ASEAN Economic Community

ASEAN Economic Community Implications for & *, Laos,,

Agenda 1 3 & CLMV as a bloc Economic outlook by country ASEAN Economic Community 1

and CLMV 1P Data GDP size : USD 59 billion (nominal) USD 1.1 trillion (PPP) GDP per capita: USD 466 (nominal) USD 469 (PPP) Share of global GDP: 1.3% Population: 4 million Source: IMF Laos

TH + CLMV growth: Historical perspective 199-: TH + CLMV annual average = 6.5% Real GDP, % yoy 15 1 5-5 -1-15 199 1991 199 1993 1994 1995 1996 1997 1998 1999 Laos * 1-1: TH + CLMV annual average = 7.% Real GDP, % yoy 16 14 1 1 8 6 4 - -4 1 3 4 5 6 7 8 9 1 11 Laos Source: IMF WEO * data from 199-1999 unavailable Source: IMF WEO 3

TH + CLMV in 17 Per capita income to reach USD 3,75 from USD,466 GDP per capita, nominal USD 1. 1. 8. 6. 4.. 1F 17F TH+CLMV China India Source: IMF WEO 4

Governance indicators Rule of law (11) Percentile ranking ( = lowest, 1= highest) Control of corruption (11) Percentile ranking ( = lowest, 1= highest) Lao PDR Lao PDR Source: World Bank 1 3 4 5 6 Source: World Bank 1 3 4 5 5

Governance indicators Regulatory quality (11) Percentile ranking ( = lowest, 1= highest) Government effectiveness (11) Percentile ranking ( = lowest, 1= highest) Lao PDR Lao PDR Source: World Bank 1 3 4 5 6 Source: World Bank 1 3 4 5 6 7 6

Social indicators Total life expectancy (11) Years Infant mortality rate (11) Per 1 births * Lao PDR Lao PDR * data 1 55 6 65 7 75 8 1 3 4 5 6 Source: WDI Source: WDI 7

Social indicators Total adult literacy rate (1) % >ages 15 * Gross tertiary school enrollment (11) % * Lao PDR * Lao PDR* 4 6 8 1 * data: 5; : 9; Lao: 5 Source: WDI * data 1 Source: WDI 1 3 4 5 6 8

Agenda 1 3 & CLMV as a bloc Economic outlook by country ASEAN Economic Community 9

vs ASEAN-5* snapshot *ASEAN-5 : Indonesia, Malaysia, Philippines,, Real GDP growth % yoy Current account % of GDP 7, 6, 5, 4, 3,, 1, 6, 5,9 5, 5, 5,5 5,8 3 3 1 1 1, 1,8,3,4,4,, ASEAN-5* ASEAN-5* 1P 13F 14F Source:, IMF WEO Oct 1 1P 13F 14F Source:, IMF WEO Oct 1 CPI Fiscal balance % yoy (aop) % of GDP 6 4 3, 3,3 3,5 4,3 4,8 ASEAN-5* 5,5, -,5-1, -1,5 -, -,5-3, -3,5-4, -3, -1,9-3,5-3,6-3,3 ASEAN-5* -,9 1P 13F 14F Source:, IMF WEO Oct 1 1P 13F 14F Source:, IMF WEO Oct 1 1

: Investment revival to drive growth Investment taking off Infrastructure: Transport, Flood prevention Global demand upturn Consumption resilient Tight labour market Pressures emerging on trade/current accounts Rice export issue Rising import demand Fiscal deficit & off budget spending Potential contingent liabilities Governance issue Increasingly important factor for FDI Politics remains a wild card Undercurrent from polarised society Key facts (1F) Nominal GDP: USD 377 billion Population: 65 million GDP per capita: USD 5,848 (nominal) Source: IMF 11

snapshot Real GDP growth % yoy (*CLMV data calculated using simple average Current account % of GDP (*CLMV data calculated using simple average) 8 6 7, 6,5 6,7 6,5 6,7 6,9 - -4 4-6 -8-1 -1-9,7-7,1-8,9-9,1-9,5-8,8 Source: IMF WEO Oct 1 1P 13F 14F Source: IMF WEO Oct 1 1P 13F 14F CPI Fiscal balance % yoy, aop (*CLMV data calculated using simple average) % of GDP (*CLMV data calculated using simple average) 8 6 4 3,6 4,4 4,3 4,9 5,9 5, -1 - -3 -,5 -, -4-5 -6-3,3-4,9-4,3-3,9 1P 13F 14F Source: IMF WEO Oct 1 1P 13F 14F Source: IMF WEO Oct 1 1

