Progress in this area has been steady but slow. There are tough issues such as inadequate infrastructure linkages, services liberalisation and diverse stages of economic development across the region remain.
" Singapore is well-positioned to provide production sophistication that will lift intra-regional trade."
Vishnu Shahaney，CEO, Singapore & Malaysia, ANZ
ANZ's new report ASEAN: The Next Horizon suggests it may take 10 to 15 years before the region becomes a truly borderless economic community along the lines of the EU. However, there is little doubt the wheels are in motion. So what does this mean for Singapore?
Singapore is at the centre of this integration journey. As a founding member of ASEAN, the country has played a pivotal role since inception – and we believe its role in the development of the AEC will be just as defining.
Singapore's leadership role is likely to be two-pronged: one, it is the most successful development model; two, as the financial capital, it will be the de facto capital in the absence of a political capital.
There is no denying Singapore's development model works extremely efficiently and is one its neighbours would do well to emulate. It is well-placed to lead the region by example, be it with its record transformation from third world to first or its deep investments in education.
It has also undergone the very transformations the other ASEAN nations are set to follow, from labour-intensive industrialisation in the 1960s to the emphasis on technology, manufacturing and investment in the 1990s. Today, the country is transforming once again, with its capital-intensive knowledge economy of the new millennium making way for the smart city imperative.
Singapore is naturally positioned to be ASEAN's premier financial capital. The country is already an established global financial centre and has developed a strong reputation for facilitating global trade flows. Many of our customers base their regional treasury centres in Singapore, with manufacturing or trading arms across the region.
FOUR KEY STRENGTHS
Singapore has four key strengths which will make it the natural financial hub for the region: a deep talent pool; Pan-Asian focus and ASEAN connectivity in stock exchanges; a diverse offering of financial services; and robust regulatory environment.
Consistently ranked amongst the top in the world for 'Ease of doing business', Singapore is also a role model to other AEC members for attracting and retaining investment and trading opportunities.
Additionally, there is an opportunity for Singapore to further build upon its key role as a wealth management capital – attracting global talent and continuing with world leading best practise of discretion, transparency and efficient and effective regulation of financial services.
Financial deepening in the AEC implies much greater sophistication of financial products and services in markets like derivatives, and these markets are opportunities for centres like Singapore which have robust and trusted legal and regulatory regimes.
The UK and Hong Kong, with financial depth of 550 per cent and 700 per cent respectively, acording to the report Caged Tiger: The transformation of the Asian Financial System, provide an indication of what a genuinely international capital market and banking centre in the AEC could look like. Singapore – with financial depth of around 300 per cent - could take this form.
Being ASEAN's financial hub may also position Singapore to play a leading role in addressing regional problems. These include coordinating funding efforts to bridge the infrastructure deficit across the region and tackling the lack of regulatory harmony, all of which require strong leadership. This could also make it an ideal regional headquarters for the new Asian Infrastructure Investment Bank.
As Singapore navigates its way through the evolution of the AEC, it is also important the country does not lose sight of its strengths and the challenges ahead in order to maintain its lead.
Singapore's economic development during the past five decades has seen the country continuously re-invent itself. The next 50 years will see it having to navigate the challenges of disruptive technologies, increasing competition from other metropolises as well as an ageing population.
Within the AEC framework, there will also be challenges for Singapore going forward. The key question for the country now is how to continue to advance its technological and production frontiers to ensure rapidly converging economies do not overtake it.
With closer economic integration in ASEAN, Singapore is well-positioned to provide production sophistication that will lift intra-regional trade. It will also develop higher value-added activities such as the design of electronic circuits and will be the dominant technology hub.
But it will face greater competition from the Mekong economies as they move up the manufacturing value chain. The increasing manufacturing sophistication of countries like Vietnam and Thailand mean Singapore's manufacturing sector must continue to evolve if it hopes to stay ahead – it will need to remain nimble and carve out new niches to maintain its competitiveness.
Singapore will also need to recognise that profound structural shifts in its economy may accelerate with ASEAN's rise, particularly the gradual move out of manufacturing and into services.
This will require visionary governance, entrepreneurial spirit, creativity and imagination married with hard science and radical new innovative paths to be forged.
So like many economies today, Singapore's challenges are significant - but its opportunities are endless.
It is this leadership role that gives the country great influence over the group's evolution and success. This role in driving ASEAN's evolution that will be interesting to observe.