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Investment brief Asia’s emerging gems pwC Asia’s emerging gems: Investment brief Malaysia Thailand Disclaimer “Asia’s emerging gems” is published by PricewaterhouseCoopers (PwC) for distribution to its business associates. This publication includes information obtained or derived from a variety of publicly available sources. PwC has not sought to establish the reliability of these sources or verified such information. All such information is provided “as is” and PwC does not give any representation or warranty of any kind (whether expressed or implied) about the suitability, reliability, timeliness, completeness and accuracy of this publication. This publication is for general guidance only and should not be construed as investment advice or any other professional advice. Accordingly, it is not intended to form the basis of any decision and you are advised to seek specific professional advice on any transaction or matter that may be affected by this publication and/or before making any decision or taking any action. ISBN 978-983-41238-1-9 2 Asia’s emerging gems: Investment brief Vietnam Cambodia Laos Foreword 4 Country facts & figures 5 Country economic performance 6 Vietnam 47 At a glance Economic overview Leading corporates Investment overview Fiscal stimulus packages Tax brief Market insights 48 49 52 54 59 60 63 Cambodia 65 At a glance Economic overview Investment overview Tax brief Market insights 66 67 70 71 73 Malaysia 9 At a glance Economic overview Leading corporates Investment overview Fiscal stimulus packages Tax brief Market insights 10 11 14 16 22 24 27 Thailand 29 At a glance Economic overview Leading corporates Investment overview Fiscal stimulus packages Tax brief Market insights 30 31 34 36 40 42 45 Appendices Laos At a glance Economic overview Investment overview Tax brief Market insights 76 77 80 81 83 Appendices 85 Sources Abbreviations Glossary of ratings List of charts PwC contacts Industry contacts Acknowledgements 86 87 89 91 94 96 98 PricewaterhouseCoopers 3 Foreword Multi-faceted economies, culturally diverse and highly populated with vast potential. That is Southeast Asia, at a glance. The region’s potential is hard to ignore strategically located at the centre of Asia Pacific, these economies are also driven by the phenomenal growth of China and India, as well as the dynamic demands of the region’s large populace. And with green shoots bringing a sense of optimism, more so to Asia which is poised for a strong recovery and sustainable growth, investors are looking towards the region for continued growth and opportunities. The Southeast Asian countries are at varying stages of development, each with a unique set of characteristics, ranging from sociodemographics to economic base, to investment drivers. 4 Asia’s emerging gems: Investment brief Given these robust developments, we believe you will find this publication useful in bringing you market insights across Malaysia, Thailand, Vietnam, Cambodia and Laos. We hope “Asia’s emerging gems” provides useful and refreshing insights on the investment opportunities in each of these countries. Even more so, we hope it makes you want to invest in this region. Sincerely, Johan Raslan Prasan Chuaphanich Executive Chairman PwC Malaysia Executive Chairman PwC Thailand September 2009 Country facts & figures Malaysia Thailand Vietnam Cambodia Laos Population (mln)1 27.3 66.4 86.8 14.6 6.3 GDP (US$ bln)1 222.2 273.2 89.8 11.2 5.2 8,140.6 4,115.3 1,040.3 818.0 840.7 GDP growth (%)1 4.6 2.6 6.2 6.0 7.2 Inflation (%)1 5.4 5.5 23.1 19.7 7.6 Exchange rate (Home currency to US$1)2 3.52 34.06 17,798.0 4,164.0 8,517.5 Stock market closing index2 1,075.2 597.5 448.3 N.A N.A Market capitalisation (US$ mln)2 224,858 133,728 17,417 N.A N.A Equity market return2 7.8 10.1 10.8 N.A N.A Equity market price earnings ratio2 18.6 20.8 24.3 N.A N.A - Standard & Poor’s A- BBB+ BB n.a n.a - Moody’s A3 Baa1 Ba3 n.a n.a - Sovereign risk BBB BB CCC CCC n.a - Currency risk BBB BB B B n.a BB B CCC CCC n.a - Political risk BBB CCC B C n.a - Economic structure risk BBB BB CCC CC n.a GDP per capita (US$)1 Long-term borrowings credit rating2 EIU risk analysis3 - Banking sector risk n.a Not available N.A Not applicable Source: IMF, World Economic Database, April 2009 S&P; Moody’s ratings, Bloomberg (as at 30 June 2009)* 3 EIU, Bloomberg (as at July 2009)* * Please refer to glossary of ratings for definitions 1 2 Note: All foreign currency conversion in this publication are using the 30 June 2009 closing rate PricewaterhouseCoopers 5 Country economic performance Chart 1 Country’s GDP growth Chart 3 Country’s stock market indices GDP growth across the region is expected to regain growth momentum from the second half of 2009 onwards, averaging 5.3% Steady positive upward stockmarket trend from Q2 2009 onwards 200 10 6 4 Malaysia Thailand Vietnam Cambodia Laos 2 Index (July 2008 = 100) 8 GDP growth (%) Malaysia Thailand Vietnam Shanghai Dow Jones 180 60 40 Jun 09 May 09 Apr 09 Mar 09 Feb 09 Jan 09 Dec 08 -2 Nov 08 0 2013 Oct 08 2012 80 Sep 08 2011 100 Aug 08 2010 120 Jul 08 2009 140 20 0 2008 160 -4 Source: Source: IMF, World Economic Outlook Database, April 2009 Bloomberg (June 2009) Chart 2 Country’s inflation rate Chart 4 Exchange rate of country’s currency against the US Dollar Inflation rates are expected to stabilise at a flat trend in the next 5 years, at below 6% Impact of the global financial crisis – volatile currency movements Malaysia Thailand Vietnam Cambodia Laos 20 18 Inflation rate (%) 16 14 12 10 8 6 4 2 RM THB VND EURO 115 110 Value of currencies against US$ USD = 100 22 KHR CNY LAK JPY 105 100 95 90 85 80 75 0 Jun 09 May 09 6 Asia’s emerging gems: Investment brief Apr 09 Bloomberg (June 2009) Mar 09 IMF, World Economic Outlook Database, April 2009 Feb 09 Source: Jan 09 Source: Dec 08 2013 Nov 08 2012 Oct 08 2011 Sep 08 2010 Aug 08 2009 Jul 08 2008 Chart 5 The PwC EM20 Index Explores the attractiveness of various emerging markets as long-term investment destinations using econometric analysis and World Bank data. This country risk estimation model is based on factors such as political stability, regulatory effectiveness and the rule of law. Manufacturing index Country Services index 2009 Rank 2008 Rank Chile 1 9 Bulgaria 2 Country 2009 Rank 2008 Rank 2 Slovakia 1 6 2 2 Malaysia 3 13 Chile China 4 14 Malaysia 5 9 7 16 India 6 4 China Thailand 9 11 Thailand 11 15 5 India 13 20 Vietnam 18 Note: Vietnam, Cambodia and Laos are not in top 20 list EM - Emerging Market Source: PwC, EM20 Index 2009 Interim Update: Balancing Risk & Reward, April 2009 Chart 6 World Bank: Ease of doing business Chart 7 UNCTAD: Most attractive location for foreign direct investment (FDI) Chart 8 WEF: Global Competitiveness Index 2008/09 Rank 2007/08 Countries Rank 2008 Rank 2007 Rank Countries 2009 Rank 2008 Rank Countries 1 1 Singapore 1 1 China 1 2 Switzerland 2 2 New Zealand 2 2 India 2 1 United States 3 3 Hong Kong, China 3 3 United States 3 3 Singapore 4 4 United States 4 4 Russia 4 4 Sweden 5 6 United Kingdom 5 5 Brazil 5 3 Denmark 12 12 Thailand 6 6 Vietnam 24 21 Malaysia 23 21 Malaysia 8 14 Indonesia 29 30 China 93 91 Vietnam 11 Thailand 36 34 Thailand 122 129 Indonesia Top 30* 13 Malaysia 49 50 India 133 132 India 15 Singapore 75 70 Vietnam 145 139 Cambodia 110 109 Cambodia 167 165 Laos * Detailed UNCTAD ranking not available Source: Source: World Bank, Doing Business 2010 Report, September 2009 UNCTAD World Investment Prospects Survey, 2007-2009 & 2008-2010 Source: World Economic Forum, The Global Competitiveness Report 2009-2010, September 2009 PricewaterhouseCoopers 7 8 Asia’s emerging gems: Investment brief Malaysia has over the last 50 years developed to be a strong industrial base for foreign electrical and electronics (E&E) multinational corporations. In the last decade, as it moved up the industry value chain, Malaysia has emerged as an attractive regional hub for services. More recently, the collective impact of bold and significant market liberalisation measures is positioning Malaysia to receive an inflow of foreign investment capital in the various 27 services subsectors, including financial services, information and communications technology (ICT) and logistics sectors. Malaysia is also increasingly being recognised as an innovative international Islamic financial centre and fast developing to be a global halal hub for the manufacturing industry in areas such as processed food and pharmaceuticals (including herbal and alternative medicine). Malaysia is also emerging as a springboard or centre for regional expansion into Association of Southeast Asian Nation (ASEAN) in view of its strategic, central location and multi-lingual “Truly Asia” mix of Malay, Chinese and Indian populace. MALAYSIA At a glance Economic overview Leading corporates Investment overview Fiscal stimulus packages Tax brief Market insights PricewaterhouseCoopers 9 At a glance 27.3 million population Total area 329,750 sq km Capital Kuala Lumpur Language Malay, English, Chinese dialects, Indian dialects and other various ethnic dialects Currency Exchange rate (as at 30 June 2009): US$1 = RM3.52 (Malaysian Ringgit) Government Constitutional monarchy Administrative divisions 13 states and three federal territories 10 Asia’s emerging gems: Investment brief Strengths • • • • • Efficient domestic market Strong and sophisticated financial markets English speaking and highly skilled labour force World-class infrastructure facilities High foreign exchange reserves and current account surplus • Stable political environment Weaknesses • • • • Relatively small population Mature and competitive domestic market Moderate medium-term growth rates Slowdown in export and industrial activities with global recession • Relative to developing Asian countries, higher labour costs, with higher living standards Opportunities • Government is promoting investments in technology and knowledge-intensive sectors • Liberalisation of 27 services sub-sectors to foreign investments (include financial services sector with issuance of new banking and insurance licences) • Government is promoting Malaysia as an international Islamic finance hub with various investment incentives • Has the second highest purchasing power among ASEAN countries with strong middle class • Government has established five economic growth corridors for promotion of free trade and investments Threats • Prolonged global recession will adversely affect export sectors • Risk of deflation, lower price as demands fall with ample supplies could derail recovery prospects • Lower demand as companies or customers defer/delay their purchases or investments • More stringent access to funding - banks and investors have lower tolerance towards risk Economic overview % Malaysia 2007 2008 2009(f) 2010(f) 2013(f) Commentaries GDP 6.3 4.6 - 3.5 1.3 6.0 • Public sector expenditure and private consumption expected to be the pillars of support to the economy • Key stimulus will emanate from the Government’s RM67 bln (US$19 bln) fiscal spending Inflation 2.0 5.4 0.9 2.5 2.5 • 2008 inflation averaged at 5.4% with the decline in prices of domestic food and fuel prices in the fourth quarter • The lower inflation rate projected at 0.9% in 2009 reflects the 2.5% reduction in electricity tariffs for households which came into effect in March 2009 and lower transport costs with declining oil prices Unemployment 3.2 3.3 4.8 4.9 4.3 • Retrenchment on the rise but reasonably contained • Affected areas are mainly the E&E sector, trade, hotels & restaurants and the financial service sectors (f) Forecast Source: IMF for GDP and inflation data; EIU for unemployment data PricewaterhouseCoopers 11 Chart 9 Top sectors by GDP contribution, 2008 Financial services Wholesale & retail trade 12% Oil & gas (O&G) 11% 8% 28% 8% GDP RM748.0 bln (US$212.5 bln) 7% Manufacturing Real estate & construction Agriculture 26% Others Chart 10 Trade information, 2008 Oil & gas Electronics, electrical machinery & appliances 13% 42% Palm oil 7% Exports RM676.5 bln (US$192.2 bln) 6% Chemicals & chemical products Imports RM531.8 bln (US$151.1 bln); intermediate goods (76%) 32% Others Source: Bank Negara Malaysia (Central Bank of Malaysia) 12 Asia’s emerging gems: Investment brief Major trading partners Singapore, other ASEAN countries, US, EU, Japan and China Malaysia Sectoral performance review Growth% Sector Commentaries 2007 2008 2009(f) Manufacturing 3.1 1.3 - 0.8 • Slowdown in line with sharp correction in commodity prices • The global economic downturn adversely affected demand for Malaysia’s main exports in this sector, i.e. E&E which accounts for over half (56%) of total manufactured exports and nearly half (42%) of Malaysia’s total exports in 2008 Oil & gas 3.3 - 0.8 - 0.4 • Subject to global price volatility, regulatory changes and competitive market forces • Malaysia’s national oil company, Petroliam Nasional Berhad (PETRONAS) dominates the market. It holds exclusive ownership rights to all exploration and production projects in Malaysia, and all foreign and private companies must operate through production sharing contracts Agriculture 2.2 3.8 - 2.0 • Crude palm oil (CPO) made up about 30% of value-add in this sector • Currently, Malaysia is the world’s second largest producer of palm oil • Stronger growth in 2008 driven by stronger CPO production and CPO prices - averaged at RM2,875 (US$817) per tonne. The CPO price forecast to average at around RM2,500 and RM2,700 (US$710 and US$767) per tonne respectively for 2009 and 2010 Wholesale & retail trade 12.5 9.8 < 9.8 • Continued expansion in hypermarkets and retail outlets coupled with the extension of Visit Malaysia Year and Malaysian mega sales events helped boost retail spending in the first half of 2008 • Retail growth moderated in the second half of the year due to high inflation and weak consumer sentiments • Business Monitor International (BMI) forecast the value of sales through modern retail outlets to increase by 36.9% into 2013 Financial services 11.1 7.7 < 7.7 • Growth moderated in 2008 due to the slowdown in capital market activities in the second half of the year • Islamic finance continued to expand in 2008 with six new Islamic banks commencing operations • Liberalisation of the financial services sector, announced in April 2009, will spur entry of more foreign players, both in the conventional and Islamic finance markets Real estate & construction 4.6 2.1 3.0 • The construction sector recorded a 0.6% growth in the first quarter of 2009 due to higher construction of office space as well as increased activity in the high-end segment of the residential sub-sector, particularly luxury condominiums in Klang Valley and Penang state • The deregulation of Foreign Investment Committee (FIC) rules in June 2009 is expected to enhance the attractiveness of Malaysia’s global real estate as FIC approval is now only required for property transactions for properties valued at RM20 mln (US$5.7 mln) and above (f) Forecast PricewaterhouseCoopers 13 Leading corporates Equity market analysis Malaysia’s stock exchange, Bursa Malaysia, has 960 listed stocks (as at 30 June 2009) with total market capitalisation of RM817.9 bln (US$232.4 bln). The Kuala Lumpur Composite Index (KLCI) rose to its historic high of 1,516.22 on 11 January 2008 but the euphoria was unsustainable in the later part of last year, as investors’ sentiment was battered mainly by the global financial crisis which saw the exit of foreign funds. The KLCI fell by 38.9% in 2008. However, Malaysian stocks rose again after the first quarter of 2009 in line with the regional market rally and the ‘feel good’ sentiment after the announcement of the Government’s second stimulus package to boost the economy. Other positive market factors include the recent announcement on the removal of the 30% Bumiputera (indigenous) equity requirement for 27 services sub-sectors plus the liberalisation of the financial sector. KLCI hit its 6-month high at 990.74 basis points as at 30 April 2009, led by selected blue chips. In recent years, Malaysia has also emerged as a key player in the international Islamic financial market. Malaysia currently has a significant and fast growing Islamic banking and financial market with sukuk (Islamic bond) making up over 56% of all bonds. As at March 2009, there are a total value of RM146 bln (US$41.5 bln) sukuk bonds and Islamic banking assets recorded at RM194 bln (US$55.1 bln). About 87% of the stocks listed on Bursa Malaysia are classified as Shariahcompliant securities. Chart 11 Top 10 companies on Bursa Malaysia Company Industry sector Market capitalisation Revenue RM mln US$ mln RM mln US$ mln Sime Darby Diversified 41,824 11,882 36,143 10,268 Malayan Banking Banking 41,817 11,880 16,579 4,710 Tenaga Nasional Electric 33,211 9,435 27,589 7,838 Bumiputra-Commerce Holdings Banking 32,468 9,224 13,661 3,881 Public Bank Banking 32,010 9,094 11,130 3,162 MISC Transportation 31,848 9,048 16,202 4,603 IOI Corporation Agriculture 29,525 8,388 15,544 4,416 Genting Hospitality & leisure 20,958 5,954 9,595 2,726 Axiata Group Telecommunications 20,042 5,694 11,989 3,406 Petronas Gas Gas 19,419 5,517 3,505 996 Source: Bloomberg as at 30 June 2009 Note: Top companies based on market capitalisation 14 Asia’s emerging gems: Investment brief Malaysia Chart 12 Electrical & electronics Company Chart 13 Retail - Departmental store Market capitalisation Revenue Market capitalisation Revenue US$ mln US$ mln US$ mln US$ mln Malaysian Pacific Industries 299 464 Parkson Holdings 1,504 676 Hong Leong Industries 272 933 Aeon Co. 427 1,030 Panasonic Manufacturing Malaysia 206 Unisem 173 175 DFZ Capital 233 163 370 The Store Corporation 50 624 ETI Tech Corporation 156 25 Suiwah Corporation 22 112 Chart 14 Banking Company Company Chart 15 Property Market capitalisation Revenue Company Market capitalisation Revenue US$ mln US$ mln US$ mln US$ mln Malayan Banking 11,880 4,710 SP Setia 1,151 403 Bumiputra-Commerce Holdings 9,224 3,881 UEM Land Holdings 1,078 154 Public Bank 9,094 3,162 KLCC Property Holdings 866 251 AMMB Holdings 2,618 1,490 IGB Corporation 725 207 Hong Leong Bank 2,562 1,136 IJM Land 443 196 Market capitalisation Revenue Chart 16 Construction Company Chart 17 Plantation Market capitalisation Revenue US$ mln US$ mln Gamuda 1,582 729 IJM Corporation 1,554 WCT Company US$ mln US$ mln Sime Darby 11,882 10,268 1,342 IOI Corporation 8,388 4,416 460 1,139 Kuala Lumpur Kepong 3,614 2,373 Malaysian Resources Corporation 325 237 Genting Plantations 1,185 311 Sunway Holdings 182 551 United Plantations 746 309 Source: Bloomberg as at 30 June 2009 Note: Top companies based on market capitalisation PricewaterhouseCoopers 15 Investment overview Foreign direct investment Strong inflows of FDI were recorded in the first half of 2008 but moderated in the second half with the deterioration in the global economy and financial sectors. Over 2009, manufacturing FDI is expected to reach RM27.5 bln (US$7.8 bln). In continuing to draw more FDI into the country, the Government has since April 2009, announced a series of bold and significant liberalisation measures for the services sector. More recently, in late September 2009, a new wave of foreign investment emanated from the Middle East with the RM8.7 bln (US$2.5 bln) joint venture between 1Malaysia Development Berhad, the sovereign wealth fund whollyowned by the Government, and Saudi Arabia’s PetroSaudi International Ltd (PSI). The joint venture is aimed at high-impact projects in Malaysia and the region, mostly in petroleumrelated industry, renewable energy sector and real estate. Chart 18 Gross approved FDI inflows 2007 2008 2009(f) RM 48.9 bln (US$13.9 bln) RM 52.1 bln (US$14.8 bln) RM25.6 bln (US$7.3 bln) (f) Forecast Chart 19 Gross approved FDI inflows by sectors, 2008 Manufacturing Mainly E&E industry 27% 45% Gross approved FDI inflows by sectors, 2008 26% 2% Others O&G Exploration, extraction & production activities Source: Bank Negara Malaysia (Central Bank of Malaysia) 16 Asia’s emerging gems: Investment brief Services Mainly financial services, communications and real estate Malaysia Market liberalisation To be a developed nation by 2020, the Malaysian Government is adopting a holistic approach to implement a new economic model that will foster competition in all sectors of the economy. The market liberalisation measures include: Deregulation of FIC investment guidelines Liberalisation of 27 services sub-sectors Liberalisation of financial services sector Malaysia’s new economic model is a significant departure from the previous approach on Bumiputera equity participation. These unprecedented announcements mark a major milestone for the opening of the Malaysian capital market. The liberalisation of the 27 services sub-sectors, announced on 22 April 2009, was aimed at creating a conducive business environment to attract more investments, bringing in more professionals and technology, encouraging competitiveness and creating higher value employment opportunities. The liberalisation of the financial services sector was announced on 27 April 2009 which encompasses measures on issuances of new licences, increase in foreign equity limits and operational flexibilities for both the conventional and Islamic finance sector. • Removal of equity conditions in most equity-based transactions • Encouraging fund raising climate in the Malaysian capital market • Post-listing fund raising exercises will no longer be subject to any equity conditions except in the case of reverse takeovers and backdoor listings • Easing of regulatory restrictions on property transactions Of significance is the removal of the 30% Bumiputera equity quota which is expected to spur foreign investment interest. The liberalisation will be implemented in two stages: • Immediate liberalisation for sectors such as ICT, healthcare, tourism, construction (by 2009) and logistics (by 2010) • Progressive liberalisation of other sub-sectors such as business services, distributive trade, education, environment and transport (by 2012) Over 2009 to 2012, nine new licences will be issued to foreign participation, including: • • • • • Five commercial banks Three world-class banks Two specialist banks Two mega Islamic banks Two family takaful (Islamic insurers) • Foreign parties will also be allowed to take up to 70% equity in domestic Islamic banks, investment banks, insurance companies, Takaful firms, stockbrokers and unit trust management companies • Fund management companies are allowed 100% foreign ownership PricewaterhouseCoopers 17 High growth potential sectors The Malaysian Government has also set a National Mission which is based on five key thrusts, namely: 1. 2. 3. 4. 5. To move the economy up the value-chain To raise the capacity for knowledge and innovation and nurture ‘first class mentality’ To address persistent socio-economic inequalities constructively and productively To improve the standard and sustainability of quality of life To strengthen the institutional and implementation capacity The Government is focusing on the growth of several areas which include those that can generate new sources of wealth in technology and knowledge-intensive sectors. Among the new growth sources, the incentives announced include: 1. Promoting biotechnology 2. Promoting halal* industry 3. Tapping tourism potential The Government has proposed several new incentives to encourage new investments in biotechnology activities which include: To establish itself as a “Global Halal Hub”, Malaysia has taken steps to develop its position to become a reference point as the centre for training, research and development (R&D) and standards. Among the initiatives implemented are: For Malaysia to remain an attractive tourist destination, the Government continues to provide incentives to upgrade its tourist facilities and develop new tourism products, which include: • Bionexus companies be given income tax exemption for 10 years, beginning from the first year the company is profitable • After the expiry of the 10-year exemption period, a bionexus company will be taxed at a concessionary rate of 20%, for another 10 years • Tax deduction equivalent to the amount of investment made in seed capital and early stage financing be given to companies or individuals investing in bionexus companies • Stamp duty and real property gains tax exemptions be given to bionexus company undertaking merger with acquisition of a biotechnology company within a period of five years • Buildings for research activities related to biotechnology be given Accelerated Industrial Building Allowance, whereby the cost of constructing or acquiring the building is written off over a period of 10 years 18 Asia’s emerging gems: Investment brief • The establishment of Halal Industry Development Corporation (HDC) with a launching grant of RM25 mln (US$7.1 mln). The HDC has been tasked to: -- Coordinate and ensure the integrated and comprehensive development of the industry -- Coordinate efforts to review standards, develop the local industry, promote Malaysian halal products and services in the international markets, as well as support investments in the domestic halal sector • A sum of RM50 mln (US$14.2 mln) has been allocated to set up halal parks in the states of Kelantan, Pahang, Terengganu and Perlis Note: Halal* - Permissable and lawful under Islamic law • Income tax exemption until 2011 for tour operators, providing tour packages with at least 500 inbound tourists or 1,200 local tourists annually • Tour operators be given excise duty exemption of 50% on locally assembled four-wheel drive vehicles • Income tax exemption to employees for local leave passage provided by employers which include fares and expenses on accommodation and meals Malaysia 4. Accelerating ICT development 5. Accelerating the development of Islamic finance 6. Commercialising the agriculture sector • There are currently over 78 foreign services and outsourcing companies with a workforce of 19,500 in operation In line with the objective of making Malaysia a leading international Islamic financial centre, significant incentives announced include: • The SSO industry will continue to be developed with emphasis on high value services, especially in logistics and financial services • Income tax exemption for 10 years for all Islamic