Supplementary volume of the Mekong Industrial Development Vision. (Ver. Publish) Aug/25/2015

Transcription

1 Supplementary volume of the Mekong Industrial Development Vision (Ver. Publish) Aug/5/5

2 Contents. Current Situation in the Mekong Sub-region 3. Challenge of Mekong Sub-region 8 -Challenge in terms of trade structures 9 -Challenge in terms of Foreign Direct Investment 3 -Challenges in terms of Human Resources and Development (HRD) 9 -Challenges with Local Business Collaboration -Challenges in terms of Research and Development (R&D) Activities 6 -Challenges to Regional Connectivity 8 -Challenges in terms of Energy Supply 3 3. Future Mekong-wide Industry Structure 3 -Competitive Strength of Individual Countries 33 -Agriculture Sector 38

3 3. Current Situation in the Mekong Sub-region

4 . Current Situation in the Mekong Sub-region GDP of Mekong sub-region has been growing at a similar pace with ASEAN, which significantly exceeds world s average [Unit: MM USD] 7, 6, 5, 4, 3,, Growth of Mekong CAGR of Mekong s nominal GDP growth (~3):.5% World:7.3% ASEAN:.7% Nominal (Reference) Real Cambodia:.6% Cambodia:7.9% LaoPDR:3.4% LaoPDR:7.6% Myanmar:8.% Myanmar:9.% Thailand:7.4% Thailand:4.% Vietnam:7.4% Vietnam:6.5% Y to Y GDP Growth (ASEAN) Y to Y GDP Growth (Mekong) Y to Y GDP Growth (World) 3% 5% % 5% % 5% %, Nominal GDP (Mekong) -5% -% Source:Originally IMF Statistics modified by Deloitte 4

5 . Current Situation in the Mekong Sub-region Mekong sub-region s Demographic Dividend is expected to be at the highest level in East Asia by 3 Demographic Dividend by 3* Actual Forecast.8 Demographic Dividend Threshold (.) Mekong Mekong Mekong Mekong ASEAN India 3 ASEAN India ASEAN India ASEAN India 5 *Demographic Dividend is a index for forecasted economic growth which is defined as a period when quotient of productive age population(5-64) divided by non-productive aged population(-4,65+) is larger than.. Source:United Nations data, modified by Deloitte

6 . Current Situation in the Mekong Sub-region The membership of the the Japanese Chambers of Commerce and Industries based in Mekong countries has been rapidly increasing since Number of Japanese companies registering to respective Japanese Chambers of Commerce and Industry (JCCI) has been dramatically increased since, with 73-% increase in CLM countries, 8% increase in Viet Nam and 3% increase in Thailand. Viet Nam: Investment by Japanese SMEs has been growing in general. Cambodia: Service industry investment (e.g. retail, logistics, finance, construction, installment service) has been observed. Lao PDR: Factories with 3-5 employees have been increasing Myanmar: Real investment cases are still limited compared with sharp JCC member increase Thailand 3% Lao PDR 4 7 (73%) Myanmar (%) Viet Nam 8% Cambodia 9 68 (85%) 6 Member companies as of June 4 Member companies as of June Source: Federation of Japanese Chamber of Commerce and Industry in ASEAN (FJCCIA) Note: Number of companies in Viet Nam was calculated through summing up 3 JCCs (Hanoi, Da Nang and Ho Chi Minh)

7 . Current Situation in the Mekong Sub-region Improvement of connectivity has facilitated the expansion of industrialization in Mekong subregion (such as Thai+ ) Expansion of Value Chains through Improvement of Connectivity Value Chains along Economic Corridors Cars Cars Electrical-parts Shoe-parts Car-parts Electrical-Parts Car-parts Textile Shoes Electrical-Parts Fabric Textile Shoes Value chains have spread across the Mekong countries by improvement of connectivity in this region The Thai+ movement is an eminent example of such phenomena Expansion of Industries in the Region (Thai+) Almost half of Thai-based Japanese companies have found or are planning to have additional branches in other Mekong countries Industries Already Found Under Consideration Not Considering Total Manufacturing 55 (5%) 38 (7%) 7 (58%) (%) Non-manufacturing 7 (36%) 7 (3%) 3 (4%) 75 (%) Total 8 (8%) 55 (9%) 58 (54%) 95 (%) 7 Source: JETRO, JCC Bangkok Survey 3, modified by Deloitte,

