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Examining ASEAN up-and-comers: Cambodia, Laos and MyanmarMonday, October 27, 2014 > 09:31:01
Cambodia, Laos and Myanmar are among the least-developed, but growing nations of the Association of South East Asian Nations, or ASEAN.
As ASEAN moves toward closer economic unity, development of the three nations is becoming more and more important. The ASEAN Economic Community, which will be formed by the end of 2015, will offer reduced tariffs and other incentives to bring the 10 ASEAN member countries closer than ever.
What are the economic prospects of the three countries? A Cambodian politician, a Laotian researcher and a Myanmarese consultant delivered presentations and discussed related issues at a symposium “Potential of the development in Cambodia, Laos and Myanmar from the Viewpoint of Supply Chain,” organized by the Keizai Koho Center in Tokyo on Sept. 5.
The first speaker, Kan Channmeta, secretary of state, Ministry of Posts and Telecommunications and member of the Supreme National Economic Council of Cambodia, made a presentation on the development potential and challenges of his country.
He began by stressing that Japan is an important partner for Cambodia.
“Japan is among the top three investors in the January to April period. Our government supports Japanese investors because Japanese companies are strong drivers of the Cambodian economy,” Kan said.
The Cambodian economy is growing at a brisk pace. Last year, gross domestic product increased 7.4 percent from the previous year.
Calling Cambodia an agriculture-based country, he said increasing rice exports is one of the nation’s most important economic goals. By 2015, Cambodia aims to increase rice exports to 1 million tons a year. According to the Cambodia Rice Export Association, Cambodian rice exports were 378,856 tons in 2013.
The country’s strategies to increase trade are compiled in the Cambodia Trade Integration Strategy 2014-2018. The report includes various measures to increase trade and direct investments.
On legal matters, he said, “We still don’t have a legal framework to protect investors, so we are drafting new investment laws.”
The new laws will be adopted next year, he said, adding, “We need to set up laws to lure foreign investment, especially Japanese investment.”
He also said there is the Education Strategic Plan 2014-2018, which has various measures to enhance education and the labor market so the country has more skilled labor.
On new energy and cost-saving through sustainable development, Cambodia is promoting the use of green energy, he said.
Kan’s presentation material showed Cambodian exports to Japan were $600 million in 2013, up from $400 million in 2012, while Cambodia’s imports from Japan were $200 million, down from $223 million over the same period.
The second presenter was Syviengxay Oraboune, deputy general director of the National Economic Research Institute of Laos, who delivered a presentation on potential development in Laos.
Laos is the only land-locked country in ASEAN, bordered by China, Myanmar, Vietnam, Thailand and Cambodia. Its average growth rate was between 7.5 and 8 percent between 2010 and 2013.
He gave a brief history of Laos, which gained independence in 1975 and ASEAN membership in 1997. Its government aims to graduate from “least-developed country,” or LDC, status by 2020 and join the upper-middle income group by 2030, he said.
But it also has potential development in some industries such as regional transit services, electric motorcycles, health-related products, eco-healthy tourism and regional business offices, he said.
Laos can offer transshipment services for goods transfers among ASEAN countries because it neighbors many of them. Active trading among the member countries is expected to increase demand for various transshipment services.
Syviengxay also said Laos aims to increase electricity supply coverage to at least 98 percent of the country by 2020, and investment in electric motorcycles will have big potential.
He said the motorcycle industry has existed in Laos since 1991 and the country has many motorcycle makers, including Suzuki Santiphab, partly owned by Suzuki Motor Corp., which was established in 1991. The joint venture was followed by Thai, Korean and Chinese manufacturers, who began arriving in 1993.
Hydropower development also has investment potential as the total hydropower potential is about 23,000 megawatts in the country, while current output is only about one-tenth of that. The Laotian government is planning some hydropower projects, which will increase electricity output by 3,846 MW between 2010 and 2015 and add an additional 2,851 MW between 2016 and 2020, according to Syviengxay’s presentation.
“Also, demand for healthy food is growing globally and Laos can meet that demand,” he said. “The country has organic agricultural products grown in traditional ways, with low levels of chemical pesticides, while herbs and medicinal plants also have good potential,” Syviengxay added.
On eco-friendly tourism, Laos has many tourism sites boasting deep histories and beautiful nature, he said. Louang Prabang City and Wat Phu Champasak are registered UNESCO World Heritage sites.
