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Cambodia, Laos and Myanmar Country Risk Report Q1 2016

Cambodia, Laos and Myanmar Country Risk Report Q1 2016

Cambodia, Laos, Myanmar
0Cambodia

The arrest warrant for opposition leader Sam Rainsy on November13 confirms our view that the political truce knownas the 'culture of dialogue' between the government and theopposition is over. This raises the prospect of renewed streetdemonstrations and poses possibly the largest risk to Cambodia'sbusiness environment since the aftermath of the 2013 election.

Additionally, the conclusion of the Trans-Pacific Partnership(TPP) agreement will have mixed effects on the Cambodianeconomy. On the one hand, Vietnam's entry into the pact, andthe elimination of tariffs in its exports and textiles sectors willundermine Cambodia's export competitiveness in this area. Onthe other hand, Vietnam is likely to benefit in terms of low-techmanufacturing exports, providing Cambodia with an opportunityto piggyback on growth in areas such as auto parts assemblyas ASEAN economic integration increases under the ASEANEconomic Community.

Laos

Despite mounting headwinds stemming from weak global metalprices and the poor fiscal account, we nevertheless expect theLaotian economy to continue growing strongly on the back ofsustained foreign direct investment (FDI) inflows, particularlyto the hydropower sector. Accordingly, we forecast Laos' realGDP growth to only moderate from a forecasted 7.3% in 2015to 7.0% in 2016. Meanwhile, on the political front, Laos willremain a politically stable country, owing to the government'scontinued oppression against any public dissent to its rule. As aresult, our short-term political risk index score for Laos remainsat 80.4 out of 100, which is higher than the regional average of69.8. While the resulting poor human rights record will place thecountry under continued international scrutiny, it will likely havea minimal impact on its relations with key economic partnerssuch as China, Vietnam, and Thailand, which continue to providefinancial support to its ongoing socio-economic development.

Myanmar

Myanmar's opposition National League for Democracy (NLD)dominated the incumbent, military-backed Union Solidarityand Development Party (USDP) in November's general elections,setting the stage for an entirely new government in 2016.

The results were tantamount to a social and political catharsisfor Myanmar, which has been dominated by the military fordecades and bore witness to the decimation of the NLD in the1990s despite the fact that the party had emerged victorious indemocratic elections. Nevertheless, we note that the politicalsituation in Myanmar is still fraught with potential stumblingblocks as the NLD, USDP, and Tatmadaw will need to find a wayto work together. The formation of a new, NLD-led governmentwill also entail a veritable trial by fire for the largely untestedpolitical party, and uncertainties regarding the appointment of apresident remain. That said, we believe that the election results,as well as the statements of acceptance from both the USDPand Tatmadaw since, have thus far constituted an ideal outcomein terms of Myanmar's political and economic reform drive.