8 8. Challenge of Mekong Sub-region

9 9 -Challenge in terms of trade structures

10 . Challenge of Mekong Sub-region Intra-regional trade can be enhanced with appropriate role assignment under Specialization & Collaboration in Mekong sub-region Percentage of intra-regional trade Intra-regional Export by Category() Export within Mekong Export within ASEAN Beverage Food Auto Electronics The intra-regional export within Mekong or ASEAN (USD) Ratio(%)= The total export within Mekong or ASEAN(USD) 58% 6% 48% Export within Mekong Export within ASEAN Huge potential for expanding intra-regional trade in the Mekong region % % 3% 4% 5 % 6 % 6 % 6 % 7 % 5% 3% Trade value (B USD) 8 9 Source: ADB, UNcomtradeRIETI-TID modified by Deloitte Mekong ASEAN Trade value (B USD) Mekong ASEAN Mekong ASEAN Mekong ASEAN A huge potential for further collaboration enhancement by complementing each other s difference in development stage Likewise beverage industry, Mekong countries can deepen mutual collaboration in areas such as food or machinery production

11 . Challenge of Mekong Sub-region Compared to the complementally relationship of -India, the Mekong-India similarity is counter-effective to leverage mutual economic growth CAGR of Inter-regional Trading (-) CAGR 39% CAGR 5% Drivers to enhance inter-regional trade: Complementary relationship Complementary Industry ex. Service vs. industry Complementary Value Chain ex. Finished goods vs. component Complementary Goods ex. Consumer goods vs. capital goods Service Industry Growth in India Induced Complementary Relationship [Unit: B USD] 5 constant price , Equipment Telecom product Import Others Mekong 3% 4% 64% HUAWEI Agriculture +5% Manufacturing +8% Service +8% Telecom operator Bharti Airtel Telecom is the most rapidly growing segment in Service India BPO/ITO TATA Consultancy Services WIPRO Mekong-India trading growth is lower than -India trading growth Complementary relationship between and India has promoted inter-regional trading Source:ADB data, UNcomtrade, World DataBank World Development Indicators (constant 5 US$), EMJ modified by Deloitte Note:. Telecom products correspond to HS857 to HS85769

12 . Challenge of Mekong Sub-region Deep sea ports in Vietnam is a source of competitiveness in connectivity with developed markets Depth Yangon 9m Arrival ttl - Cargo ttl 7,7Mt Container ttl 39k Depth Thilawa 9m Arrival ttl - Cargo ttl - Container ttl - Yangon Mawlamyine Dawei Depth :Deeper than M :Shallower than M or depth not available Bangkok <EWEC> Bangkok Khon Kaen Leam Chabang Depth Source:National statistics of each country, websites arranged by Deloitte 8m Arrival ttl - Cargo ttl - Container ttl,55k 4m Arrival ttl,46 Cargo ttl - Container ttl 6,4k Vientiane <NSEC> <SEC> Hanoi Savannakhet Phnon Penh Sihanoukville Depth Depth - Arrival ttl,466 Cargo ttl - Containe r ttl 4k m Arrival ttl - Cargo ttl Container ttl.7mt 3k Ho Chi Minh Depth Hai Phong Depth.5m Arrival ttl,39 Cargo ttl 8,8Mt Container ttl,4k Cat Lai 4m Arrival ttl 35 Cargo ttl Containe r ttl 7,73Mt 644k Da Nang Depth Depth Cai Mep m Arrival ttl 8 Cargo ttl Container ttl Da Nang m Arrival ttl - Cargo ttl - Container ttl - 7,3Mt 69k

13 3 -Challenge in terms of Foreign Direct Investment

14 . Challenge of Mekong Sub-region Despite the sharp increase of in-flows from, Korea and other ASEAN countries, Japan is still leading FDI in Mekong sub-region [Unit: MM USD] FDI in-flows from major investor countries,594 %,655 4% 44%,467 % 9% 4,848 5% 8% % 7% Mekong Korea USA 4,88 4% 47% 3,793 38% 5% 3,85 8% 6% 4,36 7% 64% 5% 7% 3% 6% 6,77 5% 35% 7,98 8% 9% 44% 6,6 7% 8% 54% 3,55 56% 43% -5% 5% 8% 6% 44% % 7% 7% % 59% ASEAN-Others Japan Source:UNCTAD statistics arranged by Deloitte

