% for the average trade costs in the APEC. Considering the single country and region, the percentage of companies which realized profits in 2011 is highest in Indonesia (83.9%), but consistent also in Hong Kong, Macau and Korea, Taiwan, Thailand, Singapore and Australia (more than 70%). On the other hand, the percentage of companies which obtained a negative result was relatively high in South-West Asia (in particular in Sri Lanka, 36.7% and in India 26.4%). The percentage of companies which sustained losses exceeded 50% is in Lao PDR and Cambodia. As regards the future expectations, 63.6% of companies declared that they will be able to boost their turnover in the following two years (62% in 2010). Only 3.2% of companies answered that they are going to reduce their turnover, transfer parts of their business to another country or region or close the activity (0.5% more than 2010). In ASEAN (China and Korea included), more than 60% of companies declared that they would be able to expand their business. In Myanmar, the ratio of companies which are intentioned to expand their business, increased approximately by 25% in 2010; this is the highest increase observed among the countries surveyed. 23

24 % Vietnam (131) Pakistan (18) India (203) Myanmar (16) Cina (769) Bangladesh (21) Indonesia (132) Sri Lanka (20) Cambogia (13) Thailandia (794) Filippine (110) Corea (68) Malesia (293) Singapore (192) Hong Kong (128) Australia (166) Nuova Zelanda (83) Taiwan (109) Graph 8: Firms operating in ASEAN-growth expectations Source: JETRO, Graph 9: Sales increase in ASEAN. Source: JETRO, Wages increase by sector in the last year. Souce: JETRO, 2011 % Manufacturing Manufacturing total (182) Motor Vehicles/Motorcycles (210) Precision Machinery (17) General Machinery (71) Iron/non ferrous metals/metals (169) Chemical/Pharmaceuticals (165) Non-manufacturing Non-manufacturing total (788) Finance/insurance (29) Communications/Software (34) Wholesale/Retail (372) Looking at the growth trends of the firms operating in the manufacturing sector, automotive and motorcycle industry have the highest percentage of companies with positive growth rates in ASEAN countries (76.7%). Among the problems encountered by the interviewed firms, more than 50% of the sample declared that they faced salary, procurement costs and competitor s market share (cost-wise competition) increases. The survey also suggests how companies face difficulties linked to negative labour force characteristics (low experience and awareness of the local labour force, scarce ability of workers, and difficulty in engaging managerial personnel). More than 80% of companies from the textile, wood, electric machinery, telecommunication and software production sector reported the amount of salaries as a problem. 24

25 Table 5: Main problems encountered by firms operating in ASEAN. Source: JETRO, Singapore Malaysia Indonesia Vietnam Thailandia Filippine Cambogia Myanmar Employee wage Awareness local staff Procurement costs Volatility Cost-wise competition Local procurement endowments General workers manufacturing Limited cost-cutting measures Tax burdens Customs procedures Power shortage Recruiting executive staff Quality control Lack of facilites 7. Intra and extra ASEAN trade and foreign direct investments The ASEAN region constitutes a wide market in rapid expansion, characterized by a growing integration of internal trade flows and by an even wider openness towards the rest of the world. The AEC foundation determined a consistent increase of the trade flows in the area, which have almost tripled in value in 2008 compared to the data registered immediately after the financial crisis. ASEAN maintains significant trade relations with the other countries of the South-East Asia and Pacific (China, Japan, Korea, Australia, India and New Zealand), in which 24.6% of trade was realized in 1998 and 33.0% in In the past years, the entity of realized trade flows provides evidence of the profitable results obtained by signing FTAs with the main neighbouring countries. A significant share, compared to the total trade flows, in ASEAN trade is realized with the EU27 and the USA (on the whole 34.6% of trade in 1998 and 20.9% in 2009). Graph 10: ASEAN trade flows disaggregated by country/area. Source: ASEAN Secretariat Yearbook. N.B. ROM = Rest of the world, ANZ = Australia & New Zealand. The sum of the value presented is different from 100% due to approximations ASEAN 25,00% ROM 21,00% ASEAN 24,00% ROM 22,00% India 2,00% ANZ 3,00% Giappone 13,00% Corea 4,00% USA 13,00% UE-25 11,00% Cina 9,00% India 3,00% ANZ 3,00% Giappone 12,00% Corea 5,00% USA 10,00% UE-25 11,00% Cina 11,00% Intra-ASEAN FDI flows have significantly increased after the AEC establishment and the AIA entry into force. FDI inflows from the rest of the world show a similar trend, although less pronounced. 25

26 The EU27 and Japan are the major investors in ASEAN. In particular, the share of FDI inflows from the EU27 and Japan (19.1% and 15.1% in 2009 respectively) exceeds by far the share of intra- ASEAN FDI (13.1% in 2009). Also the share of FDI inflows from the USA and China is consistent (7.6% and 3.8% in 2009 respectively). FDI inflows are mainly directed towards ASEAN-6 countries, but the share of FDI directed towards CLMV is increasing and it amounted to 22.9% of the total in 2009 compared to 7.1% registered in ASEAN-European Union relations Political and economic integration between the EU and the ASEAN was mentioned for the first time in 1978, and it was institutionalized by the signing of the ASEAN-EEC Cooperation Agreement on the 7 th of March 1980, but its concrete implementation began only in the late '90. The signature of the Nuremberg Declaration on an EU-ASEAN Enhanced Partnership in 2007 constitutes a fundamental stage in the integration process. The ASEAN-EU Plan of Action to Implement the Nuremberg Declaration on an EU-ASEAN Enhanced Partnership and the Indicative List of Activities to implement the Plan of Action define the main measures programmed for the period. The primary goal of the political and economic cooperation is to reinforce the integration process in action in ASEAN, also with the view of the definition of an EU-ASEAN FTA. The cooperation in the field of trade is defined in the Trans-Regional ASEAN-EU Trade Initiatives (TREATI), which contain also the first step towards the negotiation of a FTA between the two regions. A mechanism for cooperation in the field of regulation was established Through TREATI with the aim of increasing trade flows and FDI inflows, solving some open bilateral issues concerning the access to the regional market, promoting cooperation in areas of common interest, and creating the basis for a multilateral agreement of free trade coherent with WTO prescriptions. These initiatives are complementary to and should strengthen the activities programmed independently by the ASEAN and defined within the Roadmaps for the development of the prioritary sectors. The objective is to eliminate the non-tariff barriers which represent an obstacle in the EU-ASEAN trade and at the same time to contribute positively to the ongoing process of regional integration in ASEAN. In 2007, the European Commission asked for the approval of the European Council in order to formally initiate negotiations for an EU-ASEAN FTA. The Commission proposed to include in the agreement a clause for the investments and asked for the maximum possible level of liberalization of trade flows with ASEAN, especially in the services sector and for the FDI. The FTA should also include intellectual property rights (IPR) and government procurement. Nowadays the European Union is one of the major economic partners of ASEAN, not only in terms of goods and services trade, but also in terms of foreign direct investment flows. As for the services sector, for the European Union the most important issues in terms of exports are Other business services, Royalties & licenses fees, and Sea transportation, while the most important issues in 26

27 terms of imports are Travel services, Other business services 4, Sea transportation and Air transportation. The EU registers major trade surpluses in the Royalties & licenses fees, Other business services and Financial services sectors, while the most important trade deficits are related to Travel services and Air transportation. In terms of stocks, the EU is the main investor in ASEAN (27.3% of FDI inflows in the area in the period of ), followed by Japan (14.1% of FDI between 2000 and 2008) and by the ASEAN countries (13.1% of FDI between 2000 and 2008). The biggest part of the EU s FDI is concentrated in Singapore, and to a lesser extent in Malaysia, Indonesia, Thailand, Brunei and Vietnam. The investments hosted by the other ASEAN countries are scarce both in absolute and in relative terms. The analysis of the FDI flows from the EU towards ASEAN-5 countries (Singapore, Indonesia, Thailand, Malaysia and the Philippines) shows an increasing importance of such flows compared to the total volume of investments realized by the EU in ASEAN, also due to the progressive run out of the EU investments realized in CMLV countries and in Brunei. 9. ASEAN attractiveness The number of employees per sector of economic activity indicates how the manufacturing sector reaches significant levels of development in Malaysia, Vietnam, Thailand, Indonesia and Singapore. As for the other sectors, Brunei economy is focused on the oil sector, and on the construction sector, while Singapore has a high percentage of employees in the Transport, Storage, Communication and Finance, Insurance, Real Estate and Business Services sectors. The primary sector reached a maturity only in some countries (in particular in Malaysia) and this fact can be considered as the starting point for an industrial development coherent with the natural evolution of the current social equilibrium. In Myanmar and Indonesia the agriculture has a consistent share in exports (more than 15%), while Lao PDR imports include a significant share of agricultural products (15%). However, a process of industrialization and specialization of the primary sector activities is under way, as it is suggested by the analysis of the data on exports and imports of the main ASEAN agricultural products. 4 Other business services includes different categories: Merchanting & Other trade related services, Operational leasing services (rental) without operators, Miscellaneous business professional and technical services. The last category covers: Legal, accounting, management consulting, and public relations services, Advertising, market research and public opinion polling services, Research and development services, Architectural, engineering and other technical services, Agricultural, mining and on-site processing services, Other miscellaneous business, professional and technical services, Services between affiliated enterprises, n.i.e.. 27

28 Table 6: Value added and wages in ASEAN countries. Source: UNIDO data. Manufacturing Share of wages in value added V.A. Per employee (USD, current prices) Wages per employee (USD, current prices) Cambodia 33,35% Indonesia 15,10% 11,77% Malaysia 24,63% 27,00% Philippines 18,11% 24,48% Singapore 31,97% 37,54% Thailand 25,09% 18,37% Vietnam 28,23% Singapore is the country which hosts the industrial activities with the highest value added (value added per worker equals 76,748 USD). The average labour compensation is worth less than 30% of the value added produced by the manufacturing sector in ASEAN-5 countries and Vietnam 5. Although the considerable growth rates registered in the period , nominal wages are very low if compared to the value added per employee registered in the same period. Even if on average the industry produces a 40% fraction of GDP, the productive structure of the industrial sector significantly varies from country to country. In ASEAN, private offer of services is very low. Compared to the total production, the value added created by the services sector does not exceed 50% of the total value added, except that in Singapore. On the demand side, the availability of means of transportation, and in particular of vehicles for private use, is only consistent in Brunei, significant in Malaysia and Singapore, and very low in the rest of ASEAN countries. In ASEAN, as in the rest of the world, the telecommunication sector is clearly expanding. However, there are some countries (Cambodia, Indonesia, Lao PDR and Thailand) in which the offer of the telecommunication sector is lacking not only in landline telephony but also in mobile telephony. The data concerning the use of internet services allow to draw similar conclusions. The biggest users of internet services are the citizens of Brunei, followed by the citizens of the Philippines, Singapore, Thailand and Vietnam. However, in a wide area of ASEAN (Cambodia, Indonesia, Lao PDR, Malaysia and Myanmar) the use of internet services is very low, not only in absolute terms, but also compared to the demographic weight of the countries. That area significantly overlaps with CLMV countries, i.e. with the less developed part of ASEAN. Finally, in ASEAN R&D activities and ICT use are not very widespread, even though the importance of such activities is increasing. The sole exception is Singapore, a country in which issues the largest number of patents in ASEAN (96 per million of inhabitants in 2005), spends a significant share of GDP (2.25%) on R&D, and forms approximately 5,000 researchers per million of inhabitants. 5 In Italy the ratio between labour compensation and value added of the manufacturing sector is close to 40% (UNIDO data 2007). 28

