Infrastructure and Development in the GMS

Almost 320 million people live in the GMS region which is strategically located, bridging South, Southeast, and East Asia. While the Mekong region is widely considred to have the potential to be one of the world's fastest growing areas, economic development continues to elude some of the countries in the region and alleviating poverty remains a significant challenge.⁴ Thus, the GMS has outlined an ambitious program of infrastructure investment and trade facilitation. Infrastructure investment has been shown to be an important mechanism to facilitate growth and development in a developing economy.⁵

Table 1 [ PDF 17.5KB | 1 page ] presents summary data for the GMS. Populations range from under 6 million people in Lao People's Democratic Republic (Lao PDR) to over 90 million in the combined Yunnan/Guanxi region of People's Republic of China (PRC). Likewise the economies range widely in size, with Lao PDR's GDP value at US$3.4 billion while Thailand's GDP is around 60 times as large, at over US$206 billion. Gross national income (GNI)/GDP per capita ranges from US$500 or under in Cambodia, Lao PDR, and Myanmar, to over US$3,000 in Thailand. While there is some variation across the GMS, overall it remains a relatively poor region.

There is also variation across the region in terms of intra-regional trade dependence and the degree to which the PRC plays a role in that dependence (last two columns of Table 1).⁷ The highest dependency rate is found in Myanmar where over 35% of its imports and exports are sourced within the GMS. The PRC appears to play a small but significant role, increasing those shares by about 7%. Cambodia and Lao PDR do not appear to be overly dependent on the PRC. Indeed, their intra-GMS trade shares change little whether the PRC is included or not. The two economies most dependent on the connection with the PRC appear to be Thailand and Viet Nam. The share of Thailand's imports sourced from GMS changes by a factor of 4.6 depending on whether the PRC is included. For Viet Nam it is even higher, increasing 5.5 times. This closer link with the PRC in terms of trade is apparent in the results shown later in the paper.

In terms of physical measures, such as population density and land area, again GMS countries vary. Land area ranges from under 180 million km2 in the case of Cambodia to over 650 million km2 for Myanmar (Table 2). Population density ranges from 25 people per square kilometer in Lao PDR to over ten times this density in Viet Nam, at 271 people per square kilometer. It is notable from Table 2 [ PDF 12.3KB | 1 page ], that the poorest countries—i.e., Cambodia, Lao PDR, and Myanmar—all have limited road networks with less than 15% of roads paved. These are also countries with relatively low population densities and limited resources to provide rural populations with access to markets and the accompanying opportunities. Movement by rail in the region is also fairly limited.

Looking at the land area and road coverage, an indication of road density can be calculated; that is, the kilometers of road per square kilometer of land. As a basis for comparison, we have shown this road density figure with population density and have included the United States (US), Japan, and the EU. The results are shown in Figure 1 [ PDF 17.5KB | 1 page ] with the bars referring to the road density and the line to population density. As the figure shows, the population density for all GMS countries is well above road density (the exception being Lao PDR). While the US and Viet Nam have very similar road density figures (roughly 0.0007 kilometer of road for every square kilometer of land), their population densities are very different (254 for Viet Nam and 31 for the US). If one assumes that the developed world has a roughly appropriate level of road networks for a given level of economic activity, the substantial differences between the level of service in the GMS countries and the US, Japan, and the EU provide an indication of the great need to expand transport networks within the GMS.

This gap in road networks has a direct impact on the GMS' ability to attract investment to the region. The changing nature of global production patterns has affected economic development both within and outside the GMS region depending on, among other things, transport service availability and quality. Variations in the logistics costs among countries stem from differences in the quality and cost of infrastructure services, including customs procedures and institutional quality. Opportunities for trade expansion and foreign investment depend on improving trade facilitation and road transport services.