15 . Challenge of Mekong Sub-region Japan,, USA, Korea, other ASEAN countries are major investors to Mekong region MM $ Amount of FDI Inflow (USD MM) FDI Inflow to countries in Mekong sub-region,77 Mekong BUSD USA 9 BUSD ASEAN- Others,4,69 4% 7% 7% 49% 3% Myanmar Thailand 37% 9% % % % 3% 7% 44% 3,84 9,5 Lao PDR 66% 4,93 Cambodia 4% 35% 5% 8% 6% 3% 7,94 58% 3% % Vietnam % 9% 3,3 (Incl. Hong Kong) 33 BUSD Korea 6 BUSD Japan 35 BUSD 3,554 7,94 5,4 74 BUSD *Note: Data period for Myanmar 989-Apr 3, for Lao PDR -, for Vietnam -, for Thailand -, for Cambodia 994- Sept, for Malaysia -, for Singapore -, for Indonesia -, and for Philippines for -. Brunei s data is omitted. Source: Deloitte analysis based on Japan ASEAN center 5

16 . Challenge of Mekong Sub-region FDI in Mekong sub-regions is expanding in its variety both in terms of target industries and investing countries FDI Cases from ASEAN Investment Report 3-4 Cambodia (4.4 BUSD) Lao PDR (4. B USD) Myanmar (4.3 B USD) Japan Garment Footwear Cement (Huaxin Cement) Auto (Denso, Mazuda, Toyota, Yazaki) Others (SMFG, Nippon Express, Minebea, Kitahara International hospital, AEON) Japan Hydropower generation T&D Mining Real-estate Agriculture Hydropower generation (Toshiba) Auto (Toyota Boshoku) Japan Garment (Shanghai Donglong Feather MFG, SDI MFG, Jiangsu Solamoda Garments) Infrastructure Manufacturing (Canon, Mazuda, Nissan,Unicharm) Infrastructure (Mitsubishi, Marubeni, Sumitomo, Toyo- Thai) Others Others (Saha union) Thailand (4. B USD) Others Others (Big C) Vietnam (79.4 B USD) Others Electronics (Samsung) Infrastructure (C&C) Others (Daijieng) Garment Thermal power generation Japan Auto Electronics(Canon, Toshiba, Daikin) Others (Toyota Tsusho, MUFG) Japan Auto (Mitsubishi Fuso, Bridgestone) Electronics(Hitachi, Toshiba) Others (MUFG, Sumitomo Life) Others Auto (Bosch) Others Electronics(Samsung) Oil/Gas (Conoco, Chevron) 6 Source:ASEAN Investment Report 3-4

17 . Challenge of Mekong Sub-region Investment from Japan is spreading to diverse industries ranging from wholesale and retail to manufacturing-related services FDI amount in Manufacturing and Non- Manufacturing Sector from Japan (3) Compared with, ASEAN countries has attracted more FDI in total, especially contributed by large Non- Manufacturing sector investment in 3. Non-Manufacturing Sector FDI Ratio from Japan (FDI amount base, 8 and 3) Investment ratio in non-manufacturing sector has been increasing in most of ASEAN countries except the Philippines, in terms of both amount and numbers (Unit) mil.yen 9, 7% 8, 7, 6, Manufacturing Non-Manufacturing 6% 5% 8 3 5, 4% 4, 3, 3%, %, % % Source:JETRO analysis based on data from Bank of Japan 7

18 . Challenge of Mekong Sub-region Collaboration of local entities is yet to be achieved in Mekong sub-region Less Active in Local Business Collaboration Weaker Supporting Framework [Unit: MM USD] Amount of M&A in Manufacturing among Each Region(3) Potential to stimulate local business collaboration 9,44 *GDP by Manufacturing: 887,4 Transparency of Relevant Information Strength of Auditing & Reporting Standards Score(3) MekongASEAN India Japan *GDP by Manufacturing: 48,39,39.5% of GDP.% of GDP Existence of Information Hub.6 Venture Capital* Availability Score(3) The M&A amount among ASEAN countries to Conditions such as credit information transparency manufacturing GDP doubles that of Mekong, where and venture capital availability need improvement active business collaboration is needed to stimulate the collaboration of local entities Source:Thomson, WEF Global Competitiveness Ranking 3-4, Times Higher Education 4 modified by Deloitte Note;Scores of Mekong and ASEAN are arithmetic average of is scores of individual countries 8 Mekong ASEAN Mekong ASEAN India Japan

19 9 -Challenges in terms of Human Resources and Development (HRD)