29 Table 7: Technological progress indicators. Source: ASEANSEC, Country Patents (per million inhab.) R&D expenditure (in % del GDP, ) Researchers in R&D (per million inhab., ) Brunei - 0, Cambodia Indonesia - 0, Lao PDR Malaysia - 0, Myanmar - 0,07 17 Philippines - 0,11 48 Singapore 96 2, Thailand 1 0, Vietnam - 0, A more critical scenario emerges from the joint interpretation of the main indicators regarding trade and the other economic activities (Doing Business, Economic Freedom, Corruption). Besides Singapore, the top positions in all lists are retained by Malaysia, immediately followed by Thailand. The remaining ASEAN countries are positioned on a medium-low rank in the mentioned lists. Table 8: ASEAN countries attractiveness. Source: ICE, Doing Business Economic freedom Country (*/183) (*/179) Corruption (*/178) Brunei Cambodia Philippines Indonesia Lao PDR Malaysia Myanmar Singapore Thailand Vietnam Finally, the infrastructure availability and their efficiency will be a supporting element of the ASEAN attractiveness. According to the Asian Development Bank (ADB) assessments, the resources allocated for the realization of infrastructures in ASEAN for the period of amount to more than 60 billion dollars a year. ASEAN countries do not own independently the funds necessary for reducing the gaps in the infrastructural facilities which remains perhaps the most important challenge for the region. Moreover, the potential investors of national and international projects are extremely cautious when investing their capital due to the high level of perceived risks which characterize the ASEAN market, and due to the sluggishness of the negotiations in financial transactions. Nonetheless, as of today a variety of financial channels are available for the construction of infrastructures in ASEAN: multilateral development banks (for example, Asian Development Bank (ADB), World Bank, and Islamic Development Bank), bilateral development partners and national governments. The amounts, conditions and terms of financial resources 29

30 settled depend on the type of investor, on the recipient countries and on the nature of the projects. 10. Political and economic relations between Italy and ASEAN countries Although the region of South-East Asia still represents a marginal market for Italy, the volume of Italian imports from ASEAN has almost doubled in the course of the past decade. Considering the geographical location, the most significant import flows come from Indonesia, Thailand, Vietnam and Malaysia and in minor measure from the Philippines and Singapore. Imports from other ASEAN countries are negligible. On the exports side, we can notice how Italy-ASEAN trade relations are almost stationary. The most significant export flows from Italy are directed towards Singapore, and, to a lesser extent, towards Thailand, Malaysia, Indonesia, Vietnam and the Philippines. Exports to other ASEAN countries are negligible. Table 9: Italy-ASEAN Trade and rest of the world ASEAN trade. Source: data from ICE (2011). Data in thousand euros. Exports Imports ASEAN World ASEAN World Between 2003 and 2011 Italy realized FDI amounting to 1,370 million EUR in ASEAN-5 countries. Indonesia and Malaysia are the ASEAN-5 countries which host the largest volume of Italian investments realized in the period In the period , the larger FDI flows from Italy to ASEAN-5 countries concern the textile and metal extraction sector, but also the sectors of tourism, aerospace, production of consumer goods, machinery and rubber based products. Table 10: Trade flows between Italy and ASEAN. (thousand euro) Source: ICE data. Country Exports Imports Singapore 1,410, ,083 Thailand 944,024 1,294,851 Malaysia 810, ,182 Indonesia 634,991 2,054,648 Vietnam 584, ,184 Philippines 255, ,274 Cambodia 15,804 63,150 Myanmar 15,600 5,998 Brunei 8, Lao PDR 11,510 10,713 30

31 Risk profiles attributed by SACE to ASEAN countries are in line with OECD and the major rating agencies assessments. Specifically, it can be noticed how there is a strong differentiation between the economies of the area. Singapore and Brunei s risk profiles are much lower than the ASEAN average, while other ASEAN-6 countries (Malaysia, Indonesia, Thailand and the Philippines) and Vietnam are positioned within an intermediate risk range. The countries with the highest risk profiles are Cambodia, Lao PDR and Myanmar. Table 11: ASEAN countries risk profiles. Source: SACE database. SACE OECD Risk Outlook country risk (*/7) S&P Moody s Fitch Brunei L3 Stable Cambodia H1 Positive 6 B+ B - Philippines M3 Positive 4 BB Ba3 BB Indonesia M2 Positive 4 BB+ Baa3 BBB- Lao PDR H2 Stable Malaysia M1 Positive 2 A- A3 A- Myanmar H3 Stable Singapore L2 Stable 0 AAA Aaa AAA Thailand M2 Positive 3 BBB+ Baa1 BBB Vietnam M3 Negative 5 BB- B1 B+ Agreements for the promotion and for the mutual protection of investments have been signed among Italy and some of the ASEAN countries (the Philippines, Indonesia, Malaysia e Vietnam). With some of the ASEAN countries, Italy signed also a convention against the double fiscal taxation (the Philippines, Indonesia, Malaysia, Singapore, Thailand and Vietnam). SACE insurance is transferable in Indonesia, Singapore, Thailand and in Vietnam. Table 12: Main agreements and conventions signed among ASEAN countries and Italy. Source: SACE data. Mutual promotion and protection of investments agreement Convention against the double fiscal taxation SACE insurance transfer Brunei - - no Cambodia Philippines - yes - yes no - Indonesia yes yes yes Lao PDR - - no Malaysia yes yes no Myanmar Singapore Thailand - - yes yes yes yes Vietnam yes yes yes 31

32 SACE does not insure the economic activities located in Lao PDR and Myanmar, and decides case by case the insurability of the economic activities located in Cambodia (except for the sovereign risk, that is not insured at all). For the other ASEAN countries SACE guarantees the insurability against the sovereign risk, the credit risk and the private risk without imposing additional conditions. Table 13: SACE insurance risk profiles for ASEAN countries. Source: SACE database Insurability Insurance Sovereign risk Credit risk Private risk Brunei Open Open Open Cambodia Closed Dicretionary Discretionary Philippines Open Open Open Indonesia Open Open Open Lao PDR Closed Close Close Malaysia Open Open Open Myanmar Closed Close Close Singapore Open Open Open Thailand Open Open Open Vietnam Open Open Open 32

33 ASEAN Awareness - Sectorial Analysis Fondazione Economia Tor Vergata 33

34 Manufacturing During the last decade, ASEAN countries have reached significant economic growth rates thanks to the implementation of cautious macroeconomic policies, of free trade mechanism and the access to the markets of industrialized countries. Meanwhile, a sharp change in the economic structure of member states has occurred, followed by a considerable development in the manufacturing sector. In a few years, manufacturing production grew from 112 to 212 billion dollars (tab 1). Over the last decades, this trend has influenced the types of ASEAN exports. In particular, in 1975 the manufactured exports represented nearly the 18% of ASEAN exports, while in 1991 the exports share has already reached over 63% of the ASEAN total exports. The wages at current values increased, thus partially explaining the strong development above mentioned. Secondly, the productive specialization has to be underlined. In fact, industrial conglomerates in development areas have generated a dynamic environment with benefic effects in terms of cost reduction and efficiency of the industrial logistic organization. The Association of Southeast Asian Nations recognized the potential of specific sectors considered as a priority for driving the ASEAN integration process 6. The half part of them is characterized by a high share of manufacturing activities. Each Roadmap has its own priority sector, in order to realize significant and balanced sector developments. In this context, international trade rules play a crucial role. Further on, an in-depth examination will focus on the sectors considered as priorities for the ASEAN integration process. This first section will analyze all the main sectors dedicating a particular attention to their territorial articulation both from a productive and a trade point of view. In countries such as Cambodia, Lao PDR, the Philippines, Thailand and Vietnam the textile industry represents a fundamental source of income and employment. Indonesia ranks as the world s 12th largest textile exporter 7. The electronic devices production (including televisions, computers and audio equipment) is strongly concentrated in Singapore, Malaysia e Thailand. The Philippines are assuming a significant role in informatics. The automobile industry is particularly growing in countries like Thailand, Vietnam and Indonesia. 1. Production In 2007, the manufacturing sector generated a value of about 200 billion dollars. From 2000 to 2007 it reached significant growth rates at about 70%. Indonesia and Thailand have, among ASEAN countries, the highest production levels; accordingly, in Indonesia we also find the highest number of employees in this sector. The manufacturing sector contributes to GDP in different ways, depending on the country considered. For instance, in Malaysia it represents the 25% of GDP while in Thailand it reaches the 6 Prioritary sectors: see chapter 1, page 14 7 Investing in ASEAN

35 34%. As for Myanmar and Cambodia (among the most recent ASEAN Member States), the contributes in GDP are respectively 18% and 15% (the manufacturing value added in Italy is about 16% of GDP-World Bank). Table 1: Values of production and employment for manufacturing industry 8. Source UNIDO 9. Total manufacturing Value added at factor values (in million USD) Number of employees Value added per employee (in USD) Wage per employee (in USD at current prices) INDONESIA 26,761 65,464 4,350,461 4,624,937 6,152 14, ,667 MALAYSIA 27,916 41,346 1,560,688 1,778,602 17,887 23,247 4,405 6,278 PHILIPPINES 12,038 13, , ,401 12,911 13,255 2,339 3,245 SINGAPORE 22,594 33, , ,154 65,564 76,748 20,962 28,808 THAILAND 19,019 46,428 2,299,155 3,818,959 8,273 12,158 2,076 2,233 VIETNAM 4,379 13,140 1,541,076 3,943,221 2,842 12, ASEAN-6 112, ,028,390 15,590,274 10,220 16,053 2,388 3,012 Note: value added at factor values, value added per employee and wage per employee for Vietnam, year 2007 are estimated. The number of employees in the sector has increased in line with the trend of the positive growth of the industry, from about eleven million in 2000 to nearly sixteen million in The wage per worker in the manufacturing sector has increased, with substantial differences for each country. Vietnam presents the lowest wage level among ASEAN countries (965 USD). The highest salary per employee has been registered in Singapore (USD 28,808). Electrical and computer appliances represent the main manufacturing sectors detaining over 15% of the value added of the ASEAN area. The agro food sector follows with a value of over 12% of the total value added; then the basic chemistry segment comes. The sector of transport and its component has a value of more than 10% of the value produced. The mechanical engineering sector is growing rapidly (machinery and equipment are the leading products). The field of electrical engineering also deserves special attention. In terms of employment rates, the agro-food industry and textile sector are the most significant. Wage levels, as above mentioned, remain at lower levels than Italian average ones, thus conferring attractiveness to the area. 8 In table 1 and in the following tables on production, ASEAN-6 refers to six countries for which data were available. 9 In table 1 and in the following tables on production, data refer to the International Standard Industrial Classification of All Economic Activities, ISIC Rev In the tables on production, values on Philippine refer to 2001 and 2006; Thailand ; Vietnam ; Singapore ; Indonesia ; Malaysia Table 1 and Table 2 totals differ since in the first table also minor sectors are considered, such as recycle sector. 35

