Economic integration is the best thing that could happen to Singapore

It will ease restructuring woes, says HSBC.

Singapore is poised to benefit the most from the ASEAN Economic Community (AEC), according to a report by HSBC. The country’s current status as a financial hub coupled with measures already in place due to the economic restructuring puts Singapore in a prime position to reap the rewards of economic integration with the rest of the region. However, most of these benefits lie in the services space, such as finance, instead of goods trade.

The AEC seamlessly fits with Singapore’s current economic restructuring, which is endeavoring to stimulate higher productivity growth by climbing the value-added chain. AEC’s impending launch fits right into Singapore’s agenda of limiting immigration and boosting productivity, as the AEC incentivizes and heightens accessibility to firms that outsource labour-intensive parts of production to other ASEAN countries.

The AEC also allows Singapore to address its space and labour constraints through better access and utilisation of its hinterland. Large swaths of land lie behind both sides of Singapore borders in Malaysia and Indonesia, and channeling certain services to these areas frees up both Singapore land and labour that can be directed towards better and more productive use. Additionally, positive spill-overs of skills and technology help the broader region.

Heightened financial activity across borders is also likely to precipitate expansion of financial services operations across the country. With the AEC, Singapore-based companies should be able to further merge production within the ASEAN supply chain and better use manpower in other countries.

Meanwhile, banking liberalization coupled with the eventual facilitation of investment flows across borders allows for multi-national banks to operate simpler business models with a more seamless integration amongst regional offices. Banks can take advantage of funding conditions in Singapore but lend to customers in other jurisdictions.

Lastly, Singapore is primarily a financial and business hub- it imports nearly all its food, energy, and consumer needs. As such, it has virtually no import tariffs and fewer services restrictions, and therefore expended a small amount of energy and resources in fulfilling AEC requirements. This spells not only immense benefits from the AEC, but also immediate ones.