banking and takaful entities that conduct their businesses in foreign currencies, and licensed under the Islamic Banking Act 1983 and Takaful Act 1984 • The Government is placing efforts to transform the agriculture sector into a modern commercial and competitive sector • The expansion of the Multimedia Super Corridor (MSC) include the states of Malacca and Johor Bahru, with Cyberjaya continuing to be developed to become a major national ICT hub • A sum of RM154 mln (US$43.7 mln) has been allocated to Multimedia Development Corporation (MDeC), a Government-owned company, to provide more comprehensive ICT services which include: -- Services ranging from registration to operations -- Small-medium enterprise (SME) industry development programmes • The Content Industry Development Fund was established with an initial funding of RM25 mln (US$7.1 mln) to finance ICT applications • Additional 20% stamp duty exemption for instruments related to Islamic financing for three years - to be given after providing for tax neutrality between conventional and Islamic financing • Income tax exemption for 10 years to local and foreign Islamic fund managers • Focus has been placed on R&D findings, utilisation of modern technology and improvement of the supply chain • Khazanah Nasional (Government’s investment arm) has established an agriculture fund of RM200 mln (US$56.8 mln) to provide venture capital to finance new technology-initiative agrticulture projects • In addition, the Government is also promoting its green industries, which include herbal pharmaceuticals and biofuels • Tax deduction be given on expenses incurred in establishing an Islamic stockbroking firm • Tax deduction on expenses incurred in the issuance of Islamic products be extended for year of assessment 2008 to 2010 • MIMOS Berhad, an agency under purview of the Malaysian Ministry of Science, Technology and Innovation (MOSTI), is allocated a sum of RM162 mln (US$46 mln) for various programmes, including: -- Mobile Broadband Engines -- E-learning applications -- R&D pertaining to language technology PricewaterhouseCoopers 19 Special investment zones and economic growth corridors The Government has also introduced various measures to facilitate economic growth, spur investments and bridge the rural-urban divide in the country. These measures include the implementation of: Growth corridors Industrial parks Free Industrial Zones (FIZ) Several growth corridors have been conceptualised and implemented to promote investments and development in certain promoted areas and activities/industries. Major corridors include: Industries in Malaysia are mainly located in over 200 industrial estates or parks. State governments and private developers are continuously developing new sites which are fully equipped with infrastructure facilities such as roads, electricity and water supplies, and telecommunications. There are 18 FIZs throughout the country. FIZs are export processing zones which have been developed to cater to the needs of exportoriented industries. Companies in FIZs are allowed duty free imports of raw materials, components, parts, machinery and equipment directly required in the manufacturing process. FIZ manufacturers are also exempted from the payment of sales tax, excise duty and service tax. • Multimedia Super Corridor (MSC) -- Designated cybercities and cybercentres • Iskandar Malaysia (IM) -- Southern Johor • Northern Corridor Economic Region (NCER) -- Perlis, Kedah, Penang and Northern Perak • East Coast Economic Region (ECER) -- Kelantan, Terengganu, Pahang and Mersing district of Johor • Sabah Development Corridor (SDC) -- Sabah • Sarawak Corridor of Renewable Energy (SCORE) -- Sarawak Apart from the incentives in Malaysia which are offered to various industries and approved activities under the Promotion of Investments Act 1986 and the Income Tax Act 1967, customised or special incentives have been modified for the purpose of each corridor. These incentives are over and above the existing set of incentives offered by the Malaysian Government. 20 Asia’s emerging gems: Investment brief Specialised parks have also been developed in Malaysia to cater to the needs of specific industries. Examples of these parks are: • Technology Park Malaysia (TPM) in Bukit Jalil, Kuala Lumpur -- TPM is among the world’s most advanced and comprehensive centres for R&D by knowledgebased industries • Kulim Hi-Tech Park in the northern state of Kedah -- Caters to technology-intensive industries and R&D activities Licensed Manufacturing Warehouses ( LMW) In areas where FIZs are not available, companies can set up LMWs which are accorded facilities similar to those enjoyed by establishments in FIZs. Malaysia Chart 20 Promoted industries in the growth corridors • Agriculture • Manufacturing - E&E, O&G, biotechnology • Tourism • Logistics • • • • • NCER • • • • Hospitality & leisure Oil, gas and petrochemical Manufacturing Agriculture Education Tourism Logistics Agriculture Manufacturing SDC ECER ICT, multimedia and services for innovation and operations which include: • Smart Card Technology • Smart Schools • Telehealth e-Government • e-Business • Technopreneurship • Creative Multimedia • Shared SSO MSC SCORE IM • E&E • Petrochemicals & oleochemicals • Food & agro processing • Logistics & related services • Tourism • Healthcare • Education • Financial services • Creative industries • Manufacturing - oil-based, glass, timber • Mining - aluminium, steel • Agriculture - palm oil, livestock, aquaculture • Services - tourism, marine engineering Source: MSC - www.mscmalaysia.my IM - www.iskandarmalaysia.com.my NCER - www.ncer.com.my ECER - www.ecerdc.com SDC - www.sdc.gov.my SCORE - www.sarawakscore.com.my PricewaterhouseCoopers 21 Fiscal stimulus packages In response to the global economic crisis, the Malaysian Government has announced two stimulus packages to spur economic growth. The first stimulus package of RM7 bln (US$2 bln) was announced on 4 November 2008 while the second stimulus package amounting to RM60 bln (US$17 bln) was announced on 10 March 2009. 22 Asia’s emerging gems: Investment brief Summary of Malaysia’s stimulus packages Type of measures Fiscal injection Guaranteed funds Equity investments Private finance initiatives & off-budget projects Tax incentives RM22 bln RM25 bln RM10 bln RM7 bln RM3 bln US$6.2 bln US$7.1 bln US$2.8 bln US$2.0 bln US$0.9 bln Measures under the four thrusts Thrust 1 Reducing unemployment and increasing employment opportunities Training, education, creating employment, retrenched workers’ welfare & reduce foreign workers RM2 bln US$0.6 bln Thrust 2 Easing the burden of the citizen, in particular, the vulnerable groups Home ownership, public infrastructure, savings bonds, school facilities, rural areas amenities, Sabah & Sarawak infrastructure, microcredit schemes, retrenched workers’ welfare RM17 bln US$4.8 bln Thrust 3 Assisting the private sector in facing the crisis Guarantee scheme (working capital & loan restructuring), promote automotive, aviation & tourism sectors, higher windfall profit levy threshold on palm oil, tax incentives (accelerated capital allowance, carry back losses) and reducing time-tomarket to access capital market RM29 bln US$8.2 bln Thrust 4 Building capacity for the future Increase Khazanah’s investment funds, aviation & telecommunication infrastructure, PFI (Tanjung Agas industrial park in ECER, biotechnology cluster in IM, traffic infrastructure system around transportation hub, KL Sentral), enhance government-linked companies’ (GLC) corporate responsibility activities in human capital, new FIC role and enhance Government procurement RM19 bln US$5.4 bln PricewaterhouseCoopers 23 Tax brief Malaysia operates a unitary tax system on a territorial basis. Tax residents of Malaysia, whether corporates or individuals, are taxed on income accruing in or derived from Malaysia or received in Malaysia from outside Malaysia. However, resident companies (except for those carrying on banking, insurance, sea or air transport operations) and resident individuals are exempted from income tax on foreignsourced income remitted to Malaysia. Nonresidents are only taxed on income accruing in or derived from Malaysia. There is no withholding tax on dividends paid by Malaysian companies. Dividends payable to shareholders under the singletier tax system are exempt from Malaysian income tax in the hands of shareholders. There is no capital gains tax regime in Malaysia. Other taxes include service tax, sales tax, import duties, export/excise duties and personal income tax. Tax treaty networks Malaysia has an extensive network of tax treaties including: Albania, Australia, Austria, Bahrain, Bangladesh, Belgium, Canada, Chile, China, Croatia, Czech Republic, Denmark, Egypt, Fiji, Finland, France, Germany, Hungary, India, Indonesia, Iran, Ireland, Italy, Japan, Jordan, Korea, Kuwait, Kyrgyz Republic, Lebanon, Luxembourg, Malta, Mauritius, Morocco, Myanmar, Mongolia, Namibia, New Zealand, the Netherlands, Norway, Pakistan, Papua New Guinea, Philippines, Poland, Qatar, Romania, Russia, Saudi Arabia, Seychelles, Singapore, South Africa, Spain, Sri Lanka, Sudan, Sweden, Switzerland, Syria, Thailand, Turkey, United Arab Emirates, United Kingdom, Uzbekistan and Vietnam. Malaysia also has limited tax treaties with Argentina (shipping and air transport), United States of America (shipping and air transport) and Taiwan (exemption orders). 24 Asia’s emerging gems: Investment brief Persons chargeable to tax Persons Type of tax Corporations Corporate tax Individuals Personal tax Tax rate applicable Type of tax Corporate income tax • Resident companies (general) • Resident companies (SMEs) • 1st RM500,000 • > RM500,000 • Non-resident companies Rates 25% 20% 25% 25% Capital gains tax None Personal income tax (on a scale basis) • Residents • Below RM2,500 • RM2,500 – RM100,000 • Above RM100,000 • Non-residents (flat rate) 0% 1% - 24% 27% 27% Value added tax None Indirect taxes (single stage) • Service tax on prescribed services • Sales tax on certain locally manufactured and imported goods • Import duties on taxable imported goods • Export and excise duties – selected range of goods 5% 5% or 10% 2% - 60% 10% - 105% Withholding taxes Withholding tax rates for payments made to non-residents Rates Dividends 0% Interests 15% Royalties 10% Technical/management fees (services performed in Malaysia) 10% Rental of moveable properties 10% Contract services performed in Malaysia (where there is a permanent establishment) • Non-resident contractors • Employees of non-resident contractors 10% 3% Malaysia Tax incentives The main tax incentives include: • Pioneer status (tax holiday) or investment tax allowances – (both mutually exclusive) Companies producing a promoted product or participating in a promoted activity may apply for either one of the above incentives. Promoted products or activities are generally available for manufacturing, agricultural, hotel, tourism and other industrial sectors. • Reinvestment allowance Granted to manufacturing and agricultural sectors for expansion, modernisation, diversification or automation of its operations. • Increased export allowance Granted to manufacturing, agricultural and designated qualifying services which have exported products/services. • Accelerated capital allowance For companies engaged in promoted products and waste recycling activities. Other specific qualifying assets are new transportation buses, ICT equipment, security and monitor control equipment, plant and machinery and renovation or refurbishment of business premises. • Double deductions Qualified expenses allowed to be deducted twice from calculation of taxable income. Such expenses include training of employees, research and development expenses, import and export insurance premiums with Malaysian companies, promotions for export, remuneration to handicapped employees, freight charges for wood-based products, advertising of Malaysian brands, expenses for obtaining recognised quality systems standards and halal certification, expenditure incurred on training of employees in selected fields (i.e. post-graduate courses in ICT, electronics and life sciences, post-basic courses in nursing and allied healthcare and aircraft maintenance engineering courses) and employment of local retrenched workers. The following are special tax incentives granted to specific industries: • Approved services projects Generally in transportation, communications and utilities. Granted investment allowance on capital expenditure. • Unit trusts, closed-end fund companies, real estate investment trusts (REITs), venture capital companies, foreign fund management companies, conference promoters, organisers of international trade exhibitions, residents carrying out group inclusive tours, R&D companies, private higher education institutions, last mile network facilities providers for broadband, traders of certified emission reduction certificates and corporate advisors for listing of foreign companies/investment products on Bursa Malaysia • Regional distribution centres, international procurement centres and operational headquarters Granted tax exemption on income. • Companies