36 Table 2: Values of production and employment for manufacturing industry, sectorial specification. Source UNIDO. Total Manufacturing Value added at factor values (in million USD) Percentage value (2007) Number of employees Value added per employee (in USD) Wage per employee (in US$ at current prices) Food and beverage 11,265 25, ,473,574 2,195,895 7,645 11,576 2,342 2,905 Tobacco products 3,301 7, , ,311 11,440 21, ,391 Textiles 5,291 6, ,111,850 1,108,644 4,759 6,174 1,123 1,627 Wearing apparel 3,115 6, ,061,404 1,845,722 2,935 3,369 1,241 1,562 Leather, leather products and footwear 1,612 2, , ,979 2,268 2,799 4,033 5,637 Wood products 2,976 3, , ,591 4,592 5,903 4,397 5,143 Paper and paper products Printing and publishing Coke, refined petroleum prod., nuclear fuel Chemical and chemical products Rubber and plastic products Non-metallic mineral products 2,629 5, , ,724 10,859 15,585 5,000 7,795 2,788 3, , ,782 21,885 16,217 5,517 9,298 5,093 9, ,203 27, , ,498 13,505 26,005 10,814 25, , ,652 28,222 47,059 8,777 14,958 5,414 10, ,265 1,037,845 7,434 10,424 4,480 7,444 3,614 7, , ,959 10,495 10,486 3,702 4,808 Basic metals 2,753 7, , ,145 13,959 25,662 2,474 5,302 Fabricated metal products Machinery and equipment Office, accounting and computing machinery Electrical machinery and apparatus Radio, television and communication equipment Medical precision and optical instruments Motor vehicles, trailers, semitrailers Other transport equipment Furniture, manufacturing Total Manufacturing 4,064 7, , ,482 7,068 10,182 2,429 3,504 3,753 8, , ,908 13,899 21,555 5,143 7,400 6,664 7, , ,461 35,132 31,948 9,013 7,142 4,035 5, , ,549 11,347 15,719 2,845 4,468 19,278 24, , ,564 22,441 24,752 2,752 4,904 1,532 3, , ,369 12,993 20,968 2,470 4,159 4,088 11, , ,160 18,911 37,469 3,284 3,729 3,733 10, , ,827 19,980 27,612 3,286 5,138 2,662 5, ,767 1,174,812 4,059 4,705 4,062 5, , , % 10,612,930 15,524,561 13,755 18,785 3,918 5,633 36

37 2. Trade The ASEAN trade flows show the most relevant values for machinery (over 400 billion of dollars), equipments and automotive (this classification includes: industrial machinery, office machinery, office equipment, electronics, vehicles, components for transportation industry). The significant development of this sector witnesses the importance of the economic integration policy and production specialization that has been mentioned in Chapter 2, in the macro analysis section. Energy commodities and the sector of manufacturing goods (textiles, food processing, wood, rubber, etc...) can be listed among the most important sectors. In the recent years, trade flows of manufacturing products maintained a remarkable and generally constant level. The exports increased at a percentage of around 20% between 2009 and Table 3: Values of trade between ASEAN countries and the rest of the world in manufactured goods Value in Million Dollars US. Source: UNCOMTRADE 12. Import of ASEAN countries Export of ASEAN countries Food and live animals 13,754 39,738 39,132 21,460 53,333 44,085 Beverages and tobacco 2,101 4,263 4,255 1,901 4,284 4,983 Mineral fuels, lubricants and related materials Chemicals and related products 40, , ,981 41, , ,714 31,773 81,525 78,150 21,077 66,876 79,039 Manufactured goods 41, ,045 99,964 34,596 85,662 80,127 Machinery and transport equipment Miscellaneous manufactured articles 195, , , , , ,363 24,156 49,202 50,800 48,626 95,476 86,438 Total Manufacturing 348, , , , , ,748 In the ASEAN trade flows analysis, the intra-asean flows have remarkably increased, more than doubling their value. Among the main trade partners, China represents the leading partner; in 2010, Chinese imports value reached over 103 billion dollars while exports value reached over 88 billion dollars. The trade flows with the United States and Japan are mostly constant, while imports and exports with the European Union have recorded significant increases. It can be observed that imports from the EU have doubled between 2000 and 2010; so are the rates of European exports addressed to ASEAN countries. 12 In table 3 and in the following tables on trade, data refer to the Industrial Classification SITC Rev.3 (Rev. 4 in the chapter High Technology). 37

38 Table 4: Values of trade between ASEAN countries and the main trade partners in manufactured goods Value in Million Dollars US. Source: UNCOMTRADE. Import of ASEAN countries Export of ASEAN countries Manufactured goods Intra ASEAN 77, , ,951 92, , ,493 USA 49,452 76,468 75,182 78,144 96,081 81,009 Japan 68, , ,096 52,552 91,529 81,268 China 17, , ,591 14,018 68,088 88,214 EU 27 39,033 87,632 79,944 58,686 97,700 87, Trade with Italy It can be observed that the trade flows with Italy are lower than the European average data. The value of ASEAN exports addressed to the Italian market amounts at about 0.60% of the total ASEAN manufacturing exports. This percentage is quite low. As for the manufacturing sector, the "machinery and transport equipment" are among the leading sectors should we consider the trade with Italy. This sector is followed by the "manufactured goods" one, whose textile is a fundamental segment. The Italian mainly exported products to ASEAN are actually included in these two categories. It should be noticed the decrease in the Italian exports between 2008 and 2010, from a value of 8,116 million dollars to 6,597 million dollars. Table 5: Values of trade between ASEAN countries and Italy in manufactured goods Value in Million Dollars US. Source: UNCOMTRADE. Import of ASEAN countries Export of ASEAN countries Food and live animals Beverages and tobacco Mineral fuels, lubricants and related materials Chemicals and related products Manufactured goods 514 1, Machinery and transport equipment 1,866 4,595 3, ,237 1,524 Miscellaneous manufactured ,495 1,081 articles Total Manufacturing 3,349 8,116 6,597 2,664 4,317 4,889 38

39 Consumer goods 1. Textile and wearing apparel sector Indonesia, Thailand and Vietnam are among the excelling countries for their productive structure their trade flows. The textile and wearing apparel sector has greatly benefited from the liberalization of the international trade started with the Multifiber Arrangement signed in 1994 between the member states of the World Trade Organization. A recent study of ADB 13 shows that since 2004, Cambodia, Indonesia e Vietnam have increased their market share. An integrated production between China and the ASEAN countries, where manufacturers of fabrics and clothing accessories from China supply the ASEAN countries with inputs of quality at low costs, allowing these countries, thus, to compete in emerging markets. 1.1 Production In the last decade, the textile industry in the region has been vertically integrated. Some countries (Indonesia and Thailand) have specialized in the upstream stages of production, such as spinning and weaving. The increasingly automated processes have required significant investments in terms of capital realized in countries with more advanced economies, such as Indonesia and Thailand. In these countries a progressive decrease of employees has accompanied an increase of labour costs. In countries like Vietnam, where labour costs remained low, localized productions require a more intensive use of manufacturing, such as packaging. According to estimates by the South East Asia Textile Business Review 2009, the textile industry in Indonesia has an average hourly wage of 0.44 dollars, 50% higher than the average hourly wage in Bangladesh, 25% of that of Cambodia, 16% of that of Pakistan and 14% of the Vietnamese one. In more specific terms, spinning and weaving performances were concentrated in Indonesia and Thailand. In 2007, in Indonesia, the sector has created value for almost 4 billion dollars and employed 442,000 workers. Compared to 2000 the standard wage in the country has more than doubled and the number of employees has dropped severely, while the value added per employee reached $ 8,399, second only to Malaysia, if we do not consider Singapore. In the region, the knitwear production in terms of value added is less important than the spinning and weaving activities, although it takes up about 150 thousand people. 13 James, W.(2008). Asian Textile and Apparel Trade: Moving forward with Regional Integration, Asian Development Bank ERD Working paper No.111. Market share on the US market: Cambogia 1,892 million USD in 2004, 3,642 million USD in 2007, Indonesia 3,446 million USD in 2004, 5,833 million USD in 2007, Vietnam 3,597 in 2004 a 5,387 million USD in

40 Table 6: Values of production and occupation in spinning and weaving sectors (ISIC 171, 172). Source: UNIDO Spinning, weaving and finishing of textiles & Other textiles Value added at factor values (in million USD) Number of employees Value added per employee (in USD) Wage per employee (in USD at current prices) INDONESIA 2,561 3, , ,066 4,347 8, ,458 MALAYSIA ,501 27,456 15,391 9,870 4,137 5,024 PHILIPPINES ,200 20,635 4,898 5,525 1,793 2,603 SINGAPORE ** ,898 24,336 29,763 16,389 THAILAND 1,368 1, , ,848 6,317 5,865 1,844 1,832 VIETNAM * 116, ,616* 1,612 1,758* 722 1,199* ASEAN-6 4,904 6,224 1,006,624 1,029,525 4,872 6,046 1,123 1,627 Note: (*) Self elaboration of UNIDO data estimated annual growth rate of the sector: 20%, annual wage 14% lower than the Indonesian one; (**) complete data only for the 172 nd sector. The section is located in Indonesia, where it grew at an annual rate of 23%. Since 2000, productivity per worker in the country has more than doubled, as well as the wages. Table 7: Values of production and occupation for the knitwear section (ISIC 173). Source: UNIDO Knitted and crocheted fabrics and articles Value added at factor values (in million USD) Number of employees Value added per employee (in USD) Wage per employee (in USD at current prices) INDONESIA , ,691 2,019 5, ,380 MALAYSIA ,280 7,578 10,550 8,973 3,733 4,906 PHILIPPINES na 29 na 8,684 na 3,339 na 2,076 SINGAPORE 9 na 318 na 28,302 na 13,834 na THAILAND ,976 29,706 5,446 3,669 2,213 1,855 VIETNAM 12 29* 8,711 19,164* 1,378 1,503* 713 1,187* ASEAN , ,823 3,489 4,635 1,272 1,496 Note: (*) Self elaboration of UNIDO data Annual estimated sector growth rate at 20%, Annual estimated occupational growth rate at 17%. Annual standard wage estimated at a 14% lower than the Indonesian one. In the period indicated in the table, the field of wearing apparel and packaging (including the treatment of fur) has grown at a rate of 9%. Moreover, there are countries where the growth trend is much higher, such as Thailand (+16%), Vietnam (+13%) and Indonesia (+12%). In particular, in Vietnam in 2007, the section has contributed in creating more than 10% of the domestic value added and employed three-quarters of all the employees of the textile industry. The standard wage is the lowest in the region, so it is the value added per employee. The largest turnovers are obtained by Indonesia and Thailand, which oversee all phases of textile production. Among the entrepreneurs of the sector in the region, in a recent survey 14, respondents said they had problems with rising production costs, primarily wages and raw materials. The main obstacles to the expansion of the activity are therefore the impossibility of implementing measures to limit costs, as well as the difficulty of achieving an appropriate quality control of the final product. In addition, this area is strongly influenced by the international demand, considering that quite 40% of companies in Vietnam and Cambodia produce exclusively for export markets. 14 JETRO, Survey of Japanese-Affiliated Firms in Asia and Oceania (FY 2011 Survey), October

