Minister’s roadshow intended to enlighten SME owners on implications of AEC

For the 10 member states of the Association of Southeast Asian Nations, December is set to mark the realisation of an economic transformation: the ASEAN Economic Community, a single regional market, where goods and services, skilled labour and capital will all flow seamlessly across borders.

But while the government talks up its preparedness, ranking third among member states in AEC-related reforms, it is business, and in particular, Cambodia’s small and medium enterprises that remain in the dark, with little knowledge about the impact regional liberalisation will have on their companies.

“Businesses in the agricultural and manufacturing sectors can expect opportunities for exporting into ASEAN and the world, while retail and services businesses will see prospects to build new business alliances,” Minister of Commerce Sun Chanthol said following an AEC forum last week in Battambang.

“On the other hand, Cambodian SMEs are also concerned about an increase in competition from other ASEAN member states,” he said.

Some 1,000 businesses people and students attended conferences last week in Battambang and Siem Reap during a provincial road show led by the commerce ministry that aimed to educate Cambodia’s small business on both the opportunities and the challenges the AEC presents.

And while governments have been at the forefront of regional integration, most rural businesses remain deeply anxious over the lack of information they have about the looming AEC.

“It is a good thing that I can export without having to pay tax, but it will be a tough for Cambodina products unless we can produce according to the standard required by the countries we are targeting,” said Prak Chanthoeun, a noodle producer from Battambang and an attendee at the conference.

Chanthoeun currently produces for the domestic market only but, in theory, the removal of import and export tariffs means it will be cheaper for him to produce and international markets will be easier to access. The same applies, however, for many of his regional competitors, whose products already meet market standards required to export, and who have easier access to capital needed to expand their business.

Chanthoeun has applied for a food quality certification that will allow him to export his noodles, but he predicts that getting his business into shape to meet those standards is still years away.

A meatball factory.
A meatball factory.
In December 2013, the Asian Development Bank released survey results that showed 55 per cent of businesses across the region remained unaware of the AEC blue print.

For Battambang small business owner Phleung Sinat, a producer of processed fish balls or naem, last week’s conference was the first time she had heard of the AEC.

Sinat, who began her business in 2006, said she was excited by the prospects pitched by the commerce minister, but nervous that businesses in neighboring countries were better situated to take advantage of the AEC.

“I also want to have my product exported if there is the opportunity. I want to use a packaging machine, but our business is so small that we cannot invest in the machine that would cost us hundreds of thousands of dollars,” she said.

“In Thailand, their production is more advanced because they have capital and they have larger enterprises compared to us.”

The language barrier, limited access to information, unsophisticated business planning, and the neglect of a modern business environment all add up to a limited awareness of AEC among Cambodian SMEs, according to David Van, Cambodia’s managing director for business advisory firm Bower Group Asia.

Van, who was also presenting at the AEC road show, said that, to date, the AEC has been largely government-led. He acknowledges that authorities still have a role to play in educating the private sector, but businesses, too, need to seek out information to take advantage of the AEC.

“Small and medium business have to improve themselves to be ready for competition.”

The spectrum of economic and political diversity across the region means member states are moving towards deeper liberalisation at a varying pace. Despite all the hype surrounding the December deadline, the transformation into a seamless single regional market will not be realised at the end of the year.

That said, progress has been made, with trade barriers across the region slowing receding.

Given Cambodia is already very open, the AEC is unlikely to impact domestic production or sales according to Jay Menon, lead economist at the office of regional economic integration at the Asian Development Bank.

But low preparedness among SMEs is restricting those eyeing export markets, he added.

“The ones that have export potential should take advantage of the single market that the AEC aspires to create in ASEAN,” Menon said.

“But first, domestic reforms, including investment in education and skills development, need to be enhanced more than anything else,” he added.