20 . Challenge of Mekong Sub-region Labor cost of Mekong sub-region stays competitive to neighboring regions both in terms of growth rate and standard CAGR(%) Cost of labor supply in each region Myanmar Cambodia Growth of wage Vietnam Indonesia Phillipines Thailand Malaysia Singapore Lao PDR India ,6 Wage4(USD/month) Standard of wage Source:JETRO arranged by Deloitte Note: Wage CAGR is calculated by average wage for to 4 from Status Survey on Activities of Japanese Companies Operating in Asia and Oceania" by JETRO

21 . Challenge of Mekong Sub-region Expansion of Thai + to be a potential for further development with CLMV s competitive wage in view Thailand Cambodia Lao PDR Myanmar Vietnam Others (4) [Unit: USD/month].% Manager Manufacturing,43,574, % No data 4 37.% % % 79 8,34, India [Unit: USD/month] Factory worker Manufacturing % % 74 3 No data 3-7.9% 4 3.7% % India Source:JETRO arranged by Deloitte Note: Wage for each year is average wage from Status Survey on Activities of Japanese Companies Operating in Asia and Oceania" by JETRO

22 -Challenges with Local Business Collaboration

23 . Challenge of Mekong Sub-region Thailand has businesses in the top 5 ASEAN companies by market capitalization, is ranked nd after Malaysia # of companies in the top 5 ASEAN companies Malaysia Thailand Singapore Indonesia 8 4 PTT Advanced Info Service Siam Commercial Bank PTT Exploration & Production Kasikornbank Siam Cement Thai Beverage CP All Bangkok Bank Airports of Thailand Krung Thai Bank Philippines 6 PetroVietnam Gas Vietnam 3 Source:ASEAN UP

24 . Challenge of Mekong Sub-region Among Mekong s countries, Thailand has shifted its position from an investee to an investor Trend of (FDI Inflow FDI Outflow) / GDP (%) Investors Outflow > Inflow Investees Outflow < Inflow Thailand Lao PDR Vietnam Cambodia 4 Note: Myanmar data is missing Source:Deloitte analysis based on IMF and WB

25 . Challenge of Mekong Sub-region As the engine for the industrial growth of the region, local mega companies need to develop and grow, which will also bring growth opportunities to SMEs in Mekong sub-region Transition in the Number of Enterprises in Mekong, and India (Ranking, Forbes ) +36% 4 9 Mekong % % 48 India Cambodia SME Policy Index Analysis by ERIA 6 4 Development of mega-companies and vitalization of local SMEs in supporting industries are essential for the industrialization of the region Source: Forbes Global, ASEAN SME POLICY INDEX 4 TOWARDS COMPETIITIIVE AND IINNOVATIIVE ASEAN SMES (ERIA) 5 TTL.4 (-.) Lao PDR TTL.5 (-.) Myanmar TTL.9 (-.7) Thailand TTL 4. (+.5) Vietnam TTL 3.7 (+.) 7 7 Each Mekong Countries ASEAN Ave Institutional Framework Access to Support Service Cheaper & Faster Start up, Better regulations Access to Finance Technology & Technology Transfer International Market Expansion Promotion of Entrepreneurial Education More effective representation of small enterprises interests

26 6 -Challenges in terms of Research and Development (R&D) Activities

27 . Challenge of Mekong Sub-region Due to insufficient R&D capability building, Mekong sub-region is less active in R&D and thus upgrading of its industries # of PCT Patent Application per MM people(3) # of Researchers per MM people Mekong ASEAN Others Others Mekong ASEAN Others Others [Unit: # of Application] Cambodia Potential to stimulate R&D activities and patent application Lao PDR Myanmar Thailand Vietnam Indonesia Malaysia 4 Singapore 9 India [Unit: # of people] 8 No data 6 No data 7 No data CAGR % No data 9 CAGR % 93 6,438 4,38,643 CAGR 5% 66, CAGR 3% Cambodia Lao PDR Myanmar Thailand Vietnam Indonesia Malaysia Singapore India Source:Thomson, WEF Global Competitiveness Ranking 3-4, UNESCO, modified by Deloitte 7

