Development Challenges in LowIncome Mekong : How Trade

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Development Challenges in Low-Income Mekong How
Trade Transport Facilitation Will Help

• Kazi M.Matin Cheanchom Thongjen
• World Bank

Investment, Trade and Transport Facilitation in
ACMECS Workshop, Dusit Thani Hotel, Bangkok, Mar
ch 13, 2007
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Coverage of Presentation

• Background 1960-90 Strong performance following
  reforms since late 1980s
  
• Private investment exports key drivers
• Region cross-border investments exports
• Why Trade-Transport Facilitation (TTF) is key for
  lower-income Mekong
  
• What May World Bank do to support TTF

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Background of war controls 1960-1990

• Vietnam, Lao, Cambodia (Mekong 3) and Myanmar
  performing poorly in this period
  
• Mekong-3 GDP per capita grow less than 1.5 a
  year vs 7 NIEs 4 ASEAN-4
  
• Development Gap widened NIEs 1.5 to 10 and
  ASEAN-4 1.5 to 3
  
• Per capita income of 4 low income Mekong fell to
  only 30 of ASEAN-4
  
• Legacy of that period loss of human resources
  of infrastructure high poverty

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Strong Performance- 1990-2005

• Reforms in Mekong-3 in late 80s-early 90s
• Trade/price control liberalization key reform
• Private sector development key reform
• Modest reforms in Myanmar too
• Investments in Infrastructure
• Investments in Human Development
• Increased private investment and export growth
  with GDP growth and significant poverty-reduction

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Trade Openness Increased
ASEAN-4 refers to Indonesia, Malaysia,
Philippines, and Thailand Source IMF, World E
conomic Outlook (2006)

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Foreign Direct Investment Increased
Source IMF, World Economic Outlook (2006)
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Exports Grew Rapidly from low base
Source IMF, World Economic Outlook (2006)
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Exports move towards manufactures
Cambodia
Lao PDR
Vietnam
Source WITS (2006)
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Real GDP Growth ASEAN-4
ASEAN-4 refers to Indonesia, Malaysia,
Philippines, and Thailand Source IMF, World E
conomic Outlook (2006) and World Bank (2006)
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Poverty fell from high levels in 1990
Source IMF, World Economic Outlook (2006) and
World Bank (2006)
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Private investment export growth (to world
region) are key drivers of growth poverty
reduction in ASEAN-4 (60-05) Mekong3
(90-05)Yet domestic constraints to private
investment further integration remain in
Mekong-3

• See
• ICA 2005
• Doing Business 2006

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Firms View of Investment Climate Constraints
from ICA
Source Investment Climate Survey, World Bank
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Top 4 Constraints to Investment

• Regulations Taxes all four countries
• Macro market uncertainty all four
• Infrastructure deficit all four
• Skills two, mainly Thailand Vietnam
• Financing two, mainly Lao Vietnam
• Corruption only Cambodia

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Regulations Starting a business
Source Doing Business 2007 Note Myanmar Data i
s unavailable
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Regulations Registering Property
Source Doing Business 2007 Note Myanmar Data i
s unavailable
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Regulations Trading Across Border
Source Doing Business 2007 Note Myanmar Data i
s unavailable
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RegulationsImport/export cost (US per container)
Source Doing Business 2007
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Regulations Getting Credit
Source Doing Business 2007 Note Myanmar Data i
s unavailable
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Regulations Enforcing Contract
Source Doing Business 2007 Note Myanmar Data i
s unavailable
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Summary

• Thailand is a middle income country with a very
  favorable investment climate
  
• Vietnam starting late has gone farthest has
  thus been growing faster, longer
  
• Cambodia, Lao Myanmar have a long way to go and
  should move quicker

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Integration

• Market access is not a binding constraint for (a)
  increasing exports globally or (b) regionally
  given AFTA liberalization
  
• BUT
• Trade facilitation costs are binding
• As is Regional Trade Transport Facilitation,
  especially over land borders

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What Can be Done to Promote Private Investment
Regional Integration

• --Actions Each Country Can Take
• --Actions countries (govts private sector) can
  take jointly to reduce regional TTF costs
  
• --Actions Donors Can Take with countries to
  reduce regional TTF costs
  

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Actions Each Country Can take to promote private
investment

• Reduce regulatory burden on investors
• Develop transport power infrastructure
• Enhance human development skills
• Strengthen the financial sector

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Actions each country can take to further regional
integration

• Continue encouraging exports globally
• Focus on regional exports as a drivers as this is
  the fastest-growing region, esp GMS ACMECS
  region
  
• Promote Cross-Border investment for exports

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Actions Countries Take Jointly Using regions
integration initiatives

• Use ASEAN, GMS ACMECS programs to tap rapid
  regional growth
  
• Use ASEAN to open up trading regimes
• Use GMS constructed road Corridors linking
  physically ACMECS/GMS countries
  
• Use ACMECS to support closer regional integration
  thru cross-border investments
  

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Road Corridors linking Mekong Already Constructed
Under GMS
Source ADB
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But they are barely used now

• Yet investments for exports can continue to be a
  key driver of future growth poverty reduction
  
• And region can play a key role through
  cross-border regional investments for exports
  into Cambodia, Lao PDR, Myanmar Vietnam.
  
• Making cross-border movement of goods competitive
  will be key to increasing such regional
  investments in ACMECS

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Reduce Cost (time financial) of Cross-Border
Movement of Exports

• NS, EW Southern road Corridors have reduced
  cost in non-border areas close to Corridors in
  Lao, Cambodia, Vietnam Myanmar
  
• Further cost-reductions for Lao, Cambodia,
  Myanmar exports if TTF can be improved i.e.
  border crossing times lowered made predictable
  financial cost of movement lowered
• Additional cost reductions possible for Lao,
  Myanmar Cambodia, only if TTF improvements
  raise traffic volume between Vietnam Thailand
  as well as between Thailand China

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Supply responses to lower TTF costsin Lao,
Cambodia Myanmar

• Areas adjacent to corridors, but distant from
  borders can now produce for exports
  
• If corridor TTF improves costs come down
  further, other areas will export too
  
• If corridor TTF improves traffic volume from
  higher-income countries grow, then costs of small
  consignments will fall more
  

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Cross-Border Investments for Exports Response

• Foreign/regional investment for exports
• Exports thru seaports over land-borders
• Land-borders important for poorer regions as GMS
  road Corridors connect poorer regions in ACMECS
  over land make exports from these regions
  competitive regionally
• Contract plantation farming for exports in
  poorer regions around Corridors becomes
  competitive, as is tourism manufacturing

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What more maybe needed to improve TTF reduce
costs

• Implement Cross Border Transport agreements
  (CBTA) in 2008 as planned
  
• Develop Implement a Detailed Customs Transit
  System building on CBTA
  
• Implement all regionally/in parallel in all
  countries
  

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What maybe needed for effective Implementation?

• The Government private sector have to work
  together through stronger institutional
  arrangements including all countries of ACMECS
  GMS
• Resources will have to be mobilized for
  implementation training, IT, institution
  building, monitoring
  
• Donors can collaborate with ADB on TTF World
  Bank has regional funds for regional projects if
  needed
  

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Thank You