Indonesia-Malaysia-Thailand Growth Triangle (IMT-GT)

IMT-GT Economic Connectivity Corridor

In January 2007, the IMT-GT subregional cooperation initiative adopted a new Road Map to refocus its cooperation initiatives over 2007-2011.

The IMT-GT Road Map identifies four economic connectivity corridors as key to strengthening regional connectivity to support increased trade, investment and tourism:

• Extended Songkhla-Penang-Medan Economic Corridor;
• Straits of Melaka Economic Corridor;
• Banda Aceh-Medan-Pekanbaru-Palembang Economic Corridor;
• Melaka-Dumai Economic Corridor

The economic corridor approach has been identified as a core strategy for accelerated development of IMT-GT, and development of these economic corridors was declared a Flagship Project of IMT-GT at the 13th Ministerial Meeting of IMT-GT in Selangor in September 2006.

Study Initiated

Expanding Horizons: A Study on the Development of the Indonesia—Malaysia—Thailand Growth Triangle (IMT-GT) Economic Corridors was initiated by ADB as a first step in implementing a key recommendation of the new Road Map, by assessing the development prospects of the proposed IMT-GT economic connectivity corridors. The study is a preliminary assessment of the opportunities, constraints and challenges to developing the subregion's connectivity and thus strengthening its growth potential. The focus of this study is, consequently, on identifying the current status of existing infrastructure assets, potential areas for intervention and other areas where further research is necessary to fully develop and utilize corridor connectivity.

The economic corridor framework of cooperation is a focused approach to expanding cooperation in infrastructure projects, but also goes further in helping promote economic growth and social development.

It is a mechanism that integrates physical infrastructure to production, trade and investment, by way of minimizing non-physical cross-border barriers within a specific geographic area in order to promote increased flow of trade and investment, expanded access to raw materials and external markets, regional development in border areas, and increased efficiency in the use of economic space.

The process of enhancing IMT-GT connectivity should take into account, and indeed take advantage of, the synergies of the ASEAN wide initiatives on trade and investment liberalization and facilitation as well as the broader initiatives towards establishment of the ASEAN Economic Community (AEC) by 2015.

Experience and achievements of other subregional cooperation initiatives in the Mekong Region or Central Asia in promoting regional infrastructure connectivity should also be drawn upon as both models and benchmarks for development of economic connectivity corridors and regional infrastructure connectivity within IMT-GT.

Conceptual Framework

The conceptual framework of this study encompasses infrastructure connectivity as well as trade and investment for the simple reason that infrastructure is inextricably linked to trade and investment through its impact on transportation costs, competitiveness and productivity. Physical connections, especially transport links, are essential for the movement of goods, services, capital, people, and information across countries.

The study, therefore, focuses on enhancing regional infrastructure connectivity with an explicit recognition of the objectives of IMT-GT, which are promoting trade, investment and tourism in the region.

The study's framework also recognizes that physical connectivity alone is not sufficient in itself. It has to be enhanced by a combination of cross-border software (i.e. harmonization of regulations, procedures, and standards, open market and globalized perspectives, efficient transport logistics, and global transport networks).

Improvements in roads and railways can reduce transport costs, but they are not sufficient to encourage cross-border trade if different legal and regulatory frameworks, inefficient systems of customs clearance, and other barriers and logistical constraints are not removed. In this sense, greater physical connectivity requires regional/subregional cooperation for both cross-border hard infrastructure and related software. Currently, very little information exists on the transport and logistics constraints to trade within IMT-GT. To identify such constraints and establish benchmarks for quantitative assessment of progress in improving regional connectivity, it is necessary to undertake a rigorous and comprehensive study of transport costs and logistics development of the IMT-GT corridors.

Given the scale of needed investments in infrastructure and limited availability of public resources, private sector has to play an important role in enhancing regional infrastructure connectivity. A major obstacle identified by the private sector as inhibiting its involvement in regional infrastructure projects is the lack of a clear legal framework for its participation.

Government acceptance of risk-sharing between the public and private sector players is also important to attract private investment. IMT-GT stakeholders, including the governments, private sector and development partners should initiate structured policy dialog informed by empirical analysis to effectively enhance the role of private sector in infrastructure investments. A first step in this direction may be to initiate regional workshops to identify and disseminate an agenda and scope for such policy dialog.

Trade Potential

IMT-GT is a classic growth triangle characterized by strong economic complementarities, geographical proximity, and close historical, cultural and linguistic affinities between the participating countries. Yet, actual trading links between the three countries are far below potential.

The percentage of trade between IMT-GT member countries relative to total trade by each country is not high compared to their trade with other trading partners such as Japan, US and PRC. The largest trade flows are between Malaysia and Thailand who share a common land border, and relatively better infrastructure connectivity. Between 1995 and 2005, there was significant increase in Thailand's trade with Indonesia and vice versa, however, these are national-level data.

Data on trade specific to the IMT-GT region are not systematically collected and collated, and are thus not readily available. To enable quantitative assessment of regional cooperation in promoting intra-IMT-GT trade and to identify policy issues relevant to trade promotion in the subregion, there is an urgent need to develop a trade and investment database specifically for IMT-GT.