Executive Summary
Chapter 1.1 Political Outlook – Cambodia
Domestic Politics
Political Scene Looking Increasingly Precarious
The arrest warrant for opposition leader Sam Rainsy on November 13 confirms our view that the political truce known as the 'culture
of dialogue' between the government and the opposition is over. This raises the prospect of renewed street demonstrations and poses
possibly the largest risk to Cambodia's business environment since the aftermath of the 2013 election.
TABLE: POLITICAL OVERVIEW
Long-Term Political Outlook
Addressing Corruption And Inequality Will Be Key To Stability
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
Economic Growth Outlook
Mixed Impact From TPP Agreement
The conclusion of the Trans-Pacific Partnership (TPP) agreement will have mixed effects on the Cambodian economy. On the one
hand, Vietnam's entry into the pact, and the elimination of tariffs in its exports and textiles sectors will undermine Cambodia's export
competitiveness in this area. On the other hand, Vietnam is likely to benefit in terms of low-tech manufacturing exports, providing
Cambodia with an opportunity to piggyback on growth in areas such as auto parts assembly as ASEAN economic integration increases
under the ASEAN Economic Community.
Cambodia Sector Outlook
Demand For OTT Messaging Will Outweigh Video In 2016
The Cambodian market has strong growth potential in data, as illustrated by the popularity of OTT messaging applications. However,
we do not expect OTT video streaming platforms ' entrance in 2016 to kick off immediately due to connectivity and cost factors. To
penetrate the Cambodian market, OTT video streaming platforms will first have to partner with local operators to provide the services
zero-rated.
Chapter 2.1 Political Outlook – Laos
Laos Short-Term Political Outlook
Poor Human Rights Record Unlikely To Hinder Ties With Economic Partners
Laos will remain a politically stable country owing to the government's continued oppression against any public dissent to its rule.
The resulting poor human rights record will however not weigh on Laos' relations with its key economic partners China, Vietnam, and
Thailand. In addition, being the chairman of ASEAN in 2016, Laos is likely to adopt an even-handed approach to the South China Sea
dispute so as to maintain its own bilateral ties with China and Vietnam.
TABLE: POLITICAL OVERVIEW
Laos Long-Term Political Outlook
Growing Dissent Against LPRP Poses Risk Of Upheaval
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. Heavy reliance
on foreign aid and development assistance also means that the country's policies will remain susceptible to the political and economic
interests of its much more powerful neighbours.
Chapter 2.2 Economic Outlook – Laos
Economic Growth Outlook
Promising FDI Prospects Inform Constructive Growth Outlook
Despite mounting external headwinds, we expect the Laotian economy to continue growing strongly on the back of sustained foreign
direct investment (FDI) inflows. Accordingly, we still forecast real GDP growth of 7.3% and 7.0% in 2015 and 2016, respectively,
moderating from 7.4% in 2014. That said, the high operational risks that foreign investors still have to cope with in Laos will impede the
country from realising its full FDI potential.
TABLE: ECONOMIC ACTIVITY
Laos Sector Outlook
Laos To Drive SEA Hydropower Expansion
Hydropower capacity in the South East Asia region will increase by over 55% over the next decade with Laos being at the forefront of
this expansion and establishing itself as the 'battery' of South East Asia. Myanmar also boasts a significant hydropower project pipeline,
but the suspension of projects will stall capacity additions over our 10-year forecast period. Chinese and Thai companies will play a
fundamental role in the region's hydropower expansion.
Chapter 3.1 Political Outlook – Myanmar
Myanmar Short-Term Political Outlook
NLD Landslide A Boon, But Plenty Of Challenges Ahead
The NLD's landslide victory in Myanmar is a major step in the right direction for Myanmar both socially and economically, and the
new government's accession to parliament should provide significantly more certainty to foreign investors. However, the national
reconciliation process and the NLD's first attempt at governing Myanmar will be fraught with difficulties, and the military will retain
significant power.
TABLE: POLITICAL OVERVIEW
Myanmar Long-Term Political Outlook
NLD Assumes The Reins In Parliament, But Tatmadaw Still A Force
The Myanmar government has since mid-2011 embarked on a surprisingly strong reform path that is leading to its re-emergence on the
international scene. 2015's general elections were widely considered as a success, with the opposition NLD decimating the military-back
ed USDP. However, the Tatmadaw still wields significant power, and the national reconciliation and consolidation process will be fraught
with potential difficulties.
Chapter 3.2 Economic Outlook – Myanmar
Economic Growth Outlook
SEZs Provide Transport Infrastructure Opportunity
The development of special economic zones and economic corridors indicate significant potential for the construction of supporting
transport networks around these regions. The country's logistics potential and proximity to Thailand will also spur regional connectivity.
Myanmar Sectors Outlook
Strengthening Project Pipeline A Bright Spot Amid Subdued Outlook
Myanmar's proved crude oil and natural gas reserves will decline strongly over the next decade, as low oil prices slow investment
in upstream activities, limiting opportunities for new reserves additions. We highlight that the country's strong pipeline of exploration
projects and the possibility of a new bidding round in 2016 pose upside risk to our forecasts.
TABLE: PSCS SIGNED IN 2015
Chapter 4: BMI Global Macro Outlook
Global Outlook
Emerging Markets Bending, Not Breaking
TABLE: GLOBAL ASSUMPTIONS
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, %
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %

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