41 Table 8: Values of production and occupation for the wearing apparel and packaging sector (ISIC 181). Source: UNIDO Wearing apparel. except fur apparel Value added at factor values (in million USD) Number of employees Value added per employee (in USD) Wage per employee (in USD at current prices) INDONESIA 1,050 2, , ,375 2,191 4, ,350 MALAYSIA ,087 72,404 5,939 5,787 3,176 3,733 PHILIPPINES , ,521 4,132 3,075 1,526 2,056 SINGAPORE ,519 5,325 16,903 21,784 11,044 14,607 THAILAND 539 1, , ,973 3,731 4,558 1,772 1,910 VIETNAM * 213, ,274* 1,758 1,190* 735 1,161* ASEAN-6 3,106 5,746 1,054,938 1,839,872 2,944 3,123 1,241 1,562 Note: (*) Self elaboration of UNIDO data Annual estimated sector growth rate at 20%. Annual estimated occupational growth rate at 17%. Annual standard wage estimated at a 14% lower than the Indonesian one Trade Table 9: Trade value of textile products and apparel between ASEAN countries and the rest of the world (code 26, 65, 84 SITC Rev.3) Values in Million Dollars. Source: UNCOMTRADE. Import of ASEAN Countries Export of ASEAN Countries Textiles fibers and their wastes Intra ASEAN US 345 1, Japan China EU Rest of the world 1,480 1,980 1, World 2,433 3,920 3, ,376 1,776 Textile yarn and related products Intra ASEAN 677 1,421 1,275 1,622 2,119 1,929 US Japan 776 1, China 1,044 5,016 4, EU ,152 1,183 1,066 Rest of the world 5,076 7,531 4,767 3,798 5,498 5,469 World 8,330 16,067 11,601 8,247 11,091 10,581 Articles of apparel & clothing accessories Intra ASEAN 1, US ,010 16,149 10,581 Japan ,307 1, China 341 1,337 1, EU ,653 6,551 5,073 Rest of the world 949 1,249 1,012 2,431 4,407 3,436 World 2,753 3,930 3,441 17,902 29,424 20,874 41

42 The integration of textile and wearing apparel sector within the ASEAN region involves mainly yarns and fabrics that are sent from one member country to another for the production of apparel and accessories. The Roadmap for Integration of industry foresees the elimination of only intra- ASEAN trade tariffs. In the last decade, ASEAN countries have increased trade in textile fibers, remaining net importers of weaving and spinning, processed by the packaging industry. The competitiveness of these countries is an accepted fact in the volume of exports of finished products in 2010 worth over 20 billion dollars, of which about half is destined to the U.S. (10.5 billion) and a fourth to the European Union (5 billion). This flow of exports has been considerably affected by the international economic crisis that reduced the volumes by one third, comparing to Trade with Italy Compared to these countries, Italy has a net trade deficit: in 2010 imports reached a total value of 640 million, of which 365 million in apparel and clothing accessories and 247 million in yarns and related products. Table 10: Trade values on textile products and apparel between ASEAN countries and Italy (code 26, 65, 84 SITC Rev.3) Values in Million Dollars. Source: UNCOMTRADE Import of ASEAN Countries Export of ASEAN Countries Textiles fibers and their wastes Textile yarn and related products Articles of apparel & clothing accessories The main outlet market for Italian goods remains Singapore. In 2010, this country has imported more than $ 90 million of apparel and clothing accessories made in Italy. Thailand is instead the leading importer of Italian yarn. This one is imported to be processed and re-exported as packaged product. The largest volumes of exports of ASEAN countries towards Italy arrive, in fact, from Indonesia and Thailand. Since 2000, Indonesia has steadily increased its exports of yarn towards Italy reaching 128 million in apparel and 108 million for clothing accessories, in In the same year, Malaysia also becomes a relevant actor by increasing the export of apparel and clothing accessories with the equivalent of $ 109 million. 42

43 2. Leather and footwear sector Vietnam shows a very strong specialization. According to UNIDO, at early 2000 the scenario of shoe manufacturers in Asia has changed, as South Korea and Taiwan have slowly lost their importance. Indonesia and Thailand have appeared on the scene with overconfidence, contributing with about one tenth of the world production of footwear. In particular, Thailand has established itself for its ability to produce technically advanced footwear, while Indonesia is competitive due to low labour costs Production In the region, the major manufacture industries of leather and footwear are Vietnam, Thailand and Indonesia, which, by different contributes cover all the production phases, from the leather processing to the creation of the footwear. Vietnam is by far the largest producer of footwear in the region, employing over 600 thousand people. Indeed, in recent years, the country has specialized in sports shoes and became the production site of the major international brands of the specific sub-sector, such as Nike, Puma, Adidas, Asics and Mizuno. Table 11: Values of production and occupation for leather processing sector (ISIC 191). Source: UNIDO Dressing & dyeing of fur; processing of fur & Tanning. dressing and processing of leather & Footwear Value added at factor values (in million USD) Number of employees Value added per employee (in USD) Wage per employee (in USD at current prices) INDONESIA 731 1, , ,597 2,592 4, ,452 MALAYSIA ,831 8,339 5,096 7,915 3,146 4,240 PHILIPPINES ,000 16,829 4,682 4,575 1,436 2,244 SINGAPORE ,688 40,469 16,525 18,437 THAILAND , ,859 3,504 6,046 2,062 2,833 VIETNAM 620 1,500* 298, ,266 2,078 2,494* 646 na ASEAN-6 1,899 3, , ,829 2,645 3, ,940 Note: (*) Self elaboration of UNIDO data; (na): not available data 2.2. Trade In 2010, ASEAN countries have imported from the World about 1 billion dollars of leather, for domestic footwear industry. The ASEAN countries are considered as the major world footwear exporters and Europe remains their largest outlet market absorbing half of the entire export volume. 43

44 Table 12: Values of trade between ASEAN countries and the rest of the world in leather and footwear (code 85 et code 61 SITC Rev.3) Value in Million Dollars US. Source: UNCOMTRADE Import of ASEAN Countries Export of ASEAN Countries Leather, leather manufactures and dressed furskins & Footwear Intra ASEAN USA Japan China EU Rest of the world World This trend has been intensified in 2008 by reaching the value of 4 billion out of total exports of ASEAN countries by more than 9 billion. Due to the international economic crisis, between 2008 and 2010 the volume of footwear exports to the world and from Europe has more than halved, returning to levels slightly lower than those recorded in Once the crisis is over, it is supposed to believe that the export values will return to the points previously experienced Trade with Italy Italy is a net importer in leather and footwear industries, with an increasing outflow of skins and furs, and a greater input of footwear from Vietnam and Indonesia. In 2010, imports from Italy of leather and tanning products represented for the AESEAN countries about half of the volume of approaching goods from the European Union, demonstrating the significant role our country has in the supply of semi finished products for the footwear industry. The demand for leather products and footwear made in Italy comes from Singapore. Table 13: Trade values of footwear products and leather manufacturers between ASEAN countries and Italy (code 85, 61, SITC Rev.3) Values in Million Dollars. Source: UNCOMTRADE Leather, leather manufactures and dressed furskins Import of ASEAN Countries Export of ASEAN Countries Footwear

45 3. Agro food industry Indonesia, Thailand and Vietnam lead the productive sector of the area. In the ASEAN region the agro food sector is growing at a rate of about 10% 15 each year thanks to the ongoing increase of the domestic demand. The emerging middle class of some ASEAN country is asking for food with high quality standard, ready meals, organic and energetic foods. Similarly, it can be foreseen a growth in the consumption of red meat, poultry, fruit juices and beverages as well as baby foods. The negotiation opened by ASEAN countries with Europe aims at promoting European exports of established brands in the food sector, providers of machineries, packaging facilities and row ingredients in order to foster industrial production in loco. 3.1 Production Indonesia has the biggest food industry representing almost an half of the region entire production. The mentioned sector has grown in the ASEAN region at a rate of about 16% per year, with a rise in the labor productivity of 6% per year. The second most important food industry in the region is the Thai one with a similar growth rate but a lower labor productivity and higher wages. It has to be underlined that even Malaysia and Philippines agricultural and food industry has grown by about 6% a year, thus resulting in a general expansion of the sector in the ASEAN region. Table 14: Production and employment rates in the agro food sector, beverage excluded (ISIC 151, 152, 153, 154). Source: UNIDO Processed meat, fish, fruit, vegetables - Fats, Dairy products & Grain mill products, starches, animal feeds Other food products Value added at factor values (in million USD) Number of employees Value added per employee (in USD) Wage per employee (in USD at current prices) INDONESIA 2,817 9, , ,214 5,005 13, ,824 MALAYSIA 1,984 3, , ,927 16,603 20,091 5,033 6,787 PHILIPPINES 1,241 1,798 69, ,074 17,805 13,213 3,557 4,687 SINGAPORE ,030 13,601 31,006 34,262 18,475 23,140 THAILAND 1,768 5, , ,188 5,400 9,790 1,721 2,055 VIETNAM 735 2,500* 233, ,834 3,146 5,000* 951 na ASEAN-6 8,918 25,171 1,325,265 2,077,838 6,730 9,945 2,030 3,028 Note: (*) Self elaboration of UNIDO data; (na): not available data In the beverage sector it can be noticed the high value added per employee reached by Malaysia with $ per worker and an average annual salary of 6 thousand dollars, followed by 15 ASEAN-EU Business Summit 2011, Position paper: Agri-Food. 45

