Speech for Vietnam Business Council

Speech | 29 June 2012

Opening speech by Rita O'Sullivan, Country Director of ADB's Sri Lanka Resident Mission, at the Vietnam Business Council, Colombo, Sri Lanka

I would like to first touch on (i) ADB's operations in Sri Lanka, and then explain about (ii) the Greater Mekong Sub Region (GMS) Economic Cooperation Program, and finally on (iii) Trade Finance Program which covers beyond the GMS.

I. Economic Overview and ADB's Operational Strategy in Sri Lanka

1. With the end of the war and restoration of political and economic stability, Sri Lanka faces good prospects for rapid economic growth and development. Sustaining this level of economic growth would require an improved trade facilitation and regional cooperation, rapid development of infrastructure, fiscal consolidation, financial sector reforms, and prudent monetary and exchange rate management.

2. The Development Policy framework of the Government for the six years from 2010 to 2016 aims to increase GDP growth to above 8% in the medium term and double per capita income from the current level of $2,400 to $4,200. The Government has embarked upon an ambitious plan to remove infrastructure bottlenecks in the country and to reduce the infrastructure gap between Sri Lanka and the other countries in the region.

To increase and sustain growth at above 8%, investments have to be increased to 33-35% of GDP. Since the Government is planning to maintain public investment at 6-7% of GDP, increase in investment by domestic private sector and inflow of FDI is key to achieve the projected rate of economic growth. However, despite the improved political and economic environment after the civil war ends in May 2009, the growth in domestic and foreign private investments thus far, stands below the expected levels. Lack of investment, as well as scarce human resources, are likely to be critical constraints.

3. ADB's Country Partnership Strategy (CPS) 2012–2016 was approved in October 2011. CPS focuses on three pillars: (i) inclusive and sustainable economic growth, (ii) catalyzing private investment and enhancing the effectiveness of public investment, and (iii) human resource and knowledge development. Given the relatively small resource envelope, ADB's interventions will be strategically focused on a few sectors namely: transport, energy, education, public sector management, water supply and sanitation. The crosscutting themes of the strategy include the environment and climate change, gender, governance, and regional cooperation.

4.Over the next 3 years (2012–2014), Sri Lanka's total resource envelope will be about $900 million, an annual average of about $300 million ($100 million from ADF and $200 million from OCR). ADB will attempt to catalyze additional private resources to complement its projects through PPPs and credit enhancement products. ADB will also seek cofinancing opportunities from bilateral sources to expand the scope of proposed projects, especially in the urban and education sectors, and in climate change initiatives.

II. The Greater Mekong Sub Region (GMS) Economic Cooperation Programme

5. In Southeast Asia, in 1992, with assistance from the ADB and building on their shared histories and cultures, the six countries1 of the GMS launched a program of sub regional economic cooperation—the GMS Program—to enhance their economic relations, covering nine priority sectors: agriculture, energy, environment, human resource development, investment, telecommunications, tourism, transport infrastructure, and transport and trade facilitation.

6.Guided by the now famous GMS brand, articulated through the 3C's - enhancing 'connectivity', increasing 'competitiveness', and achieving a greater sense of 'community,' the GMS has enjoyed a period of sustained and buoyant economic growth over the last decade averaging 6.5%. Over the last decade, the GMS economic cooperation program has mobilized over $14 billion in completed and planned investments. It has facilitated and delivered multi-modal transport systems, anchored in transport/economic corridors, energy interconnections, and investments in the information superhighway-laying the basis for expanded physical connectivity, enhanced production and employment opportunities, and improved livelihoods.

7. Development of GMS Economic Corridors. The GMS Transport Sector Strategy (2006–2015) identified nine road corridors that will form the sub region's network of transport links. They form the base for the development of “economic corridors,” which integrates infrastructure development with the trade, investment, and other economic potentials of a set of specific geographical areas, while at the same time undertaking efforts to address social, environmental, and other potentially adverse impacts of increased connectivity.

8. Of the identified transport corridors, those that form the base of the three major GMS economic corridors have been substantially completed, namely, the North–South, the East–West, and the Southern economic corridors. The countries of the GMS have formed the Economic Corridors Forum to bolster efforts in transforming GMS transport corridors into economic corridors. The forum is designed to enhance collaboration among areas along the corridors and among GMS sector working groups, and will act as a single body focusing on economic corridor development. This will help improve interaction between the public and private sectors, and between central and local governments.

