6 challenges to advancing GMS economic corridors

The Asian Development Bank
Cuong Minh Nguyen

Border checkpoint on the Lao side of the Mekong River. Supplied

The Greater Mekong Subregion (GMS) shows in stark relief how better linkages within and between countries can spur economic prosperity. A focus on developing the East-West, North-South and South economic corridors has driven development in GMS countries by integrating road systems to interconnect borders, urban centers, hubs of production, trade, tourism, and seaports.

The results have been impressive. Road density has more than doubled, and nearly 6,000 kilometers of roads have been completed with ADB support. Improved connectivity has significantly boosted trade and investment among GMS countries. Intra-GMS trade reached $413 billion from just $5 billion in 1992, while foreign direct investment increased from $229 million in 2001 to $2.7 billion in 2012. Cross-border tourism is rising, with almost 52 million GMS tourist arrivals in 2013, representing 3% of the global market.

But for all these and other advances, maximizing the potential benefits from economic corridors within the GMS remains a work in progress. Here are 6 key constraints to their future development.

1. Incomplete cross border and multimodal infrastructure network. There are still missing links and sections. A bulk of them are in Myanmar, which has only participated in corridor development since the country opened up in 2012. While most of major roads along the corridors have been completed, the feeder road network connecting the production and trade hubs with the corridor is not yet fully developed, and interoperability among different modes of transport is not efficient. A thorough review must take stock of what has been completed and what remains to be done, and maybe it’s also time to develop a new regional strategic transport framework that address not only cross-border road but also air, inland water, rail, and maritime transport.

2. High cost of doing business. The cost of trade between GMS countries varies widely and remains high except in Thailand. For example, the cost of exporting a container of cargo from Cambodia increased from $735 in 2005 to $795 in 2014, in the People’s Republic of China from $390 to $823, and in the Lao People’s Democratic Republic from $1,420 to $1,950. A similar pattern can be observed for imports. This is largely caused by non-tariff measures, inefficient cross-border procedures, lack of a customs transit system, and poor logistics services. Continued efforts to implement trade and transport facilitation measures are therefore critical to support further development of GMS economic corridors.

3. Tightly regulated transportation routes. Although the GMS Cross Border Transport Facilitation Agreement provides a regional platform for facilitating cross border road transport, trucks and other vehicles can only travel within designated routes after crossing the borders. The designation of certain routes in each country actually limits the network impact of economic corridors, so GMS countries should consider limiting their control to border crossings and allowing transport operators to select their routes within each country based on the actual needs of the market.

4. Underdeveloped logistics services. Substandard freight forwarding and delivery, packaging, retail, cooling facilities, coupled with inadequate infrastructure and poor-quality road networks, constrain the development of GMS economic corridors. Lengthy clearance processes at the borders and other technical barriers cause unnecessary delays and adding costs. Lack of data on GMS logistics performance—including data on cost and time of moving a container across borders—is also a problem. The GMS Freight Transportation Association should play a bigger role to address these obstacles, and other solutions may include preparation of a logistics service strategy as well as a performance index to provide data and benchmarks for monitoring progress and assessing impact.

5. Insufficient data on informal trade, cross-border labor movement. Border communities trade with each other, but goods are not always traded through designated crossing points either due to infrastructural constraints or cumbersome regulatory measures. In addition, it is estimated there are thousands of low-skilled and seasonal workers crossing GMS borders for work. These substantial flows of informal trade and low-skilled labor have significant socio-economic impact on the development of border economic zones along the economic corridors. But without more data and information, it’s hard to come up with a plan to harness the potential of cross-border goods and labor movement for corridor development.

6. Border provinces left behind. Border provinces play a dual role: they can be gateways for cross-border trade, and also be developed into Border Economic Zones (BEZs) to facilitate production and trade across borders. However, weak internal and external coordination, lack of basic facilities, and capacity and staffing challenges prevent border provinces from becoming effective gateways. Likewise, insufficient to finance, poor infrastructure, electricity, and substandard internet connection have made domestic firms—especially small and medium-sized enterprises—reluctant to invest in BEZs. As the GMS cooperation program is becoming increasingly centralized and run from ministries in capital cities, the participation of border provinces becomes less substantive and active. Since GMS economic corridors need vibrant border industries to achieve their full potential, the roles of GMS border provinces should be strengthened, including through the GMS Governors Forum and by creating an enabling environment for domestic investment in border provinces.