involved in environmental conservation and new energy sources Granted pioneer status or investment tax allowance. • Companies investing in/upgrading laboratories for testing of medical devices Granted pioneer status or investment tax allowance. • MSC status For companies involved in information technology. Granted pioneer status or investment tax allowance. • Bionexus status For companies involved in biotechnology (agriculture, healthcare and industrial). Granted pioneer status or investment tax allowance. • IM, NCER, ECER For companies undertaking qualifying activities within the IM, NCER and ECER. Granted income tax exemption or investment tax allowance. Granted tax exemptions on income. PricewaterhouseCoopers 25 Malaysia 26 Asia’s emerging gems: Investment brief Market insights Malaysia 2020 Fully developed country World reputation Government targeted growth sectors Growth corridors/ promoted zones Government, FDI and capital market • World’s 3rd largest Islamic banking market (US$65.6 bln) • Services economy: Liberalisation of 27 services sub-sectors (including financial services and capital market) • New growth hubs: 1. Multimedia Super Corridor 2. Iskandar Malaysia 3. Northern Corridor Economic Region 4. East Coast Economic Region 5. Sabah Development Corridor 6. Sarawak Corridor of Renewable Energy • Government -- The six National Key Results Areas (NKRA) of 1Malaysia concept* 1. Reduce crime 2. Combat corruption 3. Widen access to affordable & quality education 4. Raise living standard of the poor 5. Improve infrastructure in rural areas 6. Improve public transportation • FDI -- Market liberalisation policies • Revamp of capital market -- One prime market for established companies with the merger of the main board and second board -- Access, Certainty and Efficiency (ACE) market for high-tech growth companies • World’s largest Sukuk issuer (US$62 bln) • World’s largest producer of rubber, palm oil, pepper and tropical hardwoods • 10th largest trading partner in the US • Key promoted sectors 1. Biotechnology 2. Global Halal Hub 3. Tourism 4. ICT 5. Islamic finance 6. Agriculture (eg. herbal pharmaceuticals) * 1Malaysia concept was introduced in mid-2009 as an extension of the Government’s efforts to grow national unity towards achieving Malaysia’s Vision 2020. In line with the Government’s administration vision of 1Malaysia – “People First and Performance Now” – six National Key Results Areas (NKRA) were introduced. PricewaterhouseCoopers 27 28 Asia’s emerging gems: Investment brief Thailand has a long track record of being foreign investors’ destination of choice, thanks to its integrated business infrastructure, attractive FDI investment policies and large workforce. Today, Thailand is known as a world-class producer of high-tech industrial manufacturing, livestock and agricultural and tourism services. Despite political unrest, investor confidence has remained resilient. Going forward, Thailand’s huge labour pool (including hospitable culture) and attractiveness as a great place to work, will be the drivers for continued FDI investor interest. Industries that continue to draw investor interest include its agro-industry, high-tech and machinery manufacturing, and tourism industries. THAILAND At a glance Economic overview Leading corporates Investment overview Fiscal stimulus packages Tax brief Market insights PricewaterhouseCoopers 29 At a glance 66.4 million population Total area 514,000 sq km Capital Bangkok Language Thai, English, ethnic and regional dialects Currency Exchange rate (as at 30 June 2009): US$1 = THB 34.06 (Thai Baht) Government Constitutional monarchy Administrative divisions 76 provinces Strengths • Investor-friendly and easy to do business • Relatively large marketplace, attributed to its sizeable population • Good infrastructure particularly roads and air transport • Relatively low labour cost • US companies operating in Thailand have an equal playing field with local companies Weaknesses • Uncertain political climate • Ineffective implementation of Government policies e.g. foreign investment and privatisation • Shortage of skilled labour and lag in technology readiness hinder ability to provide value-added services • Cumbersome regulatory procedures Opportunities • Newly elected government expected to promulgate business-friendly policies to maintain foreign investor confidence • Further financial services market liberalisation e.g. ease restrictions on foreign ownership of banks and new licences • Wide privatisation of SOEs • Significant public sector investment in infrastructure development Threats • Impact of prolonged global recession on export sectors and unemployment • Impact of political and global economic climate on the financial services sector • Impact of further anti-government protests • Impact of violence in the southernmost Muslim-majority provinces 30 Asia’s emerging gems: Investment brief Economic overview % Thailand 2007 2008 2009(f) 2010(f) 2013(f) Commentaries GDP 4.9 2.6 - 3.0 1.0 6.0 • Growth significantly reduced due to severe contraction of major trading partners’ economies, slower domestic spending and private investment, aside from political unrest factor • Gradual recovery is expected with the THB1.5 trn (US$45.4 bln) fiscal stimulus packages, medium and long-term public investment scheme together with looser monetary policy Inflation 2.2 5.5 0.5 3.4 1.9 • Easing with the slowdown in economic activity and decline in oil and food prices Unemployment 1.4 1.4 4.1 4.4 2.9 • On the rise with current economic conditions • Highly affected are the manufacturing and tourism sectors (f) Forecast Source: IMF for GDP and inflation data; EIU for unemployment data PricewaterhouseCoopers 31 Chart 21 Top sectors by GDP contribution, 2008 Transport, storage & communications Wholesale & retail trade 14% 10% Agriculture 9% GDP THB 4.3 trn (US$125.9 bln) 4% Financial services 3% Utilities Manufacturing 18% 42% Others Chart 22 Trade information, 2008 Vehicles, parts & accessories Electronics, electrical machinery & appliances 9% 31% 9% Exports THB 6.0 trn (US$177.8 bln) 9% Textile products, footwear & jewellery Agricultural products 5% 5% Others Source: Bank of Thailand 32 Asia’s emerging gems: Investment brief 32% Petroleum products Base metal products Imports THB6.08 trn (US$178.7 bln); intermediate goods (41%), capital goods (24%) Major trading partners Japan, US, EU, China, Hong Kong, ASEAN, United Arab Emirates (UAE), Saudi Arabia, South Korea and Taiwan Thailand Sectoral performance review Growth% Sector 2007 2008 2009(f) Commentaries Manufacturing 6.2 3.9 - 10.0 to - 12.0 • Declining growth due to the slowdown in the E&E and automotive sector worldwide • Thailand is currently the world’s top manufacturer of hard disk drives (HDD) and components. It is also envisioned to be the world’s top 10 auto manufacturers with forecast demand for original equipment manufacturer (OEM) automotive electronics in Thailand to increase nearly 14% p.a., reaching THB88.6 bln (US$2.6 bln) in 2011 Wholesale & retail trade (including hotel & restaurants) 8.8 3.4 n.a • Consumers are likely to cut down spending on non-food items and entertainment with rising debt and shrinking income, coupled with uncertain economic outlook • The Government allocated some THB6.6 bln (US$194 mln) for tourism projects over the next three years, starting October 2010, to revive the industry which is severely hit by the global economic recession and current political unrest • Introduction of Retail Business Act to ensure survival of small retailers against retail giants is expected in the next few years Transport, storage & communications 5.9 - 0.4 n.a • Key areas of the planned mega projects worth THB1.7 trn (US$50 bln) over 2009-2012 are mass transit (28%), energy (27%), logistics and transportation (20%), water resources management (11%), education and healthcare (9%), and lowincome housing projects (5%) Agriculture 1.8 5.1 3.0 - 4.0 • Thailand is currently the world’s largest rice exporter and producer of rubber • Up to THB238 bln (US$6.9 bln) allocated over the next three years to strengthen the potential and raise the competitiveness of the agricultural sector. The investment plan will cover construction and improvement of irrigation systems nationwide, construction of small reservoirs and upgrading of food safety and security • Import tariffs on rice and fruits will be cut to zero in early 2010 Financial services 6.5 8.1 n.a • Large banks posted poor profits for the first quarter of 2009 due to tighter net interest margins, decelerating loan growth and deeper economic malaise • The Ministry of Finance and 11 financial institutions have launched the Joint Export Credit Insurance Facility in March 2009 to help Thai exporters manage risks associated with international trade amid the global financial crisis Utilities (Electricity, gas & water supply) 5.1 4.3 n.a • Power consumption projected to grow by 1.9% in 2009 • Consumption has been shrinking sharply in line with the slowing momentum of business activity as a result of the global economic recession. Consequently, power producers postponed power deliveries by one or two years due to the slowing demand (f) Forecast n.a Data not available at time of publication PricewaterhouseCoopers 33 Leading corporates Equity market analysis The Stock Exchange of Thailand (SET) has 536 listed stocks as at June 2009 with total market capitalisation of THB4.5 trn (US$132 bln). The Capital Market Development Committee was established at end-2008 to facilitate the financial system reformation in Thailand. In early June 2009, SET surged to a new high of 600 points (from a low of 384.15 points in 2008) in line with other regional markets, encouraged by signs of a possible global economic recovery and also news of the recently introduced stimulus measures to boost the economy. However, the rally is expected to continue only for the short term. For the rest of 2009, the index is projected to fluctuate and trade in a broader range between 400-550 points. The seven key measures in the Capital Market Development Fund include: • • • • Demutualisation of SET Further market liberalisation Further financial deregulation Legal reform, focusing mainly on updating old acts • Tax reform • Privatisation of SOEs • Reform the bond market (currently only accounts less than 15% of the equity market) Chart 23 Top 10 companies on the Stock Exchange of Thailand Company Industry sector Market capitalisation Revenue THB bln US$ mln THB bln US$ mln PTT Oil & gas 660 19,389 2,043 59,983 PTT Exploration & Production Oil & gas 441 12,953 142 4,166 Advanced Info Service Telecommunication 268 7,865 113 3,321 Bangkok Bank Banking 206 6,047 103 3,021 Siam Commercial Bank Banking 190 5,589 90 2,632 Siam Cement Building materials 186 5,456 299 8,791 Kasikornbank Banking 158 4,651 85 2,481 Krung Thai Bank Banking 98 2,870 77 2,275 Banpu Coal 91 2,670 52 1,515 Bank of Ayudhya Banking 88 2,584 48 1,419 Source: Bloomberg as at 30 June 2009 Note: Top companies based on market capitalisation 34 Asia’s emerging gems: Investment brief Thailand Chart 24 Electrical & electronics Company Chart 25 Automotive & parts Market capitalisation Revenue US$ mln US$ mln Delta Electronics Thai 468 985 Hana Microelectronics 395 454 CalComp Electronics Thailand 252 3,696 Muramoto Electron Thailand 92 SVI 80 Market capitalisation Revenue US$ mln US$ mln Thai Stanley Electric 209 247 Somboon Advance Technology 54 174 528 Yarnapund 47 282 214 AAPICO Hitech 35 272 Thai Steel Cable 31 70 Chart 26 Retail - Convenience/Departmental stores Company Company Chart 27 Construction Market capitalisation Revenue US$ mln US$ mln CP ALL 2,254 3,720 Big C Supercenter 1,017 Siam Makro Company Market capitalisation Revenue US$ mln US$ mln 2,112 Italian-Thai Development 344 1,285 510 2,207 CH. Karnchang 159 398 Robinson Department Store 293 393 137 437 TWZ Corp 81 97 Sino Thai Engineering & Construction Unique Engineering & Construction 42 68 Ascon Construction 39 59 Market capitalisation Revenue Chart 28 Banking Company Chart 29 Agriculture Market capitalisation Revenue US$ mln US$ mln Bangkok Bank 6,047 3,021 Siam Commercial Bank 5,589 Kasikornbank Krung Thai Bank Bank of Ayudhya Company US$ mln US$ mln 2,632 Charoen Pokphand Foods 1,054 4,684 4,651 2,481 Univanich Palm Oil 212 205 2,870 2,275 Lee Feed Mill 60 117 1,419 United Palm Oil Industry 58 39 Chumporn Palm Oil Industries 34 162 2,584 Source: Bloomberg as at 30 June 2009 Note: Top companies based on market capitalisation PricewaterhouseCoopers 35 Investment overview Foreign direct investment Since the 1997-1998 Asian financial crisis, Thailand’s economic reform programme has been specifically tailored to create a compelling climate for foreign investors. However, FDI is likely to suffer in 2009, due to the global risk aversion and the shaky domestic political situation. The main sources of Thailand’s FDI are from Japan, the EU (led by the UK), the US, Singapore and Taiwan – all very much affected by the current economic crisis. The Thai Board of Investment (BoI) has announced a number of initiatives to soften the slump in business activity and investment. BoI has offered ‘universal