For the Asian Development Bank

Transcription

1 The G MS E ast W e st E conomic Corridor L ogistics Benchmark S tudy For the Asian Development Bank By The Centre for Logistics Research, Thammasat University & Supply Chain and Engineering Management, Chiang Mai University (Draft, 20/05/08) 1

2 Table of Contents 1. INTRODUCTION Back Ground of East-West Economic Corridor EWEC Profile Specific EWEC economic Profile EWEC COUNTRIES ECONOMIC STATUS EWEC Trade data Investment in EWEC Countries Investment and Trade Facilitation: Thailand Investment and Trade Facilitation: Lao PDR Investment and Trade Facilitation: Vietnam Human Resource Development in Logistics HRD in Logistics: Thailand HRD in Logistics: Lao PDR HRD in Logistics: Vietnam EWEC ECONOMIC HUBS The Economics Hub Determination Model Economics Hub Evaluation OTHER EWEC ECONOMIC DEVELOPMENT PROJECT Savan Seno Special Economic Zone Savannakhet Airport Development Common Control Area (CCA) LOGISTICS EVALUATION FRAMEWORK Logistics Definition Logistics Evaluation Model Infrastructure The institutional framework Shippers & Consignees

3 4.2.4 Service Providers A proposed framework to assess logistics system The macro logistics assessment framework The logistics snapshot methodology EWEC LOGISTICS ASSESSMENT Logistics Component Profile Logistics System Comparative Performance Indicators Benchmarking with Singapore: Import/Export Benchmarking to Myanmar: The World Bank s Logistics Performance Index Corridor Level Assessment framework EWEC Corridor Evaluation Danang to Tak EWEC future potential EWEC Reliability Assessment Comparison of Alternatives Economics Corridor Preliminary Benchmarking EWEC CONSTRAINTS & POLICY RECOMMENTATIONS Physical Constraints Non-Physical Constraints Policy Recommendations SUMMARY APPENDIX A: LOGISTICS PERFORMANCE INDICATORS SCORECARD

4 APPENDIX B: ECONOMICS HUB EVALUATION SCORECARD APPENDIX C: POLICY RECOMMENDATION APPENDIX D: COUNTRY PROFILE D1. Myanmar D2. Thailand D3. Lao PDR D4. Country Profile: Vietnam

5 I. 1. INTRODUCTION 1. The East West Economic Corridor (EWEC) Logistics Benchmark study, under the Enhancing the Development Effectiveness of the GMS Economic Cooperation Program, aims at investigating and evaluating the current status of EWEC integration as well as indicating an appropriate development direction in order to stimulate the economics growth of the sub region effectively. 2. The main purpose of this report is to analyse and benchmark the current status of the EWEC logistics system based on the methodology utilised in the Logistics Development Study of the Greater Mekong Subregion North South Economic Corridor by the Asian Development Bank in The first part of the report focuses on the EWEC economic development as well as the identification of EWEC economic hubs. This is done between Chapter 1 to 3. The second part of the report, Chapter 4 and 5 assesses EWEC logistics system both from a macro and corridor perspective. The last part is derived from the study s empirical results where policies are proposed that will reduce corridor development constraints and accelerate economic integration within EWEC. A. 1.1 Back Ground of East-West Economic Corridor 3. The East West Economic Corridor, also known as the EWEC is one of most recognised program of the Asian Development Bank (ADB) within the Greater Mekong Sub Region (GMS) initiative. This development program is named after the physical linkages in the transportation network from East to West across 4 GMS countries, i.e. Myanmar, Thailand, Lao PDR and Vietnam. The EWEC has access to 260 million people with a combined Gross Regional Product of 1,339 billion US$. There is more than 2.3 million square km. of resource rich area with an estimated 9,036 km. of coast line. 5

6 Figure 1. The EWEC in the GMS 4. The EWEC program started in 1992, in parallel with the GMS s other 11 flagship programs, such as the development of the North South Economic Corridor (NSEC), the Regional Power Interconnection and Trading Arrangements, Facilitation of Cross Border Trade and Investment. The strategic framework for the GMS envisions a well integrated and prosperous Mekong subregion that is free of poverty and committed to protecting the environment so vital to the sub region s future wellbeing. The EWEC program is one of the back bone of GMS connectivity. 5. It is clear from the onset that the EWEC is, location wise, a well defined geographical area within GMS countries and has great potential to integrate and support any development of other infrastructure and economic activities in the region. The EWEC program has been regarded as pragmatic, flexible, and results oriented as it tries to maximise synergies with national development efforts and promotes mutual trust and goodwill. This is done together with the clearly defined GMS vision and the 3Cs concept of Connectivity, Competitiveness and Community. B. 1.2 EWEC Profile 6. The East West Economic Corridor stretches from Mawlamyine in Myanmar to Danang in Vietnam through several cities in Myanmar, Thailand, Lao PDR and Vietnam. The 1,110 kilometre route is currently being utilised, albeit some missing links and not in its totality. Infrastructure was developed in order to support the physical linkages within the EWEC such as the Thailand Lao 2nd friendship bridge between Mukdahan Sawanakhet on the Thai Lao PDR border and Hai Van tunnel in Danang, Vietnam. The inland road comprises of both 2 lane highway as well as partly 4 lane highway in some area. The road link not only support activities occurring in the cities along the EWEC but also other activities of other economic network nearby or such as the North South 6

