The dawn of ASEAN's frontier economies

The ASEAN (Association of Southeast Asian Nations) frontier economies of Cambodia, Lao, Myanmar and Vietnam (CLMV) are becoming the centre of attraction for FDI (foreign direct investment). Aside from being the world’s fastest growing economies, these countries boast a young population with low-cost labours and natural resources. Among the potential areas for investment include textile, clothing, footwear, food and beverage, banking, services, tourism and auto electronics. In recent years, these economies are opening up to the global market and governments are providing various investment incentives to attract foreign investors. Many efforts have also been taken by these governments to develop infrastructures, manufacturing parks and business hubs to lure FDIs onto their shores.

Asian giants such as China, India and Japan are taking advantage of this opportunity to expand their manufacturing bases into these countries for lower labour costs compared with other ASEAN economies. Even the small and medium businesses in Thailand and Malaysia are looking at grabbing a slice of the pie.

The United Nations Conference on Trade and Development (UNCTAD) predicts population of ASEAN's frontier economies to reach approximately 177 million with a labour force of up to 103 million by 2020. This amounts to about one-third of all populations in Southeast Asia.

The International Monetary Fund (IMF) in its Asia Pacific Regional Economic Outlook report stated that Myanmar’s gross domestic product (GDP) is expected to reach 7.5 percent in 2017 and 7.6 percent in 2018 compared with 6.3 percent achieved in 2016. Lao’s GDP is projected at 6.8 percent in 2017 and 6.7 percent in 2018 compared with 6.9 percent in 2016, Cambodia 6.9 percent in 2017 and 6.8 percent in 2018 from 7.0 percent in 2016 while Vietnam’s economy is targeted to grow at 6.5 percent in 2017 and 6.3 percent in 2018 from 6.2 percent in 2016.

“Currently, tremendous attention has been paid to the CLMV from global investors due to various factors such as abundant natural resources, plenty of low-cost labour, open trade policy, and the central location in the heart of ASEAN. As the competition in the global market intensifies due to slow global demand and a weak domestic economy, in order from the businesses to improve their competitiveness to gain from the opportunity in CLMV,” the Economic Intelligence Center (EIC), a unit of Siam Commercial Bank stated in a report dated August 6, 2015.

EIC also proposes four strategies namely cost reduction, value-added, market seeking and opportunity seeking in related business. However, businesses should bring along their existing expertise to compete with competitors from other countries. Having a decent local business partner will also smoothen local business operations.

In the ASEAN Investment Report 2016, UNCTAD stated CLMV countries continue to receive increasing attention from investors. With the exception of Cambodia, which saw flat influx of FDI, the other member states witnessed a strong increase of inflows in 2015. FDI flows in the CLMV countries rose by 38 per cent, from $12.6 billion in 2014 to $17.4 billion in 2015. Their share as recipients of FDI flows in the region rose from 10 percent in 2014 to 14 per cent in 2015. In general, investment in infrastructure, manufacturing and services rose. FDI from ASEAN remained an important source of investment for these member states. In 2015–2016, some ASEAN companies started operations, announced new investments and expanded their presence in CLMV countries.

Despite a five-fold increase in merger and acquisition (M&A) sales in CLMV countries, UNCTAD said the level of transactions remained nominal compared with those in major ASEAN member states like Indonesia, Malaysia and Thailand. However, foreign investors are increasing acquisition activities in CLMV countries, albeit being faced with a limited environment for M&As.