regional edge May 2017 Soison Lohsuwannakul soison.lohsuwannakul@krungsri.com +662 296 4748 Highlight Thailand signs agreements with Myanmar and Lao PDR to double bilateral trade by 2021 while Vietnam targets USD20 billion trade with Thailand by 2020: The targets for Myanmar and Lao PDR seem challenging. For Thai exports to meet these targets, they would have to expand by an average of 15% p.a. over the next 5 years, compared with 2014-2016 average growth of 3.5% and 2.2%, respectively. Thai exports to Vietnam is expected to meet the set goal. Myanmar and China sign five agreements to strengthen bilateral cooperation: The most significant are the MoU for the Silk Road Economic Belt and 21st Century Maritime Silk Road Initiative (commonly known as Belt and Road Initiative) and the establishment of China-Myanmar Border Economic Cooperation Zone. These would encourage investments in infrastructure development and construction projects in Myanmar, and promote greater regional connectivity. Cambodia s garment exports to the EU remain ahead of Vietnam s: Cambodia s garment exports to the EU are expected to grow further premised on preferential treatment - full import duty exemption and quota-free under the Everything But Arms (EBA) program graduated by the EU - and a recovering EU economy. However, it may be challenging to maintain market share when the EU-Vietnam Free Trade Agreement is implemented by 2018. Vietnam has imposed 5% export tax on products largely processed from natural resources or minerals, which could hurt the domestic cement industry: The imposition of this export tax could threaten the competitiveness of Vietnam s natural resources dependent industries, especially the cement industry. As it is, the cement industry is struggling to rein in excess supply which is estimated to expand from a quarter of output to a third by 2020.
Economic Update Thailand signs agreement with Myanmar and Lao PDR to double bilateral trade by 2021, while Vietnam targets USD20 billion trade with Thailand by 2020 In Myanmar, during the official visit earlier this year by Thai government representatives led by Deputy Prime Minister Dr. Somkid Jatustripitak, Thailand and Myanmar signed an agreement to double bilateral trade to USD13 billion (c.thb457 billion) by 2021. Both countries also agreed to boost border trade, which had reached USD1.24 billion in FY2016 (April 2016-March 2017). In addition, Thai and Myanmar companies signed 16 MoUs covering cooperation in the sugar, plastic, energy, medical, media, and banking industries. For Laos and Thailand, Thai news media reported in May that both countries had agreed on a five-year master plan to double bilateral trade to USD10 billion by 2021. Both countries will collaborate to develop trade and investment, focusing on logistics, energy, tourism, border trade, manufacturing and capital market. Krungsri Research s view: The trade targets for Myanmar and Lao PDR seem challenging. To double bilateral trade with these countries, Thai exports to Myanmar and Lao PDR markets (all other things being equal) would have to expand by an average of 15% p.a. over the next 5 years. The average growth rate for exports to Myanmar and Lao PDR during 2014-2016 were only 3.5% and 2.2% (in USD), respectively. However, looking forward, the progress of the Growth Together concept under the CLMVT partnership policy as well as economic developments and rising FDI in these countries would support Thailand s bilateral trade with these countries in the future. To achieve the Vietnam trade target, Thai exports to Vietnam would have to grow by an average of 10% p.a. up to 2020. This seems realistic as growth had averaged 9.5% over the last three years. This would be supported by better-integrated connectivity between Thailand and Vietnam as well as the growing popularity of Thai products in Vietnam. In addition, Vietnam and Thailand are also targeting trade to reach USD20 billion by 2020, from USD13.9 billion in 2016, according to recent statements by Vietnam s Deputy Minister of Industry & Trade Do Thang Hai. Thailand's Bilateral Trade with Lao PDR, Myanmar, and Vietnam Unit: Million USD Thai exports to the country Thai imports from the country Thailand's Exports to and Imports from Myanmar 8,156 6,530 13,059 Thailand's Exports to and Imports from Lao PDR 5,443 5,871 11,742 Thailand's Exports to and Imports from Vietnam 11,820 13,853 20,000 2014 2016 Targeted 2021 2014 2016 Targeted 2021 2014 2016 Targeted 2020 Source: MoC, Krungsri Research regional edge Krungsri Research 2
