17 Jun, 2016
Following is the full text of the Keynote Address by Mr Chartsiri Sophonpanich, Bangkok Bank President, at the CLMVT FORUM 2016, on the topic of “Enabling Trade And Investment In CLMVT: The Role Of Banking And Finance In Regional Development”, Thursday, 16 June 2016, Dusit Thani Hotel, Bangkok, Thailand
It is my great pleasure to be here today on this very important occasion, since this is the first time that the authorities, as well as the private sectors from the CLMVT countries – Cambodia, Laos, Myanmar, Vietnam, and Thailand – have been gathered in the same room to discuss and set the direction for what will become one of the world’s most vibrant regions.
The economic potential and strategic importance of the Southeast Asia region was widely recognized even before the 1997 financial crisis, but 20 years later, the region is more promising than ever, with the rise of Cambodia, Laos, Myanmar and Vietnam, or the CLMV, as its new growth engine.
With ample untapped resources, an abundant young workforce, high demand for basic infrastructure, and fast-growing consumer markets, the CLMV has been enjoying growth rates of 6.5 – 8.5 percent, which is likely to continue over the next five years. Exporters producing goods in these countries also enjoy tax benefits as they still have GSP privileges in European and the United States markets, provided that they comply with country of origin rules. So, it is not surprising that it is now one of the most attractive FDI destinations in the world.
These natural advantages of CLMV countries have been strengthened even further over the past two decades by increasing connectivity within the region. The nine large road corridors connecting the whole region from the North to the South and from the East to the West raise the overall efficiency of the region’s logistics system.
It is this improved connectivity that allows companies to relocate their factories to the least costly locations, thereby extending existing supply chains throughout the region. This reduces production costs and enables countries to mix and match their comparative advantages to increase overall competitiveness vis-à-vis other regions.
Although Thailand is at a more advanced stage of development compared to our neighbors we are still very much a part of the region. Located at the center of the CLMV countries, with ports, roads, and airports linking us to our neighbors, Thailand has a unique role to play as a trading partner, a logistics and transport hub, a financial hub, and as an investor.
Jointly, we – the CLMVT countries – have a total population of 220 million people, and our combined GDP is worth over one trillion dollars. So, by working together, we can create synergy, form a complete regional supply chain, and become a home to production as well as one of the most attractive new markets for countries like Japan, China, the US, and Europe.
Thailand’s development experience was based on creating a synergy through rigorous collaboration with other countries. This brought a better outcome for all stakeholders. During the early phases of development in the 60s and 70s, Thailand leveraged its low cost labor to form a strong partnership with Japan and Taiwan which had technical expertise. These partnerships enabled the transfer of know-how and led to the rise of new Thai businesses and further development of the East Asian manufacturing sector. This pattern of collaboration has also started to take place in the CLMVT.
Let me elaborate with the experience of Bangkok Bank and our customers.
One good example is the garment industry, in which the integration of the CLMVT is already taking place. Many of our customers have set up factories in all CLMVT countries, using production models that are suitable for each location and linking all the sites together as a single supply chain.
Another good example is energy. Laos has efficiently utilized its natural advantages to position itself as the “Battery of Asia”. Its natural resources have supported the environmentally-friendly generation of hydro-electricity which is now purchased by countries like China, Vietnam and Thailand, providing significant stream of incomes into the country. Currently, our clients such as Banpu and Chor Kan Chang have made large investments in building hydro dams as well as efficient coal power plants in Laos. With further developments like this, abundant energy, a clean environment and cultural tourism, Laos can turn from being a land-locked, to a land-linked country, and become the Switzerland of the CLMVT.
With its abundant land and young work force, Cambodia is becoming an important base for agribusiness. There are more and more integrated production projects, covering areas such as seed, feed meal plants, pork and chicken production, and palm oil plantations. The growing agribusiness industry has also attracted other investors to join the supply chain, such as Japanese firms supplying agricultural equipment in this area. As a result, food and agricultural products have become more readily available in the region.