46 Philippines with $ per worker and an annual salary of 5 thousand dollars. The sector high labor productivity demonstrates how, in recent years, the capital investment and equipment process has speeded up the production in these two countries. Table 15: Production and employment rates in the beverage industry (ISIC 155). Source: UNIDO Beverages Value added at factor values (in million USD) Number of employees Value added per employee (in USD) Wage per employee (in USD at current prices) INDONESIA ,474 38,558 7,455 15, ,516 MALAYSIA ,429 6,911 29,656 64,535 6,097 6,331 PHILIPPINES ,400 15,160 31,680 46,108 3,783 5,738 THAILAND ,010 57,428 12,785 17,309 2,700 2,426 VIETNAM * 32,125 50,000* 11,160 10,000* 1,176 na ASEAN-6 2,346 3, , ,057 15,815 23,277 2,655 2,783 Note: (*) Self elaboration of UNIDO data; (na): not available data Even the tobacco industry is localized mainly in Indonesia, where it reached a growth rate of 20% per year, employing about 334 thousand employees in 2007 with an value added of $ per worker. Thailand confirms itself as one of the most efficient industries in terms of value added per employee even though the sector is currently downsizing. Table 16: Production and employment rates in the tobacco industry (ISIC 160). Source: UNIDO Tobacco products Value added at factor values (in million USD) Number of employees Value added per employee (in USD) Wage per employee (in USD at current prices) INDONESIA 1,829 6, , ,194 7,490 19, ,089 MALAYSIA ,860 4,826 9,026 23,829 2,721 8,096 PHILIPPINES ,500 8,760 31,810 49,658 2,248 5,251 THAILAND ,883 9,650 69,090 84,145 2,544 4,980 VIETNAM 228 na 12,116 13,881 18,821 na 1,695 na ASEAN-6 3,301 7, , ,311 11,440 21, ,391 In a recent survey 16 led among a sample of Japanese-affiliated firms operating in Asia and Oceania, the interviewees stress the rise of the production costs, particularly the rise of wages costs, financial intermediation costs and the market access. The possibility to have access only to the domestic market of factors of production led the entrepreneurs to reflect higher costs of production in a higher purchase price. In order to guarantee the long term business profitability, the entrepreneurs are beginning to focus on the production process efficiency and on the development of a larger supply network to expand goods exports. 16 JETRO, Survey of Japanese-Affiliated Firms in Asia and Oceania (FY 2011 Survey), October

47 3.2 Trade The ASEAN Roadmap 17 for the food industry takes into consideration only a few products (mainly vegetables, certain seeds and related products such as vegetable oils) that represent about 12% of intra-asean food products trade. In recent years, it can be noticed a rise in the economics of all these food products. Bearing in mind this effect, it can be noticed that the mentioned Road map has been successful in boosting the demand coming from extra-asean commercial partners. The other priorities outlined in the ASEAN Economic Community Blueprint are: the harmonization of food safety standards for agricultural products and the development of the EU-ASEAN cooperation for the establishment of institutional agreements such as the International Plant Protection Convention and the Codex Alimentarius Commission 18. It is worth to underline that the ASEAN Economic Community Blueprint sets the targets for tariffs reduction on agricultural products imported from non-asean countries, thus indicating that countries in the region can still consider other Member States as competitors rather than allies in this area. In the last decade, despite the economic international crisis, trade in agro food products has tripled vis à vis worldwide imports and duplicated with regard to exports, and also intra-regional trade has significantly intensified. Among the major commercial partners of agro food products, United States exported to ASEAN countries over 4 billion dollars; China as well exported over 3 billion dollars. The main export markets for the ASEAN agro food products are respectively the ASEAN Member States, the United States and Japan. 17 Roadmap for Integration of Agro-based Products Sector, ASEAN, November 29, Codex Alimentarius Commission was established in 1963 by Food and Agricultural Organization and by World Health Organization to develop international standards for food. 47

48 Table 17: Trade values between ASEAN countries and the rest world in agro food product, beverages and tobacco (code 0, 1 SITC Rev.3), Data in US million dollars. Source: UNCOMTRADE. Import of ASEAN Countries Export of ASEAN Countries Food and live animals Intra ASEAN 2,666 8,528 8,560 3,274 9,525 9,042 USA 1,740 4,802 4,191 3,787 7,392 6,596 Japan ,444 6,343 5,722 China 1,345 3,037 3, ,026 2,670 EU27 1,399 2,782 2,843 2,771 8,523 5,063 Rest of the world 6,361 19,953 19,442 6,291 19,524 14,992 World 13,754 39,738 39,132 21,460 53,333 44,085 Beverages and tobacco Intra ASEAN ,087 2,252 2,778 USA Japan China EU ,800 1, Rest of the world 360 1,160 1, ,222 1,530 World 2,101 4,263 4,255 1,901 4,284 4, Trade with Italy Since 2000, trade share between ASEAN Countries and Italy has been driven by a rise in the export value of agro food products from 201 million dollars to 863 million dollars in 2008, the value declined to 448 million dollars in Italy mainly imports from Thailand (343 million dollars) and Vietnam (347 million dollars). Table 18: Trade values between ASEAN countries and Italy in agro food products, beverage and tobacco (code 0, 1 SITC Rev.3), Data in US million dollars. Source: UNCOMTRADE Import of ASEAN Countries Export of ASEAN Countries Food and live animals Beverages and tobacco Imports of agro-food products from Italy constantly increased and export markets also increased in number. These markets include Singapore (with 51 million dollars of imports in 2010), Thailand (with $ 59 million), the Philippines (with $ 44 million), and Vietnam (with $ 40 million in 2009). As for the beverage and tobacco sector, Singapore absorbs more than half the value of Italian exports in the region. In 2010, in fact, Italy exported to the ASEAN region 27 million dollars in drinks and alcohol products, $ 17 million is the share Singapore imported. However, it can be noticed a demand expansion coming from Malaysia and Thailand. Within this sector, Italian imports from ASEAN countries are headed by Indonesia, the only country that can rely on a solid 48

49 industry, but the trade value is still very low and the Italian demand for ASEAN beverages and tobacco is by far irregular. 49

50 Engineering industry Engineering industry includes the mechanical engineering sector, the electrical engineering sector and the automobile sector. 1. Machinery and equipment Thailand is the leader in this sector followed by Indonesia, Malaysia, Vietnam and Singapore. The mechanical engineering sector is growing in the ASEAN region at a rate of about 13% each year. In 2008 approximately 3.5% jobs in the manufacturing industry belonged to this segment. 1.1 Production Table 19 shows the machinery production in each ASEAN Member State. Between 2000 and 2007 this sector is grown at an average annual rate of 13% in the ASEAN region. Table 19: Production and employment rates for the mechanical engineering sector (ISIC 29). Source: UNIDO. Machinery and equipment Value added at factor values (in million USD) Number of employees Value added per employee (in USD) Wage per employee (in USD at current prices) INDONESIA 249 1,015 43,030 83,080 5,764 12,196 1,245 2,101 MALAYSIA 949 1,280 51,953 68,309 18,235 18,718 5,493 7,690 PHILIPPINES ,700 27,280 9,259 16,929 2,035 3,352 SINGAPORE 1,555 3,351 38,405 62,326 40,449 53,736 20,304 28,073 THAILAND 723 2,543 82, ,053 8,710 15,881 2,420 2,667 VIETNAM 66 na 30,579 67,860 2,163 na 691 na ASEAN-6 3,753 8, , ,908 13,899 21,555 5,143 7,400 Singapore shows the highest labor cost with an average annual wage in 2008 of about 28 thousand dollars, while in Indonesia the average annual wage is about 2 thousand dollars. In this case, the very special conditions characterizing Singapore seem quite clear. In each ASEAN-6 country productivity increased between 2000 and The substantial increase in the mechanical engineering industry value added followed by so far constant labor costs makes this sector particularly appealing. 50

51 1.2 Trade Machinery and equipment are one of the main imports heads in the ASEAN countries trade balances. Table 20: Machinery and equipment trade values between ASEAN countries and the rest of the world (code 72, 73, 74 SITC Rev. 3) Data in US million dollars. Source: UNCOMTRADE Import of ASEAN Countries Export of ASEAN Countries Specialized machinery Intra ASEAN 925 2,570 3,084 2,014 3,679 4,333 USA 3,222 5,229 5, ,007 Japan 5,000 6,765 6, China 325 2,969 3, ,174 EU27 2,710 5,577 5, Rest of the world 2,322 5,045 4,463 1,439 6,463 7,799 World 14,505 28,155 28,207 4,674 12,939 15,734 Metal working machinery Intra ASEAN USA Japan 1,313 2,316 2, China EU Rest of the world 576 1, World 3,047 5,902 5, ,976 1,848 Other industrial machinery and parts Intra ASEAN 1,614 5,224 4,831 2,227 5,536 5,575 USA 1,936 3,693 3, ,523 1,763 Japan 3,874 7,134 6, ,088 1,855 China 444 5,816 5, ,464 1,438 EU27 2,766 7,415 6, ,807 2,485 Rest of the world 1,843 4,988 4,304 2,249 9,674 10,043 World 12,476 34,269 30,990 7,029 23,093 23,160 Looking at the data regarding the whole region, the intra-asean trade registered a volume of 20 billion dollars in the mechanical engineering, while it registered a volume of 80 billion dollars 19 in the extra ASEAN trade. In 2010, trade flows between the underlined areas are equivalent. Import of specialized machinery from China, Japan, US, EU 27 is around 85% of total sectorial import. In this context, the relative importance of Japanese imports declined over the decade , balanced by the Chinese performance, whose exports in specialized machinery doubled. This phenomenon can be easily explained by the transformation of a share of Japanese trade in 19 This value is obtained as difference between the value of ASEAN-rest of the world trade(imports +exports) for 2010 and the intra-asean trade for the three sectors considered. 51

52 domestic production facilities. In general terms, imports have doubled from 2000 to 2010, while exports have more than tripled. The metal working machinery sector is smaller than the previous one, however, commercial flux have increased during the considered period. ASEAN imports from Japan almost 50%of the total amount of working machinery. Other industrial machinery and parts export have tripled. Only 13% of the ASEAN imports come from different markets than those considered while ASEAN exports worldwide are 50% of what it produced. Within 10 years intra-asean exports more than doubled, while export to the US and Europe tripled. In addition, trade volume with China has exponentially increased since Electrical engineering sector Vietnam is an important case to report, whose average annual growth rate exceeds 26%. It has almost reached Thailand and far overcome Indonesia and Malaysia. The electrical engineering sector refers to the production of electrical machinery and equipment. The electrical machinery sector grew at an annual rate of 4% from 2000 to Production The sector value added in 2007 represents the 6% of the entire manufacturing industry, an amount that is slightly declining compared to The value added produced by the ASEAN 6 countries has increased in the considered period, however it increased less than proportionally with respect to the sector of mechanical engineering. Indonesia, Malaysia and Thailand respectively contribute for about 25% of the total value added, but it can be noticed that the productivity per employee is higher in Malaysia than in the other two countries. Table 21: Production and employment rates in the electrical engineering sector (ISIC 31). Source: UNIDO. Value added at factor values (in million USD) Electrical machinery apparatus Number of employees Value added per employee (in USD) Wage per employee (in USD at current prices) INDONESIA 1,030 1,329 73,086 82,764 14,061 16,012 1,228 2,546 MALAYSIA 1,015 1,378 78,036 67,071 12,965 20,510 4,193 7,949 PHILIPPINES ,500 58,086 9,524 9,651 2,152 2,743 SINGAPORE ,654 10,511 44,370 62,543 21,121 29,891 THAILAND 965 1, , ,675 8,537 11,763 2,079 2,499 VIETNAM 143 na 37, ,442 3,824 na 1,088 na ASEAN-6 4,034 5, , ,549 11,347 15,719 2,845 4,468 52