7 Economic Corridor, connecting Yunnan and Guangxi of China to Thailand via Myanmar and Lao PDR. Figure 2 illustrates the possibility for freight transportation to utilise the EWEC in comparison to the traditional sea route for trade. 7. Focusing on the basic infrastructure only, the almost complete transport corridor can be divided into sections in each member country for consideration as follow: 8. The EWEC in Myanmar covers from Myawady to Mawlamyine via Eindu village for a distance of about 200 km. The section from Myawady to Eindu village of about 160 km is part of the ASIAN and ASEAN highway route no. 1. Upgrading of the first (18 km) section between Maesot/Myawady to Thingannyinaung has been completed in June 2006 with grant aid from the Thai government. The section between Thinganyinaung and Kawrakeik is currently under survey for a detailed project report for grant aid from Thailand. The detailed design has been completed by mid There is a need to further develop the 40 km road section and two major suspension bridges between Eindu and Mawlamyaing to provide physical linkages with the western terminus of the EWEC. The rehabilitation of the remaining road section in Myanmar, and the upgrading or the development of a deep sea port at the western end of the EWEC needs to be considered to complete the physical aspect of the EWEC. 9. The EWEC in Thailand starts from Mae Sot to Mukdahan with a total length of about 619 km. About 280 km are now four lane divided highways whereas about 100 km are currently under construction to be 4 lane roads within the Thai government normal annual budget. Around 420 km of roads have been earmarked for improvement within the next 5 years. The existing road network along the Thai section of this corridor is generally a 2 lane paved all weather road in fair condition. There is only a 70 km section from Kalasin to Na Krai that needs full rehabilitation. 10. The 2nd Mekong Friendship Bridge including the connecting road at the Thai Lao border between Mukdahan and Sawanakhet has been funded by a JBIC loan. The total length of the project is 6.1 km including a bridge length of 1.6 km. 11. The EWEC in Lao PDR was completed in ADB and the Japanese government financially assisted in the establishment of the road. The road is 229 km long and 2 lane wide. The road surface is new and in superb condition, however, high maintenance cost is expected. 12. The EWEC in Vietnam starts from Lao Bao to Danang port. The road between Lao Bao and Dong Ha, which is 83.5 km long, has been upgraded to a class III road. The whole project was completed at the end of 2006, including the Lao Bao border checkpoint. The EWEC has its easternmost tip at Danang Port. The port has a capacity of 5 million tons per year and its freight yards and warehouses are nearby to support the increased throughput at the port. All the physical infrastructure projects on the Vietnamese side for the EWEC have been completed. 13. It can be summarised that the physical connections of EWEC are almost complete with some missing links in Myanmar as well as some condition improvement and upgrade across the physical route. 7

8 Figure 2. Traditional Sea Transport vs. EWEC inland route Figure 3. Trade Route: Bangkok to Ho Chi Minh City and Hanoi 8

9 14. Yet, if one were to focus on intra GMS trade alone, especially trading between Thailand and Vietnam (which are currently the most active trading partners on the EWEC.) via the EWEC in comparison to the traditional sea route (see Figure 3 hereover), the EWEC route is very competitive and promising in term of transit time while costing is less competitive (World Bank, 2007). This is particularly true for the Bangkok Hanoi route. 15. Therefore, it is necessary to have a more detailed picture of EWEC s logistics potential after the completion and rehabilitation of the physical infrastructure and the implementation of supporting institutional framework to facilitate the movement of goods, passenger and vehicles. C. 1.3 Specific EWEC economic Profile 16. Table 1 hereunder provides basic indication of the economic profile of major cities along the Here, the EWEC based on their Gross Provincial Product (GPP). 9

