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

1. 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, March 13, 2007

2. 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

3. 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

4. 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

5. Trade Openness Increased *ASEAN-4 refers to Indonesia, Malaysia, Philippines, and Thailand Source: IMF, World Economic Outlook (2006)

6. Foreign Direct Investment Increased Source: IMF, World Economic Outlook (2006)

7. Exports Grew Rapidly from low base Source: IMF, World Economic Outlook (2006)

8. Exports move towards manufactures Cambodia Lao PDR Vietnam Source: WITS (2006)

9. Real GDP Growth > ASEAN-4* *ASEAN-4 refers to Indonesia, Malaysia, Philippines, and Thailand Source: IMF, World Economic Outlook (2006) and World Bank (2006)

10. Poverty fell from high levels in 1990 Source: IMF, World Economic Outlook (2006) and World Bank (2006)

11. 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

12. Firms’ View of Investment Climate Constraints – from ICA Source: Investment Climate Survey, World Bank

13. 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

14. Regulations: Starting a business Source: Doing Business 2007 Note: Myanmar Data is unavailable

15. Regulations: Registering Property Source: Doing Business 2007 Note: Myanmar Data is unavailable

16. Regulations: Trading Across Border Source: Doing Business 2007 Note: Myanmar Data is unavailable

17. RegulationsImport/export cost (US$ per container) Source: Doing Business 2007

18. Regulations: Getting Credit Source: Doing Business 2007 Note: Myanmar Data is unavailable

19. Regulations: Enforcing Contract Source: Doing Business 2007 Note: Myanmar Data is unavailable

20. 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

21. 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

22. 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

23. 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

24. 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

25. 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

26. Road Corridors linking Mekong Already Constructed Under GMS Source: ADB

27. 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

28. 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

29. 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

30. 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 becomescompetitive, as is tourism & manufacturing

31. 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;

32. 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

33. Thank You