Macroeconomic update. Facts and Figures. Things to watch in Introduction of more financial products and measures

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2 Facts and Figures Population (2017) 16.2 million Labor force (2017) 7.9 million GDP (2017) 22.3 USD billion GDP per capita (2017) 1,390 USD GDP by sector (2017) Agriculture: 25.3%, Industry: 32.8%, Services: 41.9% Top exports (2016) Textile 64%, Footwear 8%, Rubber 2% Things to watch in 2018 Business responses to national election in July 2018 Introduction of more financial products and measures Macroeconomic update Economic Outlook Financial markets In 2018, Cambodia s economy will grow 6. 9%, one of the highest growth rates in ASEAN. A rapid economic expansion is supported by exports, investment, and tourism. Garment and footwear sector, the Kingdom s key industry, showed signs of slowdown. However, manufacturing and exports in 2017 still grew well at 9. 3%YOY and 9. 7%YOY, respectively. This was the result of the development of emerging industries, such as electrical parts and automobile parts. A large inflow of Foreign direct investment (FDI) and private investment will continue as total investment accelerated 75%YOY in Services, especially tourism, attracted the largest investment last year, confirming its increasing role as the new growth engine. Around 5. 6 million foreign visitors in 2017 contributed to USD 3.63 million in tourism revenue, or a 13.3% increase. The government also set a target to welcome 10 million tourists by Strong FDI and rising tourism receipts are more than sufficient to finance the current account deficit, covering around 6 months of imports. Fiscal policy is expected to be more expansionary this year, particularly by public infrastructure investments in the pipeline. The government plans to launch 11 transportation projects worth USD 2. 3 billion over the next 5 years. Downside risks are associated with a deceleration of the garment and footwear industry, stemming from minimum wages hike, more regional competition, and potential loss of preferential trade agreements, particularly EU s Everything But Arms ( EBA) [ Read more in Box: Garment and footwear industry is losing its charm]. The National Bank of Cambodia (NBC) maintains its focus on tightening supervision and promoting financial market development. In 2017, the bank s credit growth stood at 17.2%YOY, decelerating from an average 27%YOY over the past 5 years. Meanwhile, microfinance credit growth was still high at 36. 1%YOY as MFIs provide financial services to a number of rural people with limited access to large financial institutions. However, a rapid credit growth, especially in MFIs, raised concern about financial soundness. The NBC has issued several measures to improve supervision of financial institution activities. For example, Prakas on credit risk grading and impairment provisioning, implementation of higher minimum capital requirements, and liquidity coverage ratios. Moreover, the NBC recently allowed financial institutions to issue corporate bonds at a maximum of 20% of total assets or equity securities at a maximum of 20% of the company s voting share. As

3 a result, financial institutions now have an alternative source for fund raising and can reduce their reliance on foreign borrowing. Httha Kaksekar Limited (HKL), a microfinance firm, will be the first institution issuing a Khmer Riel corporate bond in Cambodia. EIC s view Business opportunities arise for Thai investors in higher value- added manufacturing products. The recent development of emerging industries will offset the slowdown in the garment and footwear industries and will soon provide new support for economic expansion in the medium term. And following the Cambodian government s target of improving diversification in the industrial sector by 2025, more non-garment industries are expected to begin production and later exporting. Potential investment in emerging industries in Cambodia include electrical parts, automobile parts, computers and parts, and machinery and parts, which are Thailand s top manufacturing and export products. Moreover, Cambodia is an attractive investment destination for Thai investors with its business- friendly environment and preferential trade agreements with major trade partners, such as GSP with US and Japan, and EBA with EU. For the financial sector, the introduction of corporate bond and equity securities offers alternative fund- raising tools for investors. In the near future, new financial products and better supervision practices will make Cambodia s financial market more sophisticated and stable.