10 Table 1. General Economic Structure within the EWEC Economic Hub Area (sq. km.) GPP (million USD) Population GPP per Capita (USD) Sector Shares of Gross Provincial Product (%) Agriculture Manufacturing Other Industry Service Myanmar 675,577 79,081 42,909 mil 1, Thailand 513, ,294 65,872 mil 3, Tak 17, ,497 1, Phitanulok 10,815 1, ,508 1, Khon Kaen 10,885 3, mil 1, Mukdahan 4, , Lao PDR 236,800 3, mil Savannakhet 21, , Dansavan N/A , * 0.0* 0.0* 6.00* Vietnam 329,560 60, mil Hue 5, mil N/A 43.7 Da Nang 1, , Source: Bank of Thailand, 2006 National Economic and Social Development Board, Thailand, 2006 Board of Investment, Thailand, 2005 GSO of Vietnam 2006 and other sources * Lao PDR s government estimation 17. Based on these statistics, it is noticed that Thailand possesses the strongest economic capability with the highest GPP per capita as well as a higher share of value added manufacturing activity. However, when examining each EWEC city closely, the data shows that EWEC cities in Thailand, relatively speaking, may not be as strong economically as Lao PDR s cities on the EWEC. The GPP per capita of Tak, Phitsanulok and Khon Kaen are only half of Thailand s average GPP per capita, while Savannakhet s own GPP is at 85% of its national figure. On the other hand, cities in Vietnam are even economically stronger. Hue s is at 77% of its national GPP per capita while Danang is 29% above its national average. 18. In addition, most of the Thai and Lao EWEC cities are not manufacturing base, compared to Vietnam s EWEC cities. Here, it can be seen that even though Thailand, as a nation, is the strongest from an economic perspective, cities on the Thai EWEC are comparatively less industrialised than those on the Vietnamese section of the EWEC. 19. From a EWEC perspective, it can be stated that Vietnamese cities along the EWEC have already achieved a higher level of industrialisation than expected. This means that Thai and Lao cities along EWEC need specific economics promotion and investment policies as well as support from local and central government to enhance their economic contribution to the development of the EWEC as a whole. 10

11 Table 2. Industrial Structure of the EWEC Economic Hub Industry as Share of Total GDP (%) Provincial Share of National Industry (%) Industry Growth, (% per year) Industrial Employment (%) Myanmar Thailand 34.27% Tak 15.73% Phitanulok 8.75% Khon Kaen 29.28% Mukdahan 10.60% Lao PDR % * Savannakhet % 19.00** 5.00*** Dansavan N/A * 0.10* Vietnam 41.56% Hue N/A Danang Source: National Statistical Office of Thailand, 2007 National Statistical Office of Lao PDR Provincial Statistical Office of Hue & Danang * An estimated bases on data from National Statistic Center. ** for 3 year from *** An estimation which based on data from National Statistic Center and Savannakhet Province. 11

12 II. 2. EWEC COUNTRIES ECONOMIC STATUS 20. Statistical data in the EWEC countries are still not harmonised. There are still gaps that need to be filled. However, the available data does provide some insights on the importance of trade and its growth within the EWEC. A. 2.1 EWEC Trade data 21. Currently, there is a large variety of commodities moving across the GMS countries. Agricultural produce such as garlic, iron and steel,, fuel, minerals, garments, wood products and auto parts are among the major import and export commodities moving on the EWEC. The following table summarises the value of trade across the borders on the EWEC. Table 3. Trade in Selected EWEC Cities (in million US$) Year Tak Mukdahan/Savannakhet Dansavahn/Laobao Thailand Import from Myanmar Myanmar Import from Thailand Lao PDR Import from Thailand Thailand Import from Lao PDR Lao PDR Import from Vietnam Vietnam Import form Lao PDR N/A N/A N/A N/A Source: Ministry of Commerce Thailand General Custom Office of Vietnam 22. The trade relationship within EWEC countries can be illustrated by EWEC trade statistics at EWEC countries border crossings.. Tak is Thailand s western border gateway with Myanmar while Mukdahan is Thailand s eastern border gateway that connects to Savannakhet in Lao PDR. Dansavahn is the Lao PDR border crossing point that is adjacent next to Lao Bao of Vietnam. From the above table 3, it can be seen that trade relationship within the EWEC is constantly increasing in term of EWEC intra regional trade. The significant jump was in 2007 when the 2 nd Friendship Bridge was completed. Here, Thailand and Lao PDR import and export figure has increased by more than 72% from The trend is expected to increase when the institutional framework implementation process on the corridor is more synchronised. 12

13 B. 2.2 Investment in EWEC Countries 23. Investment being foreign or domestic is a key factor in stimulating trade, manufacturing as well as tourism activities in the region. Therefore, this section will focus on investment incentives of each EWEC country Investment and Trade Facilitation: Thailand 24. Thailand is the most experienced countries among EWEC countries in terms of Foreign Direct Investment (FDI). The investment issue in Thailand is directly authorised and controlled by Thailand s Board of Investment (BOI). Other EWEC countries has been inspired by the incentives given for foreign investment from Thailand and is regarded as best practice in the region, such as dedicated investment zones, tax, duty privileges, and duty exemption. Such incentives were able to attract foreign investors with as many as 439,304 investment projects accounting up to 9,923 million USD, during January to November However, most of the direct investment, Thai or foreign, has been targeted at areas that are not within the geographical scope of the EWEC. Thai EWEC cities have difficulties in attracting high value investment projects and are struggling in their support of local industrial development. 25. In term of trade facilitation, at present, there are several strategies to facilitate domestic trade as well as import and export activities upon many levels, i.e. WTO, ASEAN, APEC, GMS, BIMSTEC, etc. The Thai Department of Foreign Trade has a duty to promote good relationship between Thailand and its neighbours, this is a clear Thai policy that hope to leads Thailand into becoming an ASEAN s trade hub, with the intention of importing raw materials from neighbouring countries, increasing the income of the people in border cities, promoting regional economic and social stability and increase Thailand s market share through border trading. 26. Trade and customs facilitation in Thailand is a priority with the simplification and computerisation of the customs clearance system, the implementation of Electronic Data Interchange (EDI), the One Day Clearance project, the single window E Logistics, the postclearance audit, the customs gold card privilege, etc. 27. Currently, Thailand is studying the development and implementation of dedicated truck routes on the main freight network, therefore hoping to facilitate the movement of trucks across the country, as well as along the EWEC. This feasibility study conducted by the Office of Transport and Traffic Policy and Planning is currently in progress Investment and Trade Facilitation: Lao PDR 27. In order to fill the institutional gap in facilitating trade, investment and tourism along the EWEC, Thailand Lao PDR and Vietnam have signed a MoU on the Joint cooperation for maximising the utilisation of the 2 nd friendship bridge (Mukdahan Savannakhet) and the transport infrastructure along the East West Economic Corridor (EWEC)) on December However, one of the biggest 13

