When gravity shifts: The rise of CLMV

When gravity shifts: The rise of CLMV

As the year begins, the world is still struggling towards recovery. Despite better conditions in financial markets, many high-income economies remain fragile. The World Bank has just cut the global growth forecast for this year from 3% to 2.4%, a slight improvement on 2.3% in 2012.

When thinking globally is tiring and not promising, I tend to look nearer and closer to home. Growth prospects for our neighbours seem much better. The World Bank expects CLMV (Cambodia, Laos, Myanmar and Vietnam) to grow 6.5% on average this year.

The importance of our neighbours to the Thai economy can no longer be taken lightly. CLMV countries have become significant partners in Thailand's trade and investment. The share of Thailand's exports to CLMV was 7.5% in 2012, compared with 4.8% in 2007. Thai firms have also increased their exposure to CLMV by investing more and more in these countries, from US$18.236 billion in 2007 to $28.888 billion in 2011.

Thailand has also been the major receiving country for migrants in the region. With less than 1% unemployment, the country is facing a labour shortage and is heavily dependent on migrant workers, especially from Myanmar and Laos. These workers number as many as 2.5 million, according to government estimates. Some 80% of them are from Myanmar, mostly working in labour-intensive industries like seafood processing and garments.

A driving force behind the recent rise of CLMV as Thailand's economic partners is the dynamism of the Greater Mekong Subregion (GMS), an economic area bound by the Mekong River. Countries in the GMS include Cambodia, Laos, Myanmar, Vietnam, Thailand and China.

These economies entered into a cooperation programme in 1992 with assistance from the Asian Development Bank (ADB). The GMS programme has since helped bring together an area once torn by conflict, with infrastructure projects worth more than $10 billion.

As a result, average growth for the subregion has been impressive at 8% a year, greatly reducing overall poverty levels. The ratio of foreign direct investment (FDI) to GDP for the countries also exceeds the world average, and in most of them the value of FDI has been growing much faster than the world average.

Despite much progress, there is room for improvement in CLMV if they are to reap the benefits of increased regional integration.

According to the ease-of-doing-business rankings of the World Bank, GMS economies ranked below 90th place out of 185 countries surveyed (with the exception of Thailand, which ranked 18th). For example, it takes between four to five times as long to complete an export transaction in CLMV and China (between 21 and 26 days) as it does in Singapore (5 days). In Thailand, it takes 14 days to complete such a transaction.

In terms of export costs, while Thailand and China are close to Singapore, costs in Laos are five times higher, and costs in Cambodia are almost twice as high. The time it takes to start a business in GMS countries is also quite long, ranging from 29 days in Thailand to 92 days in Laos _ much longer than in Singapore (3 days).

With the upcoming Asean Economic Community (AEC) in 2016, one important challenge will be how to narrow the development gap between the CLMV countries and the other six larger countries (Indonesia, Malaysia, Philippines, Brunei, Singapore and Thailand).

While liberalisation in trade and investment is expected to increase economic growth in the region, development disparities among member countries may widen. If these disparities continue, they could hamper the progress of regional integration.

To catch up, the CLMV countries need strategic plans for capacity building and attracting more foreign trade and investment. Key capacity-building areas include physical infrastructure (roads, electricity), institutions (regulatory frameworks, investment and legal procedures, tax treatment) and human resources (technical and vocational workers, skilled and unskilled labour).

Other factors, like efficiency of the public sector, soundness of economic policy and political stability, will also play a role in improving the business and investment climate. By improving these conditions, the CLMV countries should be able to take fuller advantage of their still relatively low labour costs.

But we also need to understand that greater integration comes with greater risks. Close integration could speed up the transmission of a crisis from one country to another, as has been the case in Europe.

To prevent future economic or financial contagion, safety nets like the swap arrangements set up in Asean+3 (Asean plus China, Japan and South Korea) should be strengthened and backed by an effective surveillance mechanism.

As the world is increasingly tilted towards Asia, our regional neighbours will continue to play a positive role in Thailand's economic growth. Let us hope that the Asean future will be better than the European one, and that Thailand becomes a central gateway to the region in terms of trade and investment.


Dr Tientip Subhanij holds a PhD in economics from the University of Cambridge in England and has a dual career in banking and academia. She can be reached at tien201@yahoo.com

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