: Positive growth outlook with diversification challenges Key economic sectors: Textile Tourism Agriculture Large need for infrastructure: Electricity Road/Transport Telecom Human development indicators weaker than CMLV peers Life expectancy, Education Governance and corruption WB ranking weaker than CMLV peers Only above Lower House election in Jul 13 Political stability likely to continue Key facts (1F) Nominal GDP: USD 14 billion Population: 15 million GDP per capita: USD 934 (nominal) Source: IMF 13

Lao PDR snapshot Real GDP growth % yoy (*CLMV data calculated using simple average) Current account % of GDP (*CLMV data calculated using simple average) 9 8 7 6 5 4 3 1 8,3 8,1 Lao 7,7 6,5 6,7 6,9-5 -1-15 - -5-3 -1,9-4, Lao -3,9-8,9-9,5-8,8 Source: IMF WEO Oct 1 1P 13F 14F Source: IMF WEO Oct 1 1P 13F 14F CPI Fiscal balance % yoy, aop (*CLMV data calculated using simple average) % of GDP (*CLMV data calculated using simple average 8 6 6,8 5,1 4,8 4,9 5,9 5, -1-4 Lao -3-4 -5-6 -,6 -,6 Lao -,6-4,9-4,3-3,9 1P 13F 14F Source: IMF WEO Oct 1 1P 13F 14F Source: IMF WEO Oct 1 14

Lao PDR: Small economy with high per capita income among peers Infrastructure projects to boost investment and growth Hydropower Xayaburi dam ($3.5 bn) Railways Key sectors Hydropower Mining (copper, gold) Agriculture Garment Tourism Large current account deficit Persistent trade deficit due to large import needs Risks mitigated by foreign investment inflows. Political stability to be maintained Key facts (1F) Nominal GDP: USD 9.3 billion Population: 6 million GDP per capita: USD 1,454 (nominal) Source: IMF 15

snapshot Real GDP growth % yoy (*CLMV data calculated using simple average Current account % of GDP (*CLMV data calculated using simple average) 8 6 4 6, 6,3 6,4 6,5 6,7 6,9 - -4-6 -4,4-4, -,9-8 -1-8,9-9,5-8,8 Source: IMF WEO Oct 1 1P 13F 14F Source: IMF WEO Oct 1 1P 13F 14F CPI % yoy, aop (*CLMV data calculated using simple average) 8 6,5 5,8 5,9 6 5,1 4,9 5, 4 1P 13F 14F Source: IMF WEO Oct 1 Fiscal balance % of GDP (*CLMV data calculated using simple average) - -4-6 -4,9-4,3-8 -1-9, -8,6-7,8 1P 13F 14F Source: IMF WEO Oct 1-3,9 16

: Resource rich country opening up nd largest economy but poorest among CMLV peers Key sectors: Oil and gas Mining Agriculture Tourism Poor state of infrastructure Electricity Road/Transport Telecom Lifting of western nations sanctions to boost trade and investment But not all sanctions are lifted Weak governance & human development indicators compared to CMLV peers Key facts (1F) Nominal GDP: USD 54 billion Population: 64 million GDP per capita: USD 849 (nominal) Source: IMF 17

snapshot Real GDP growth % yoy (*CLMV data calculated using simple average Current account % of GDP (*CLMV data calculated using simple average 8 7 6 5 4 3 1 5, 5, 5,8 6,5 6,6 6,8 6 4 - -4-6 -8-1 3,6,6 -,5-8,1-9,1-8,6 1P 13F 14F Source:, IMF WEO Oct 1 1P 13F 14F Source:, IMF WEO Oct 1 CPI % yoy, aop (*CLMV data calculated using simple average 1 11,1 1 9,3 9, 8 6,7 6, 6 4 1P 13F 14F Source:, IMF WEO Oct 1 6,3 Fiscal balance % of GDP (*CLMV data calculated using simple average -1 - -3-4 -5-4,5-4, -4,8-6 -5,5-5,3-6, -7 1P 13F 14F Source:, IMF WEO Oct 1 18

: Untapped potential with large population base and rising income Largest & richest economy among CMLV, but smallest and poorest among ASEAN-5 Key sectors: Oil & Gas Mining & commodities Agriculture/Agro industry Manufacturing (textile, footwear, Electronics) Tourism Prone to overheating during upturn Legacy bad loans hangs over banking sector Impacts on contingent liabilities & public sector finance Regulations/Institutions/Governance need to be strengthened Key facts (1F) Nominal GDP: USD 138 billion Population: 9 million GDP per capita: USD 1,53 (nominal) Source: IMF 19