14 problems is the lack of capability from a Lao perspective to fully implement such agreement due to scarce human resources capable of operationalising institutional agreements. 28. In term of custom facilitation, according to an interview with a JICA expert at the Lao Ministry of Transportation, JBIC (Japan Bank for International Cooperation) has provided a loan to develop a Common Control Area (CCA) for Lao and Thai customers near the Lao side of the Second Mekong Bridge. 29. Recently, there has been new development in the Savan Seno Special Economic Zone (SEZ). The main objective of such project is to develop the foundation for the industrialisation as well as the economic modernisation of Lao PDR. The SEZ will not only support national development effort but also serve as a trade and service hub within the EWEC. The SEZ will as create jobs, upgrade Lao labour skills and know how. There are now two investors involved in the development of the SEZ. One is a joint venture between Japan Logistic System (Japanese), Global Logistic (Lao PDR) and KP (Lao PDR) while the other is Double A Paper Company from Thailand. 30. Many issues were raised by these private sector developers: Delays and complicated documentary procedures in getting approval from the Lao Ministry of Transport. Some issues are related to the involvement of other institutional agencies such as the Lao Ministry of Commerce and Industry. Savannakhet airport development is one key important project in regional development but there s no clear development direction yet. There is not enough cargo available to facilitate container re shipping and consolidation of cargo in Lao PDR. The Lao central government as well as the Savannakhet provincial government are aware of these shortcomings and are trying to solve all of these issues but solving institutional issues takes time. The time taken for issues resolution will play an important role in the sustainable economic development of the EWEC and Lao PDR as a whole Investment and Trade Facilitation: Vietnam 31. Based on the Vietnamese Commercial Law of 2005, the Ministry of Transport and the Ministry of Trade have already established Decrees related to the regulation of logistics activities. There is also encouraging practices from Vietnamese customs as the customs department is starting to apply single window as well as E customs through the use of information technology. 32. Industrial zones are being developed along the Vietnamese section of the EWEC. At Lao Bao, the Vietnamese border post with Dansavanh, there is an ASEAN shopping mall with some factories being established in the border vicinity. There are also a number of long term projects and programs aimed at enhancing the existing infrastructure or building new infrastructure in various areas in Vietnam to further improvement of transport efficiency and efficacy. 33. Within ASEAN, Vietnam and other ASEAN members country have agreed upon a roadmap for the integration of the logistics services sector. Vietnam as the lead coordinating country for the ASEAN logistics services integration is pushing strongly the trade, transit, transport, and customs facilitation agenda. 14

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16 C. 2.3 Human Resource Development in Logistics 34. Apart from Government led facilitation activities as discussed previously, it is important to understand the importance of human resource development. A lack of human resource capacity and capability will constrain the economic development of EWEC countries. Human resource development is one of the key drivers of logistics development. The following section presents logistics related human resource development (HRD) issue country by country HRD in Logistics: Thailand 35. The Thai government acknowledges the importance of human resource development in logistics. Several human resource development projects have been implemented aiming at increasing the skills of personnel in the service and manufacturing sectors. The public sector has not been forgotten and there are numerous in house training programs that support the understanding of logistics. Collaboration between logistics related authorities and local academic institutions are quite strong. Short courses, executive education as well as full time logistics degree are now available in Thailand. Research and development is relatively well supported in this field HRD in Logistics: Lao PDR 36. In Lao PDR, human resource development remains a constant struggle. Human resource development is not only for the private sector but also for officials at central and provincial governmental agencies. There seems to be a very large gap in the understanding of the implementation of related facilitation policies. There are discrepancies on what is understood at the central government level and how the facilitation rules are practised on the field. Presently, there are no university or vocational colleges offering logistics related degrees. The local freight forwarder association known as LIFFA is trying to offer short training course in freight forwarding HRD in Logistics: Vietnam 37. In Vietnam, the labour force in the field of transport and forwarding is quite abundant and experienced but for logistics there is a lack of qualified personnel. In Vietnam, there is no university or vocational colleges offering logistics related degrees. Currently, there are only diplomas and courses in logistics related topics such as shipping and port management. Vietnam s transportation sector does have some human resources that are able to manage their transport related activities well but their shortcomings are professionalism, as well as their ability to understand and integrate with other activities within the total logistics chain. 38. Staff working for logistics providers in Vietnam have to gain know how from seminars, workshops and short courses, self learning and on the job training. 16