Myanmar and China sign five agreements to strengthen bilateral cooperation In May 2017, during an official visit led by Myanmar s Foreign Minister Daw Aung San Suu Kyi to attend the Belt and Road Forum in China, Myanmar and China signed five agreements: i). MoU on Cooperation within the Framework of the Silk Road Economic Belt and 21st Century Maritime Silk Road Initiative; ii). MoU on the establishment of China-Myanmar Border Economic Cooperation Zone; iii). MoU on cooperation in Healthcare; iv). MoU on cooperation in post-quake restoration and protection of historic monuments in Bagan; v). Agreement on economic and technical cooperation by China Krungsri Research s view: These agreements are expected to boost the investment climate and attract more Chinese investments to Myanmar, especially in infrastructure projects. They would also increase trade between Myanmar and China, especially border trade in northern Myanmar, in the coming years. The most significant agreements are the MoU under the Silk Road Economic Belt and the 21st Century Maritime Silk Road Initiative (Belt and Road initiative) and the establishment of China-Myanmar Border Economic Cooperation Zone. These would encourage investments in infrastructure development and construction projects to further promote region-wide connectivity. Under the Belt and Road initiative, there is an infrastructure project led by China in Kyaukphyu in southwestern Myanmar. That would include the revival of the Kyaukpyu Special Economic Zone (SEZ), which had stalled. Local news media recently reported that the SEZ project is currently being reviewed and there are negotiations with stakeholders on several details of the project. Under the MoU for border economic cooperation, there are plans to develop several border points in Myanmar close to China border, especially in Muse (the busiest border point) and Chin Shwe Haw in Shan State. Last year, the Myanmar government had approved the development of several economic zones, including Muse Central Economic Zone and Kunlong-Qingshui River Special Economic Zone. Following these, the establishment of economic cooperation zones will benefit both countries trade and investment relations in the near future. Source: Krungsri Research These developments are expected to have limited impact on Thailand in the near-term, but there would be more challenges in the medium to long term. Stronger connectivity and cross-border relations between Myanmar and China would boost Myanmar s imports from China. This means Thai exports would have to compete with larger share of Chinese products in Myanmar market. regional edge Krungsri Research 3
Cambodia s garment exports to the EU remain ahead of Vietnam s 20 16 12 8 4 0 According to Cambodia s local news media, the nation s garment exports to the European Union (EU) reached EUR3.8 billion (USD4.25 billion) in 2016, up 14% yoy. They beat Vietnam for the second consecutive year; Vietnam s 2016 garment exports to the EU was EUR3.2 billion (USD3.6 billion), up 6.8% yoy. In addition, Cambodia is the fifth largest garment supplier to the EU market, after China, Bangladesh, Turkey, and India. Thailand Direct Investment in Garment Sector in Cambodia and Vietnam Cambodia Vietnam Source: BoT, Krungsri Research Unit: mn USD Krungsri Research s view: EU market is currently Cambodia s largest export market at 43% of Cambodia s total garment exports, followed by the US at 29%. The preferential treatment accorded by the EU - full import duty and quota exemptions under the Everything But Arms (EBA) program graduated by the EU coupled with economic recovery in the EU, would continue to lift Cambodia garment exports to the EU. But looking forward, Cambodia garment industry would find it challenging to retain market share in the EU when the EU-Vietnam Free Trade Agreement comes into effect in early 2018. The Agreement would gradually reduce import tariff for Vietnam products from 12% currently to 0% over several years after implementation. In addition, Cambodia and Vietnam are the top destinations in CLMV for investments in the garment industry. Although Thailand direct investment (TDI) in Cambodia s garment sector - valued at about USD10.3 million as of end-2016 - was lower than in Vietnam (USD16.6 million) in the same period, it is rising. Thai garment producers need to keep a close watch on developments in these two markets in order to minimize losses and maximize benefits from their investments. regional edge Krungsri Research 4