4 Cambodia s Key Indicators Indicators Unit F 2018F Real GDP % YOY Consumer price index % Policy rate (end of period) % Sources: International Monetary Fund (IMF) and The National Bank of Cambodia International Trade Tourism and Service Sources: International Monetary Fund (IMF) Foreign Direct Investment Sources: CEIC Foreign Reserves Sources: World Bank Khmer Riel and Asia Dollar Index Sources: CEIC Public Debt and External Debt Sources: Bloomberg Sources: International Monetary Fund (IMF) and CEIC

5 Links with Thai Economy Exports to Cambodia Imports from Cambodia Sources: Thailand s Ministry of Commerce Border exports to Cambodia Sources: Thailand s Ministry of Commerce Border imports from Cambodia Sources: Thailand s Department of Foreign Trade Thailand s Direct Investment in Cambodia Sources: Thailand s Department of Foreign Trade Cambodia s tourist arrival in Thailand Sources: Bank of Thailand Sources: Thailand s Department of Tourism

6 BOX Garment and footwear industry is losing its charm Garment and footwear has been the backbone of Cambodia. In 2016, the garment and footwear industry s value added represented 11% of the economy and the sector contributed nearly 2% of the Kingdom s 7% GDP growth. 1 it is also the Kingdom s largest export sector, accounted 72% of total exports in From , exports of garment and footwear products has grown impressively with annual average rate of 13%. Currently, there are more than 800,000 labors working in garment and footwear factories. However, garment and footwear industry showed a sign of slowdown in Exports of garment and footwear products declined in 2017 and is expected to further slowdown in the medium term. Garment and footwear exports grew only 4%YOY in 2017, decelerating from 7.2% in 2016 (Figure 1). The share of garment and footwear to total exports has diminished from 86% in 2013 to 72% in Newly approved foreign direct investment (FDI) in garment and footwear sector also fell 34%YOY in 2017, and its share was accounted 7% of total FDI in 2017, dramatically down from 28% in 2014 (Figure 2). A deceleration of garment and footwear industry is stemmed from higher minimum wages, more intense global competition, and potential loss of preferential trade agreement with major trading partners. Figure 1: Garment and footwear exports had grown impressively with double-digit rates before decelerated in 2016 Figure 2: Share of foreign direct investment in garment and footwear fell dramatically in 2017 Source: EIC analysis based on data from Cambodia Garment and Footwear Sector Bulletin, International Labor Organization Source: EIC analysis based on data from CEIC 1 Cambodia s National Institute of Statistics

7 Cambodia s garment and footwear industry is losing its competitiveness due to higher labor cost. The industry is mostly engaged in cut-make-trim process, which requires abundant of low-skilled labors. Monthly minimum wages for Cambodia s garment and footwear factory workers have gone up from USD 61 in 2012 to the current level USD 170, which already surpassed those rates in the Kingdom s main competitors, Myanmar, Bangladesh and some parts of Vietnam. Such a steep wage hikes is likely to continue as the Prime Minister Hun Sen promised to raise the rate to USD 250 by 2023, a 12% annual increase. Hence, Cambodia is gradually losing its low-cost competitiveness to its competitors. The competition in garment and footwear trade become intensified due to trade policy developments in the region. Currently, EU-Vietnam free trade agreement (FTA) is in approval process by the EU Council of Ministers. If ratified, the agreement would eliminate nearly 99% of tariff on trade between EU and Vietnam. In addition to the on-going FTA, Vietnam would also benefit from the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). The CPTPP, if enacted, would create a trading bloc that include Vietnam, but not Cambodia. As Vietnam is a direct competitor to Cambodia in garment and footwear exports, the better market access to EU and other western countries under CPTPP will further erode Cambodia s competitiveness. Another concern is a potential loss of preferential trade agreement, particularly Everything But Arms (EBA) scheme with the EU. In 2016, Cambodia was reclassified as a lower-middle income economy based on threshold set by the World Bank. But upgraded status also poses a downside risk to Cambodia s competitiveness. EBA, is given to Least Developed Countries, as classified by the UN, full duty-free and quota-free exports to the EU market. Upgrading of Cambodia s status by the World Bank could be an indication that an upgrade by the UN and a withdrawal of EBA may follow. In addition, the EU is now reviewing EBA status in response to political and human rights situations in Cambodia. EBA can be temporary or fully withdrawn in the case of human rights abuses. Since EU is the biggest market, around 40% of Cambodia s garment and footwear exports, the withdrawal of EBA will severely affect the Kingdom s future FDI, production, exports and labors in garment and footwear industry. EIC s view Cambodia will gradually lose its competitiveness in this industry, particularly low-cost advantage. In the medium term, Garment and footwear and other labor-intensive industries might not be as attractive as before. Thai businesses should shift their investments toward higher value-added industries, such as electrical parts, automobile parts, computer and parts, and machinery and parts, which Thai businesses already have specialization. Investments in consumer goods and home appliance also have high potential as Cambodian middle-income class is growing.