28 8 -Challenges to Regional Connectivity

29 . Challenge of Mekong Sub-region Issues for hard and soft infrastructure related to connectivity still represent critical bottlenecks Bottlenecks on Possible Procurement from Mekong Sub-Region (Japanese Companies in Thailand).%.%.% 3.% 4.% Expensive Logistics Cost Total Logistics Time Expensive and unofficial payment at border clearance Time consuming customs clearance process Cumbersome documentation at customs clearance Logistics Cost (Time & Money) Border Procedure, Rules and Regulations Ambiguous logistics related regulation & arbitrary interpretation Absence of reliable logistics company Logistics related risks (e.g. cargo damage and losses) Underdeveloped hard infrastructure Absence o modern logistics related infrastructure Logistics Service Hard Infrastructure Other issues related to logistics Unreliable parts/compornents quality Issues on business credibility Absence of parts/compornents for procurement Restriction from standard and conformance Business Development Other issues reated to procurement source 9 Source:JETRO(4)

30 3 -Challenges in terms of Energy Supply

31 . Challenge of Mekong Sub-region Only Thailand has a comparable reputation to in terms of maintaining electric supply stability to production basis Electricity outages Proportion of electricity from a generator (%) Duration of a typical electrical outage (hours) Vietnam Thailand Indonesia Philippines Lao PDR Cambodia Myanmar Number of electrical outages in a typical month India * High proportion corresponds to significance of outage in countries. When outage is significant, firms invest in generator themselves as back-up power source Myanmar Cambodia India Vietnam Lao PDR Philippines Indonesia Malaysia Thailand Source:World bank

32 3 3. Future Mekong-wide Industry Structure

33 33 -Competitive Strength of Individual Countries

34 3. Future Mekong-wide Industry Structure Competitive strength of each country is a key viewpoint to suggest roles for the development of Mekong sub-region Potentials for Specialization & Collaboration View points Strength as Mekong sub-region Individual strength Cambodia Lao PDR Myanmar Thailand Vietnam R e s o u r c e 3 Knowledge/ productivity Labor supply Tangible resource and Infrastructure Strength in R&D of localized products and domesticated industries Strength in labor intensive industries by lower wage and growing population 4 Wage (CAGR) Popgrowth Strength in abundance and quality of natural resource $3 (8%*) $ (-4%) $7 (33%) -Strong in R&D of Auto and E&E industries $369 (9%) -Strong in R&D of E&E industries $76 (%).5%.7%.6%.3%.8% -Broad farmlands -Touristic sites -Rich water resource/fertile soil/various minerals -Un-exploited natural gas -Rich water resource -Touristic sites Rich water resource -Touristic sites Political stability P o s i t i o n Access to developing markets Access to developed markets Strength in proximity to high growing markets such as ASEAN and India Strength in exporting intermediate goods and other labor intensive products with leveraging FTA -Expanding intra-regional trading by leveraging AEC and CBTA -Inter-regional trading in Mekong sub-region is 5% less than ASEAN total, and the gap can be a white stretch -Connectivity to India, Bangladesh etc. to be enhanced by EC, deep ports and other infradevelopment projects -Potential growth as a production base to South Asian markets -Expanding inter-regional trading by leveraging RCEP and mega-ftas -Cost competitiveness to be enhanced by FTA -Strength in labor intensive industries to be enhanced too Source:JETRO arranged by Deloitte Note: Wage CAGR is calculated by average wage for to 4 from Status Survey on Activities of Japanese Companies Operating in Asia and Oceania" by JETRO

35 3. Future Mekong-wide Industry Structure Cambodia, Thailand and Vietnam maintains a better access to developed markets whereas Lao PDR ad Myanmar s trading is mainly within neighboring markets [Unit: MM USD] Import to Mekong by Country Export from Mekong by Country [Unit: MM USD] 4,93 3,6 6% 3% 4% 6% % 6% 3% % % % % 36% 7% % 9,65 8,393 84,839 4% % 8% % 9% % % % 3% 8% 7% 3% % % % % 4% 3% % 39% % % % % % % % % % % % % % 5% 4% 4% 3% 4% % 4% 7% 5,59,7 6,545 95,3 % 4% % 7% % % 4% 6% 3% % 5% % % 4% 7% % % 9% % % % 4% 5% % % % % % 5% 5% 3% % % % % 8% 6% % 5% 45% 6% 8% 4% 6% 7,37 % 4% % % % % % % 3% % 4% Cambodia Lao PDR Myanmar Thailand Vietnam Cambodia Lao PDR Myanmar Thailand Vietnam Europe Americas Japan Others Middle East India APAC Others Africa Source:UNComtrade arranged by Deloitte Note: APAC Others include Australia, New Zealand and Rep of Korea 35 ASEAN-Others ASEAN-Mekong

