Transcript of Remarks by Mrs Josephine Teo, Senior Minister of State for Finance and Transport, at the "Connect on Trade: Lifting Barriers to Growth" Session of the World Economic Forum on East Asia

Q: What are the benefits and progress that Singapore sees coming from the AEC, from Singapore’s perspective?

Mrs Teo: We suggest an important perspective which is that the ASEAN Member States have come together and have made tremendous efforts to ensure that we are able realise the vision of a single market, a single production base which Minister Mustapa also talked about.

But there is one area that is a challenge and also an opportunity if you have to fully realise the idea of an ASEAN Economic Community (AEC), and it relates to the topic of ASEAN Connectivity. When you talk about making sure there is a free flow of goods and services, ASEAN Connectivity is central to this. The single market production base is only one of the pillars of the ASEAN Economic Community; there are three other very important pillars: for example, we would like to see equitable development across the whole of ASEAN and you need connectivity to achieve that. We would also like to see the region becoming very competitive; in order to achieve that, we need connectivity. And another very important pillar of the AEC vision is the idea that we want to be a globally plugged-in region; to achieve that, we again need connectivity. So I thought I would spend a little bit of time to talk about the importance of ASEAN Connectivity and what are some of the ways we can achieve this because it is so central to the vision of a successful and effective AEC.

In fact, there is a Masterplan for ASEAN Connectivity that has three key priority areas: one, we need land connectivity. It is ok to have more cars and more vehicles, provided we have the roads to service them - this is one aspect. Another very important aspect is that we also need rail connectivity. Therefore, land connectivity as part of ASEAN Connectivity is one area that has got challenges, but I also think tremendous opportunities, which I will talk about a little bit more later. Another important aspect of connectivity is air connectivity, and I will expand a little bit more on that later.

A third aspect in today’s world, given the kind of technological advances we are seeing, is broadband and cyber connectivity. So I think there are three major pieces in this whole topic on connectivity.

What I think it means for businesses is that, when you think about the large-scale and scope of investments that will be needed to achieve that connectivity, it spells, to me, opportunity. We would like to be able to bring in the resources and expertise of the dialogue partners and the international financial institutions. Yesterday, in the private sessions, we have very useful discussion on what it means to crowd-in private investments because of the tremendous amount of liquidity that is available and at the same time, the infrastructure development needs are so vast in our region. So that is another area of opportunity.

If I may just sum up, where the ASEAN Connectivity is concerned, I think there are some low hanging fruits which have already been achieved. There is in fact, in this Masterplan, a specific set of measures and if you look at the number of measures that have been completed or implemented, I think we have gotten to about 70%, but those are really the low-hanging fruits. There are the more challenging ones, which we can spend a bit more time to talk about later.

Q2: We heard about the rapid growth in aviation in Indonesia. It would be a good to drill down into some of the details of the ASEAN Open Skies Agreement that is due to be implemented next year. How do you see the challenges and the benefits around that, particularly given that Singapore is a major global aviation hub?

Mrs Teo: Earlier on, my colleagues had highlighted that the demand for air transport and air travel in our part of the world is going to grow very rapidly. This is driven by the fact that the growing middle class in Asia is going to exceed the size of the middle class in North America and Europe combined. And it is not going to take a very long time for this to be realised, the estimate is 2030, I would say plus-minus two to five years. And when you think of 2030, it might sound like a long way off, but a child that is born today will not even be eligible to vote in any country, by the time we get to 2030. That is actually not a very far timeline, at all.

There is one thing if you think about 2014, specifically. Of the estimated 800 million new passengers on air travel this year, about half of them will originate from Asia. That is a very significant growth for aviation in our part of the region. And if you look at ASEAN specifically, the middle class population by 2030 is going to be about 50%, and we are talking about two-thirds of them living in cities. So in another words, living in an urban setting, interested to travel and probably, able to afford air travel. That is the kind of backdrop that we are operating against. The ASEAN Open Skies which is coming about in 2015, which Secretary Domingo also talked about - if we want to have a sense of that is going to mean for ASEAN, the EU single aviation market is possibly a reference point. If you recall the EU single aviation market came about in the 80s - 90s. If that is anything to go by, we can expect in ASEAN a multi-fold increase in the number of flights and direct city links. Minister Lutfi talked about the very large number airplanes that Lion has ordered. Today, if we are very honest about it, there is fair bit of over-capacity especially, in the low-cost sector. But I think, it is a matter of timing. It causes some pressure on the businesses concerned, but the demand is likely to grow, and in order to satisfy the travelling preferences of the public as well as for business needs.

Again back to the EU single aviation market, multi-fold increase in the number of flights, direct city links and of course, with that, we can look forward to reduced cost of air transport, whether it is for passenger travel or whether it is for freight.

I think it goes beyond just this idea of a single aviation market being all about demand for air travel. It is also that there has been tremendous effort made in harmonising the technical regulatory requirements of our region and I would say that therefore, it begs the question, what would the challenges and what would be the opportunities standing in the way of growth? I think for challenges, the very simple challenge that we all face, is airport capacity is really up to this, and this is true of many airports in our part of the world. So there is a lot of need as well as opportunity to invest in airport infrastructure in order to grow the capacity.

Beyond just investing in airport infrastructure and making the slots available for air travel, another very important area of opportunity which I think deserves greater attention, is how air transport agreement can be further liberalised. As a block, ASEAN has made tremendous progress; we have an air transport agreement with China. I think that is a very significant development. It would have been a bit harder for each one of us to get all those air transport agreements done, but as a block, we have been able to do it with China.

In the works, are air transport agreements with Japan, Korea and possibly also India. Developments in India are particularly encouraging from that perspective, and we hope to be able to secure further momentum on the air transport agreement.

Something that is also possibly a very exciting development: today, when you think of air transport agreement, very often it is between countr ies. As a region, we have been able to achieve an agreement with China and then some others, which are on the way. But there is potential for region to region air transport agreement, and that is between ASEAN and the European Union.

Just a few months ago, when Singapore held the Aviation Summit, this topic was raised. There is definitely interest on part of the ASEAN Member States and we also see growing interest amongst the EU states. It is not easy, it will take some time to materialise, but that is potentially something that can be a game changer: an air transport agreement between EU and ASEAN. So that is something that is worth paying attention to.