zoning’ to six industries deemed important to the growth of the economy, and these will enjoy maximum incentives regardless of where in the country they run projects under the ‘Thailand Investment Year 2008-2009’ initiative. In addition to these sectors, the Thai Board of Trade is encouraging investment in key infrastructure and strategic sectors, such as petrochemicals, steel and renewable energy. Chart 30 Gross approved FDI inflows 2007 2008 2009(f) THB505.6 bln (US$14.8 bln) THB351.1 bln (US$10.3 bln) THB298.9 bln – THB448.3 bln (US$8.8 bln - US$13.2 bln) (f) Forecast Chart 31 Gross approved FDI inflows by sectors, 2008 Electrical & electronics Chemicals/ paper 17% 12% Metal products/ machinery 7% 25% Gross approved FDI inflows by sectors, 2008 3% 33% Services Source: Thailand Board of Investment 36 Asia’s emerging gems: Investment brief 3% Minerals/ ceramics Light industries/ textiles Agriculture products Thailand Thailand Investment Year 20082009: Special Measures Envisioned to restore investors’ confidence, promote investment in targeted industries and stimulate entrepreneurs’ development to enhance Thailand’s overall competitiveness and promote Thailand as a top international distribution centre. Under the special measures, investors who submit investment applications in the six target sectors located in any provinces except Bangkok by 31 December 2009 will obtain the following incentives, if approved: • Eight year exemption of corporate income tax • 50% reduction of corporate income tax for five years • Double deduction of transportation, electricity and water supply costs • 25% deduction from net profit for facility installation and construction costs in addition to normal depreciation capital Zone 3-equivalent incentives package (refer to page 39) will also be granted to new investment projects in BoIpromoted industrial estates in Zone 2, in Laem Chabang industrial estate and those in Rayong province for five more years up till 31 December 2014. These six target sectors are: • Energy saving and alternative energy-related businesses • High-tech businesses • Environmental-friendly materials and products manufacturing • Mega projects-related businesses • Tourism and real estate-related businesses • High-tech agricultural materialbased business Source: Thailand Board of Investment PricewaterhouseCoopers 37 Special investment zones and economic growth corridors Overview The BoI provides promotion privileges through three investment promotion zones, namely Zone 1, Zone 2 and Zone 3, based on economic factors, i.e., the level of income and the availability of infrastructure in each province. Chart 32 Thailand investment zones Zone 1 (6 central provinces) Zone 2 (12 provinces) 1. 2. 3. 4. 5. 6. Ayuthaya Bangpa-In Industrial Estate Hi-Tech Industrial Estate Saha Rattana Industrial Estate Bangkok Samut Prakan Samut Sakhon Nakhon Pathom Nonthaburi Pathum Thani Bangkok Bangchan Industrial Estate Lad Krabang Industrial Estate Chachoengsao Gateway City industrial Estate Wellgrow Industrial Estate Samut Prakarn Bangplee Industrial Estate Bangpoo Industrial Estate Chonburi Amata Nakhon Industrial Estate Chonburi Industrial Estate Laem Chabang Industrial Estate* Pinthong Industrial Estate Samut Sakhon Samut Sakhon Industrial Estate Rachaburi Ratchaburi Industrial Estate Saraburi Nong Khae Industrial Estate Saraburi Industrial Estate Zone 3 (remaining provinces) *Special Privileges Rayong Provinces and Laem Chabang Industrial Estate are entitled to Zone 3 incentives and privileges by IEAT even though being in Investment Zone 2 Rayong* Amata City Industrial Estate Eastern Industrial Estate Eastern Seabord Industrial Estate Map Ta Phut Industrial Estate Padaeng Industrial Estate Thai Singapore 21 Industrial Estate Other Provinces Khon Kaen Industrial Estate Northern Region Indusrial Estate Pichit Industrial Estate Southern Industrial Estate Source: Thailand Board of Investment and Industrial Estate Authority of Thailand (IEAT) 38 Asia’s emerging gems: Investment brief Thailand Promotion privileges for investment zones Targeted sectors and investment incentives The level of tax incentives being offered for each zone are varied as follows: In November 2008, the BoI announced special promotion incentives for five activity groups within the six targeted sectors outlined in the Thailand Investment Year 2008-2009. Zone 1 • 50% reduction of import duty on machinery • Corporate income tax exemption for three years for industrial estate/promoted industrial zones (IE/PIZ) • Exemption for one year of import duty on raw or essential material used in manufacturing of export products Five activity groups 1. Energy conservation and alternative energy 2. High-tech group 3. Manufacturing group related to environmentalfriendly materials and products 4. Mega projects related to businesses, especially in water resources - management, transportation and logistics activity 5. High-tech agricultural material-based businesses Zone 2 * • Exemption of import duty on machinery for IE/PIZ and 50% reduction for other areas • Corporate income tax exemption for seven years1 for IE/PIZ and three years for other areas • Exemption for one year of import duty on raw or essential material used in manufacturing of export products Promotion incentives • Exemption of corporate income tax for eight years - no limits • 50% reduction of corporate income tax for five years after the exemption period • Double deduction from transportation, electricity and water costs for 10 years • 25% deduction for facility installation and construction costs in addition to normal depreciation capital for 10 years *excluding Laem Chabang IE and IE/PIZ in Rayong Zone 3 • Exemption of import duty on machinery • Exemption for eight years of corporate income tax • Exemption for five years of import duty on raw or essential material used in manufacturing of export products • Deduction of 25% of the project’s infrastructure installation or construction cost Other incentives • Exemption of import duty on machinery for the investment for three activity groups • Activities entitled to the special promotion incentives must be located in all provinces in Thailand, except Bangkok. The application of investment must be submitted by 31 December 2009 For 36 provinces and Laem Chabang IE/PIZ in Rayong • Double deduction from transportation, electricity and water costs for IE/PIZ for 10 years • 50% reduction of corporate income tax for five years for IE/PIZ • 75% reduction of duty on raw or essential materials used in the manufacturing of domestic sales for five years1 with year-by-year approval for IE in 36 provinces (excluding Laem Chabang IE and IE/PIZ in Rayong) For 22 provinces • Double deduction from transportation, electricity and water costs • 50% reduction of corporate income tax for five years after the exemption period • 75% reduction of duty on raw or essential materials used in the manufacturing of domestic sales for five years1 with year-by-year approval for IE/PIZ Source: The Thailand Board of Investment Thailand Note: For all applications submitted by 31 December 2014 1 PricewaterhouseCoopers 39 Fiscal stimulus packages First stimulus package The Government approved THB116.7 bln (US$3.4 bln) economic stimulus package in January 2009 with the aim of a 1% increase in GDP and unemployment rate between 2.0-2.5%. Key projects under Thai’s first stimulus package Project THB bln US$ mln Free education for 15 years 19.0 557.8 One-off THB2,000 (US$58.7) cash handout for low income earner 18.9 554.9 Improve quality of life in rural community 15.2 446.3 Stabilise agriculture prices 13.6 399.3 Free water and electricity for the poor and transport subsidy 11.4 334.7 Tax measures 9.8 287.7 Create senior citizen insurance 9.0 264.2 Wage subsidy 6.9 202.6 Community health volunteer recruitment 3.0 88.1 Build and improve water resources 2.0 58.7 Housing estate for police 1.8 52.8 Rural roads construction 1.5 44.0 Reduce living cost 1.0 29.4 Improve health service stations 1.0 29.4 Tourism stimulus 1.0 29.4 Small reservoirs construction 0.8 23.5 Support food industry and SMEs 0.5 14.7 Rebuild Thailand’s image Total 0.3 8.8 116.7 3,426.3 Source: The National Economic and Social Development Board Second stimulus package The Thailand investment plan for the second economic stimulus package was approved by the Cabinet in May 2009 with a budget of THB1.4 trn (US$42.0 bln) for the period of 2009-2012. The plan is aimed at creating 1.6 to 2 mln jobs and increase competitiveness of the private sector in longterm. Key projects under Thai’s second stimulus package Project Logistic infrastructure improvement US$ bln 837.6 24.6 Irrigation system for agriculture 238.5 7.0 Education 137.9 4.1 Healthcare 99.4 2.9 Community 91.7 2.7 Creative economy 17.6 0.5 Tourism 8.5 0.2 1,431.2 42.0 Total Source: Ministry of Finance, Thailand 40 Asia’s emerging gems: Investment brief THB bln PricewaterhouseCoopers 41 Tax brief Corporate income tax is levied on both Thai and foreign companies. Only Thailandincorporated companies are taxed on worldwide income. A foreign-incorporated company carrying on business in Thailand is taxed on profits arising from or in consequence of business carried on in Thailand. A foreign company not carrying on business in Thailand, but which derives certain categories of income in Thailand, is subject to a withholding tax such as interest, dividends, royalties, rentals and service fees paid from or in Thailand. Other taxes include personal income tax, withholding tax, value added tax, specific business tax and municipality tax, stamp duty, profit remittance tax (branch profit) and customs and excise taxes. Tax treaty networks Thailand has an extensive network of tax treaties with over 52 countries, namely, Armenia, Australia, Austria, Bahrain, Bangladesh, Belgium, Bulgaria, Canada, China, Cyprus, Czech Republic, Denmark, Finland, France, Germany, Hong Kong, Hungary, India, Indonesia, Israel, Italy, Japan, Korea, Kuwait, Laos, Luxembourg, Malaysia, Mauritius, Nepal, Netherlands, New Zealand, Norway, Oman, Pakistan, Philippines, Poland, Romania, Seychelles, Singapore, Slovenia, South Africa, Spain, Sri Lanka, Sweden, Switzerland, Turkey, Ukraine, United Arab Emirates, United Kingdom, United States, Uzbekistan and Vietnam. Persons chargeable to tax Persons Type of tax Corporations Corporate tax Individuals Personal tax Withholding taxes Withholding tax rates for payments made to foreign companies not carrying on business in Thailand Rates Dividends 10% Interests 15%1 Royalties 15%1 Capital gains, service fees, professional fees and rents of property 15%1 Profit remittance 10% Note: Rate may be reduced under a tax treaty 1 Withholding tax rates for payments made to Thailandincorporated companies or foreign incorporated companies carrying on business in Thailand Dividends 10% Royalties 3% Rents of property 5% Fees for hire of work, professional income, service fees (excluding certain service fees) 3% Remuneration for hire of work paid to foreign companies carrying on business in Thailand without permanent branch in Thailand 5% Advertising fees 2% Prizes won in contests, competitions, lucky draws or other like activities 5% Tax incentives • Tax incentives are available for companies in certain industries provided under the Investment Promotion Act and the announcements of BoI such as exemption or reductions of import duties on imported machinery • Tax incentives to encourage exports such as exemption from import duties on imported raw materials and components imported for manufacturing for export • Corporate income tax incentive and personal income tax incentive for expatriate employees are available to regional operating headquarters 42 Asia’s emerging gems: Investment brief Rates • Tax incentives for enterprises located in IE/PIZ include the following: -- Reduction of 50% of corporate income tax for five years after the termination of a normal income tax holiday or from the date of earning income if no tax holiday is granted -- Double deduction from taxable income for the cost of transportation, electricity and water supply Thailand Tax rate applicable Type of tax Corporate income tax • Resident companies (general) • Non-resident companies (taxed on Thailand income) • SMEs (paid-up capital not exceeding THB5 mln at the end of any accounting period) • Net profit THB0 – 150,000 • Net profit THB150,001 – 1,000,000 • Net profit THB1,000,001 – 3,000,000 • Net profit over THB3,000,000 Corporate tax rate reduction given to companies listed on the SET and the Market for Alternative Investment (MAI), the trading board established by the SET, as follows1: 1) Companies listed between 6 September 2001 and 31 December 2005 • Companies listed on the SET • Companies listed on the MAI Rates 30% 30% Nil 15% 25% 30% 25% 20% Note: The reduced rate applies for five accounting periods commencing from the first accounting period which begins on or after the day the company has listed its securities on the SET or the MAI. 2) Companies applying for listing between 1 January 2007 and 31 December 2008 and which are duly listed within 31 December 2009 • Companies listed on the SET • Companies listed on the MAI 