36 3. Future Mekong-wide Industry Structure Impact of RCEP, Enhancing Connectivity, and Developing SEZ Result of simulation by Geographical Simulation Model About Geographical Simulation Model GSM is a simulation model based on Spatial Economics, also known as New Economic Geography. To simulate the dynamics of population and industries for long term To analyze the effects of infrastructure projects and customs facilitation on the economic activities at prefecture level Road network of East Asia in IDE GSM 36 Source: IDE/ERIA-GSM Simulation Result

37 3. Future Mekong-wide Industry Structure Impact of RCEP, Enhancing Connectivity, and Developing SEZ Result of simulation by Geographical Simulation Model Scenarios Basic Scenario Overall Impacts on regional GDP (Impact Density, USD per square kilometer, 3) Trade Connecti vity AEC will be implemented. Non-tariff barrier of Myanmar will be decreased by 3% per year, reflecting regulatory reform since. Some infrastructure improvement are made in 5, which have completed by 5, e.g., the Tsubasa Bridge, the third and fourth Mekong Friendship Bridge, Yangon-Mandalay Expressway, and a unpaved road between Kanchanburi and Dawei. Basic Scenario + Development Scenario Trade Connecti vity Producti vity 37 RCEP will be implemented. Non-tariff barriers of Cambodia, Laos, Myanmar, Vietnam and Thailand will be lowered by.3%,.8%, 3.48%,.3% and.3% per year from 6 to 5, respectively. Additional infrastructure provision and improvement. The development includes road development, Dawei port project and border facilitations. Productivity increment for following cities is assumed reflecting the development of SEZ: Vietnam: Hanoi/Ho Chi Minh/Bien Hoa/Hai Duong Lao PDR: Banteay Meanchey/Batdambang/Phnom Penh/Krong Preah Sihanouk/Svay Rieng/Ta Khmau/Kaoh Kong/ Namtha/Vientiane Capital/Pakxanh/Thakhek/ Khanthabuly/Pakse Myanmar: Hpa-An/Myawaddy/Mandalay/Muse/ Dawei/Yangon/Tachileik/Kengtung/Kyaukpyu Source: IDE/ERIA-GSM Simulation Result Difference between development scenario and basic scenario Simulation starts from. National GDP of Asian countries in the model will be calibrated to fit to the actual value.

38 38 -Agriculture Sector

39 3. Future Mekong-wide Industry Structure Agro Mekong sub-region has potentials as global production base of agricultural machines and vegetables, by leveraging its resources such as labor and land/water Missing Industrial Value Chain Potential Value Chain in Mekong Necessary Policies 39 Market outlook Food demand in East Asia is expanding and diverting Economic growth of, India and other Asian nations leads a rapid growth of food demand and its variety (e.g. meat and vegetables) Growth potential are at pesticide/seed, agro-machine, fertilizer, and export product farming Mekong sub-region import products manufactured in high-value added value chain, such as pesticide / seed, agro-machine and fertilizer Mekong sub-region export some vegetables to growing neighbor economies, such as and other Asian countries. Still high potential for growth since and Japan import considerable amount of vegetables from distant production countries Input production Pesticide/seeds Agro-machines Fertilizers Materials Existing VC Missing VC Vegetables/fruits Agro-machine and export product farming are two major opportunities for Mekong subregion Since Agro-machine needs localization and on-site maintenance, Mekong competitiveness can be leveraged and high economic benefit was expected Mekong competitiveness, such as low wage and plenty water resources, can be leveraged for export product farming and to increase export to growing neighbor economies Free flow of service industry, capacity building, development of transport infrastructure will be required To invite more production of agro machine, transport infrastructure in village and capacity to manufacture agro machine have to be developed To achieve export product farming, transport infrastructure and high quality control skill have to be developed Farming Storage Process ing