Policy Update Vietnam imposes 5% export tax on products processed from natural resources or minerals; this could hurt the cement industry Vietnam news media recently reported that the government has announced Decree 122/2016 which imposes a 5% export tax on products where the combined input costs of natural resources, minerals and energy accounts for at least 51% of total production cost. Some of the products affected by this decree are fertilizer products, charcoal and cement. The decree came into effect at end-2016. Since then, the domestic cement industry has been voicing the most concern because a high proportion of production cost is for coal. According to a survey of Vietnam s cement industry released in 2015, coal and electricity account for about 60% and 14% of total cement production cost, respectively. Supply 88 Vietnam's Cement Industry 73 Unit: Million USD Demand 130 2016 2020F 82 Krungsri Research s view: The imposition of export tax could threaten the competitiveness of Vietnam s natural resources dependent industries, especially the cement industry. As it is, the domestic cement industry is struggling to rein in excess supply, which is expected to expand from a quarter of total output currently to about a third by 2020. Data on Vietnam s cement industry show production capacity will increase to 120-130 million tonnes by 2020, while consumption/demand is projected to rise at slower pace to 70-80 million tonnes by 2020. This implies Vietnam s cement industry would have 50-60 million tonnes of excess supply. In addition, the export tax could undermine the competitiveness of Vietnam s cement exports in the global market. Its major export destinations include Philippines and Bangladesh, which account for 33% and 25% Vietnam s total cement exports, respectively. However, the export tax impact might be temporary. This is premised on the implementation of infrastructure development plans across Vietnam and influx of foreign investment (FDI), which are expected to boost domestic demand for cement over the next few years. According to an ADB report released in February 2017, Vietnam will kick off several infrastructure projects by 2020, including 11 power plants with a total capacity of 13,200 megawatts and about 1,380 kilometers of highways, including the North-South Expressway linking Hanoi and Ho Chi Minh City. Source: Vietnam news media, Vietnam Cement Association, Krungsri Research regional edge Krungsri Research 5
KRUNGSRI RESEARCH Somprawin Manprasert, Ph.D. Phornphan Phoksuphat Advisor and Chief Economist Head Macroeconomic and Industry Research Macroeconomic Team Sarun Sunansathaporn Head of Strategic Economics Sujit Chaivichayachat Head of Forecasting and Macroprudential Economics Churailuk Pholsri Senior Economist Soison Lohsuwannakul Senior Economist (Regional Economics) Kongphop Wongkaew Economist Papungkorn Kitcharoenkarnkul Economist Industry Team Chetchuda Chuasuwan Head of Industry Research (Agriculture and Manufacturing) Jumpon Kluaymai-ngarm, Ph.D. Head of Industry Research (Real Estate and Services) Poonsuk Ninkitsaranont Senior Analyst (Healthcare, ICT, Modern Trade) Piyanuch Sathapongpakdee Senior Analyst (Transportation & Logistics, Industry Risk Ratings) Narin Tunpaiboon Senior Analyst (Power Generation, Biofuel, Chemical & Plastic Products) Talublugkhana Thanadhidhasuwanna Senior Analyst (Financial Sectors) Puttachard Lunkam Analyst (Tourism Sectors, Real Estate in Upcountry) Niratsai Toomwongsa Analyst (Construction Contractor, Construction Materials) Wanna Yongpisanphob Analyst (Automobile, Electronics & Electrical Appliances, Beverages) Wareerat Petchseechoung Analyst (Agricultural Products, Food) Rachot Liengchan Analyst (Oil & Gas, Petrochemicals, Industry Scenario Analysis) Patchara Klinchuanchun Analyst (Real Estate in BMR) Intelligence Team Arpakorn Nopparattayaporn Analyst MIS and Reporting Team Suratchanee Somprasong Administrator Thamon Sernsuksakul Administrator Chirdsak Srichaiton MIS Officer Wongsagon Keawuttung MIS Officer For research subscription, contact krungsri.research@krungsri.com Disclaimer This document is based on public information believed to be reliable. Nevertheless, Krungsri Research would not affirm the accuracy and completeness of this information. The opinions expressed in this document are our own, which are not necessarily the opinions of Bank of Ayudhya. We reserve the right to change opinions or forecast without prior notice. regional edge Krungsri Research 6