17 III. 3. EWEC ECONOMIC HUBS 39. There are several cities along the EWEC, where specific role of each city in supporting EWEC economic development needs to be addressed. It is a fact that currently, EWEC cities are neither the main market nor the source of production like other major or capital cities in the respective EWEC countries. However, several value adding and logistics related activities can be developed that will support economic development on the EWEC. 40. It is therefore important to be able to identify which EWEC city have the potential to become economic hubs as these localised economic hubs will drive the development and growth of the corridor. This section will identify key economic hubs along the EWEC that can be targeted for further development. Each city along the EWEC possesses different characteristics and economic development policies should be city specific. An Economics Hub Determination Model (EHDM) can be used in order to reflect such differences in characteristics and hence determine the class or development level of each potential economic hub (city) along the EWEC. A. 3.1 The Economics Hub Determination Model 41. The Economics Hub Determination Model (EHDM) was developed based on key economic performance indicators that are widely used in determining a country s level of economic development. However, the evaluation scale has been adapted to suit the EWEC context. The following figure presents EHDM conceptual framework. Figure 4. Economics Hub Determination Model Source: Adapted from World Bank 17

18 42. The EHDM is composed of 4 dimensions and each dimension is made of several indicators as follow: (1) Economics: Gross Provincial Product (GPP), economic sector, industrial development, trade volume, international investment, population, tourism revenue, employment (2) Local Government Efficiency and Support: Local government budget, public service, policy direction and stability, economic development project, legal and regulatory framework, labour regulation (3) Business Environment: Labour, financial, ease of doing business, regulation, business supply chain and resources (4) Infrastructure: Basic infrastructure, information technology infrastructure, human resource 43. In this assessment model, some of the indicators are solely quantitative (the scorecard is in the Appendix) while some are qualitative based on expert judgemental criteria. B. 3.2 Economics Hub Evaluation 44. Based on the available data and the size of the cities, there are only 7 cities on the EWEC that have the potential to become economic hubs in the EWEC. These cities are Tak, Phitsanulok, Khon Kaen and Mukdahan for Thailand, Sawanakhet for Lao PDR, Hue and Danang of Vietnam. The evaluation is based on a 1 5 scale where 1 represents the least in the item and 5 represents the most. Scale for each criterion is consistent between countries. See Appendix B for the scorecard. The following table 4 lists the evaluation criteria and their results. Table 4. Hub Evaluation Tak Phitsanulok Khon Kaen Mukdahan Savannakhet Hue Danang Economics Gross Provincial Product (GPP) Economic sector Industrial development Trade volume International investment Population Tourism revenue Employment Local Government Efficiency and Support Local government budget Public service Policy direction and stability Economic development

19 project Legal and regulatory framework Labour regulation Business Environment Labour Financial Ease of doing business Regulation Business supply chain and resources Infrastructure Basic infrastructure Information technology infrastructure Human resource Source: Based on assessment by respective national consultant; existing literature and related stakeholders 19

20 45. The following figure summarises each hub s potential while the following discussion is an evaluation based on the 4 economics hub evaluation perspective. Figure 5. Hub Evaluation (Summary of Key Dimensions) 46. All of the cities on the EWEC have a GPP of less than 5 billion US$ and their international investment are below 1 billion US$. Phitsanulok and Khon Kaen in Thailand are enjoying relatively strong growth in the manufacturing sectors while for Hue and Danang in Vietnam the growth is more gradual. Savannakhet may have a relatively high employment ratio but this may also be because of labour shortage in the province itself. Khon Kaen is currently the best performer from an economic perspective while Danang and Tak (which are the gateway of EWEC) as well as Hue are among the weakest performers. 47. There is a very varied range of local government efficiency and support. Savannakhet seems to receive the most local government support while Hue receives the least. This is because the development Savan Zeno special economic zone that is currently in progress, while the province itself has a special economic status given by the central Lao government. On the other hand, Hue may seem neglected as even though it is located on the corridor while not functioning as a gateway. Based on a general local economic policy development, cities in Thailand s and Lao PDR can be considered well planned. However, implementation is still lacking as many local government do not have the means or the jurisdiction to implement specific EWEC support policies. 48. In general, the business environment within EWEC cities is still weak. Local business clusters are feeble with missing linkages to other supply chain members. EWEC cities are not so investment friendly. Labour availability and skills are fair in some areas but in some there is not enough labour at all. The issue of skilled labour is critical. Apart from Khon Kaen and Phitsanulok, most EWEC cities struggle from their uncertain business environment. This is especially true for Hue which is the weakest city in term of labour skills and availability. Savanakhet also lacks financial support facilities for business and is considered difficult to do business even though the province has a special economic status. 20

