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Cambodia, Laos and Myanmar Business Forecast Report Q1 2015

  • December 2014
  • -
  • Business Monitor International
  • -
  • 36 pages

Political Concerns To Weigh In 2015

Chinese assistance for Cambodia's economic development has ramped up considerably over recent years, and we believe that this is a trend that is set to continue. During Hun Sen's visit to China earlier in 2014, the Prime Minister secured an agreement that will see China provide USD500mn in grants and loans per annum to assist Cambodia in developing its woefully lacking infrastructure. Domestically, however, Cambodia continues to face significant political challenges despite the fact that the opposition has rejoined parliament. In particular, a group of Cambodians has lodged a complaint with the International Criminal Court (ICC) against a group of politicians, security chiefs, and business tycoons. The complaint alleges that Cambodia's ruling elite has systematically seized land from its rightful owners, and that in many cases this land has been sold to multinational firms. Given the strong vested interests associated with Hun Sen's regime, we believe that the probable inaction on the part of the government to address these issues will result in a further deterioration of support for the ruling CPP.

We believe ongoing efforts by the Laotian government to develop and strengthen the country's banking sector should help to place domestic banks on a much stronger footing over the coming years. Continued development of the sector would in turn provide the impetus for domestic banks to tap on the immense growth potential the underbanked local market has to offer. Strong economic growth momentum over the coming years should also bode well for banks' earnings. We forecast the country to grow at an annual average growth rate of 6.7% from 2015 to 2024. In terms of politics, we expect a largely stable political environment, owing to the tight rein on power by the Lao People's Revolutionary Party (LPRP). That said, it is also precisely the desire of the LPRP to hold on to power that will lead to continued political repression against any kind of opposition to its rule. Growing public dissent against the government will therefore continue to weigh on the country's long-term political trajectory.

November's ASEAN summit in Myanmar shone the spotlight on the country's political reform drive, which we believe has lost considerable momentum over recent months. In particular, the government has not shown the willingness to make substantive amendments to the constitution, suggesting that opposition leader Aung San Suu Kyi will not be allowed to run for president in 2015's general elections. Furthermore, it looks increasingly likely that the military (Tatmadaw) will retain its automatic 25% share of seats in parliament. Combined with efforts from the ruling USDP to adopt a proportional voting system rather than the first-past-the-post system that has been used in the past, it is likely that the USDP and Tatmadaw will maintain a considerable preference beyond the upcoming elections. At the same time, we also note rising risks that general elections may be postponed, as the government has tied the elections to a nationwide ceasefire which is looking more tenuous by the day.

Table Of Contents

Cambodia, Laos and Myanmar Business Forecast Report Q1 2015
Executive Summary 11
Chapter 1.1 Political Outlook - Cambodia 13
Domestic Politics 13
Heightened Scrutiny Over Land Policies 13
The increased international scrutiny of the Cambodian government's land policies, including a petition filed at the International Criminal
Court, is likely to deter foreign investors from undertaking projects in the country. However, we believe that a change in government
policy remains a long way off, as the continuation of the current system of patronage is crucial for Prime Minister Hun Sen to retain his
tight grip on the levers of power.
Table: Political Overview 13
Table: Macroeconomic Forecasts 14
Long-Term Political Outlook 15
Addressing Corruption And Inequality Will Be Key To Stability 15
Cambodia's long-term political outlook largely depends on the ruling Cambodian People's Party (CPP)'s ability to address widespread
corruption and income inequality, which have been fuelling public dissent against the government in recent years. The recent rise in
support for the main opposition party shows that the CPP's grip on power is waning, which could lead to heightened political uncertainty
over the coming years.
Chapter 1.2 Economic Outlook - Cambodia 17
Economic Activity 17
China Assistance To Boost Growth Potential 17
Cambodia's infrastructure is set to benefit from an acceleration in economic support from China over the coming years. The
establishment of Silk Road Fund by the Chinese government should be hugely beneficial to Cambodia's infrastructure, helping the
economic to move up the value chain in industries such as garment manufacturing.
Chapter 2.1 Political Outlook - Laos 19
Domestic Politics 19
Unending Political Repression To Jeopardise Foreign Aid 19
Political liberalisation in Laos will remain hard to come by, as we expect the Lao People's Revolutionary Party to keep a tight grip on
governance. Political repression will therefore likely persist, placing downward pressure on foreign aid.
Table: Political Overview 19
Long-Term Political Outlook 20
Growing Dissent Against LPRP Poses Risk Of Upheaval 20
Laos's long-term political outlook will depend heavily on how well the country balances the need to spur economic growth to achieve its
Millennium Development Goals and the need to address widespread corruption and dissent against the government.
Chapter 2.2 Economic Outlook - Laos 23
Economic Activity 23
Banking Sector Development To Progress At A Gradual Speed 23
The ongoing development of Laos' domestic banking sector will allow local banks to tap on the immense growth opportunities brought
about by continued strong economic growth and an underbanked local market. That said, progress on this front will be gradual, as a
deteriorating fiscal position will delay banking infrastructure development in the country.
Table: Economic Activity 23
Business Monitor International Ltd www.businessmonitor.com 3
Chapter 2.3: Key Sector Outlook - Laos 25
Power 25
Laos At The Forefront of Regional Grid 25
Laos is set to become the largest exporter of electricity in ASEAN, and this can be attributed to its geography and demographics. We
are also witnessing an increase in the level of cooperation in the power sector between member states of ASEAN.
Chapter 3.1 Political Outlook - Myanmar 27
Domestic Politics 27
ASEAN Summit Highlights Reform Struggles 27
The 25th ASEAN Summit has once again shone a spotlight on Myanmar's widely-followed economic and political reform process.
Although economic reforms have maintained momentum over recent months, political reforms have stalled in some areas, and we note
that the struggling national ceasefire process in particular could endanger next year's crucial general elections. Should these elections
not go ahead as planned, Myanmar's economy could be hit by a rapid deterioration in foreign investor perception.
Table: Political Overview 27
Long-Term Political Outlook 29
Regime Change From Within? 29
Myanmar remains one of very few Asian states to have withstood the tide of democratisation since the 1980s. Although Myanmar held
its first elections in 20 years in November 2010, these were widely considered a sham, with the military-backed Union Solidarity and
Development Party winning most of the seats. However, the government has since mid-2011 embarked on a surprisingly strong reform
path that is leading to its re-emergence on the international scene.
Chapter 3.2 Economic Outlook - Myanmar 33
Economic Activity 33
Moderate Kyat Sell-Off In Line With Medium-Term Forecast 33
The Myanmar kyat's recent sell-off is in line with our expectations for the currency to gradually depreciate as a result of the country's
rising trade deficit as well as moderate to high inflation. As such, we are happy to maintain our forecast for the unit to end 2014 at
MMK1,015/USD before selling off further to MMK1,046/USD by the end of 2015.
Chapter 4: BMI Global Assumptions 35
Global Outlook 35
Warning Signs Growing 35
Table: Global Assumptions 35
Table: Developed States, Real GDP GrowtH, % 36
Table: Emerging Markets, Real GDP Growth, % 37

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