DVan Cambodia 2015-SB edits 4-28 (JDS edits)

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Cambodia in AEC 2015 Context

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Exquisite Cambodia Challenges & Opportunities for AEC 2015 May 2015

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Most Liberal Economy within ASEAN Favorable geography; abundant resources Macroeconomic stability and sound financial sector Pro-business government Competitive investment incentives and protection, including a one-stop service investment promotion agency Preferential access to regional & world markets via trade and investment agreements BGA Cambodia | 2

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2000 2012 2013 2014 Total GDP (US$ Million) 3,649 14,036 15,191 n.a Avg GDP per capita (US$) 295 971 1,043 1,130 proj . Total Trade (US$ Million) 2,772 14,897 18, 324 19,125 proj . FDI Inflows (US$ Million) 218 2,277 4,483 1,610 Population (Millions) 13 14.3 14.7 15.1 est. Poverty Rate (% Population Living Below US$1.25/day) 37 18.6 n.a n.a Infant Mortality Rate (per 1,000 live births) 80 33.9 n.a n.a Cambodia: Key Economic Data BGA Cambodia | 3

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Invest in Cambodia and you have 14.7 million customers and 600 million more customers at your doorstep BGA Cambodia | 4

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Macroeconomic Stability and Sound Financial Sector BGA Cambodia | 5 GDP growth averaged 8% per annum the last 10 years Stable exchange rate Low inflation Debt to GDP ratio of 32.8 % (at the end of 2013) Low budget deficit International reserves on the rise

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Pro-Business Government BGA Cambodia | 6 Full foreign ownership of commercial entities allowed No foreign exchange controls Government private sector forum concept implemented since 1999; the best among other countries adopting similar approach

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Government Private Sector Forum World Bank Group: Support of structured public - private dialogue for private and financial sector development, 4/2009 BGA Cambodia | 7

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Inside SEZ Outside SEZ Fiscal Incentives Same regime: Corporate tax rate, tax holidays, duty exemptions. Same regime: Corporate tax rate, tax holidays, duty exemptions. VAT VAT suspension for all exported oriented activities. VAT suspension ONLY for garments and footwear production. Non Fiscal Incentives One Stop Shop at each SEZ: Investment approvals Minimum inspections (Customs, CAMCONTROL) Speedy import-export procedures: Duty exemptions Customs clearance Certificate of origin CAMCONTROL Lower electricity cost, better security, low insurance fees Fewer labor disputes One Stop Shop at the CDC: investment approvals, duty exemptions. Competitive Investment Incentives BGA Cambodia | 8

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Australia China P.R. Croatia Cuba Czech Republic DPR of Korea Germany France Indonesia Japan Kuwait Lao PDR Malaysia Netherlands OPEC OPIC Pakistan Philippines ROK Singapore Switzerland Thailand Vietnam In process: Algeria Bulgaria Egypt Libya Myanmar Qatar Russia Ukraine UK USA Hungary Malta Investment Protection Agreements BGA Cambodia | 9

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Preferential Access to World Markets BGA Cambodia | 10 Access to the U.S. market - 1996 Access to the E.U. market - 1996 Member of the Association of South-East Asian Nations (ASEAN) - 1999 Member of World Customs Organization (WCO) - 2001 Member of World Trade Organization (WTO) - 2004 Member of various regional trade agreements

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Australia Austria Belarus Belgium Bulgaria Canada China Czech Republic Denmark Finland France Germany Hungary Ireland Italy Korea Luxemburg Japan Netherlands New Zealand Norway Poland Portugal ROK Russian Federation Slovakia Spain Sweden Switzerland UK USA Generalized System of Preferences (GSP) BGA Cambodia | 11

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Progress & Opportunities: Integration into Global Economy via Trade BGA Cambodia | 12 Trade with ASEAN countries has almost doubled since 2009 , as well as risen significantly with other Asian neighbors. FTA’s: ASEAN continues to focus on its integration into the global economy by implementing and upgrading the ASEAN+1 FTA’s with China, Japan, Korea, Australia-New Zealand, Hong Kong and India. Regional Comprehensive Economic Partnership (RCEP): Will represent a combined GDP of about US$21.2 trillion (30% of global GDP) and a market of 3.4 billion people (half of the world’s population).

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ASEAN Economic Community BGA Cambodia | 13 The AEC, due to be implemented by 2015, will establish ASEAN as a single market and production base, making ASEAN more dynamic and competitive. An ASEAN single market and production base comprises five core elements: (i) free flow of goods; (ii) free flow of services; (iii) free flow of investment; (iv) freer flow of capital; and (v) free flow of skilled labor. Economic activities covered under AEC include: finance, tourism, transport, agriculture, forestry, competition, consumer protection, intellectual property rights, information and communication technology (ICT), energy, SME and connectivity. The AEC should lead to a 5.3% increase in regional welfare ($69 billion) due to elimination of non-tariff barriers, lower trade costs, and anticipated increases in FDI Source: “Realizing AEC: a Comprehensive Assessment,” Johns Hopkins University and Singapore Institute of International Affairs , 2009.