40 3. Future Mekong-wide Industry Structure (Reference) Agriculture VC is smile-curved and the composition ratio of added value is high on machinery, pesticide and seed production Added-Value per Value Chains (estimate) Agro 4% Pesticide & Seeds 8~4% Added Value (based on the operating profit on sales) 4 7% 4%.7 Pesticide & Seeds * Agricultural Machinery 3~3% Agricultural Machinery * 3 Fertilizer 7~9% Fertilizer *3 Agricultural Materials 3~7% Agricultural Materials *4 Related VCs Agricultural Production.7% Storage/ Primary Treatment.7%~ Vegetable/Fruits Production / Added High Value *5 6 *:Estimated based on the operating profit on sales of the national chemical industry and Syngenta, *: Estimated based on the operating profit on sales of the national transportation product industry and Kubota, *3:Estimated based on the operating profit on sales of the national chemical industry and Yara International, *4: 3:Estimated based on the operating profit on sales of the national plastic product industry, the rubber products manufacturing industry and the chemical industry, *5:Added value of agricultural production is calculated based on the operating profit on sales of the national agricultural product organization, *65:Added value of storage/primary treatment is calculated based on the operating profit on sales of the national agricultural, livestock and marine products wholesale industry. Source: Ministry of Agriculture, Forestry and Fisheries of Japan, Kubota earnings briefing (US based), Ministry of Economy, Trade and Industry Japan, Yara International average rate of return (Investing.com), the Chemical Daily News, J-SMECA 4 Added value is relatively low but market size is large

41 3. Future Mekong-wide Industry Structure R&D hubs of major pesticide and seeds manufacturers are being consolidated in developed countries, which limits least players as its VS being R&D intensive Agro R&D Hubs of Global Pesticide/Seeds Manufacturers Syngenta Bayer Crop Science BASF Monsanto DuPont 4

42 3. Future Mekong-wide Industry Structure (Reference) The expanded import of all three major fertilizers in Mekong sub-region indicates the potential to expand fertilizer production in the region Nitrogen Fertilizer Phosphatic Fertilizer Potassic Fertilizer 4 (Million USD),5, 5 (Million USD) 6 4 (Million USD),5, 5 Import ,334 Viet Nam, 3 Note: No data available on Myanmar except, on Viet Nam in 3, on Lao, and on Cambodia in 5 Viet Nam 5 Source: UNCOMTRADE arranged by Deloitte Trends of Fertilizer Imports and Exports in Mekong Sub-Region 5 5 Cambodia 3 Thailand Myanmar Cambodia Thailand Note: No data available on Myanmar except, on Viet Nam in 3, on Lao, and on Cambodia in 9 Viet Nam 9 Thailand Thailand Cambodia Note: No data available on Myanmar except, on Viet Nam in 3, on Lao, and on Cambodia in (Millions USD),5, 5 (Million USD) 6 4 (Million USD) 6 4 Export Viet Nam 4 Thailand 3 Note: No data available on Vietnam in 3, and on Myanmar, Cambodia and Lao Thailand Cambodia 5 7 Viet Nam 6 3 Note: No data available on Vietnam in 3, and on Myanmar, Cambodia and Lao 5 5 Viet Nam Agro 5 3 Note: No data available on Vietnam in 3, and on Myanmar, Cambodia and Lao

43 3. Future Mekong-wide Industry Structure Low-production of natural resources in Mekong sub-region which can be used for fertilizer manufacturing (Reference) World Production of Raw Resources Agro (Billion m3 ) US Russia Iran Qtar Canada Norway Saudi Arabia Algeria Indonesia Malaysia Holland Turkmenistan Mexico Egypt UAE Uzbekistan Australia Trinidad and Tobago Thailand Pakistan UK Nigeria Others Natural Gas (3) Phosphate Rock () (,t) 8, US 8, Morocco 8, Russia, Jordan 6,5 Brazil 6, Tunisia 5, Egypt 3,5 Israel 3,5 Syria 3, Australia,65 Peru,544 South Africa,5 Viet Nam,3 Kazakhstan,6 Mexico,5 Algeria,5 India,5 Saudi Arabia, Others 39,8 Senegal Canada Uzbekistan Potash Ore (3) (,t) Canada,5 Russia 5,3 Belarus 4,9 4,3 Germany 3, Israel, Jordan, Chile, US UK Spain Brazil Others ,, 5, 5,, 5, 43 Source: U.S. Geological Survey, BP Statistical Review arranged by Deloitte

44 3. Future Mekong-wide Industry Structure (Reference) The expanded import of agricultural machineries in Mekong sub-region indicates the potential to develop agro machine industries in the region Trends of Agricultural Machinery Imports/Exports in Mekong Sub-Region Agro (Million USD) 8 Import* 8 8 Export* Viet Nam Myanmar Lao Cambodia Thailand % Thailand Viet Nam 44 Note: No data available on Viet Nam in 7 * Agricultural trailer/semitrailer, tractor, sower, planting machine and transplanter are mainly exported to Thailand from Japan, UK, India, South Korea and, and to Viet Nam from Belarus, US, India,, South Korea and Thailand. Source: FAOSTAT UNCOMTRADE arranged by Deloitte Note: No data available on Lao and on Viet Nam in 7. No figure recorded on Myanmar and Cambodia *: Agricultural trailer/semitrailer, tractor, sower, planting machine and transplanter are mainly imported from Thailand to Lao, Cambodia, Myanmar, Indonesia and Viet Nam, and from Vietnam to US, Cambodia and Australia.