8 Facts and Figures Population (2017) 7.13 million Labor force (2017) 3.6 million GDP (2017) USD billion GDP per capita (2017) 2,568 USD GDP by sector (2017) Agriculture: 20.9%, Industry: 33.2%, Services: 39.1% Top exports (2016) Electricity 25%, Copper 20%, Electrical product 6% Things to watch in 2018 Boost of tourism and investment from Visit Laos Year 2018 Oil price movement and effects on inflation Macroeconomic update Economic Outlook Financial markets Laos continued its brisk growth, driven by electricity exports, construction, and services. According to the IMF, the Lao economy posted 6.8% growth in 2017, slower than the previous year due to a crackdown on illegal logging and low inflation. Laos is set to carry on growth at around 6.8% in 2018 before accelerating to 7% in 2019 with support from new hydropower projects and construction investment from China, particularly for the China-Laos railway project. Meanwhile, inflation has been increasing since February 2018 from higher fuel prices, but is expected to moderate in the second half of 2018 following global oil price movement. High public debt and the current account deficit remain major risks to the Lao economy. Laos public debt level remains the highest among CLMV countries, at 59% of GDP in 2016, and is set to continue rising in the medium term due to low public revenue. The high current account deficit was also the result of external vulnerability, with international reserves covering only 1. 3 months of imports in Hydropower projects and China-Laos railway construction will weigh on a widening deficit over the next 3 years before the railway is complete and electricity exports start to offset the shortfall. Investment in the Lao stock market saw rapid growth in The Bank of the Lao PDR (BOL) reported that trading values on Lao Securities Exchange (LSX) increased 126%YOY, reaching LAK 343 billion or around USD 41 million. Surging stock investment was due to higher availability of stocks in the market, which was founded in Currently, there are seven listed public companies in LSX, with some beginning to offer returns to investors. This would help broaden investment options for Laotians and improve the capital market going forward. In addition, the BOL gave notice to the public regarding the use of QR code payment services. Based on the BOL s statement, only three QR code payment services are officially authorized. These are One Pay by BCEL, QR Pay by Lao- Viet Bank, and Kapao E-wallet which is a pilot service from the New Concept Microfinance Institution.

9 Law & Regulation EIC s view Starting from 1 May 2018, the minimum wage in Laos was raised to LAK 1.1 million per month ( around USD 132 or THB 4,200). The wage hike was in line with its CLMV peers amidst the region s economic growth and rising living costs. Laos has raised its monthly minimum wage three times during the past six years, to LAK 626,000 per month in 2012 and LAK 900,000 per month in Rising wages may partly help attract Lao workers back from Thailand, but wage differentials between both countries remain high. Moreover, despite the latest hike, the minimum wage in Laos is still lower than in Cambodia (USD 170) and major cities in Vietnam (USD 175). Laos robust growth and bright prospect signal a good opportunity for investors. Rising income per capita in line with economic expansion will foster domestic demand, especially for more sophisticated goods. Based on IMF estimations, per capita GDP in Laos will grow an average of 7. 5% per year during Low political risk upholds a favorable business environment, ensuring that policies initiated by the current government will carry on at least until the next general election in Continued improvement in financial services also highlight new business opportunities via wider payment options, such as QR code payment. Nevertheless, a gradual increase in wages reflects the rising cost of doing business, and a short supply of foreign currency remains a major business concern regarding profit remittance.