25% 20% Note: These rates will apply for three accounting periods commencing from the first accounting period beginning on or after the day the company has listed its securities on the SET or the MAI. 3) Listed companies other than those in 1) and 2) • Net profit of companies listed on the SET • THB0 - 300,000,000 • Over THB300,000,000 • Net profit of companies listed on the MAI • THB0 - 20,000,000 • Over THB20,000,000 Note: These rates apply for three accounting periods commencing from the accounting period beginning on or after 1 January 2008. Type of tax Rates Net profit from bank deriving profits from lending to non-Thai residents from foreign currency funds obtained from non-Thai sources (so called “outout business”) 10% Foreign companies engaging in international transportation 3% Profitable associations and foundations 2%, 10% Capital gains (there is no specific legislation governing capital gains. All capital gains earned by a company are treated as ordinary revenue for tax purposes) 30% Personal income tax (on a scale basis) Net income • THB0 - 150,000 • THB150,001 – 500,000 • THB500,001 – 1,000,000 • THB1,000,001 – 4,000,000 • Above THB4,000,001 0% 10% 20% 30% 37% Value added tax 7% Specific business tax (SBT) • Commercial banking, financial and credit foncier business • Life insurance • Pawnshop brokerage • Sale of immovable property, real estate • Sale of securities in the stock exchange • Business with regular transactions similar to commercial banking 3% 2.5% 2.5% 3%* 0.1%** 3% * Reduced to 0.1% until 28 March 2010 ** Currently exempted from SBT Municipality tax 10% of SBT 25% 30% 20% 30% Note: 1 Companies listed on the SET or MAI between 6 September 2001 and 31 December 2005, and whose concession rate as noted under item 1) has expired, will be able to enjoy the concession rate under item 3) but not beyond the accounting period ending on or after 31 December 2010. PricewaterhouseCoopers 43 Thailand 44 Asia’s emerging gems: Investment brief Market insights Thailand 2020 Creative and sustainable economy World reputation Government targeted growth sectors Growth corridors/ promoted zones Government, FDI and capital market • World’s biggest manufacturer of hard disk drives (42% of global supply) • World’s leading manufacturer of rubber (natural and synthetic) and selected automotive parts • World leader in poultry and seafood production, rice and tapioca • Energy savings and alternative energy • High-tech businesses • Environmental-friendly materials and products businesses • Mega projects • Tourism (including medical tourism) and real estate businesses • High-tech agricultural businesses • International hub for medical and healthcare tourism (2009: Expected combined revenue from foreign patients is US$1.32 bln) • Eastern seaboard with excellent transport network (Chonburi, Zone 2 and Rayong, Zone 3) • Three investment processing zones (Zone 1, Zone 2 and Zone 3 with different tax incentives) • Government -- More focus towards Public-Private Partnerships (PPPs) in view of pending privatisation of 58 SOEs • FDI -- BoI FDI focus policies • Capital market -- Launch of FTSE SET Shariah Index (FSTSH) for investment in Islamic products on 25 May 2009 PricewaterhouseCoopers 45 46 Asia’s emerging gems: Investment brief Regarded by many as the new Asian Tiger, Vietnam has attracted many multinational corporations (MNCs) including those which see the need to diversify operations away from China in their “China plus One” manufacturing strategy. Vietnam’s 86.8 mln strong population boasts of a large and young workforce that has also seen an increase of disposable incomes in recent years. Starting from a low economic base since the early ’90s, Vietnam’s economy grew strongly and rapidly before it slowed down during the current global financial crisis. Vietnam’s economy is expected to bounce back to pre-crisis growth trends post-2011. Sectors that are calling for foreign investment include infrastructure, tourism development and related real estate and retail sector development in urban areas. VIETNAM At a glance Economic overview Leading corporates Investment overview Fiscal stimulus packages Tax brief Market insights PricewaterhouseCoopers 47 At a glance 86.8 million population Total area 329,560 sq km Capital Hanoi Language Vietnamese, English, French, Chinese, Khmer and mountain area languages Currency Exchange rate (as at 30 June 2009): US$1 = VND17,798 (Vietnamese Dong) Government Communist state Administrative divisions 59 provinces and five municipalities Strengths • Political stability with the ruling Communist Party of Vietnam expected to maintain its control on the country • Sound long-term economic and investment growth prospects. The Government is committed to market-oriented reforms • Low labour wages. Relatively large and young labour market • Preferential trading partner status with developed economies. Underdeveloped country status • Ongoing efforts to attract FDI. Investment incentives and improving legal and regulation transparency and consistency Weaknesses • Shortage of skilled labour. The lag in technology readiness hinders ability to provide value-added services • Poor public and legal institutions • Administrative bureaucracy and ongoing graft problems remain a hindrance • Government’s weak fiscal position leaves less scope for increased economic stimulus measures and ability to service its debt • Weak infrastructure such as transportation and power increases risk of value chain disruption Opportunities • SOE reforms and equitisation (part-privatisation) expected to resume in the short to medium-term (2009-2013) • Reductions in restrictions/limitations expected on foreign investments and operation activities including market liberalisation (with WTO ascension) • Growth in demand for consumer goods with higher disposable income over the medium to long-term • Significant infrastructure investments required to facilitate commerce, trade and investment activities • Investments in export-based industries which tap on competitive labour costs • Resilient domestic consumption Threats • Prolonged global recession adversely affects some export sectors and slows down the economy: unemployment and labour unrest contribute to concerns in some industries and particular locations • Volatile inflation trends • General threat of international trade protectionism • Low level of foreign exchange reserves increases the risk of currency crisis 48 Asia’s emerging gems: Investment brief Economic overview % Vietnam 2007 2008 2009(f) 2010(f) 2013(f) Commentaries GDP 8.5 6.2 3.3 3.9 6.9 • Slower growth as export, which makes up about 70% of GDP, is decreasing due to the economic downturn • Domestic consumption and the construction sector will be contributing to growth Inflation 8.3 23.1 6.0 5.0 5.0 • Increased to a 17-year high and peaked at 28.3% in August 2008 due to hike in the prices of food, housing and construction • Although inflation has eased recently due to easing commodity prices, some analysts expect it to start rising again from September 2009 on the back of rising food and oil prices. Inflation to hit 9% by end2009 and 13% by end of first quarter 2010 Unemployment 4.5# 4.7 8.2 4.5* 4.0* • Unemployment rate may reach 8.2% this year with the negative impact of the global economic slowdown • An estimated 30,000 workers lost their jobs in 2008 and about 300,000 to 400,000 are expected to lose their jobs in 2009 (f) Forecast Source: IMF for GDP and inflation data; EIU, GSO# and BMI* for unemployment data PricewaterhouseCoopers 49 Chart 33 Top sectors by GDP contribution, 2008 Trade, hotel & restaurant Agriculture 17% 18% Construction 6% GDP VND1,625 trn (US$91.3 bln) Manufacturing 9% Mining 21% 5% Transport, warehouse & communications 24% Others Chart 34 Trade information, 2008 Agricultural products Crude oil 13% 17% Seafood 7% Textile, footwear & apparels 22% Exports VND1,119 trn (US$62.9 bln) 30% Source: General Statistics Office of Vietnam 50 Asia’s emerging gems: Investment brief 6% 5% Others Electrical & electronics products Wooden products Imports VND1,431 trn (US$80.4 bln); Machinery, petroleum and steel accounted for 39% of total imports Major trading partners US, Japan, Australia, China, Singapore and Taiwan Vietnam Sectoral performance review Growth% Sector 2007 2008 2009(f) Commentaries Manufacturing 12.8 10.1 - 5.0 • Manufacturing accounts for over 35% of total exports in 2008 • Declining growth due to declining demand for major exports items - textile, footwear & apparels, E&E and wooden products • FDI trends moving towards manufacturing of higher valueadded products Trade, hotel & restaurant 9.4 6.8 4.7 • The retail market increased by 31% in 2008 to VND1,032 trn (US$58 bln) over 2007 - forecast to increase by 13.6% on average between 2008 and 2012 • Modern retail is in its infancy, representing 18% of total retail sales but has the fastest growth among other retail channels at around 20% • Retail sales are resilient but facing downward pressure with increasing cost of doing business in current economic climate Agriculture 2.3 3.6 3.0 • Main crops are rice, coffee and rubber - Vietnam is the world’s second-largest rice and coffee exporter and the world’s top cashew exporter • Generally, Vietnam’s agriculture is based mostly on smallscale farms with poor yields. Transportation and production infrastructure is often poor, making getting crops to market difficult and negatively impacting quality Construction 12.0 0.02 - 0.2 • The overheating of domestic economy in late 2007 due to massive capital inflows led to inflation acceleration, asset price bubbles and a larger trade deficit which spilled into 2008 performance • High raw material prices hindered timely development of projects causing construction costs’ overruns and delays • Risk aversion and credit scarcity have also deterred major ventures in the infrastructure sectors that rely heavily on FDI Mining - 2.0 - 3.8 n.a • State-controlled oil and gas industry, featuring international oil companies’ participation through production sharing agreements • Main government vehicle is PetroVietnam, which, with its Vietsovpetro JV, provides around 90% of the country’s oil production • The first oil refinery, Dung Quat Refinery, commenced operations in February 2009 Transport, warehouse & communications 10.4 13.8 8.5 • The current state of the country’s physical infrastructure limited road, rail, port capacity and power plant capacity - insufficient to accommodate the anticipated rapid growth ahead and also the supply chain management that increasingly demands seamless connection between producers and consumers • Vietnam’s Ministry of Transport estimates close to VND1,067 trn (US$60 bln) is required into 2020 to fund road infrastructure projects (f) Forecast n.a Data not available at time of publication PricewaterhouseCoopers 51 Leading corporates Equity market analysis There are two stock exchanges in Vietnam - Ho Chi Minh Stock Exchange (HOSE) with its Ho Chi Minh Stock Index (HCMS index) and Hanoi Stock Exchange (HNX)* with its HNX Index (formerly known as Hanoi Securities Trading Center (HASTC) with its HASTC Index). The HCMS Index fell sharply by 66% in 2008 to 316 points in December 2008 due to the impact of the global financial crisis. The market subsequently recovered in 2009, gaining 31% in the first five months to 412 points in May 2009. Similarly, Vietnam’s stock market capitalisation (both HOSE and HNX) surged by 41% to VND219 trn (US$12.3 bln) in May 2009. Since 1 June 2009, there are new regulations to allow foreign investors to buy and sell shares, bonds and assorted securities in both listed or unlisted markets; buy shares in initial public offerings (IPOs) of SOEs; and invest in funds and joint stock firms at a fixed rate. The new rulings allow foreign firms to hold up to 49% of non-listed shareholding firms, up from 30%. Each foreign investor can also open a bank account in Vietnamese Dong to indirectly invest in Vietnam. In addition, effective 24 June 2009, a new trading floor, Unlisted Public Companies Market (UPCoM) was launched at the HNX to help regulate trade in unlisted companies’ shares. There is initial participation of 17 companies for unlisted shareholding companies. Although Vietnam has over one thousand shareholding companies, less than half of these have been listed on either the Hanoi or Ho Chi Minh City exchanges. Measures to revitalise Vietnam’s stock exchanges • Securities market -- Encourage long-term investment -- Professional to individual investors mix at 60:40 -- Extend market trading time until afternoon • Government’s role -- Clear country’s policies, economic indicators and macro-economic management -- Delay the capital gains on individuals tax until 2010 • Improve privatisation and IPO methods • Further expansion of bond market * Launched on 24 June 2009 Chart 35 Top 10 companies on Ho Chi Minh Stock Exchange and Hanoi Stock Exchange Company Industry sector Market capitalisation Revenue VND bln US$ mln VND bln US$ mln Bank for Foreign Trade of Vietnam Financial services 72,616 4,080 14,719 827 Asia Commercial Bank Financial services 31,146 1,750 12,992 730 Bao Viet Insurance & Finance Group