The First IMT-GT Leaders' Summit in 2005 had also recognized this, and called for development of such a database. Further, it is also recommended that the impact of infrastructure constraints on trade and investment be quantified by undertaking a comprehensive survey of the trade and investment climate in the IMT-GT subregion.

Findings from the survey and its analysis will help empirically inform policy dialog in infrastructure and logistic development of the IMT-GT economic connectivity corridors.

Since the start of IMT-GT in 1993, two studies have been undertaken on subregional connectivity. Both studies recognized and highlighted lack of adequate transportation connections and low levels of overall trade as significant constraints in the growth prospects of the IMT-GT subregion

IMT-GT Challenges

Efforts by IMT-GT to promote connectivity in the past show a mixed picture of achievements combined with lack of implementation of other good initiatives.

Some recommendations of the earlier studies were carried out, notably expansion of the Belawan port, development of the Satun-Kuala Perlis Highway, and some rural road maintenance, rehabilitation and improvement programs.

On the other hand, several proposed initiatives could not be implemented, partly reflecting the impact of the 1997 Financial Crisis.

The crisis affected the whole region, with Indonesia hit quite badly. Consequently, infrastructure needs and gaps today are relatively higher in Sumatra, Indonesia than in the Malaysian and Thai subregions of IMT-GT.

With economic recovery and a more stable economic climate, needed investments should be able to proceed at a faster rate than they have in the recent past.

Field work undertaken for this study along the proposed IMT-GT corridors also highlights several potential areas of constraints and bottlenecks.

The north-south corridor in Sumatra is currently a two-lane highway for the most part, and barely able to handle existing traffic volumes. Average travel speed on this corridor was only about 50 kilometers per hour in field estimates, compared to almost twice that on the north-south highway connecting southern Thailand to Peninsular Malaysia (the Straits of Melaka corridor).

The north-south Sumatra corridor will likely run into severe constraints within a few years as the traffic volumes continue increasing. There is need, therefore, for considering expansion of the corridor into a 4-lane highway at the earliest. There is also a need to prioritize the link of this corridor to the Dumai-Melaka corridor by improving the road between Pekanbaru and Dumai.

In addition, there is need to further address deterioration in road quality due to factors such as excessive loading of trucks and inadequate maintenance. Feeder roads into the north-south Sumatra corridor also need to be improved, and road rehabilitation and maintenance works need to be expanded.

Surface transport within Sumatra also needs to consider the role of railways, including the rail lines between Rantau Prapat–Duri–Dumai port and between Banda Aceh and Rantau Prapat.

More broadly, there is a need to undertake a thorough feasibility study of railway transportation in Sumatra. Sumatra also needs to review airport development, including accelerating implementation of the new airport in Medan.

Given the wide diversity of investment needs in infrastructure in Sumatra, including roads, ports, airports and railways, and in view of the large amounts of investments required, there is a need for IMT-GT to promote and support development of a Transport Sector Master Plan for Sumatra. At a subsequent stage, the Sumatra Master Plan could be extended to develop an integrated master plan for the entire IMT-GT transport sector.

Two of the proposed IMT-GT corridors are multi-modal, across the Straits of Melaka. These include the Extended Songkhla-Penang-Medan corridor and the Dumai-Melaka corridor. Their development will depend upon and in turn support increased maritime trade across the IMT-GT subregion.

Past efforts at promoting roll-on/roll-off (ro-ro) links across the Melaka Straits have had limited success, and there is need to better understand both the demand potential and supply constraints to the development of these two corridors. Consequently, there is a need at this stage to develop a detailed understanding of the maritime trade across the Straits of Melaka, in terms of its contents, costs, constraints and potential. This will require a study of ports and maritime trade in the IMT-GT subregion, which should also include within its scope movement of tourists.

Among the four proposed IMT-GT economic connectivity corridors, the Straits of Melaka Economic Corridor, connecting provinces in southern Thailand and states in Peninsula Malaysia along the western coast, is relatively most advanced in terms of transport connectivity.

Cross border trading arrangements between the two countries are also relatively well developed, with an active platform for bilateral discussions in the Joint Development Strategy. There is, nonetheless, substantial room for improvement in the software of transport connectivity, as well as in seeking to convert this transport corridor into a true economic corridor.

Analogous to the Silicon Valley for IT industry, this corridor can potentially develop into a dynamic regional and even global "Halal Highway". The proposed study of logistical constraints (para vi above) can be used to identify specific areas of further policy dialog and cooperation initiatives related to improving and strengthening cross-border trading arrangements.

The Road Ahead

Every long journey, it is said, begins with a first step. Enhancing regional infrastructure connectivity in IMT-GT through development of the proposed economic connectivity corridors is an ambitious undertaking, which will require a long time horizon, large amounts of public and private resources and most importantly, political commitment and open minds.

The study recognizes it is only a first step in a long road ahead. Not surprisingly, it raises more questions and areas of future enquiry than answers, but if in doing so, it contributes to greater stakeholder focus and policy dialog on developing IMT-GT regional economic connectivity, it will have more than achieved its modest ambitions.