10 Laos Key Indicators Domestic Demand Unit F 2018F Real GDP % YOY Consumer price index % Policy rate (end of period) % Sources: International Monetary Fund (IMF) and Bank of the Lao PDR International Trade Tourism and Service Sources: International Monetary Fund (IMF) Foreign Direct Investment Sources: CEIC Foreign Reserves Sources: World Bank Laos Kip and Asia Dollar Index Sources: CEIC Public Debt and External Debt Sources: Bloomberg Sources: International Monetary Fund (IMF) and CEIC

11 Links with Thai Economy Exports to Laos Imports from Laos Sources: Thailand s Ministry of Commerce Border exports to Laos Sources: Thailand s Ministry of Commerce Border imports from Laos Sources: Thailand s Department of Foreign Trade Thailand s Direct Investment in Laos Sources: Thailand s Department of Foreign Trade Laos tourist arrival in Thailand Sources: Bank of Thailand Sources: Thailand s Department of Tourism

12 Facts and Figures Population (2017) million Labor force (2017) 22.3 million GDP (2017) USD billion GDP per capita (2017) 1,272 USD GDP by sector (2017) Agriculture: 24.8%, Industry: 35.4%, Services: 39.9% Top exports (2016) Gas 28%, Textile 13%, Matpe 6% Things to watch in 2018 Announcement of economic policy and law & regulation Progress of Rohingya repatriation Macroeconomic update Economic Outlook Myanmar s economy will continue its high growth of around 7% during the interim period from April to September 2018, and in the new fiscal year 2018/19. 2 Following a 6. 7% economic recovery in fiscal year 2017/ 18 3, agriculture, exports, and government spending will remain key supporting factors. Thanks to better weather conditions last year, rice production increased and rice exports reached 3 million tons worth USD 900 million, the highest level of rice exports in 70 years. The country expects rice exports to hit 4 million tons by FY2020/21. Exports of light-manufactured goods expanded significantly 26.7%YOY due to rising global demand. Strong exports contributed to a slight decline in the trade deficit. Tourist arrivals also grew strongly by 18%YOY to 3. 4 million visitors. Inflation is expected to rise to 6%, above the ASEAN average, due to a recent 33% wage hike to MMK 4,800 per day and higher global oil and food prices. Fiscal policy aims to attract more foreign direct investment ( FDI) and liberalize investment and trade. The government has made efforts to attract more foreign direct investment by passing the Myanmar Investment Law 2016 and the recent Myanmar Companies Law. The two new laws will promote greater foreign investment in domestic markets. The government also allowed foreign businesses to invest and operate in the wholesale and retail [Read more in Box: Myanmar unlocks wholesale and retail business for foreign investors] and education sectors. For trade liberalization, Myanmar added target export products, including food and processed food, handicrafts, gems and jewelry, textiles and garments, tourism, and IT services to improve exports and narrow the trade deficit. Despite positive economic prospects, Investor confidence fell. Based on EuroCham Myanmar s second Business Confidence Survey ( December 2017), and Roland Berger and the Union of Myanmar Federation of Chambers of Commerce Industry (2017), foreign investor rated the business environment and policy implementation as poor. The lack of clear economic policy and ongoing Rohingya crisis in Rakhine state are the main reasons for falling confidence and a slowdown in future FDI. 2 Myanmar new fiscal year starts from October 2018 to September Myanmar fiscal year 2017/18 started from April 2017 to March 2018