Financial services 30,363 1,706 6,888 387 PetroVietnam Finance Financial services 20,734 1,165 2,740 154 Saigon Thuong Tin Commercial Financial services 17,210 967 9,272 521 Viet Nam Dairy Products Food & beverages 16,124 906 8,881 499 PetroVietnam Fertilizer & Chemical Industrial products & services 16,072 903 7,012 394 Hoang Anh Gia Lai (HAGL) Real estate 12,031 676 2,028 114 PetroVietnam Drilling and Well Services Industrial products & services 11,106 624 4,040 227 Hoa Phat Group 10,608 596 9,041 508 Industrial products & services Source: Bloomberg as at 30 June 2009 Note: Top companies based on market capitalisation 52 Asia’s emerging gems: Investment brief Vietnam Chart 36 Financial services Chart 37 Industrial products & services Company Market capitalisation Revenue US$ mln US$ mln Bank for Foreign Trade of Vietnam 4,080 827 Asia Commercial Bank 1,750 730 Bao Viet Insurance & Finance Group 1,706 PetroVietnam Finance Saigon Thuong Tin Commercial Company Market capitalisation Revenue US$ mln US$ mln PetroVietnam Fertilizer & Chemical 903 394 387 PetroVietnam Drilling and Well Services 624 227 1,165 154 Hoa Phat Group 596 508 967 521 Petroleum Technical Services 331 527 Ha Tien 1 Cement 97 154 Chart 38 Utilities & infrastructure Company Market capitalisation Revenue US$ mln US$ mln Pha Lai Thermal Power 491 236 Vinh Son – Song Hinh Hydropwer 255 29 Thac Ba HydroPower 85 15 HCM City Infrastructure Investment 77 14 Can Don Hydro Power 25 15 Chart 40 Electrical & electronics Company Chart 39 Real estate Company Market capitalisation Revenue US$ mln US$ mln HAGL 676 114 Vincom 457 15 Tan Tao Investment Industry Corp 392 64 Kinh Bac City Development Share Holding Corp 339 52 Viet Nam Construction and Import-Export 291 173 Revenue Market capitalisation Revenue US$ mln US$ mln Refrigeration Electrical Engineering Corp 187 70 Cables and Telecommunications Material 100 79 Dry Cell & Storage Battery 48 75 Market capitalisation Dien Quang 18 23 US$ mln US$ mln RangDong Light Source and Vacuum Flask 17 51 Viet Nam Dairy Products 906 499 KinhDo Corp 138 88 Societe de Bourbon Tay Ninh 97 34 Minh Phu Seafood 88 175 Nam Viet Corp 62 202 Source: Bloomberg as at 30 June 2009 Note: Top companies based on market capitalisation Chart 41 Food & beverages Company PricewaterhouseCoopers 53 Investment overview Foreign direct investment Vietnam has attracted VND1,139 trn (US$64 bln) of registered capital in 2008, which is 3.2 times higher than in 2007. FDI disbursements reached VND204 trn (US$11.5 bln), rising by 43.2% compared with 2007. Major investors were from Malaysia 25%, followed by Taiwan, Japan and Singapore at 14%, 12% and 7% respectively. The global economic downturn is expected to affect foreign remittances and foreign FDI inflows in 2009. Chart 42 Gross approved FDI inflows* 2007 2008 2009(f) VND379 trn (US$21.3 bln) VND1,139 trn (US$64.0 bln) VND355 trn (US$20.0 bln) (f) Forecast * Granted licence Chart 43 Gross approved FDI inflows by sectors, 2008 The first quarter of 2009 saw VND112 trn (US$6.3 bln) FDI committed into the country, down 17% year-on-year FDI commitments were largely from the US, South Korea, Hong Kong, UK and Singapore. Remittances sent home by approximately 3 mln Vietnamese working overseas have been estimated at VND142 trn (US$8.0 bln) in 2008, but is expected to decrease by roughly a third to VND97 trn (US$5.5 bln) in 2009 as overseas workers face a considerably tougher job market. Remittances are also affected by weaker investment prospects in the Vietnamese real estate market, which previously drew large funds from overseas. Foreign investment in Vietnam is governed under the Law on Foreign Investment and its related regulations, decrees and circulars. The main types of direct foreign investments in Vietnam include: • Joint ventures • Wholly-owned companies • Representative offices Different legal forms available include: • One member limited liability • Two or more members limited liability • Joint stock company (shareholding company) In addition to direct investment, foreign investors can make indirect investment in Vietnamese companies i.e. acquire shares in stock market or unlisted company. 54 Asia’s emerging gems: Investment brief Construction 25% Heavy industry 32% Gross approved FDI inflows by sectors, 2008 10% Others 18% Oil & gas 15% Hotel & tourism Source: General Statistics Office of Vietnam (GSO) Vietnam’s attractiveness to foreign investors • Large, young and “eager to work” population • Low labour cost • Growing consumer market • Gradual move from centralised to marketoriented economy • Introduction and amendments of legislations by the Government to make FDI more attractive Despite the attractions, a number of barriers to investment remain. An opaque legal system, an inflexible financial system, corruption, a lack of regulatory transparency and consistency, a ponderous bureaucracy and complex land purchase rules are among areas criticised by foreign investors. The country’s weak infrastructure is also an impediment to many foreign investors. However, this is a diminishing problem as the Government is actively investing in improving its transportation system. Vietnam Promoted zones Overview The country’s first export processing zone started in 1991. Since then, a series of industrial, export processing, high-tech and economic zones have been developed along with the increase in foreign investment, mainly in northern and southern Vietnam. Industrial zones (IZs) Zones specialising in the production of industrial goods and provision of services for industrial production. Vietnam aspires to become an industrialised country by 2020. By late 2008, Vietnam had over 200 industrial zones (IZs), export processing zones (EPZs), high-tech zones (HTZs) and 13 economic zones (EZs) across the country. With attractive incentives and favourable conditions for investors, IPs and EPZs have attracted a great inflow of foreign and local investment. IPs and EPZs attracted 3,564 FDI projects with a total registered capital of VND760 trn (US$42.7 bln) while EZs brought in 72 FDI projects capitalised at VND356 trn (US$20 bln). Domestic businesses also invested nearly VND267 trn (US$15 bln) into 3,588 such projects. High-tech zones (HTZs) Zones specialising in R&D, application of high-tech, developing high-tech enterprises, training high-tech human resource and production and trade in high-tech products. The Ministry of Planning and Investment (MPI) said the national zoning plan envisaged setting up 91 new IPs with a total area of 20,800 hectares by 2015 and expanding 22 existing IPs by 3,500 hectares. It will also develop another EZ in 2010 and another planned after 2010. By 2020, the Government targets that EZs will contribute 15-20% of GDP and generate some 1.3 mln to 1.5 mln new jobs. Note: Economic zones and bordergate economic zones are all referred to as EZs, unless otherwise specified. Export processing zones (EPZs) Industrial zones specialising in the production of export goods and provision of services for production of export goods and activities. Note: IZs, EPZs and HTZs have specific geographical boundaries and enjoy specific incentives. Economic zones (EZs) Zones having a separate economic space with an investment and business environment particularly favourable for investors. EZs are organised into functional areas including non-tariff areas, bonded warehouse areas, EPZs, IZs, HTZs, entertainment areas, resorts, urban areas, residential areas, administrative areas and other functional areas consistent with characteristics of each EZ. Bordergate economic zones (BEZs) BEZs are formed in onshore bordergate areas with an international bordergate or main bordergate. There are six BEZs: Mong Cai, Dong Dang, Lao Cai, Cha Lo, Lao Bao, Nam Giang. Targeted sectors • Oil refining • Steel • Telecommunication • Infrastructure and public works • Pharmaceutical • Chemicals • Real estate • Tourism PricewaterhouseCoopers 55 Chart 44 Vietnam economic zones ,%'%.$ : HA NOI A HA NOIB A B Hai Phong C Hai Phong C D -AJOR#ITY #APITAL -AJOR!IRPORT -AJOR#ITY -AJOR3EAPORT -AJOR!IRPORT A B C %CONOMIC:ONES : -AJOR3EAPORT !6AN$ON -ARINE%COTOURISM %CONOMIC:ONES : %CONOMICINTEGRATIONWITH .ORTH%AST!SIA!6AN$ON D E ,%'%.$ : #APITAL A B C -ARINE%COTOURISM F "$INH 6Un #AT(AI %CONOMICINTEGRATIONWITH -ARITIMEECONOMY E #.GHI 3ON .ORTH%AST!SIA "$INH 6Un #AT(AI $$ONG.AM .GHE !N -ARITIMEECONOMY %6UNG !NG #.GHI 3ON %CONOMICINTEGRATIONWITH %AST7EST%CONOMIC $$ONG.AM .GHE !N #ORRIDOR F G Da Nang H I H J %6UNG !NG %CONOMICINTEGRATIONWITH '#HAN-AY n ,ANG#O %AST7EST%CONOMIC Da Nang (#HU,AI #ORRIDOR &(ON,A G )$UNG 1UAT *.HON (OI I+.AM0HU 9EN &(ON,A '#HAN-AY n ,ANG#O (#HU,AI /ILREFINERYANDLIQUEFACTION K L ,6AN 0HONG )$UNG 1UAT %CONOMICINTEGRATIONWITH *.HON (OI .ORTH3OUTH%CONOMIC J #ORRIDOR -$INH !N +.AM0HU 9EN /ILREFINERYANDLIQUEFACTION ..AM#AN K ,6AN 0HONG /0HU 1UOC %CONOMICINTEGRATIONWITH 4OURISM%CONOMIC .ORTH3OUTH%CONOMIC INTEGRATIONWITH!3%!. L #ORRIDOR -$INH !N O M Ho Chi Minh City /0HU 1UOC 4OURISM%CONOMIC INTEGRATIONWITH!3%!. N O Note: Map does not show all islands N 56 Asia’s emerging gems: Investment brief ..AM#AN M Ho Chi Minh City Vietnam Tax incentives for promoted areas Corporate income tax (CIT*) Type of project Remittance tax Tax incentive • Newly-established enterprises operating in localities with especially difficult socio-economic conditions, in EZs and HTZs • 10% tax rate for 15 years • 4 years of tax exemption • 9 years of 50% reduction None • Newly-established enterprises operating in localities with difficult socio-economic conditions • 20% tax rate for 10 years • 2 years of tax exemption • 4 years of 50% reduction None *CIT incentives are no longer based on sector/industry except for some limited sector/industry Other tax incentives Import tax Raw materials and materials Not yet domestically produced for manufacturing in IPs and EPZ For manufacturing in EZs Tax holiday within 5 years Personal income tax Value added tax (VAT) and excise tax Machinery & equipment To form fixed assets for all projects in IPs, EPZs and EZs Goods imported into EPZs and/or imported by export processing enterprises Means of public transportation including bus and electric tramcars in IPs and EPZs Goods manufactured in or imported to non-tariff area in EZs Goods imported to non-tariff area in EZs, which are domestically produced or produced in tariff area Experts and Employees in EZs Import duty exemption for the whole duration of the project 0% VAT Exemption from VAT Exemption from Excise Tax and VAT 0% VAT 50% reduction Note: Companies operating in EZs (remote areas) are still subject to tax incentives. The removal of corporate tax incentives applies to new companies located in industrial zones and export processing zones. However, all companies operating in IZs and EPZs which were licensed before 2009 are grandfathered from the changes. New companies established in IZs and EPZs are no longer entitled to corporate tax incentives. With World Trade Organisation (WTO) commitment, Vietnam has a phased out period of five years to remove the incentives granted to companies on the basis of export ratios. Most export processing enterprises (EPEs) were granted highest tax incentives due to its 100% export ratio. This will be removed by 2012. EPEs are considered as operating in bonded areas and thus not subject to import duty from import raw materials. PricewaterhouseCoopers 57 Vietnam 58 Asia’s emerging gems: Investment brief Fiscal stimulus packages The MPI has officially announced details of the Government’s demand stimulus package with a total value of VND143 trn (US$8 bln) in May 2009. It aims to support growth, ensure social security, and accelerate poverty reduction. Vietnam Summary of Vietnam’s stimulus package Type of measures • Infrastructure and other developmental projects -- State budget for urgent projects -- Investment funds -- Government bonds -- Advance funding for capital construction • Tax incentives for business and individuals • Interest subsidy for loans and credit guarantee • Social welfare programmes Measures under the five thrusts Thrust 1 Support key sectors • Support further development of the manufacturing, services and export sectors besides expanding domestic market to develop a self-reliant economy • Support enterprises, especially SMEs through temporary interest rate subsidies, credit guarantees, delays in corporate income tax payments, and a 30% temporary reduction in the tax liabilities for SMEs VND37.2 trn VND30.2 trn VND20.0 trn VND 3.4 trn VND28.0 trn VND17.0 trn VND 7.2 trn US$2.1 bln US$1.7 bln US$1.1 bln US$0.2 bln US$1.6 bln US$0.9 bln US$0.4 bln Thrust 2 Stimulate investments • Focus on development investment and key infrastructure projects vital to future growth including healthcare, education and social housing policy • Facilitate access to credit and provide credit guarantees for equipment and machinery imported by enterprises for upgrading or expanding production • Improve efficiency in the investment process by simplifying investment procedures Thrust 3 Effective monetary and fiscal policies • Facilitate loan financing for enterprises • Tax relief schemes • Aggressive easing of monetary policy