Myanmar has enormous potential given its rich resources and a large population of around 52 million. Its size and its increasing demand for infrastructure as well as consumer goods present huge investment opportunities for other countries in Asia and the rest of the world. This has led Thai companies such as SCG to form a joint venture and establish a cement plant in order to provide supply, mainly for construction. In parallel with further improvements in infrastructure, companies from countries like China, ASEAN, and East Asia, forming partnerships with local business groups investing in various areas of manufacturing, distribution and services.
Vietnam has become successful as a hub for electronics and appliances, and has become a production base for world-class brands such as Samsung. This has not only brought more investment and employment to Vietnam but has also led to the expansion of the electronics cluster in the CLMVT, with Thai corporations, among the businesses involved in the supply chain.
The flourishing of business has also led the CLMV countries to invest in each other and in Thailand. Vietnamese companies are now starting to invest outside the country. Companies like Millcon have plans to bring firms from Vietnam to invest in Thailand. Others, like a leading coffee producer in Laos, have an increasing presence in Thailand, and one of Cambodia’s largest banks is supporting microfinance in Laos and elsewhere in the region.
All of these examples show that when CLMVT countries collaborate and use our strengths to complement one another, the results are: the scalability of our markets, the emergence of strong local and regional businesses, a new level of attractiveness in the eyes of international investors, and shared benefits for us all.
Ladies and Gentlemen,
Given the tremendous progress within the CLMVT, here is the next question. What should we do to take this region to the next level? How should we promote trade and investment to help our CLMVT to become a single market and become truly integrated into the global supply chain?
These are the questions that we are all gathered here to discuss, and the solutions require synchronized efforts from all stakeholders.
Coming from the financial sector, I can see four main roles that we can play to enable the scaling-up of regional trade and investment.
The first role of the financial sector is to cooperate closely in serving our customers, especially those engaging in cross-border activities.
To bring out the best from our region and become more competitive in the global environment, we have to ensure that CLMVT markets have the required scale to attract FDI from Japan, Korea, China, US and the EU.
To do this, we need to further integrate our economies and encourage greater collaboration among our companies.
Here, one plus one is greater than two.
Financial institutions such as banks know our customers in our respective countries quite well from years of working with them in various projects. Closer collaboration among banks would allow us to facilitate cross-fertilization among our companies and better serve these cross-border joint activities.
Encouraging companies to work together across the countries, will help facilitate the formation of the regional supply chain and accelerate the transfer of know-how, which will strengthen our region further.
The second role of the financial sector is to develop a strong funding base for the CLMVT.
In order for the vision of a single market and production base to materialize, a strong funding and financial base for the region is needed.
Every country will go through similar cycles of development as depicted in the life-cycle theory. Early on, we borrow and consume. Later, we will be able to accumulate our wealth and assets.
At this point, CLMV countries are growing rapidly and in need of credit. So they can use funding sources from Thailand to support their development.
Several decades ago, when Thailand went through its early stage of development, we also required savings from outside to finance our growth. We relied on countries like Singapore and Hong Kong, as well as international organizations such as the ADB and the IFC to finance our investments. Now, after going through the rapid-growth phase, Thailand has entered the stage of wealth accumulation, with surplus savings and well-functioning capital markets. So now is the time to mobilize savings accumulated in Thailand for the rest of the region and use Thailand as a funding base for CLMV countries.
To facilitate this process, the Thai authorities have been putting in place a wide range of initiatives. These include the relaxation of the Bank of Thailand’s regulations to allow individuals and companies to engage in direct investment without a ceiling on the investment amount.
Our Ministry of Finance has allowed international financial institutions, as well as foreign governments to issue baht–denominated bonds in Thailand, so as to make the Thai capital market a Southeast Asian funding hub. The Laotian government became the first foreign country to raise funds in our country and so far has issued sovereign bonds in Thai baht four times, raising funds from 1.5 billion baht in the first issuance to 12 billion baht in the latest round.