13 Financial markets Law & Regulation The Central Bank of Myanmar (CBM) allowed foreign bank branches to provide more services and issued a license to the Myanmar Credit Bureau. With approval of the CBM, foreign bank branches are now able to offer wholesale banking, export financing and related banking services to local companies. Another development was the establishment of the Myanmar Credit Bureau to help promote the people s access to finance by collecting individuals credit information and providing their credit profile to lenders. Myanmar Credit Bureau Limited, a joint venture between the Myanmar Bank Association and Singapore s Asian Credit Bureau Holdings, is expected to start operation within a year. The Companies Law will come into force in August The new act allows foreign investors to hold up to 35% of shares in a company and maintain its status as a local company. Foreign investors will also be able to trade on the Yangon Stock Exchange. Apart from opening up for foreign business, the new Companies Law will introduce an electronic registry system to facilitate the company registration process. New and existing companies must register on the electronic registry system by January 31, EIC s view Agriculture and light manufacturing are two attractive sectors as they are also Myanmar's major export products. Agriculture is one of the important sectors in Myanmar, accounting for 38% of GDP and 23% of total exports. Investment in agricultural products, food, and food processing present business opportunities. The other potential business is in light manufacturing, such as textile and garment products, as it showed strong growth in exports last year. A sizable domestic market and rising international demand will further promote the two industries. Moreover, the government s efforts to attract more FDI will continue, which will lead to an improving business environment.

14 Myanmar s Key Indicators Domestic Demand Unit F 2018F Real GDP % YOY Consumer price index % Policy rate (end of period) % Sources: International Monetary Fund (IMF) and The Central Bank of Myanmar International Trade Tourism and Service Sources: International Monetary Fund (IMF) Foreign Direct Investment Sources: CEIC Foreign Reserves Sources: World Bank Myanmar Kyat and Asia Dollar Index Sources: CEIC Public Debt and External Debt Sources: Bloomberg Sources: International Monetary Fund (IMF) and CEIC

15 Links with Thai Economy Exports to Myanmar Imports from Myanmar Sources: Thailand s Ministry of Commerce Border exports to Myanmar Sources: Thailand s Ministry of Commerce Border imports from Myanmar Sources: Thailand s Department of Foreign Trade Thailand s Direct Investment in Myanmar Sources: Thailand s Department of Foreign Trade Thai tourist arrivals in Myanmar Sources: Bank of Thailand Sources: Thailand s Department of Tourism

16 BOX Myanmar unlocks Wholesale and Retail Business for Foreign Investors Foreign companies are now permitted to operate wholesale or retail businesses in Myanmar, following Directive 25/ 2018 issued by Myanmar s Ministry of Commerce. The Notification took effect on 9 May 2018 and allows 100% foreign- owned companies and joint ventures ( JVs) between Myanmar and non- Myanmar citizens to run wholesale or retail businesses, given that they meet a minimum required investment capital and abide by specific provisions. Minimum investment capital Share of ownership 100% foreign ownership Joint venture (less than 20% local ownership) Joint venture (20% or higher local ownership) 100% Myanmar company Minimum required investment capital Retail business Wholesale business USD 3,000,000 USD 5,000,000 USD 700,000 USD 2,000,000 No minimum capital requirement * Minimum investment capital does not include land cost and rental fees. Specific requirements Companies must adhere to all relevant Myanmar laws and regulations; such as prohibited products, safety and standards of goods, and business operation rules. Foreign companies or foreign joint- venture companies are not allowed to run minimarkets, convenience stores, or any retail shop with an area smaller than 929 square meters.