21 49. EWEC cities are considerably well endowed in terms of basic infrastructure especially, Phitsanulok, Khon Kaen and Savannakhet with relatively strong transportation network. Human resource in Thailand is comparatively strong where education and health facilities are sufficient. However, Hue and Danang are less developed in terms human resource. From an information technology (IT) perspective, all cities, except Hue and Danang, are generally ready. Khon Kaen and Phitsanulok have robust infrastructure while Hue and Danang are less endowed. 50. In summary, Phitsanulok, Khon Kaen, Savannakhet possess comparatively strong economic foundations and can be considered as potential economics hubs in the EWEC. Khon Kaen has the strongest potential based on the 4 dimensions. Phitsanulok is also well supported by its local government with a relatively business friendly environment and infrastructure readiness. Tak and Mukdahan are critical gateways with adequate infrastructure but comparatively lacks in the other dimensions. Savannakhet is another key EWEC city with its central position and sufficient physical infrastructure. The two EWEC Vietnamese cities of Hue and Danang are comparatively less developed in term of economics, local government support, business environment and infrastructure. Therefore, special attention must be paid in order to support the development of these two cities as potential EWEC economic hubs. 51. It is reminded that the hub determination model only identified potential EWEC economic hubs based on the available data. If Phitsanulok, Khon Kaen and Savannakhet are selected as economic hubs, then the role of the central government in supporting and developing the hubs should not be forgotten. Other EWEC cities must also be supported in developing their own economic activities and linkages that will help their integration into the EWEC. Linkages between cities in the EWEC are critical if logistics integration is to be developed. The economic development agenda should not be solely focused on the EWEC economic hubs but on the EWEC as a whole where each city has a specific role to play. This development agenda must be implemented to support not only economic development in the EWEC but also a more facilitating context for the private sector. Border crossings facilitation and sub regional ease of trade are key issues in the success of the EWEC. C RELATED EWEC Economic Development Project 52. The completion of Thai Lao 2 nd Friendship Bridge between Mukdahan and Sawannakhet is facilitating commodity and people movement along EWEC. It is expected that trading along the EWEC will increase significantly, the preliminary statistics do point in that direction especially for passenger/tourism traffic. However, there are currently 3 development projects that are ongoing and critical to the sustainability of the EWEC, especially from a Lao perspective. These projects are: 1. The Savan Seno Special Economic Zone 2. Savannakhet Airport 3. The Common Control Area Savan Seno Special Economic Zone 53. In order to use fully benefit from the EWEC and to stimulate economic development in Sawannakhet, the Lao government issued decree No. 147/PM (21/01/02) related to the Savan Seno Special Economic Zone, later replaced by No. 148/PM (29/09/03) and decree No. 177/PM (13/11/03) 21

22 on Management Regulations and Incentive Policies related to special economic zone act (SEZA) (SEZA, 2005; 2007). SEZA provides various investment incentives for investor. 54. The main objectives of the SEZ is 1) to make use of the potential of Savannakhet, to attract and promote investment, 2) to create jobs and upgrade know how and skill of Lao labour, 3) to develop the foundation of industrialization and modernization of Lao PDR and 4) to develop the SEZ to become a trade and service hub of the EWEC. 55. There are 3 sites in the SEZ, site A has 305 ha, site B has 20 ha, and site C has 10 ha. Site A focus is on the service sector including shopping centre, golf course etc. The Lao government has already signed a Memorandum of Understanding (MoU) with a Thai company entitled Thai Airport Ground Services (TAGS). TAGS is partly owned by the airport authority of Thailand (AoT) and is the concessionaire for the operation of the free zone area at Suvarnabhumi airport in Thailand. Site B focuses on logistic activities. There are two promoters developing site B, one developer is jointventure between Japan Logistic System (Japanese), Global Logistic (Lao) and KP (Lao). The other developer is AA Paper Company from Thailand. Site C is the industrial estate per se. The Lao government has already signed a MoU with a Malaysian company called Pacifica Streams Development in June The Lao government has a 30% share in the Malay Lao industrial estate development for site C Savannakhet Airport Development 56. Currently Savannakhet airport is not functional. The development of Savannakhet airport is an important project for GMS regional integration. The envisioned model for the airport is based on the Geneva airport model where Savannakhet airport can accommodate both domestic and international flights. Flights from airports in Thailand to Savannakhet airport will be considered as a domestic flight. Passengers will be transferred back to Mukdahan across the Thai Lao friendship bridge without going through immigration. Domestic landing rates and fees are lower and should attract more visitors to this particular area of Lao PDR. 57. If it is an international flight then all immigration formalities will be conducted at the airport. The Lao government has awarded a concession to operate Savannakhet airport to Thai Airports Ground Service (TAGS) but the current institutional arrangements between both countries are not conducive to the actual application of the Geneva model. There is an agreement in principal on how to share the airport but the actual implementation is still difficult as there are many national sovereignty issues Common Control Area (CCA) 58. The Common Control Area or CCA is a specially assigned restricted area, aiming at facilitating single stop inspection by Thai and Lao PDR officials as per the CBTA requirements. The Japan Bank for International Cooperation or JBIC has provided a loan to develop this Common Control Area (CCA) for clearance between Lao PDR and Thailand on the Lao side of the Second Mekong Bridge. The CCA will be finished by mid The CCA facilities include cargo, warehouse, inspection facilities, etc. However, there are still institutional constraints related to Thai legislation that forbids Thai government officials to perform their duty outside the Kingdom as well as forbidding foreign officials to perform their duty in Thailand. This is interesting as in reality US homeland officials are working in Laem Chabang port screening goods destined to the US where in reality they should be 22