53 This country is particularly specialized in the production of electric motors, power units and power transformers, a sub-sector that contributes for 1.3% to the overall value added of the manufacturing sector. 2.2 Trade ASEAN countries import 21 billion dollars in power generating machinery and equipment, while they export 11 billion dollars; the trade balance is in strong deficit. Both imports and exports tripled in the 10 years considered, but they started declining from 2008 to Trade between US, Japan, China and Europe represents the 80% of the whole ASEAN imports, 26% of this amount is represented by United States imports, more than quadrupled in 10 years. Table 22: Trade values between ASEAN countries and the world in electrical engineering sector (code 71 SITC Rev. 3) Data in US million dollars. Source: UNCOMTRADE Import of ASEAN Countries Export of ASEAN Countries Power generating machinery and equipment Intra ASEAN USA Japan China EU Rest of the world World Machinery trade with Italy Machinery and equipment sector plays a significant role between Italy and the ASEAN region trade. In fact, the sector accounts for 30 percent of total Italian exports to this region in 2010, while the share of total imports from the same region in the sector accounts for 5.4%. The trade balance for machinery and equipment is therefore in strong surplus with a value of 1.1 billion dollars in However, it can be noticed a slight decline in the exports towards the area between 2009 and 2010 and a recover in imports that dropped in 2008 and Table 23: Trade values between ASEAN countries and Italy in the industrial machinery and electrical engineering sector (code 71, 72, 73, 74 SITC Rev. 3) Data in US million dollars. Source: UNCOMTRADE Import of ASEAN Countries Export of ASEAN Countries Power generating machinery and equipment Specialized machinery Metal working machinery Other industrial machinery and parts 406 1,

54 The SACE 2010 analysis on Italian exports underlined that also in a context dominated by the economic crisis, the industrial machinery sector in Asia was able to improve its performances. In this region, China showed a smaller decline in its industrial activity and it never stopped to import machinery items. If the demand is related to the medium term outlook of the world economy and the access to credit, in the current international economic situation the recovery is entrusted to the most dynamic areas such as the ASEAN region. In the engineering sector, which represents a good percentage of Italian exports, our country can play an active role in technology transfer, establishment of production joint- ventures, in opening of representative offices (particularly useful in case of participation in tenders held in that country), regional offices to expand economic activities in the Asian region and after-sale service centers. 3. The automotive sector Thailand is the largest manufacturer, followed by Indonesia. Regarding the non-road transport, Vietnam has a strong power mainly in the ship building. The automobile industry is considered by many ASEAN countries as a possible driver of economic growth, creating jobs and developing new technologies. Moreover, the population of ASEAN countries of about 600 million people increasingly attracts investments from abroad for its potential market size. New vehicles sale has increased by at least 32% from 2009 to In the five countries 21 which represent the largest share of the market, the automobile production in 2010 has increased by approximately 46%, since Production In the ASEAN region the automobile industry registered significant annual growth rates of about 17% of the motor vehicles, trailers, semi-trailers sector, and more than 15% of the other means of transport. The value added of the motor vehicles sector has almost tripled in the last 8 years, with a significant increase in Indonesia and Thailand, where productivity per worker increased considerably. This increase was not followed by an increase in labor costs, which remains low in both countries. The number of employees has doubled in 7 years in ASEAN-6 (other transport and equipment). 20 ASEAN Automotive Federation 2010 Statistics. 21 Indonesia, Malaysia, Philippines, Thailand, Vietnam. 54

55 Table 24: Production and employment rates for the automobile sector (ISIC 34, 35 except 3530). Source: UNIDO. Value added at factor values (in million USD) Number of employees Value added per employee (in USD) Wage per employee (in USD at current prices) Motor vehicles, trailers, semi-trailers INDONESIA 1,576 4,478 49,726 79,216 31,663 56,510 1,820 2,179 MALAYSIA 746 1,206 34,692 51,836 21,463 23,241 4,836 6,536 PHILIPPINES ,000 25,590 19,472 15,466 3,702 4,028 SINGAPORE ,357 4,598 39,661 45,361 25,284 35,663 THAILAND 1,246 5, , ,581 12,250 35,930 3,181 2,612 VIETNAM 133 na 12,436 44,339 10,616 na 972 na ASEAN-6 4,088 11, , ,160 18,911 37,469 3,284 3,729 Other transport equipment except 3530 INDONESIA 1,695 4,100 58,378 75,295 29,009 59,350 1,055 2,530 MALAYSIA ,853 24,406 15,666 19,379 6,299 6,465 PHILIPPINES ,700 4,754 13,718 9,908 2,858 2,866 SINGAPORE 489 2,250 2,357 4,598 21,582 31,529 25,284 35,663 THAILAND ,173 45,280 4,365 19,904 2,245 2,782 VIETNAM 170 na 34, ,305 5,087 na 943 na ASEAN-6 2,866 7, , ,638 16,874 39,104 2,419 4, Trade Table 25: Data on the trade value between ASEAN countries and the rest of the world in the automobile industry (code 78 e 79 SITC Rev. 3) Data on US million dollars. Source: UNCOMTRADE Import of ASEAN countries Export of ASEAN countries Road vehicles Intra ASEAN 886 6,588 7,079 1,203 5,768 6,287 USA 411 1, Japan 5,823 10,177 11, ,045 1,938 China 577 1,513 1, EU27 1,530 3,349 3,865 1,343 3,408 2,683 Rest of the world 1,246 3,664 3,406 1,820 15,439 16,707 World 10,474 26,368 27,987 5,066 27,887 28,861 Other transport equipment Intra ASEAN 352 1,669 1, ,907 3,146 USA 1,757 7,182 6, ,434 1,958 Japan 747 1, China 67 1,415 1, EU ,460 4, ,304 1,972 Rest of the world 1,181 4,614 2, ,832 3,936 World 4,792 22,449 17,512 2,056 10,691 11,848 55

56 In the last decade, ASEAN countries increased trade in the automotive industry. The trade balance is breakeven. Imports from Japan, China and Europe doubled, while intra-asean trade has grown substantially, as it is clearly shown from the production analysis. ASEAN countries import vehicles mainly from Japan, while more than half of their exports are directed to non-oecd countries. It can be noticed that trade flows were affected by the economic crisis as it is shown by a decrease from 2008 to 2010 of U.S. and Chinese imports and a reduction in exports to Europe. The crisis also affected the trade of other transport equipment (code 79).The import flow from the United States, Japan and Europe fell in the period and also exports to Japan and China experienced a slight decline. 3.3 Trade with Italy Commercial relations with Italy are headed by the road vehicles sector. In 2008 Italy exported 264 million dollars to the ASEAN region and imported 177 million dollars, with a surplus in its commercial balance. In 2010 Italian exports decline of about 80 million dollars. Furthermore, considering the automotive industry as a whole, ASEAN countries imports from Italy have increased in the last 15 years. Table 26: Trade values between ASEAN countries and Italy in the automobile industry (code 78, 79 SITC Rev. 3) Data in US million dollars. Source: UNCOMTRADE Import of ASEAN Countries Export of ASEAN Countries Road vehicles Other transport equipment In this period Singapore has been the main export market while in 2010 it has been out placed by Malaysia that imported from Italy over 160 million dollars versus Singapore 149 million dollars. Philippines imports from Italy remain modest while imports to Cambodia, Lao PDR, Brunei and Myanmar are at the moment still negligible. 56

57 High technology The high technology sector includes enterprises that produce goods or provide services with high technological content. The sector is therefore an important indicator of the innovative capacity of an area. This sector analysis will focus particularly on: - Electronics (components and equipments) - Aerospace - Pharmaceutical and secondary chemicals A great attention is thus dedicated to these sectors. The number of employees engaged in the sector is approximately 1.7 million (to whom 1.5 million engaged only in the electronics sector) while the value added approaches quite 50 billion dollars. The international trade reaches quite 200 billion dollars with a positive trade balance for electronics and a negative one for the other segments. 1. Electronics and computers Malaysia and Singapore were the pioneers of these industrial sectors. Recently, also Thailand, Indonesia and Philippines also have registered a positive trend. Electronics represents a very important sector of the ASEAN s industry with 35 million dollars estimated as value added. ASEAN Secretariat has established the Roadmap for Integration of Electronic Sector that aims, through its 58 points, at fostering the integration in the sector. Thirteen points of the Roadmap regard only the electronics sector, while the rest handle intersectorial matters. Despite the ongoing effort to integrate the sector in ASEAN, some observers argue that the competition between the 10 countries still represents the greatest obstacle to this process. A significant part of the production is for exportation only and thus guided by the multinationals. The electronics industry relies for its further expansion on medium and large companies from other countries of Northeast Asia, the United States and Europe. A substantial "job sharing" performed by each country can be resumed as following: Singapore Malaysia Philippines Thailand Vientam Indonesia Design R&D High value products Components production Assembly 57

58 Although the sector is dominated by the multinationals, SME s also affect the opportunities in terms of: - Support for semiconductor companies (based in Malaysia) by IC design companies; - Nanotechnologies (carbon nanotube, fullerene, biosensor, solar cell and memory chips); - Advanced semiconductor packages as eg. WLP (wafer level package), SOC (system-on-clip), SIP (silicon-inpackage), flip-chip; - Industrial electronics, fotonics, digital telecommunication equipment, mechatronics, robotics, biometrics; - Semiconductors; - EMS (electronic manufacturing services); - Audiovisual components - Sensors. 1.1 Production ASEAN countries has recorded positive annual average growth rates at around 4% between the 2000 and the 2007 accounting for 7,5% of the total value added. In Malaysia, about 16% of valueadded at factor values is produced by the electronics, while in Singapore nearly it s 25%. During the seven years considered, the value added of the electronic sector has increased by about 25%; while in the rest of the ASEAN-6 countries it has been registered an increase in the production, with the exception of Malaysia. In this country, there has been either a decline of the value added of a billion dollars or the decline of unity of employees. These processes have been followed by a rise in the employee s productivity. In particular, Singapore is specialized in production of electronics components, tubes, as well as radio/tv equipments, with an output per worker that exceeds in some areas dollars. The annual average salary is mainly higher in Singapore, followed by Malaysia, where labour costs have almost doubled since Indonesia, Vietnam, as already mentioned, are mainly focused on the assemblage than on the production of high value products. In Vietnam, the number of employees in the sector has virtually quadrupled in 8 years. The production of computers and office equipments is concentrated mainly in Malaysia, Singapore and Thailand. The sector grew in the ASEAN area by more than 2% annually from 2000 to 2007, producing a value added of almost $ 8 billion. In Malaysia, the value added is more than doubled in the 7-year period, the number of employees rose from 72 thousand to 105 thousand, while the value added per employee increased from $ 20 thousand to 35 thousand. 58