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Progress: Free Flow of Goods Category Status Agreements The ASEAN Trade in Goods Agreement (ATIGA) created a legal framework to realize the free flow of goods within the AEC. Mutual Recognition Arrangements (MRAs) are in place for testing standards in many areas. The Royal Government of Cambodia is in the process of preparing to implement the 1 st self-certification pilot project. Tariffs The ASEAN-6 eliminated their import duties for 99.2% of the total tariff lines by January 1, 2010. For the ASEAN-4 (CLMV) , 97.5% of tariff lines have been reduced to 0-5% by 2015 but some products granted flexibility until 2018. Non-Tariff Barriers/Customs ASEAN Single Window will be fully implemented by the end of 2015 , is a single point of decision for release of cargo, harmonizing standards of goods traded in ASEAN. BGA Cambodia | 14

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6 Progress: Free Flow of Services and Skilled Labor BGA Cambodia | 15 The ASEAN Framework Agreement on Services (AFAS) and ASEAN Agreement on Movement of Natural Persons (AMNP) eases restrictions on providing services and establishing companies across borders within the region. ASEAN has already signed 7 Mutual Recognition Arrangements (MRAs) for professional services such as Engineering Services, Architectural Services, Accountancy Services, Medical Practitioners, Dental Practitioners, Nursing Services and Surveying Professionals. BUT these agreements are subject to domestic regulations like national labor laws and regulations in ASEAN Member States. In the post-2015 AEC framework, the ASEAN Trade in Services Agreement (ATISA) will replace the AFAS. The ATISA will improve upon both the substance and form of the AFAS and respond to the needs and requirements of ASEAN in line with regional integration efforts.

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6 https://www.facebook.com/moc.gov.kh Progress: Freer Flow of Investment & Capital BGA Cambodia | 16 The ASEAN Comprehensive Investment Agreement (ACIA) aims to create an integrated investment region by harmonizing investment rules and progressively reducing investment restrictions. ACIA covers the 4 pillars of investment: liberalization, protection, facilitation and promotion. Further liberalization will be implemented to improve the investment regime and eliminate investment impediments according to global best practices. The ASEAN Recognition Framework for Mutual Funds will be an important step towards capital market integration. Cambodia is at the early preparation stage for joining the ASEAN Recognition Framework for Mutual Funds.

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15 Stakeholder Benefits ASEAN Businesses (including SME’s) Greater market access and lower input and transaction costs through elimination of tariffs and non-tariff barriers on goods and improved regulatory environment on services Improved trade facilitation via customs reform, improved transportation connectivity and logistics efficiencies, and improved ICT Rationalized rules of origin, product and technical standards ASEAN Professional s and Labor B etter employment opportunities and improved wages ASEAN Consumers A ccess to cheaper and wider range of imported goods and services More competitive domestic market environment and consumer protection AEC Opportunities & Benefits for the Region https://www.facebook.com/moc.gov.kh BGA Cambodia | 17

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https://www.facebook.com/moc.gov.kh AEC Opportunities & Benefits for the Region BGA Cambodia | 18 The ASEAN-4 (Cambodia, Laos, Myanmar and Vietnam) stand to gain the most from integration due to the following factors: Liberalization and reform efforts to improve efficiency and competitiveness, e.g., by leveraging the AEC to undertake politically sensitive domestic reforms; Access to ASEAN capital, investment, technology, technical assistance, development experience and best practices; Greater participation in global production networks and value chains; and Greater influence in regional and international negotiations.

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CAMBODIA’S READINESS FOR AEC PARTICIPATION AND IMPLEMENTATION Implementation of AEC Scorecard by Country, Phases I-III (2008-2013) Source: ASEAN Secretariat as of end 2014 ASEAN Done Not Done Total Implementation Rate Brunei 370 60 430 86.0% Cambodia 371 60 431 86.1% Indonesia 361 69 430 84.0% Lao PDR 360 67 427 84.3% Malaysia 372 63 435 85.5% Myanmar 361 67 428 84.3% Philippines 373 60 433 86.1% Singapore 371 54 425 87.3% Thailand 379 53 432 87.7% Vietnam 377 55 432 87.3% Cambodia’s Readiness for AEC Participation and Implementation BGA Cambodia | 19

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Area Benefit Tariffs EU will allow Cambodia to use inputs from ASEAN member states, except Brunei and Singapore, to produce goods in Cambodia and export to EU markets duty-free and quota-free. The garment, shoe and bicycle industries, for example, should all benefit. Technical Assistance and Technology Transfer Cambodia will continue to benefit from technical assistance and technology transfer provided by ASEAN-6 and other ASEAN dialogue partners like US, EU, Japan, China, Korea, Canada and India. Political and Economic Leverage Participating in the AEC will provide political and economic leverage when negotiating with stakeholders outside of the ASEAN region. Sample AEC Opportunities & Benefits for Cambodia BGA Cambodia | 20

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AEC Challenges for Cambodia BGA Cambodia | 21 Loss of import revenues when import tariffs are eliminated or reduced to maximum 5% Cost and complexity of executing transparency and investment reforms required to comply with ASEAN agreements Meeting international standards for exports Lack of skilled workforce and cost of education and healthcare reforms required to implement Limited financial resources to actively participate in all ASEAN economic activities Lack of knowledge regarding AEC 2015 and its implications Need to diversify its export commodity base, especially agricultural products, in order to take full advantage of integration

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Future Direction: AEC Post-2015 BGA Cambodia | 22 ASEAN will likely not be able to fully implement all of its intended reforms under the AEC by the end of 2015. As a result, under the leadership of Malaysia, this year’s chair, ASEAN has been developing a AEC Post 2015 Vision and ten year framework. ASEAN wants to deepen and consolidate ASEAN economic cooperation in the region, with ASEAN Dialogue Partners and the rest of the world. The draft AEC 2016-2025 framework will be submitted for endorsement by the 47th ASEAN Economic Ministerial in August 2015.

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For more information, please contact David Van at dvan@bowergroupasia.com

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