23 forbidden. It is possible that the implementation of this rule is based upon the existing bargaining power in the bilateral relationship. 59. In contrast, the CCA between Lao PDR (Densavan) and Vietnam (Lao Bao) has been in operation since This was ADB s CCA pilot project where officials from both countries jointly check and inspect goods crossing this particular border point. The only problem seems to be the existing physical facilities on the Lao side which is not sufficient to accommodate officials from Vietnam to perform their duty. Request for further funding for expansion purposes has been made. 23

24 IV. 4. LOGISTICS EVALUATION FRAMEWORK 60. One of the main objectives of the report to evaluate and benchmark the logistics potential for each EWEC countries and therefore deliver an appropriate development plan based on win win situation. Hence, the concept of logistics must be defined first. Then the logistics evaluation model based on an in depth understanding of the AS IS situation of the logistics system of a country or a region is used to measure the current situation of the four logistics related dimensions as well as a snapshot methodology to graphically illustrate logistics corridors based on logistics corridor activity mapping. The proposed methodology can clearly illustrate where the strong and weak points within any logistics corridor is or are. A. 4.1 Logistics Definition 61. Logistics is difficult to specify and define. It was only recently that the scope of logistics expanded to cover more than just the handling of materials or transportation activities. It now has a broader scope that encompasses a collection of activities that facilitate the economic transactions associated with production and trade. 62. Logistics does not cover only the physical movement of goods (e.g., procurement, transport, consolidation, trans shipment, storage, and packaging) but also the facilitation of the movement through the processing of documents, coordination among participants, monitoring of activities, and financing of transactions. 63. Logistics is part of supply chain management. Whence goods, people and information are to move within the supply chain, eg, from supplier to manufacturer or from manufacturer to end user, logistics duty is to link members within the supply chain. Well managed logistics system will result in the reduction of cost and time which will eventually lead to increased competitiveness of the firm or the supply chain as a whole. 64. In general, it can be said that logistics is comprised of the following activities: (1) customer service & support, (2) demand forecasting & planning, (3) sourcing, (4) inventory management, (5) logistics communication & order processing, (6) material handling & packaging, (7) transportation, (8) reverse logistics and (9) facilities site selection, warehousing, and storage (Grant, et al., 2006) 65. Logistics adds value to businesses by placing goods and services where they are needed to make the business successful in meeting customer needs. In this sense logistics is a derived demand of trade. However, precaution must be taken when trying to formulate logistics related policies at a national or regional level. Logistics is a firm level concept but is at the same time considered an important driver in sustaining a country s or a region s competitive advantage at the same time. In most countries there is still a lack of understanding of the concept of logistics and how a national logistics development policy can be developed. The most common mistake seems to be where a logistics development policy is nothing more than a transport investment infrastructure plan. 66. In order to evaluate the logistics potential of EWEC, the concept and definition of the factors of interest must be clarified. 24

25 B. 4.2 Logistics Evaluation Model 67. A regional or a macro logistics system, is composed of (1) shippers, traders, and consignees; (2) public, private sector logistics and transport service providers; (3) provincial and national institutions, policies, and rules; and (4) transport and communications infrastructure. Figure 4 hereunder is the standardised logistics assessment framework that is utilised to understand macro logistics system. 68. Figure 6 shows how these four logistics related dimensions are inter linked to determine the overall capability of the macro logistics system within the scope of the geographical area under scrutiny in terms of system capability and performance. Infrastructure Service Provider Logistics System Institutional Framework Shippers/Consignees Figure 6. Macro Logistics System Components Infrastructure 69. Infrastructure is the backbone or the hardware of the logistics system. Having a good transport infrastructure is critical for the physical movements and storage of shipments. Communications infrastructure supports the efficiency of these movements, particularly across borders and in modal interface areas where customs is involved in addition to other stakeholders. Modal interface areas link at least 2 modes of transport such as road/air or rail/sea, etc. 70. In order to monitor the infrastructure impact on the logistics system, the status of each transport modes will need to be assessed on a continuous basis as follow: (1) road, (2) ports, (3) inland waterways, (4) rail and (5) air The institutional framework 71. There are many aspects of the regulatory and institutional environment that affect shippers, traders, exporters and logistics service providers in terms of their operations. These include rules and regulations concerning imports and exports, financial regulations (e.g. letter of credit rules and ability to exchange currency), registration and licensing of service providers, customs procedures, border crossing procedures, and even on the type of logistics services that can be offered. Too many complex rules and regulations will impede on the movement and storage of goods, services and 25