59 Table 27: Values of production and employment in the electronics and computers sector (ISIC 32 e 33). Source: UNIDO. Value added at factor values (in million USD) Number of employees Value added per employee (in USD) Wage per employee (in USD at current prices) Electronics INDONESIA 1,903 2, , ,029 10,726 12,728 1,308 2,121 MALAYSIA 7,363 6, , ,970 20,482 21,283 4,909 7,141 PHILIPPINE 2,221 2, , ,669 13,013 15,385 2,719 3,900 SINGAPORE 7,229 8,266 77,222 81,123 93, ,855 23,218 33,750 TAILANDIA 1,961 7, , ,054 10,794 22,749 2,041 2,481 VIETNAM 133 na 22,033 83,088 6,027 na 1,220 na ASEAN-6 20,810 26, ,957 1,125,933 21,143 25,670 4,729 6,401 Computer INDONESIA ,057 3,081 9, ,203 MALAYSIA 1,488 3,601 72, ,439 20,615 34,148 4,784 7,115 PHILIPPINE ,300 70,457 19,384 12,939 2,733 2,958 SINGAPORE 3,502 2,907 34,747 22, , ,165 18,628 31,074 TAILANDIA 1, ,686 46,307 17,224 10,120 2,646 2,266 VIETNAM 38 na 3,094 24,697 12,215 na 1,277 na ASEAN-6 6,664 7, , ,461 35,132 31,948 9,013 7,142 In Singapore, probably because of the very high labour costs, greatly increased over the period, the production has declined along with the number of employees. The same happened in Thailand. There, however, the productivity per employee has almost halved. In Vietnam, an emerging country in the sector, the number of employees in the sector increased from three thousand in 2000 to almost 25 thousand in This sector is amongst the most important in terms of export competitiveness and attraction of investments. The strength points of the ASEAN countries can be summarized as follows: 1. Research and development; 2. Headquarters location; 3. Assemblage facilities. The greatest challenge ASEAN countries are facing in the field is represented by China, which in recent years has increased the production of components thus becoming the largest country in assembling computers. The situation differs greatly from country to country. The countries where the industry of computer components is most active are Malaysia, Singapore and Thailand. The share of exports of the Philippines is quite modest, but the country has been the recipient of huge investments by large multinational companies (Intel, Integrated Microelectronics). Vietnam is positioned as a developing country in the sector. The volume of exports is modest in terms of components of computers, while it remains consistent in the other sectors of the electronics industry. Myanmar, Brunei, Lao PDR and Cambodia do not produce computer components. 59

60 COUNTRY STRENGTH & SPECIALIZATIONS WEAKNESSES SINGAPORE MALAYSIA THAILAND VIETNAM INDONESIA Headquarters of most multinationals R&D Investments in other ASEAN countries Skilled and specialized labour Employees who speak both English and Chinese Network of local suppliers High technology R&D Industry of CPU Network of local suppliers Competitive labour cost Hard disk Competitive labour cost Head office Intel production CPU Potential growth of the internal demand Assemblers R&S Very high labour cost Shortage of assemblers Shortage of qualified engineers Shortage of qualified engineers Shortage of local suppliers Shortage of qualified managers Shortage of qualified engineers Difficulties in recruiting assemblers Shortage of local suppliers Infrastructures and transports 1.2 Trade The trade data 22 related to the field of electronics and telecommunications is available only from 2008 onwards. In 2010, the ASEAN countries have imported from the world about 126 billion electronics products and have exported for a value of about 150 billion, confirming their net export position. Table 28: Trade values of electronics and telecommunication between ASEAN countries and the rest of the world Values in Billion Dollars. Source: UNCOMTRADE Import of ASEAN Countries Export of ASEAN Countries Electronics Intra ASEAN 21,143 33,830 18,314 28,600 USA 8,090 14,419 10,598 13,828 Japan 8,429 13,812 7,968 11,152 China 11,258 15,412 12,846 21,912 EU27 6,394 10,976 10,537 15,933 Rest of the world 25,028 37,588 38,819 58,511 World 80, ,037 99, , UNCOMTRADE Data. 60

61 Considering the amounts of the exports (99 billion dollars) from ASEAN countries in 2008, seems clear that despite the global crisis, the production in the sector is still strong and ever growing. Exports from the ASEAN countries rose towards all the selected countries and particularly, towards China. The intra-asean trade has increased considerably, due to the abolition of the import duties between the euro area countries. The products imported from non-asean countries are under the WTO "ITA", i.e. Information Technology Agreement 23. The AESEAN signatories of the Agreement 24 must eliminate import duties on IT products included in the agreement. 1.3 Trade with Italy Italy exports towards ASEAN countries about 300 million dollars in electronics and computers. The Italian trade balance is in strong deficit in Italy's imports from ASEAN countries, however, have grown in two years, from $ 583 million in 2000 to 875 million dollars in Table 29: Trade values of electronics and computers between ASEAN countries and Italy Values in Million dollars. Source: ISTAT Import of ASEAN Countries Export of ASEAN Countries Electronics and computer Aerospace Singapore is the leading country of the aerospace sector. 2.1 Production The "aerospace sector" is dominated by Singapore, with a value added in 2008 of about 2 billion dollars, compared to 720 million in 2000, and 20 thousand employees, a value more than doubled compared to 8 years earlier. This means that the value added per employee increased from 69 thousand dollars to 105 thousand in In other ASEAN countries the production of airplanes and spacecraft is negligible, the percentage of workers in this sector compared to manufacturing industry in general is in average less than the 0.2% 25 ( employees in Singapore account for 5% of the manufacturing industry) Signatory countries: Indonesia, Malaysia, Philippines, Singapore, Thailand and Vietnam. 25 UNIDO Data for Indonesia, Malaysia, Philippines, Thailand, Vietnam. The state of implementation of the process of tariff reduction/elimination is summarized in tables available at the following address: 61

62 Table 30: Production values of employment for the aerospace sector (ISIC 3530). Source: UNIDO. Aerospace Value added at factor values (in million USD) Number of employees Value added per employee (in USD) Wage per employee (in USD at current prices) INDONESIA ,272 9,851 11,002 3, ,429 MALAYSIA ,584 4,315 19,766 25,450 8,013 11,374 PHILIPPINES na 70 na 3,901 na 17,750 na 9,402 SINGAPORE 719 2,066 10,334 19,545 69, ,658 33,838 45,274 THAILAND na na 10,078 na 2,260 VIETNAM 2 na 67 na 23,489 na 1,834 na ASEAN ,287 22,623 38,425 37,981 59,444 16,634 25, Trade After facing such a limited production, it is clear that the balance trade in ASEAN countries is in strong deficit. On 2010, ASEAN countries have in fact imported a total of 11 billion dollars and exported just under 2 billion. The United States are the largest exporters of ASEAN region, followed by Europe. In particular, imports from the United States have increased steadily over time, going from 1 billion dollars in 2000 to 6 billion and a half in Imports from Europe, instead, are dropped from 5 billion in 2008 to 4 billion and a half in Table 31: Trade values of aerospace between ASEAN countries and the rest of the world Values in Million Dollars. Source: UNCOMTRADE Import of ASEAN Countries Export of ASEAN Countries Aerospace Intra ASEAN USA 1,105 5,180 6, Japan China EU ,195 4, Rest of the world World 1,507 11,134 11, ,009 1,997 With the remarkable increase of the Italian exports towards ASEAN countries over the recent years, Italy became throughout the mentioned period, a net exporter. Table 32: Trade values in the aerospace sector between ASEAN countries and Italy Values in Million Dollars. Source: UNCOMTRADE Import of ASEAN Countries Export of ASEAN Countries Aerospace

63 3. Pharmaceuticals and secondary chemicals Indonesia and Thailand are the mainly present country of this industrial sector. 3.1 Production The chemical sector has registered in the ASEAN area an average annual growth rate of 2% ( ). In particular, the value added of the pharmaceutical industry increased from $ 6.2 billion in 2000 to $ 7.1 billion in This growth was mainly due to an improvement in productivity, while the number of employees remained substantially the same 26. Table 33: Values of production and occupation in the pharmaceutical sector (ISIC 242). Source: UNIDO. Pharmaceutical sector Value added at factor values (in million USD) Number of employees Value added per employee (in USD) Wage per employee (in USD at current prices) INDONESIA 1,086 4, , ,561 8,588 33,210 1,580 2,290 MALAYSIA ,233 34,925 22,502 25,970 6,231 7,911 PHILIPPINES 1, ,000 31,323 28,556 21,409 4,776 7,308 SINGAPORE 2,779 na 13,242 na 209,810 na 38,612 na THAILAND 614 1,148 60,207 93,566 10,189 12,269 2,751 2,682 VIETNAM 206 na 36,001 na 5,712 na 1,388 na ASEAN-6 6,298 7, , ,375 21,118 24,439 4,238 3,615 According to the study conducted by JETRO, which shows the perception of Japanese enterprises over their subsidiaries in Asia and Oceania, the pharmaceutical industry has signed an increase. In fact, over 53% of the study participants said that the profit of the companies in this sector will grow in 2012 (compared to the previous year) and only 11% of them said it would decrease. 3.2 Trade During the considered period, ASEAN countries were net importers of pharmaceutical products. In fact, imports rose from 730 million in 2000 to over 2.2 billion dollars in Almost half of the imported products came from Europe; about only 5.6% of them from Italy. 26 This table lacks data from Singapore and Vietnam. 63

64 Table 34: Trade values of the pharmaceutical products between the ASEAN countries and the rest of the world Values in Millions of dollars. Source: UNCOMTRADE Import of ASEAN Countries Export of ASEAN Countries Pharmaceutical sector Intra ASEAN USA Japan China EU , ,219 Rest of the world World 732 1,901 2, ,304 1,863 The sector represents thus a great opportunity for Italy, as the pharmaceutical industry is one of the most significant sectors among other industries, representing 287 companies with nearly 66,700 employees, 90% of them are university graduates. Table 35: Trade values of the pharmaceutical products in the ASEAN countries and Italy Values in Billion Dollars. Source: UNCOMTRADE Import of ASEAN Countries Export of ASEAN Countries Pharmaceutical sector