45 Agro 3. Future Mekong-wide Industry Structure Strengthening local procurement/production is key for the successful VC as agricultural machineries being produced/exported locally within Mekong sub-region, based in Thailand Trends of Major Manufacturers of Agricultural Machinery in Mekong Sub-Region Thailand Viet Nam Myanmar Cambodia Lao Market Trend VC 45 High presence of Japanese manufacturers Tractors been monopolized by Japanese Produced in and exported from Thailand Kubota YANMAR Mitsubishi Agricultural Machinery High level of local production including main parts Competition among Japanese, US and Chinese manufacturers Weak competitiveness of state-own local manufacturers Mostly imported despite being locally manufactured Kubota YANMAR CNH Industrial BELARUS Assembling partially localized, but parts being imported Source: manufacturers press release, JETRO arranged by Deloitte Mainly Chinese and Thai manufacturers Tractors/ cultivators are mainly Chinese made Mostly imported except state-own manufacturers KD () Zwe (State-own) SONALIKA (India) Kubota Mainly imported (Expansion of Exports) Mainly Japanese manufacturers Imported via distributers from Japanese manufacturers based in Thailand Kubota Mainly Japanese manufacturers Imported via distributers from Japanese manufacturers based in Thailand Mainly imported Kubota Mainly imported

46 3. Future Mekong-wide Industry Structure (Reference) Vegetables and fruits are mainly exported from neighboring areas to be fresh, but not necessarily the case in big Asian cities Import (Billion USD) 55 % % 88 % % % 3 % 46 Source: UNCOMTRADE arranged by Deloitte World Trends of Vegetables/Fruits Imports 54 5 % 5 % 9 % 6 % 5 % 3 3 % Europe Americas Other Asia Pacific Japan India Americas Europe Asia Pacific India Japan 3 Americas Europe Mekong Africa 49 EuropeAmericas Africa 4 EuropeAmericas 4 Europe Americas Africa Other Asia Pacific Middle East Mekong Africa MekongAmericasASEAN Other except Asia Mekong Pacific 3 Americas 6 4 Middle East Other Asia Pacific Other Asia Pacific Middle East Other Asia Pacific Other Asia Pacific Africa Europe ASEAN except Mekong Middle East India Mekong India ASEAN except Mekong Japan ASEAN except Mekong Mekong Other Asia Pacific Mekong ASEAN except Mekong India India Europe Middle East Japan Japan Japan Middle East Japan Africa Agro (Billion USD) Others Others Others Others Others India

47 3. Future Mekong-wide Industry Structure Not only to maintain the high competitiveness on vegetable/fruit production due to its labor intensive nature, higher values need to be added for further export expansion Agro Possible Limits for Competition Current Situation in Mekong Limit by Cost As vegetable/fruit production being labour Intensive, labour cost is critical Cost Structure 3 % 33 % 3 % 5 % Seed Fertilizer Utility Labour Production Cost of Cucumber by Country 9 6 Total Cost Labour 4 3 Cost US Jamaica Mexico If the labour cost is cheaper, the total cost becomes less (USD) 4, 3,,, Lower labor cost in Mekong 3,36,69,734,3, Wage Comparison by City in Asia (Wage of General Engineer) Yangon Dhaka Phnom Penh Da-nang Vientiane Hanoi Ho Chi Minh Karachi Batam Mumbai Cebu Jakarta Ahmadabad New Delhi Tsingtao Manila Wuhan Shenyang Chennai Dalian Shenzhen Kuala Lumpur Bangkok Guangzhou Bangalore Shanghai Beijing Taipei Singapore Hong Kong Seoul Yokohama Other Limit Import/Export limits due to low quality of agricultural products (example) EU food safety inspection and recommendation against over-use of pesticide Hardware Side Software Side Insufficient expansion/development of cold storage and chain Accelerated efforts to improve safety and security of agricultural products to respond regulations such as Global G.A.P 47 Source: Agriculture & Livestock Industries Corporation, Nural Islam(99) arranged by Deloitte