9. The tourism is another dynamic sector in the Greater Mekong Sub region and continues to be an important component of the overall GMS Economic Cooperation Program. Over the years and despite the recent global economic slowdown, the tourism industry has remained resilient and continues to serve as a driving force for poverty reduction by creating jobs, generating foreign exchange revenues, and enhancing the economic value of natural and cultural heritage assets. It has served as an instrument for empowering local communities through community-based tourism livelihood activities, and for promoting gender equality by linking women to the tourism economy through direct and indirect employment opportunities.

10. ADB has been an active partner of the GMS countries in the collective effort to harness the potential of the tourism industry to contribute to poverty reduction in the GMS. Since the establishment of the GMS Tourism Working Group in 1995, ADB has provided financial and technical assistance for a number of tourism-related initiatives. To date, ADB has provided about $55 million in loans and grants, and about $3.15 million in technical assistance to the GMS tourism sector. Among these are the completed Mekong Tourism Development Project and the ongoing Sustainable Tourism Development Project which have supported many components of the GMS Tourism Sector Strategy. Going forward and included in the ADB's Regional Cooperation Operations Business Plan for the GMS covering 2011-2013 are the proposed Sustainable Tourism Development Project Phase II (estimated at $60 million), and proposed technical assistance on Pro-poor Tourism Development along the Southern Economic Corridor, and Explore Mekong - Marketing the GMS as a Single Destination (together estimated at $ 2.4 million).

11. Medium-term Program of Actions for Transport and Trade Facilitation (TTF). The smooth movement of people and goods in the GMS is vital to ensuring both maximum benefits from subregional investments in physical infrastructure and the subregion's overall competitiveness. Toward this end, the GMS countries approved, in 2010, the comprehensive medium-term Program of Actions for Transport and Trade Facilitation (TTF). The program of actions encompasses (i) transport facilitation through enhanced exchange and implementation of traffic rights, improved custom transit systems, and the strengthening of road transport industry in the subregion; and (ii) trade facilitation through enhancing coordinated border management, improving the sanitary and phytosanitary regime in GMS trade, and developing the logistics sector.

12. The program of actions for TTF was developed based on a series of diagnostic and analytical assessments, including extensive consultations with GMS member countries undertaken since 2008. The program was endorsed by the 16th GMS Ministerial Conference. An important component of TTF initiatives is the Cross-Border Transport Agreement (CBTA) between the member countries. Implementation of the CBTA has been initiated at selected pilot border crossing points in the subregion. The CBTA provides a practical approach to streamlining regulations and reducing nonphysical barriers in the GMS. It seeks to simplify inspection procedures and visa formalities, promote exemptions from inspection of goods in transit, and enhance the exchange of traffic rights so that vehicles in one country can operate in the neighboring country.

13. ADB's support for trade facilitation in GMS include the following activities:

  • Support for Trade Facilitation and Capacity Building in the GMS (2006), $1.3 million
  • Implementation of the GMS Cross Border Transport Agreement (2006), $0.86 million
  • Enhancing Transport and Trade Facilitation in the GMS (2008), $1.8 million
  • Support for Implementing the Action Plan for Transport and Trade Facilitation in the GMS, Subproject 1 (2011), $2 million

14. Strengthening Local Chambers of Commerce and Industry along the East West Economic Corridor to Promote Trade, Investment and Value Chains (RETA 7521). The regional technical assistance (RETA) has provided training program to local Chambers of Commerce and Industry (CCIs) of provinces along the East West Economic Corridor (EWEC) in Lao PDR, Thailand and Viet Nam (Danang, Hue and Quantri provinces) in different aspects of CCIs functioning and outreach including promotion of trade, investment and regional and global value chains. The RETA has conducted value chains mapping study, identified organic vegetable value chain, and fielded consultant to three countries of the EWEC to work with CCIs and identified demonstrable and lead producers in organic vegetable value chain in each country. The project provided training course in steps and procedures in accessing regional and global markets in organic vegetables. This was followed by a field work to establish organic vegetables production clusters in Lao PDR, Thailand and Viet Nam. There are different types of clusters in each location which are linked to different types of supply chains and markets. In Viet Nam there is only one organic cluster that is the Bach Ma organic farm, near Hoi An, Danang and Keherb Village in Hue that links to organic tourism, i.e. home stay, teach tourists how to farm organic vegetables and how cook them as Vietnamese food. This cluster is also linked to the Khao Kho Thalephu Tourism cluster in Phetsaboun Province of Thailand. The project has provided training courses in the establishment of production clusters, how to viably manage and sustain the cluster and operate them while linking them to buyers, packaging houses and exporters.