65 Infrastructures 1. Construction industry The value of the construction sector in the ASEAN region is about 110 billion dollars, at constant prices. This value is equal to the entire Italian construction market. The growth rate are quite high (in the period the historic average value amounted to over 10 percentage points) and they are particularly significant in Myanmar, Vietnam and Singapore. The most important regional market is Indonesia that represents 35% of the whole market with an average of over 12 billion dollars in the considered period. Other significant markets are represented by the production of Philippines, Singapore and Malaysia that respectively represent a share between 10 and 15% of the ASEAN area. Table 36: ASEAN Value added in the construction sector (Million dollars constant prices 2000) ASEAN - Construction Absolute values - Million $ Media BRUNEI 259,37 275,06 287,41 339,11 345,86 339,89 378,48 317,88 CAMBOGIA ,79 465,73 478,68 366,65 400,00 INDONESIA 10, , , , , , , , LAO PDR MALAYSIA 3, , , , , , , , MYANMAR 1, , , , , , , , PHILIPPINES 3, , , , , , , , THAILAND 2, , , , , , , , VIETNAM 1, , , , , , , , SINGAPORE 4, , , , , , , , The analysis of trade flows for pottery decoration shows as an average over the period , the value of Italian exports for decorative ceramics to ASEAN countries amounted to about 1 million dollars per year. From a trend analysis it is possible to see a decline in the exports in the last 10 years. This trend should attract the attention of a potential analyst since it is in complete contrast with the market evolution. In fact, the flow of imports from the world towards the ASEAN region, substantially show in the period a clear upward trend. 65

66 2. Infrastructures 2.1 The state of the art Table 37 shows an interesting parallel between the infrastructural endowment of the ASEAN countries, Asia and other areas. It shows a weak position of the area in fundamental infrastructures. Table 37: Infrastructural endowment for regional macro areas. (Source: ADB, UNDP, UNESCAP. Paths to 2015: MDG Priorities in Asia and the Pacific) ROADS (Km) RAILWAYS(Km) TELEPHONES ELETTRIFICATION CLEAN WATER FOR 1,000 PEOPLE PERCENTAGE ASEAN ASIA OECD LATIN AMERICA AFRICA na The table below taken from the Global Production Sharing Trade Patterns and Determinant of Trade Flows in East Asia (ADB Working Paper Series on Regional Economic Integration, 2010), underlines the performance indexes of the ASEAN countries and other major comparison logistic groups. Table 38: World Bank Performance Index and its components: Asian countries and major comparison groups. Country Customs Infrastructures International Shipments Quality of logistics Tracking & Tracing Domestic logistic Timeliness Index Rank Korea 3,2 3,4 3,4 3,6 3,6 2,7 3,9 3,5 25 China 3 3,2 3,3 3,4 3,4 3 3,7 3,3 30 Hong Kong 3,8 4,1 3,8 4 4,1 2,7 4,3 4 8 Cambodia 2,2 2,3 2,5 2,5 2,5 3,2 3,1 2,5 82 Indonesia 2,7 2,8 3,1 2,9 3,3 2,8 3, Lao PDR 2,1 2 2,4 2,3 1,9 2,1 2,8 2,3 117 Malaysia 3,4 3,3 3,4 3,4 3,5 3,1 4 3,5 27 Philippines 2,6 2,3 2,8 2,7 2,7 3,3 3,1 2,7 85 Singapore 3 4,3 4 4,2 4,3 2,7 4,5 4,2 1 Thailand 3 3,2 3,2 3,3 3,3 3,2 3,9 3,3 31 Vietnam 2,9 2, ,9 3,3 3,2 2,9 53 Region High income countries 3,45 3,66 3,52 3,64 3,71 2,58 4,05 3,07 Medium-high income countrie 2,64 2,7 2,84 2,8 2,83 2,94 3,31 2,85 Medium-low income countries 2,31 2,27 2,48 2,4 2,45 3,01 2,93 2,47 Low income countries 2,12 2,06 2,32 2,29 2,25 2,99 2,71 2,29 EU 2,39 2,39 2,61 2,53 2,55 2,97 3,04 2,59 Latin America and Caribbean Sub-Saharian Africa 2,38 2,38 2,55 2,52 2,58 2,97 3,02 2,57 2,21 2,11 2,36 2,33 2,31 2,98 2,77 2,35 66

67 Table 39 shows that ASEAN countries prediction of energy demand by 2050, reports a perspective demand, which corresponds to the current high-income Asian economies and to half of the Indian current energy demand. Table 39: Action plan for the construction of road section for transport and transit (Source: Master Plan on ASEAN Connectivity). Asia Energy Demand (Mtoe 27 ) ,611 2,306 2,945 4,345 7,505 10,639 PRC ,105 1,970 3,637 5,011 India ,341 2,389 ASEAN ,177 Central Asia Iran High Income Asia ,112 Asia electricity consumption (TWh 28 ) 1,336 2,146 2,993 5,183 13,048 25,466 PRC ,081 2,717 7,513 10,630 India ,966 3,440 ASEAN ,383 1,956 Central Asia ,150 Iran High Income Asia ,012 1,128 1,411 1,746 Asian Development Bank (ADB) estimates that the need for infrastructure in Asia and in the Pacific area is significant: about 750 billion dollars per year in the period The ASEAN region accounts for more than 60 billion dollars each year of the overall amount. 2.2 The ASEAN Connectivity Master Plan The Master Plan is a plan of action, to be immediately implemented, with an horizon corresponding to the period The Plan is focused on the implementation of the ASEAN network connection through enhanced physical infrastructure (physical connectivity), effective institutions, more effective mechanism and regulatory processes (institutional connectivity) and finally a smoother movement of people (people-to-people connectivity). The Master Plan is divided in seven main strategic lines here briefly described, together with some relevant key actions. Strategy# 1.Complete the ASEAN Highway Network 27 Million tons of oil equivalent 28 Terawatt per hour 67

68 In terms of traffic volume, road transport is the most important mode of transportation. Furthermore, the ASEAN Highway network (AHN) will promote the integration in the developing areas of the region; for this reason it represents the project that could have significant benefit to the poorest areas of the continental ASEAN region. Table 40: Traffic and transit roads planned improvements (Sources: Master Plan on ASEAN Connectivity 2011) COUNTRY TOTAL LENGHT OF TTRs (Km) TOTAL LENGHT OF BELOW CLASS III TTRs (Km) BRUNEI CAMBODIA INDONESIA LAO PDR MALAYSIA MYANMAR PHILIPPINES ,5 SINGAPORE - - THAILAND VIETNAM TOTALE ,5 Strategy # 2 Complete the implementation of the Singapore Kunming rail link (SKRL) The SKRL project has two lines, an eastern line through Thailand, Cambodia and Vietnam, with a line between Lao PDR and Vietnam, and a western line through Thailand and Myanmar. It has been decided that the first line to be completed will be the Eastern one that will connect Singapore to China (via Kunming). As for the railroad infrastructures, the SKRL project has been originally launched during the Fifth ASEAN meeting in December 1995 and its completion is foreseen by Strategy # 3 Establish an efficient and integrated inland waterways network The ASEAN region is rich of inland waterways for about 51 thousand km that can play an active role in the transport development, particularly in the CLMV 29 countries and in Thailand. The infrastructures of this network of inland waterways are not adequate thus bringing to a low network usage, to the detriment of the intermodal connectivity strategy of that area. Strategy # 4 Accomplish an integrated maritime transport system, efficient and competitive In terms of international trade flux, maritime transport is the most important mode of transport. The ASEAN region needs to foster a competitive and efficient interstate shipping service and take advantage of the full potential benefit of the integration of the global shipping. In 2006, around the 15% of the imports-exports regional routes has been served by a single service line, while more than half of the regional routes has been served by three or less service lines. 29 Cambodia, Lao PDR, Myanmar, and Viet Nam (CLMV countries). 68

69 Key actions: the relevant key action is to enhance the performance and capacities of the 47 seaports identified as strategic infrastructures. The enhancement of capacity building can include the improvement in associated services, like warehousing as well as dredging of the water channels where needed. Other key elements of the capacity building strategy are: establish efficient and reliable shipping routes (including the RoRo) in order connecting mainland and southeast Asia islands, including the related sub-regional initiatives such as BIMP-EAGA and IMT-GT. Strategy # 5 Establish an integrated and multimodal transport system in order to make the ASEAN region the transport hub in the South-East Asia The ASEAN region is the geographic center of the emerging global production and demand fulcrum: South Asia, South East Asia, Australia, and New Zealand. ASEAN needs to develop a consistent strategy on how its strategic location can make ASEAN function as the transport hub in the region. Among the most important key actions it is worth to underline the number (iii): The promotion of the Mekong-India Economic Corridor (MIEC) in order to combine inland waterways transport with road transport. (iv) Identify and develop a network of ASEAN dry ports 30 in accordance with existing ASEAN initiatives such as the ASEAN Highway Network and the SKRL. Strategy # 6 Accelerate the development of infrastructures and ICT services in each of the ASEAN Member States Among the most important key actions it is worth to underline: (i) establish an ASEAN Broadband Corridor by identifying and developing locations in each ASEAN Member State to offer quality broadband connectivity by (iii) Establish an ASEAN Internet exchange network to facilitate peering amongst ASEAN Internet access providers, to reduce latency and increase speed, as well as lower costs. (vi) foster roll-out of broadband internet infrastructure to schools by Strategy # 7 Identify and implement projects aiming at the development of ASEAN energetic infrastructures. ASEAN cooperation in the energy sector has been headed by several Action Plans including the ASEAN Action Plan for Energy Efficiency Cooperation (APAEC) The Trans-ASEAN gas pipeline, which is part of ASEAN's vision for 2020, would connect the natural gas production centers to markets of neighboring countries. It should also foster competition amongst providers and promote the development of stranded gas fields, whose small size does not currently justify the production. By 2013, there will be 3,020 km of pipelines working, with the completion of the M9 gas pipeline linking Myanmar to Thailand. ASEAN is also thinking to create the necessary infrastructures for the transport of liquefied natural gas (LNG). Up to now, eight bilateral interconnection projects between pipelines are currently at work, with a total length of about 2,300 kilometers. It results in over half of the total length foreseen for the entire pipeline network development (4,500 kilometers). It is foreseen a total energy investment for about 40 billion 30 This is a seaport internal terminal directly connected to the road system or railways that will serve as hub for the transport of goods by see from and towards inland destinations. 69

70 dollars through 2020, most of these flux will cover new production needs with particular reference to renewable energy (hydro-electric and geo-thermal). 2.3 Comprehensive Asian Development Plan (CADP) The Comprehensive Asian Development Plan (CADP) provides an operational framework for the inter-regional definition of economic infrastructures, as well as for industrial positioning. It applies a new approach based on the economic theory of areas fragmentation, in order to pursue a "deeper economic integration" and the reduction of development gaps between different areas. In particular, the Plan aims at identifying three sub-regions (Mekong, IMT 31 + and BIMP +), that include several industrial corridors connecting countries and regions with different development stages. To this end, the three development strategies are: Tier 1: Middle-income countries for which is expected to identify innovative and research clusters of value added (less traffic and a healthy environment.) Tier 2: Countries or regions close to industrial agglomerations for which foreseen actions aim to identifying networks of production. Tier 3: For those countries or regions still remote a series of logistic infrastructures should be implemented as a trigger for a new perspective of industrial development (creating a critical mass of economic activity). 31 IMT: Indonesia, Malaysia and Thailand; BIMP: Brunei, Indonesia, Malaysia and Philippines. 70