“I would not propose mass tourism, but Laos offers unique opportunities and, if you want to relax, come to Laos,” Syviengxay said.
Investment potentials aside, he also realizes Laos has challenges and constraints, which include the lack of a coast, a small labor market, reliance on external financing, a weak private sector and poor infrastructure.
However, he noted, “With regional and global trends, those constraints could turn into potential development advantages for the country,” he said.
The third speaker, Tin Maung Shwe, senior executive officer of Agribusiness and Rural Development Consultants, delivered a presentation on Myanmar’s economic prospects.
He first introduced Myanmar as having a varying climate in four different areas — the cool northern hilly region, the dry zone in central Myanmar, a rainy delta area that is home to the capital of Yangon and a tropical coastal area.
Myanmar’s main exports are agricultural and forestry products, natural gas and gems, while the country’s main imports are in areas of machinery, transportation, construction material, industrial raw materials and consumer goods.
Geographically, Tin stressed Myanmar’s advantageous proximity to China and India, the two most populous countries in the world.
His presentation focused on agriculture and he noted that Myanmar exports processed and semi-processed sea goods, natural rubber, sugar, rice, pulses and beans.
Investment potential in Myanmar’s agro-industry is in seeds, fertilizer, pesticides and farm machinery sale and services, he said. He noted food processing is also a promising investment opportunity, giving examples of processing raw pulses to exportable forms, from oilseeds to edible oils and candy, from raw rubber to value added products, from agri-produce to animal feed and from tropical fruits and vegetables to processed and canned end products. Logistics such as storage, delivery and wholesaling are also a potential investment area.
Myanmar has also worked on trade liberalization to strengthen agriculture, he said. For example, export taxes have been reduced for agricultural products such as rice, pulses and beans, corn, rubber, fish, wood products and bamboo.
Also, in 2012 Myanmar lifted import taxes on items related to agricultural production and processing such as agricultural equipment and machinery, fertilizer and pesticide.
Lastly, Tin went over some of the challenges involved in investing in the agro-industry in Myanmar, such as an underdeveloped banking system, a lack of capacity building and human resource development, weakness in quality control and standardization, poor rural infrastructure and an insufficient energy supply.
Another challenge is to shift focus from domestic-market-oriented businesses to export-oriented businesses. Cotton processors, canning factories, fruit and vegetable preservation factories, edible oil mills and the animal feed industry in Myanmar are still practicing business with the focus of marketing their products to domestic customers, he said.
Daisuke Hiratsuka, executive vice president of the Institute of Developing Economies, JETRO, moderated a Q&A session after the presentations.
Hiratsuka pointed out that transportation costs are high in the three countries and need to be lowered to stimulate trade within ASEAN.
Syviengxay said he is aware that cross-border shipping is time-consuming and expensive. He said the connection between Laos and central Vietnam is now improving, while Tin said transportation costs from Yangon to China are high.
Hiratsuka also showed the statistics from the World Bank’s “Doing Business 2013,” ranking the ease of doing business by country. The three countries are ranked low, with Cambodia 137th, Laos 159th and Myanmar 182nd. In the same statistics, Singapore is ranked No. 1, Malaysia sixth, Thailand 18th, Brunei 59th, China 96th, Vietnam 99th, the Philippines 108th and Indonesia 120th.
In response, Kan said, Cambodia is making the process of various registrations such as those for intellectual property rights and trademarks faster by enabling online registration. Syviengxay said Laos is trying to create more special economic zones, to entice foreign companies to invest.
Hiratsuka then said the three Southeast Asian countries’ measures to attract foreign direct investment may not be enough. He specifically pointed out the three countries relatively short periods of corporate tax exemption.
In Cambodia, foreign companies do not have to pay corporate tax for the first nine years, he said, while Laos is seven years and Myanmar is five. These compare with 12 years in Sri Lanka and 10 years in Pakistan.
Syviengxay said Laos is in process of revising investment laws and is not sure what will happen to the length of corporate tax exemptions.
Tin admitted five years is “very short.” However, he stressed that construction periods are not included in the five years, and the period starts when production begins.
Hiratsuka pointed out Cambodia may have more potential to be home to a regional center than Laos does.
In response, Syviengxay reiterated his presentation that Laos is conveniently located to neighboring countries.
Kan said Cambodia is open to being a regional center, but noted that Cambodia needs to improve the quality of human resources to be more competitive.