Agenda 1 3 economic outlook CLMV economic outlook ASEAN Economic Community

ASEAN Economic Community (AEC): Background What is AEC End goal of economic integration as espoused in Vision Part of the 3 pillars of the ASEAN Community The other pillars are Security Community & Socio-Cultural Community Key accords Declaration of ASEAN Concord II in 3: Decision to establish AEC AEC Blueprint in 7: Stipulates vision, goals and strategic schedule Master Plan on ASEAN Connectivity (MPAC) in 1 ASEAN Trade in Goods Agreement (ATIGA) in 1 Launch date 31 December 15 Page 1

ASEAN Economic Community (AEC) 4 pillars Single market and production base Competitive economic region Equitable economic development Integration into global economy Free flow of goods Free flow of services Free flow of investment Freer flow of capital Free flow of skilled labour Priority integration sectors Food, agriculture and forestry Competition policy Consumer protection Intellectual property rights Infrastructure development Taxation E-commerce SME development Initiative for ASEAN Integration (IAI): Developed ASEAN states to help less developed ASEAN states in 7 priority projects Coherent approach towards external economic relations Enhanced participation in global supply networks

ASEAN Economic Community (AEC): Progress report Single market and production base Competitive economic region Equitable economic development Integration into global economy ASEAN-6* have applied tariff on 99% of goods CLMV are trading 98.6% of goods at -5% tariff rate. National Single Windows implemented in IDN, PHL, SGP, THA Some progress in services trade and investment liberalisation ASEAN Exchange took off: MYS, SGP, THA Mutual recognition Arrangements (MRAs) for skilled professionals in progress Master Plan on ASEAN Connectivity adopted in 1 ASEAN Infrastructure Fund established with the ADB to promote physical infrastructure. Private-Public partnership encouraged for infrastructure projects. nd phase of Initiative for ASEAN Integration (IAI) work plan (9-15): Developed ASEAN states to help less developed ASEAN states in 7 priority projects: infrastructure development, human resources development, ICT development, capacity building, tourism, poverty and quality of life ASEAN-China FTA ASEAN-Korea FTA Commencement of ASEAN-CER (Australia, New Zealand) FTA ASEAN-India trade in goods agreement * ASEAN-6: Brunei, Indonesia, Malaysia, the Philippines, Singapore and **** 3

AEC Scorecard: Used as a compliance tool to monitor the progress of implementing AEC measures ASEAN Economic Community Pillar I: Single Market Production Base Pillar II: Competitive Economic Region Pillar III: Equitable Economic Development Pillar IV: Integration into Global Economy 68. 66.5 69. 66.7 85.7 Source: ASEAN Economic Community Scorecard, ASEAN Secretariat, 1 4

ASEAN state of development GDP per capita, USD (11) HDI ranking (11) Singapore Brunei Darussalam Malaysia Indonesia Philippines Lao P.D.R.. 4. 6. Source: IMF WEO Lao P.D.R. Indonesia Philippines Malaysia Brunei Darussalam Singapore 5 1 15 Source: HDI Report; Human development Index = best, 1 = worst 5

ASEAN attractiveness Ease of Doing Business (1) Singapore Malaysia Brunei Darussalam Indonesia Philippines Lao P.D.R. 5 1 15 * data not available. = best, 1 worst. Source: World Bank Global Competitiveness Index (1-13) Singapore Malaysia Brunei Darussalam Indonesia Philippines 4 6 8 1 * and Lao data not available. = best, 1 = worst Source: World Competitive Index 1-13 6

ASEAN Economic Community (AEC): Remaining challenges ASEAN has no enforcement mechanism: progress based on consensus and national own compliance Large gap in development stages among member countries makes coordination in implementation difficult Non-Tariff Barriers (NTBs) still exist and present obstacles to free trade Domestic industry protection pressure Lack of uniformity, enforceability, and transparency in investment regulations Competition policy (i.e. anti-monopoly law) far from being standardised Lack of awareness/preparation outside government sector Language barrier presents practical problems to free flow of labour Assistance measures/safety net for those who may be negatively impacted Page 7

ASEAN Economic Community (AEC) : What to expect after the launch date AEC Not a magic pill to cure domestic economic ills The whole region is unlikely to transform overnight into a smoothrunning economic community But it will start to function more efficiently as a bloc Cost saving for MNCs: Less bureaucratic red tape to deal with More efficient for businesses that can take advantage of regional network, productivity gains More work in progress after launch date Implications Net positive impacts for trade & investment and GDP growth for the region Main beneficiaries Companies with global or regional presence Educated workers; workers in lower wage countries Financial sector Potential negative impacts Unskilled workers in higher wage countries More competition could lead to tighter margin Bubble risks in country with sudden rise in capital 8

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