17 EIC s view This recent move underlines Myanmar s continued efforts to magnetize foreign investment to the country. During the past five years, Myanmar has introduced several measures to improve its business climate, including an official minimum wage in 2015, the enforcement of the Myanmar Investment Law in 2017, and the Myanmar Companies Act which will take effect from 1 August These efforts improved the country's Ease of Doing Business ranking from 177 in 2015 to 171 in For Myanmar, opening up its markets to foreigners will also help boost competition in the sector and add product diversity for Myanmar customers. These changes will present lucrative investment opportunities for Thai companies interested in doing business in Myanmar. Previously, foreigners were partially restricted from operating wholesale and retail businesses. Both local and foreign businesses intending to invest in these two sectors must apply for approval from the Ministry of Commerce, but very few foreign companies received permission. Japan s AEON was the first foreign retailers getting a greenlight to operate business under AEON Orange Co., a joint venture with the local Creation Myanmar Group of Companies (CMGC). The company entered the Myanmar market in 2016 and currently runs more than ten supermarkets based in Yangon and Mandalay, including its own AEON Orange North Okkalapa store in Yangon. Wholesale and retail businesses are appealing businesses in Myanmar, considering its rising incomes, urbanization trend, and booming tourism sector. Based on IMF estimation, Myanmar s income per capita is set to grow an average of 9% per year during the highest growth among CLMV countries. Meanwhile, the share of urban residents to total population continues to increase, reflecting an urbanization trend which will support modern trade demand going forward. Yangon and Mandalay are the top cities to invest in wholesale and retail businesses thanks to their large populations and high level of business activity. Citizens in Yangon and Mandalay combined represent around 10% of the country's total population. These two cities are also the most developed areas and attract most of the foreign investment and tourists. Figure 3: GDP per capita is expected to grow following positive economic outlook with more people living in urban area Source: EIC analysis based on data from World Economic Outlook, April 2018 (IMF) and CEIC

18 Facts and Figures Population (2017) million Labor force (2017) million GDP (2017) USD billion GDP per capita (2017) 2,306 USD GDP by sector (2017) Agriculture: 16%, Industry: 33%, Services: 41% Top exports (2016) Electronic products 39%, Textile 15% Things to watch in 2018 The draft law on 3 new special economic zones, currently under discussion CPTPP ratification progress Macroeconomic update Economic Outlook Financial markets Exports drove Vietnam s economy in the first quarter of 2018, expanding 7.38%YOY. Growth was at its fastest pace in many years, backed by exports which rose 22%YOY and the industry and construction sectors which grew 9.7%YOY. The IMF expected Vietnam s economy to continue its robust growth at 6.6% in 2018 and 6.5% in 2019, citing the fact that the country has made notable progress in pursuing growth based on productivity and innovation while shifting its focus from natural resources to manufacturing and services. Foreign direct investment ( FDI) to Vietnam fell during Jan- Apr 2018, but disbursement increased 6. 3%YOY. Bettering the business environment will bolster FDI attraction this year, especially to high-value added sectors, which receive major support from authorities. In the meantime, the government of Vietnam targeted economic growth of 6. 7% in 2018 and inflation remaining below 4%. Rapid credit growth and a state budget deficit fueled risks to Vietnam s economy. The government targeted 17% credit growth in 2018 to support economic expansion. However, high credit growth also posed risks to financial stability due to high public debt, at 60% of GDP in As of February 2018, outstanding credit rose 15%YOY, lower than 18%YOY growth in 2017 but remaining larger than GDP growth. Moreover, a continued fiscal budget deficit -- at 6.7% of GDP in has pressured state spending. The government targeted keeping its deficit at 3.7% of GDP this year. The government introduced further control over cryptocurrencies and plans the same for e- commerce payment transactions. The Directive was issued on 11 April and restrains all credit institutions and relevant companies from conducting any transaction related to cryptocurrency. Its aim is to prevent possible financial crimes such as money laundering and tax fraud. Meanwhile, the Finance Ministry is working on a draft law requiring all payments for e- commerce transactions to be made via banks or authorized payment intermediary services. Once taking effect, this draft law will help improve the performance of tax collection from e- commerce businesses given that cash payment is commonly used among Vietnamese e-commerce customers.

