Development Challenges in Low- Income Mekong : How Trade & Transport Facilitation Will Help Kazi M.Matin & Cheanchom Thongjen World Bank Investment, 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, March 13, 2007

Coverage of Presentation Background & 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 – 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 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 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 Cambodia Lao PDR Thailand Vietnam ASEAN-4* *ASEAN-4 refers to Indonesia, Malaysia, Philippines, and Thailand Source: IMF, World Economic Outlook (2006)

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

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

Exports move towards manufactures Cambodia Lao PDRVietnam 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 2005 Doing Business 2006

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

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 Source: Doing Business 2007 Note: Myanmar Data is unavailable

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

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

Regulations Import/export cost (US$ per container) Source: Doing Business 2007

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

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

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 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

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 costs in 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