There are several sources of comparison data among economies for trade facilitation. The World Bank's (2008a) Doing Business database provides measures on regulation and other business costs for 178 economies. Tables 3 and 4 present some summary statistics for trading costs in the GMS. Table 3 [ PDF 14.7KB | 1 page ] shows the main trade indicators for the region along with the OECD average. What is immediately apparent from the table is the discrepancy between the costs of handling a container, both importing and exporting, and the time involved in conducting trade. The export and import container costs, with the exception of Lao PDR, are all less than the OECD average. However, the time involved for each is considerably higher. While the cost to export a container from the GMS (excluding Lao PDR) averages about 34% less than the OECD average, the time needed for exporting from the GMS region (again, excluding Lao PDR) is 250% higher than the OECD average. This is a significant matter in global competition as time costs for trade are an important factor for most businesses.⁸

Table 4 [ PDF 14.7KB | 1 page ] provides some details as to where these time delays can be found. Document preparation is a large stumbling block, taking as long as 33 days for exports from Lao PDR but still as many as 9 days for Thailand and 14 days for the PRC. Inland transport and customs clearance are also sources of delay. Shepherd and Wilson (2008) show that Association of Southeast Asian Nations (ASEAN) countries in general have much to gain from improved trade facilitation, in particular from improved transport infrastructure and information technology that affect timing issues like document preparation and inland transport.

In addition to work done by the World Bank, the World Economic Forum (WEF) has turned its attention to trade facilitation through the Global Enabling Trade Report (WEF 2008).

The report's aim is to measure the extent to which countries have in place factors and policies that enable trade. Several indices contained in the report measure these factors, along with policies and services facilitating the movement of goods over borders. Table 5 [ PDF 15.5KB | 1 page ] and Table 6 [ PDF 15.5KB | 1 pages ] present some of these statistics for the GMS.

The report's aim is to measure the extent to which countries have in place factors and policies that enable trade. Several indices contained in the report measure these factors, along with policies and services facilitating the movement of goods over borders. Tables 5 and 6 present some of these statistics for the GMS. Of the 188 economies examined in the WEF report, the regional economies of Singapore and Hong Kong, China rank numbers 1 and 2, respectively, on the list. Not surprisingly, GMS countries do not rate nearly as highly. Even the PRC, while considered a powerhouse of trade, ranks fairly low due to time consuming border administration, including a lack of transparency and high tariff and non-tariff barriers. Market access and border administration are well below average for all GMS countries reported.

Specifically looking at transport and communications, the areas cited by Shepherd and Wilson (2008) as offering the most promise from reform, rankings for GMS economies were slightly better than the overall rank shown in Table 5 [ PDF 15.5KB | 1 page ]. The best performance for the GMS generally came in the category of availability and quality of transport services, suggesting that the GMS transport strategy is having a positive affect.

Finally, in a study examining the logistics performance for the ASEAN region as a whole, Nathan Associates (2007) found that transporting goods by road between Lao PDR and the Thai border, for instance, cost shippers four times more than the international norm (including Asia). While the national logistics costs relative to GDP were approximately 8% for Singapore, they were found to be closer to 20% for Viet Nam and Thailand. Across ASEAN, the report found that export logistics costs expressed on an fob basis were as high as 25% for some products. A breakdown of logistics costs are as follows: procurement, 17%; inventory holding, 10%; warehousing, 11%; transport, 28%; and export processing, 34%. The largest categories are transport and export processing, two that have been directly targeted through the GMS Transport Strategy and the CBTA.

The GMS regional economic corridors program was undertaken to address problems such as those identified in the reports and studies outlined above. The goal is to stimulate the effective and efficient growth of direct investment and production facilities through the identification of corridors for major transport infrastructure development. This economic corridor approach to sub-regional development was adopted as a fundamental strategy to accelerate the pace of GMS cooperation and to help realize the region's potential. Three corridors were identified as flagship programs under this approach: the North-South Economic Corridor (NSEC), East-West Economic Corridor (EWEC), and Southern Economic Corridor (SEC). In 2007, the GMS ministers agreed to expand the program to a total of nine economic corridors (Figure 2 [ PDF 1.5MB | 1 page ]).

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