19 Law & Regulation Vietnam continues to implement new and amended laws, which help improve the investment climate and public management. Among the relevant decrees in the pipeline is a law on public debt management, which will take effect from 1 July The government also considered removing 49% foreign ownership limits in some public enterprises. This will encourage more foreign participation in the public sector and therefore help advance the progress of SOE divestment. On the other hand, new restrictions on imported cars faced opposition from many trade partners, including the U. S., EU, and Japan. Since the decree took effect on 1 January, the number of cars imported to Vietnam have been limited. Only automobiles from Thailand and Indonesia were allowed to enter Vietnam. EIC s view High- tech industry is a new spotlight in Vietnam as the country aims toward innovation and value-based growth. Under Vietnam s development plan , high- tech is one of the supporting industries receiving certain investment incentives such as tax reduction and exemption, offsets during the R&D stage, and special loan rates. In addition to high-tech investment, other supporting industries include the electronics, garment and footwear, and automotive industries. Vietnam s investorfriendly policies along with its improving business environment will help attract FDI in the coming decades, especially high-value investment. Joining the CPTPP ( Cooperative and Progressive Agreement for Trans- Pacific Partnership) also highlights Vietnam s potential to become a regional manufacturing hub, especially a production base for exports to CPTPP- member countries. Nonetheless, a lack of highly- skilled workers remains a major concern to investors. E-Commerce, in addition, is an emerging business opportunity in the CLMV region [Read more in Special Topic: Introducing the CLMV e- Commerce market]. Among its peers, e-commerce in Vietnam has made the best progress, with the government s target to raise the share of e- Commerce sales to 5% of total retail sales within 2020, and several laws that strengthen the business climate. There are two associations supporting e-commerce business in Vietnam, namely the Vietnam E- Commerce and Digital Economy Agency ( VECITA) and the Vietnam E- Commerce Association (VECOM).

20 Vietnam s Key Indicators Domestic Demand Unit F 2018F Real GDP % YOY Consumer price index % Policy rate (end of period) % Sources: International Monetary Fund (IMF) and The State Bank of Vietnam International Trade Tourism and Service Sources: International Monetary Fund (IMF) Foreign Direct Investment Sources: CEIC Foreign Reserves Sources: World Bank Vietnam Dong and Asia Dollar Index Sources: CEIC Public Debt and External Debt Sources: Bloomberg Sources: International Monetary Fund (IMF) and CEIC

21 Links with Thai Economy Exports to Vietnam Imports from Vietnam Sources: Thailand s Ministry of Commerce Cross Border Exports to Vietnam Sources: Thailand s Ministry of Commerce Cross Border Imports from Vietnam Sources: Thailand s Department of Foreign Trade Thailand s Direct Investment in Vietnam Sources: Thailand s Department of Foreign Trade Thai tourist arrivals in Vietnam Sources: Bank of Thailand Sources: Thailand s Department of Tourism

22 Special Topic Introducing the CLMV e-commerce market Over the past decade, e-commerce has been growing rapidly around the world including the CLMV region. In 2016, Vietnam s B2C e-commerce sales posed a robust growth of 37%YOY, reaching USD 5.6 billion. 4 Compared to Thailand s, CLMV e-commerce market sizes remain small but they promise a high growth prospect thanks to an expanding internet access. Vietnam is leading the group, with 47% of its population having access to the internet in Meanwhile, in Cambodia, Laos, and Myanmar, although the shares of the population with internet access still lag behind at around 24% on average, they have also seen rapid growth rates of roughly 40% per year for the past 5 years. 5 4 ETDA, Value of e-commerce Survey in Thailand 2017, September Based on data from World Bank

23 Given the growth potential of the CLMV e-commerce markets, many e-commerce platforms have been developed in the countries, both by local and foreign investors. Lazada and Shopee in Vietnam, and Shop.com.mm in Myanmar are examples of foreign-developed platforms that have already stepped into CLMV market (Figure 4). By joining these e-commerce platforms, businesses can benefit from many useful functions, such as ready-made online stores, online payment services, and shipping services. Facebook -- the most popular social platform is also a widely-used channel for e-commerce and online digital marketing in CLMV as it can reach a large number of potential customers. In 2017, the total number of Facebook accounts in CLMV was 80.5 million compared to 57 million in Thailand. 6 Apart from offering a platform for communications, Facebook can serve as an online store, with its ready-made store function called Facebook Page and advertisement function called Facebook Ads. Figure 4: Examples of e-commerce platforms in CLMV Source: ecommerceiq, websites and Facook page of e-commerce platforms in CLMV Popular products in the CLMV e-commerce markets include fashion items, beauty products, and electronics. 7 These products are also popular in Thailand s e-commerce market (Figure 5) so it can be implied that CLMV consumers have similar tastes and preferences to those in Thailand. In addition, Thai products are popular in the CLMV markets, where they are perceived to be high-quality but affordable. Thus, other products that are popular in Thailand s e-commerce marketplace, such as furniture and home appliances, will likely do well in CLMV markets too. 6 Base of data from Internet World Stats (data as of June 2017) 7 EIC s survey on top e-commerce platforms in CLMV countries, such as MAIO Mall in Cambodia, Shop.com.mm in Myanmar, and Lazada and Shopee in Vietnam.