26 information within the logistics systems. This institutional framework is the software that authorises, facilitate, impede or forbid the movement and storage of freight on the existing infrastructure. 72. In order to monitor the institutional framework impact on the logistics system, the following indicators can be used: (1) trade openness (Import + Export/GDP), (2) average time needed for export, (3) average time needed for import and (4) average number of documents Shippers & Consignees 73. Traders may be shippers or consignees or even both. They are the principal users or the customers of the logistics system. They require that their goods move through the logistics system effectively and efficiently, both as inputs to and outputs from their businesses. Since logistics is part of supply chain management, logistics systems serving shippers and consignees must also interface and integrate effectively with suppliers and customers logistics system. 74. Shippers and consignees in the region have different levels of knowledge and understanding of their logistics system, they will have different sensitivities to price, time and/or reliability. In order to monitor shippers and consignees logistics capability, the following indicators can be used; (1) average export cost per TEU and (2) average import cost per TEU, whereas time and reliability factors are to be reflected in the service provider perspective Service Providers 75. Public and private logistics service providers represent the logistics industry. The quality and range of logistics services provided by the logistics industry depend on the structure of the logistics industry itself, the contractual arrangements for providing logistics services, as well as the skills and competence of the service providers themselves. 76. Here, in order to monitor logistics service providers capability, the following indication can be used; (1) service quality level or meeting customers expectations, (2) global coverage, (3) liability, (4) reliability, (5) track & trace capability and (6) document accuracy C. 4.3 A proposed framework to assess logistics system The macro logistics assessment framework 77. In order to formulate an adequate logistics development policy, a methodological framework is needed. The purpose of the framework is to describe the current logistics situation also known as the AS IS situation within the geographical area under study. 78. A national or regional logistics scorecard based on the 4 components of a macro logistics system presented hereover can be utilised as a starting point in terms of data that is required to be collected for evaluation purposes. The four components of a logistics system are: infrastructure, institutional framework, service providers and shippers/consignees. 26

27 79. The data collected based on the scorecard could provide an evaluation of the capability of the actual logistics system as well as its strengths and weaknesses. This will enable policy makers to develop policies that will help improve any logistics related issues within the logistics system itself. Logistics development policies need to match the TO BE situation which is based on policy makers vision of how the macro logistics system should be or behave. 80. However, the macro logistics framework has its limitations. The output of the macro scorecard can only be utilised to provide an overall assessment of the macro logistics system under study. The framework is not precise enough to describe specific issues in logistics corridors. Therefore a snapshot methodology should be utilized in conjunction with the overall assessment to provide an indication of specific logistics system performance. This is particularly true when assessing the performance of a given logistics corridor where the origin and destination are clearly defined The logistics snapshot methodology 81. This snapshot methodology is used to map logistical activities for specific products moving within a given logistics corridor. The following table is a template for the data that is needed to draw the logistics cost and time map. Table 5 is similar to a simplified process activity map. Table 5. Template for simplified process activity map Activity No Average Time Range Of Time Average Cost Range Of Cost Source: The Authors Actors Documents/ Operations Distance (cumulative) 82. When the data is collected for a particular product along a particular corridor, the data can then be graphically illustrated in a logistics corridor cost and time model. This model will help describe the cost and time components of movement from origin to destination by each available route and mode as well as to illustrate the delays at borders or other inspection points up to the point of destination within a given logistics corridor. 83. The proposed logistics snapshot cost and time model includes costs and time associated with transport by any mode (road, rail, inland waterways and sea) and with transfers between modes (at ports, rail freight terminals and inland clearance depots) as components. The model is based on the premise that the unit cost of transport varies between modes and this will be reflected in the cost curves. In terms of volume movements, sea transport is generally cheapest per tonne per kilometre and road transport is normally the most expensive, with transport by waterway and rail in an intermediate position. 27

28 Intermodal transfer Road to Sea Intermodal transfer Rail to Road Road Sea Port Rail Intermodal transfer Road to Rail ICD2 Sea Destination: B xxxx kms Total Cost: xxxx USD Road ICD1 Origin: A Figure 7. Sample of Snapshot Illustration 84. The cost and time data gathered is then plotted against the distance for each leg of the journey. In the case of costs or quotes, the figure will graphically show the relative cost of each leg (or mode, where applicable), as well as indicate the approximate proportion of non transport costs in relation to transport costs. Further information, for example, a breakdown of costs at border crossings or ports, can highlight areas for action by policy makers. 85. Similarly, by plotting time against distance, the relative speed of transit transport for each leg (or mode) can be compared, and the bottlenecks at transhipment points can be identified. As a rule of thumb; the higher the vertical step the more likely that the border crossing or the nodal link is a bottleneck in the logistics corridor. 28