CLMV Investment: Growth Pillars & Opportunities

CEIC ASEAN Data Talk - November 3, 2015 The foundation for a successful ASEANi Economic Community (AEC) requires the CLMV economies (Cambodia, Laos, Myanmar and Vietnam) integrate with other regional and also global economies. Foreign direct investment (FDI) flows – within the region and from other countries worldwide – are vital for driving economic growth, alleviating development gaps, and improving regional competitiveness. Robust economic growth and the implementation of liberalisation policiesii among the CLMV countries continues to support strong foreign direct investment (FDI) inflow, of which Vietnam takes the largest share - accounting for more than the others combined in dollar value. Economic and investment growth prospects are supported by a number of factors including: abundant natural resources, low labour and manufacturing costs relative to rising labour costs in Chinaiii, competitive tradeiv and investment policies, favourable demographics, proximity to global supply chains, the strategic location of these countries in close proximity to China and India, and access to the AEC consumer market of over 600 million people. Favourable demographics among CLMV economies will increase the labour supply and underpin future economic growth. The dependency ratiov for the aggregate CLMV economies has fallen from 63.3% in 2005 to 52.9% in 2014. The falling burden on the economically active population frees up resources for productive investments, while a young and growing labour force supports urbanisation and buttresses economic growth and investment. The CLMV urban population as a percentage of the total population increased from 25.8% in 2005 to 30.3% in 2013. Demographic Dividend Note: Figures may not add up due to rounding effects. To attract global investment, CLMV economies have enacted competitive policies to support individual member state and regional competitiveness (Myanmar has liberalized its regulations only in the past few years, causing a huge rise in interest among foreign investors). Standard corporate tax ratesvi for the CLMV aggregate averages 22.75% compared to 25% in China. In addition to competitive wage costs, CLMV economies allow 100% foreign equity ownership in most industries and offer incentives such as tax holidays, preferential corporate income tax rates, and import and export duty exemptions to encourage investment. The integrated AEC consumer market of over 600 million people will assist CLMV economies in weathering global downturns by expanding intra-ASEAN trade. CLMV intra-ASEAN exports expanded from US$15.9 billion in 2010 to US$26.1 billion in 2014 (growing at an annualized rate of 10.4%). Growth in intra-ASEAN exports have been supported by trade liberalisation and tariff reductions under the ASEAN Free Trade Agreement (AFTA). To establish footholds in CLMV economies and take advantage of regional FTAs, foreign businesses only need to establish a subsidiary in any of the ASEAN member states. Various industries – including automotive, electronics, telecommunications, energy, banking and insurance, and retail, among others – stand to benefit from the CLMVs economic integration and promising demographics. Tourism offers vast opportunities for intra-ASEAN and global investment to help CLMV economies alleviate development gaps and improve regional competitiveness. Tourism cuts across many sectors of the economy and offers enormous potential for investment in crucial infrastructure to support the CLMV economies in their economic development. Vietnam: Competitive Monthly Earnings Relative to Regional Economies Draws Investment CLMV economies boast remarkable landscapes and ecosystems and are home to numerous cultural and historical UNESCO sights; these economies have experienced a steady increase in tourist arrivals in recent years, from 10.9 million in 2010 to 19.6 million in 2014 (growing at an annualized rate of 12.5%). From 2009 to 2013, the share of visitor arrivals into CLMV as a percentage of total visitor arrivals to ASEAN increased from 13.2% to 17.8%. Despite the steady growth in tourist arrivals, inadequate infrastructure remains an obstacle to the CLMV tourism industry’s growth potential. Nonetheless, this lack of infrastructure provides enormous opportunity for foreign and intra-ASEAN investment. Furthermore, addressing the transport and logistics infrastructure inadequacies furthers CLMV economic integration by enhancing the free flow of trade and investment across borders.
By Derrick Metriyakool - CEIC Analyst

i. ASEAN, the Association of Southeast Asian Nations, consists of ten Southeast Asia economies: Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam. ii. ASEAN Finance Ministers endorsed the Roadmap for Monetary and Financial Integration of ASEAN (RIA-Fin) in 2003 with the aim of achieving AEC financial integration by 2015. This roadmap facilitates financial integration through financial services liberalisation, capital account liberalisation, and capital market development. To foster a globally competitive investment environment, ASEAN Ministers signed the ASEAN Comprehensive Investment Agreement (ACIA) in 2012. The ACIA builds on prior investment agreements and focuses on the four pillars of liberalisation, protection, promotion and facilitation to promote investment. iii. Low labour and manufacturing costs in Vietnam relative to rising labour costs in China are major factors leading to the substantial expansion of the foreign-owned manufacturing sector in Vietnam. iv. ASEAN has free trade agreements (FTAs) with Australia and New Zealand, China, India, and South Korea; ASEAN has a series of Comprehensive Economic Partnerships with Japan and is in negotiations on a FTA. The aforementioned economies, excluding New Zealand, are among ASEANs top ten trading partners. v. The dependency ratio is the ratio of the sum of the populations aged 0-14 and aged 65 years and over to the population aged 15-64; this reflects the ratio of the economically dependent compared to the economically active. vi. 2015 Corporate tax rates: Cambodia (20%), Laos (24%), Myanmar (25%) and Vietnam (22%; to be reduced to 20% on 1-Jan-2016). Discuss this post and many other topics in our LinkedIn Group (you must be a LinkedIn member to participate). Request a Free Trial Subscription. Back to Blog
3rd November 2015 CLMV Investment: Growth Pillars & Opportunities