24 Figure 5: Top e-commerce products in CLMV and Thailand CLMV Thailand Fashion products Fashion products (44%) Clothes, footwear, bags, jewelry Health & beauty products Electronics products Health & beauty products (34%) Cosmetics, supplement, perfume Electronics product (27%) Computer, mobile phone, electrical appliances Home appliances (20%) Furniture, kitchenware, home electrical appliance Source DIPT, Royal Thai Consulate-General of HCMC, e-commerce websites in Cambodia, Myanmar and Vietnam, and ETDA s survey on Thai internet user behavior 2017 (numbers in brackets are % of total respondents) Nevertheless, limitations on payment methods and shipping services remain major concerns to investors. Nearly all e-commerce transactions in CLMV are made by cash on delivery, as most customers still prefer cash while payment method like credit cards and internet/mobile banking are not widely used. This may be a huge obstruction for businesses requiring high liquidity since sellers will receive cash only after products are delivered to the customers. Meanwhile, the major problem for logistics is the absence of transportation infrastructures in certain parts of the country. e-commerce sales, therefore, have been concentrated only in large cities whereas shipping to other areas incurs excessive cost or is often delayed.

25 Main author YUNYONG THAICHAROEN, PH.D. Chief Economist and First Executive Vice President Economic Intelligence Center Yunyong Thaicharoen is a First Executive Vice President of the Economic Intelligence Centre (EIC), a strategic unit of Siam Commercial Bank Public Company Limited (SCB). Prior to joining SCB, Yunyong was a Director at the Monetary Policy Department, Monetary Policy Group, Bank of Thailand which oversees overall monetary policy analyses and recommendations on interest rate, exchange rate, and capital flow policies. He also held the position of Director of the Capital Market Research Institute at the Stock Exchange of Thailand. Yunyong is an expert on macroeconomics, monetary policy, and capital market. He frequently gives lectures to public seminars, as well as to organisations both domestically and abroad. Yunyong is also a special instructor at various academic institutions. Yunyong holds a doctorate in economics, specialising in monetary policy and international economics, and a bachelor s degree in economics from Massachusetts Institute of Technology (MIT) under a scholarship from the Bank of Thailand. THANAPOL SRITHANPONG, PH.D. Senior Economist Contact : thanapol.srithanpong@scb.co.th JIRAMON SUTHEERACHART Analyst Contact : jiramon.sutheerachart@scb.co.th KUNYARUK NAIYARAKSAREE Analyst Contact : kunyarak.naiyaraksaree@scb.co.th Disclaimer: The information contained in this report has been obtained from sources believed to be reliable. However, neither we nor any of our respective affiliates, employees or representatives make any representation or warranty, express or implied, as to the accuracy or completeness of any of the information contained in this report, and we and our respective affiliates, employees or representatives expressly disclaim any and all liability relating to or resulting from the use of this report or such information by the recipient or other persons in whatever manner. Any opinions presented herein represent our subjective views and our current estimates and judgments based on various assumptions that may be subject to change without notice, and may not prove to be correct. This report is for the recipient s information only. It does not represent or constitute any advice, offer, recommendation, or solicitation by us and should not be relied upon as such. We, or any of our associates, may also have an interest in the companies mentioned herein.

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