Our Securities and Exchange Commission has eased regulations to enable companies to list in Thailand.
Our Thai Bankers’ Association also has initiatives to promote a well-connected payment system as a platform for facilitating trade and investment transactions for the region.
With our currencies moving along together, the currency risk will be reduced. And with our relatively low interest rates, funding from Thailand will be quite attractive.
As our next step, the CLMVT countries should work together in nurturing the relatively young debt and equity markets so that all of us will have strong funding bases to mobilize in the future. We should learn from Malaysia and Singapore, where dual listing is common in debt and equity markets. Additionally, more efforts should be made to attract listings in these markets, in order to make them deeper and more liquid, enabling issuance of a variety of financial instruments.
The third role of the financial sector is to collaborate with other stakeholders in planning and financing the development of infrastructure.
It is clear that our region needs to invest more on its infrastructure, which will provide a much needed foundation for closer economic integration and the formation of a single market and regional supply chains.
Transport connectivity needs to be improved, not only within the CLMVT, but also with major trading partners in ASEAN, Japan, China, and India. Sufficient and reliable energy supplies and telecommunication systems need to be further developed. Also, accommodation and support services such as suitable housing for changing lifestyles are needed. On top of this, education standards must be improved in order to for us to enhance the quality of our workforce and be ready to move up the value chain.
According to the ADB, the demand for infrastructure in the CLMVT is estimated to be 30 billion US dollars per year, which means that a huge amount of funding is needed. Thus, there is room for various forms of fund-raising, ranging from direct and syndicated loans, project finance, debt and capital markets, as well as financing from long term sources such as pension and insurance funds, or even the private-public partnership, or the PPP channel.
This requires all of us to work together on getting the right structure for these projects. This entails the design, the construction phase, and combining the financing sources. Most importantly, a risk-sharing mechanism among different stakeholders should be put in place to ensure that the risks are allocated to the ones who are able to manage them in the most cost-effective manner. For instance, in the PPP structure, the private sector may handle areas of their expertise such as the project investment and operations, while the public sector may be allocated with risks that are more costly than the private sector can handle, such as regulatory risks. This would allow the strengths of the private and the public entities to complement each other. Also, having an appropriate structure for the infrastructure projects would ensure their feasibility, allowing us to attract funding from anywhere in the world.
Here, financial institutions in the CLMVT can work together and play a critical role in the regional infrastructure development process by providing the required financing, as well as working in consultation with our governments. With close collaboration, the overall results would be much more efficient than if we tackle this issue as individual countries.
Finally the financial sector should play an active role in the cultivation of local entrepreneurship.
To achieve true success in economic development, countries cannot rely on direct investments from large multinational companies alone. If this is the case, the fruit of development will only be limited to a few companies, and growth will not be sustainable.
A more balanced approach requires that each country places equal emphasis on the cultivation of local players, who will grow alongside the multinational companies and form a strong supply chain to support the production process, facilitate technology transfer, and deepen the knowledge of the local workers, as well as cultivating the managerial skills of the owners.
It is these local entrepreneurs who one day will subsequently develop and become our national champions, regional champions, and global players that compete in the global marketplace. And it is these local companies that will allow growth to trickle down to the general public and allow everyone to taste the fruit of economic development.
On this topic, financial institutions in the CLMVT can learn from each other and share our experience in the cultivation of local entrepreneurs, especially in the areas of lending to new start-ups, providing financial services to SMEs, and supporting our own domestic champions to compete and collaborate with global players.
Ladies and gentlemen,
Our countries – the CLMVT – have great potential and this is growing before our eyes. Each country has its own competitive advantages that complement those of the others. So, if we can remove existing barriers to trade and investment, combine our strengths, and cooperate effectively as a united front through events such as we have today, I am confident that over time we will create one of the most vibrant areas of the global economy that will be the destination of choice for foreign investors. This will cement the position of the CLMVT in the global supply chain and enable us to achieve the goal of shared prosperity for all.