Development Challenges in Low- Income Mekong : How Trade & Transport Facilitation Will Help Kazi M.Matin & Cheanchom Thongjen World Bank Investment, Trade

Development Challenges in Low-Income Mekong : How

Trade & Transport Facilitation Will Help

Kazi M.Matin & Cheanchom ThongjenWorld Bank

Investment, Trade and Transport Facilitation in ACMECS Workshop,

Dusit Thani Hotel, Bangkok, March 13, 2007

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

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

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

Trade Openness Increased

1990 2005

Cambodia 29.8 125.2

Lao PDR 36.9 76.3

Thailand 81.8 154.5

Vietnam 63.6 147.4

ASEAN-4* 83.7 135.7

*ASEAN-4 refers to Indonesia, Malaysia, Philippines, and Thailand

Source: IMF, World Economic Outlook (2006)

Foreign Direct Investment Increased


Exports Grew Rapidly from low base


Exports move towards manufactures

Cambodia Lao PDR Vietnam

Source: WITS (2006)

Real GDP Growth > ASEAN-4*

*ASEAN-4 refers to Indonesia, Malaysia, Philippines, and Thailand

Source: IMF, World Economic Outlook (2006) and World Bank (2006)

Poverty fell from high levels in 1990

Source: IMF, World Economic Outlook (2006) and World Bank (2006)

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 2005Doing Business 2006

Firms’ View of Investment Climate Constraints – from ICA

Source: Investment Climate Survey, World Bank

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

Thailand Cambodia Vietnam Lao

Infrastructure Regulations & Taxes Skills and Education of workers

Financing Macroeconomic Instability Corruption & Governance

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

Regulations: Starting a business

159

73

28

97

0

50

100

150

200

Cambodia Lao PDR Thailand Vietnam

Starting a business (rank)

10

8 8

11

0

2

4

6

8

10

12


Number of procedures in starting a business

86

163

3350

0

50

100

150

200


Number of days in starting a business

Source: Doing Business 2007 Note: Myanmar Data is unavailable

Regulations: Registering Property

100

148

1834

0

50

100

150


Registering property (rank) 7

9

2

4

0

2

4

6

8

10


Number of procedures in registering property

56

135

2

67

0

20

40

60

80

100

120

140


Number of days in registering property


Regulations: Trading Across Border

114

161

103

75

0

50

100

150

200


Trading across border (rank) 8

12

9

6

0

2

4

6

8

10

12


Number of documents to export

36

66

24

35

0

10

20

30

40

50

60

70


Number of days to export

736

1420

848701

0

500

1000

1500


Cost to export


RegulationsImport/export cost (US$ per container)

Source: Doing Business 2007

736

1,420

848

701816

1,690

1042

887

0

200

400

600

800

1000

1200

1400

1600

1800

US$ per container

Cost to export Cost to import


Regulations: Getting Credit

174 173

33

83

0

50

100

150

200


Getting Credit (rank)


Regulations: Enforcing Contract

118

146

44

94

0

50

100

150


Enforcing Contract (rank)


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

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

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

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

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

Actions Countries Take Jointly Using region’s 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

Road Corridors linking Mekong Already Constructed Under GMS

Source: ADB

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

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

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

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

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;

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

Thank You

Documents

Development Challenges in Low- Income Mekong : How Trade & Transport Facilitation Will Help Kazi M.Matin & Cheanchom Thongjen World Bank Investment, Trade