15. ADB meeting strengthens regional supply chain for organic products. This week the GMS Chambers of Commerce, organic farmers, and regional supply chain firms from Lao PDR, Thailand and Viet Nam participated in a workshop in Bangkok organized by ADB's Thailand Resident Mission (TRM) to link producers to buyers, and a site visit to a packaging firm in Nakhon Pathom. The project has provided training in organic production technique, and is now in the process of obtaininf the GAP, IFOAM, and country organic certification. The final workshop which took place this week is expected to actually bring each cluster leaders and lead producers and role models to come in touch with each types of regional and global suppliers in organic vegetables following the long established field contact to share the markets requirements in terms of types of products, quantity, quality and safety standards, modalities of contract agreements, frequency of delivery. The producers and the buyers have had a panel discussion and face to face negotiations. At the end of the workshop, there were a signing of several MOUs and letter of intention between production clusters and suppliers and exporters to ASEAN, Asian, EU and US markets, which laid the foundation and commitments for future business contracts between producers and buyers.

III. ADB's Trade Finance Program (TFP)

16. With the lowering of traditional market access barriers, high trade transaction costs have become one of the most important obstacles that developing countries face in benefiting from globalization. The ability to move goods and services across borders rapidly, cheaply, and above all predictably is a critical determinant of export competitiveness. ADB's trade facilitation agenda, which focuses on measures to reduce the cost of trading across borders, is therefore not limited for GMS.

17. The Trade Finance Program (TFP) of ADB fills market gaps for trade finance by providing guarantees and loans to banks to support trade. The guarantees and loans are provided to partner banks in support of international trade. Backed by its AAA credit rating, ADB works with over 200 partner banks to provide companies with the financial support they need to engage in import and export activities in Asia's most challenging markets. With dedicated trade finance specialists and a response time of 24–48 hours, the TFP has established itself as a key player in the international trade community, providing fast, reliable, and responsive trade finance support during both economic downturns and times of growth.

18. A substantial portion of TFP's portfolio supports small and medium-sized enterprises (SMEs), and many transactions occur either intra-regionally or between ADB's developing member countries. The program supports a wide range of transactions, from commodities and capital goods to medical supplies and consumer goods.

19. ADB TFP Products include:

  • Credit Guarantee: ADB provides guarantees of up to 100% risk protection against nonpayment by approved participating banks, in support of trade transactions, responding within 24 to 48 hours of receiving a request.
  • Risk Participation Agreement: For banks with large and consistent trade finance volumes, ADB provides a maximum 50% risk protection against nonpayment of a financial obligation issued by a bank in support of a trade transaction. Unlike the CG product, the Risk Participation Agreement (RPA) provides risk protection on a portfolio basis, rather than on a transaction-by-transaction basis.
  • Revolving Credit Facility: ADB provides revolving loans to eligible banks for on-lending to importers and exporters to finance trade-related transactions. This product is most frequently used for pre-export financing.

20. ADB Trade Finance Program Banks in Sri Lanka are as follows:

  • Citibank N.A. (Colombo Branch)
  • Deutsche Bank (Colombo Branch)
  • ICICI Bank (Sri Lanka Branch)
  • Bank of Ceylon
  • DFCC Vardhana Bank Limited

Conclusion

ADB plays a facilitating role to assist stronger regional cooperation. It has a key role in the development and enhancement of SASEC, BIMSTEC and GMS plus the other regional areas shown in the attached map. ADB is committed to intra and inter-regional cooperation and is committed to help to unlock Asia's full growth potential.


1Cambodia, the People's Republic of China (PRC, specifically Yunnan Province and Guangxi Zhuang Autonomous Region), Lao People's Democratic Republic (Lao PDR), Myanmar, Thailand, and Viet Nam.