by State Bank of Vietnam Thrust 4 Timely, flexible and practical policies • Improve forecasting capabilities to fine-tune government measures in response to a changing economic environment • Focus on implementing the policies and accelerating administrative reform • Raise awareness and transparency of implementation of government policies to the public Thrust 5 Social stability and poverty reduction • Ensure social stability – raise basic salary for public employees, housing for the poor, unemployment relief loans • Special programme intended to reduce the poverty rate in the 61 poorest districts in Vietnam • One-time cash handout of VND200,000 (US$11.20) per person, up to VND1 mln (US$56.20) to households classified as poor by the Ministry of Labour, Invalids and Society Affairs PricewaterhouseCoopers 59 Tax brief Vietnamese income tax is covered under the Law on Tax Administration (2006), Law on Personal Income Tax (2007), Law on Corporate Income Tax (2009) and Law on Value Added Tax (2009). Resident companies are subject to corporate income tax on their worldwide income and non-resident companies are taxed only on Vietnamese source income. Foreign companies performing businesses in Vietnam with Vietnamese customers and earning income from Vietnam without establishing any legal entities in Vietnam are subject to foreign contractor withholding tax (FCWT). Withholding tax also applies to payments of interest, royalties, service fees, transportation and lease charges. There is no withholding tax on dividends. Other taxes include capital assignment profit tax, value added tax, personal income tax, special sales tax, import/export duties and natural resource tax. Tax treaty networks Vietnam has an extensive network of tax treaties with 58 countries, namely, Algeria, Australia, Austria, Bangladesh, Belarus, Belgium, Brunei, Bulgaria, Canada, China, Cuba, Czech Republic, Denmark, Egypt, France, Finland, Germany, Hong Kong, Hungary, Iceland, India, Indonesia, Ireland, Israel, Italy, Japan, Korea (North), Korea (South), Kuwait, Laos, Luxembourg, Malaysia, Mongolia, Morocco, Myanmar, Netherlands, Norway, Oman, Pakistan, Qatar, Philippines, Poland, Romania, Russia, Seychelles, Singapore, Slovakia, Spain, Sri Lanka, Sweden, Switzerland, Taiwan, Thailand, UAE, Ukraine, United Kingdom, Uzbekistan and Venezuela. 60 Asia’s emerging gems: Investment brief Persons chargeable to tax Persons Type of tax Resident companies Corporate tax Non-resident companies - carrying on business in Vietnam Corporate tax Foreign-owned enterprises or branches Corporate tax Vietnamese citizens - residing in Vietnam or working overseas Personal tax Foreign individuals - working in Vietnam or earn Vietnam sourced income Personal tax Tax rate applicable Persons Rates Corporate tax • General • Companies engaged in O&G and exploitation of special natural resources 25% 32% - 50% Personal tax • Resident • Employment • Non-employment • Non-resident • Employment • Non-employment 0% - 35% 5% - 25% 20% 5% - 25% Capital assignment profit tax (on capital gains) 25% Special sales tax 10% - 70% Import duty 0% - 87% Export duty 0% - 37% Natural resource tax 0% - 40% Vietnam Foreign contractor withholding taxes (FCWT) Nature of supply Trading (distribution, supply of goods, materials, machinery and equipment) FCWT CIT rates FCWT VAT rates 1% Exempt or 1% Pure services performed within Vietnam 5% 5% Royalties 10% Exempt Leasing of machinery and equipment 5% 5% Leasing of aircraft, vessels (including components) 2% Not specified Interest 10% Exempt Construction, installation without supply of material or machinery and equipment 2% 5% Construction, installation with supply of material or machinery and equipment 2% 3% Transportation 2% 3% Overseas reinsurance 2% Exempt Transfer of securities 0.1%* Exempt Insurance 5% 5% Manufacturing and other business activities 2% 3% Note: CIT – Corporate income tax portion of FCWT VAT – Value added tax portion of FCWT * On total gross proceeds Tax incentives (new investments) Nature of project Preferential tax rates from commencement of operation* Tax exemption Full or 50% exemption from the first year of profit* Investments in locations designated under especially difficult socio-economic conditions zones, EZs and HTZs 10% for 15 years • Full exemption - 4 years • 50% exemption - 9 years Investments in locations designated under difficult socio-economic conditions zones 20% for 10 years • Full exemption - 2 years • 50% exemption - 4 years Investments in high technology, science research and technology development, certain infrastructure development, computer software manufacture Investments in education, healthcare, sport/culture, environment (conditions apply) 10% for 15 years • Full exemption - 4 years • 50% exemption - 9 years 10% for the life of the project • Full exemption - 4 years • 50% exemption - 5 to 9 years * The incentives are granted as a package and will run concurrently PricewaterhouseCoopers 61 Vietnam 62 Asia’s emerging gems: Investment brief Market insights Vietnam 2020 Industrialised nation World reputation Government targeted growth sectors Growth corridors/ promoted zones • World’s top cashew exporter • World’s 2nd largest rice and coffee exporter • World’s 6th most attractive location for FDI • Key promoted sectors -- Oil refining -- Steel -- Telecommunication -- Infrastructure -- Pharmaceutical -- Chemicals -- Real estate -- Tourism • Growth sectors -- Retail (up by 31% in 2008 to US$58 bln) -- Infrastructure projects (e.g. US$60 bln required for road infrastructure) • Over 200 IZs, EPZs, HTZs and 15 EZs • 91 new IPs with a total area of 20,800 hectares by 2015; expansion of 22 existing IPs by 3,500 hectares Government, FDI and capital market • Government -- Privatisation of SOEs (2008: 73 out of 262 SOEs) • FDI -- Commitment to WTO policies • Capital market -- Equity market: new trading floor, UPCoM (Unlisted Public Companies Market) PricewaterhouseCoopers 63 64 Asia’s emerging gems: Investment brief Cambodia is a developing market economy that has grown at an average rate of over 10% since 2004. The coalition government is focused on accelerating development through economic and political reform programmes. Since Cambodia joined the World Trade Organisation in 2004, trade has steadily increased and the US has become Cambodia’s largest trading partner, particularly in the garment and footwear industries. Notwithstanding its light manufacturing export forays, agriculture continues to be a key export sector of the Cambodian economy, driven by rice, fisheries, timber and rubber. With its large and inexpensive labour force and pro-business government, which is directing investments to grow in various sectors including manufacturing, infrastructure, agribusiness and tourism, Cambodia is poised for gradual industrialisation. CAMBODIA At a glance Economic overview Investment overview Tax brief Market insights PricewaterhouseCoopers 65 At a glance 14.6 million population Total area 181,035 sq km Capital Phnom Penh Language Khmer, French and English Currency Exchange rate (as at 30 June 2009): US$1 = KHR4,164 (Cambodian Riel) Government Multi-party democracy under a constitutional monarchy Administrative divisions 23 provinces and one city Strengths • Young and inexpensive work force • Pro-business government focused on attracting FDI • Stable political environment, with the ruling Cambodian People’s Party continuing to be in control (with the royalist FUNCINPEC* party as a minority coalition partner) Weaknesses • • • • • Lack of infrastructure such as power and transportation Shortage of skilled workers Opacity of rules, regulations, commercial and business information Bureaucratic licensing process High poverty rate - some 30% of the country’s 14.6 mln people live on less than KHR2,082 (US$0.50) a day • Highly dependent on external sector for growth and investments, making it vulnerable to external shocks. Opportunities • Opportunity to achieve high growth due to the country’s low economic base • Government has earmarked KHR11.6 trn (US$2.8 bln) on public investment over three years • Multi-donors have pledged to disburse KHR3.96 trn (US$951.5 mln) in grants and loans in 2009 for development • Needs to diversify and broaden its economic base, aside from light manufacturing • Needs several billions of dollars in investment to develop its infrastructure, industry and economy Threats • • • • • • Corruption a key concern among businesses Prolonged global recession will adversely impact export sectors Anti-competitive practices (unfair competition) Border tension with Thailand Limited availability of credit to finance investments Higher banking system non-performing loan (NPL) from sectors like real estate, construction and garment * National United Front for an Independent, Neutral, Peaceful and Cooperative Cambodia 66 Asia’s emerging gems: Investment brief Economic overview Cambodia % 2007 2008 2009(f) 2010(f) 2013(f) Commentaries GDP 10.2 6.0 - 0.5 3.0 7.3 • In 2008, the economy is affected by declines in export orders for garments (70% of exports and mostly to the US), a drop in construction activities, a collapse in private capital inflows and a sharp slowdown in tourist arrivals Inflation 5.9 19.7 5.2 1.4 3.5 • Inflation peaked at 26% in May 2008, pushed by higher prices for food and oil, before slowing to 13.5% in December 2008 • With domestic demand pressures projected to ease, inflation should continue its downward trend from 2009 onwards Unemployment 2.5 2.5 n.a n.a n.a • Registered unemployment has risen from 10,000 in 2007 to 100,000 in early 2009 • About 50,000 garment workers, or 17% of the total industry workforce, have lost their jobs since September 2008 (f) Forecast n.a Data not available at time of publication Source: IMF for GDP and inflation data; CIA World Factbook for unemployment data PricewaterhouseCoopers 67 Chart 45 Top sectors by GDP contribution, 2007 Manufacturing Construction & real estate 17% 13% Agriculture 30% GDP KHR36.2 trn (US$8.69 bln) 13% 7% Trade, hotels & restaurants Transport & communications 20% Others Chart 46 Trade information, 2007 72% Garment Exports KHR17.0 trn (US$4.09 bln) 10% Rice 4% Rubber 3% 11% Fish Others Source: IMF Note: In Q1 2009, total exports decreased by 26%, mainly due to the export contraction in the garment sector, particularly to the US market 68 Asia’s emerging gems: Investment brief Imports KHR22.6 trn (US$5.42 bln); garment sectors (25%), petroleum (25%) Major trading partners US, China (including Hong Kong), EU, Taiwan, Thailand and Vietnam Cambodia Sectoral performance review Growth% Sector Commentaries 2006 2007 2008(f) Agriculture (mainly rice) 5.5 5.0 4.5 • Roughly 80% of the country’s population is engaged in agriculture. The country has two mln hectares of unforested and uncultivated land • Agricultural production is expected to be marginally higher in 2009 compared to 2008’s estimated growth of 4.5%, reflecting improvements in irrigation, a drop in fertiliser prices from 2007’s high, and a continuation of policies to increase production • The Government is taking measures to promote the plantation sector through the approval of 10 agricultural projects worth KHR1.3 trn (US$319.4 mln) in the first four months of 2009 which include three sugar cane plantation projects and seven rubber plantation projects Manufacturing (mainly garment & footwear) 17.4 8.9 n.a • The Government has allocated almost KHR2.1 trn (US$500 mln) for the garment sector in 2008 • Garment exports are expected to contract further in 2009 due to lower demand in the US and Europe, higher wage costs, the ending of safeguards imposed on China at end-2008, and increasing competition from Vietnam • Garment exports fell sharply in January 2009 by 31% year-on-year while orders dropped by 20-40% with a poor outlook for retail sales in the US • The sector shows signs of recovery in opening 19 new garment factories in Q1 2009, creating job opportunities for workers who lost employment in 2008 Construction & real estate 15.5 8.7 n.a • New construction activities faltered from the second half of 2008 as FDI and credit growth decelerated • Property prices in and around Phnom Penh are reportedly down as much as 25% from historic highs in mid-2008 • Since the global financial crisis hit, a few major urban projects have been scaled back, as foreign investors (mainly from South Korea) reassessed of their commitments in the face of tighter funding conditions abroad and weaker nearterm prospects in Cambodia • Real estate and construction activity is expected to decelerate further in 2009 as investment becomes constrained by FDI inflows and credit Trade, hotels & restaurants 10.4 9.9 n.a • Aside from trade, this sector is linked to tourism activities • In 2008, the tourism sector recorded an estimated 2.1 mln tourists, bringing in approximately KHR4.1 trn (US$1 bln) in revenue for the year • There is an estimated 350 hotels offering 20,000 rooms • Tourist arrival growth moderated in 2009 due to the economic downturn as key tourist-source countries cut discretionary holiday spending • The Government expects to boost the tourism sector with several new resort development projects, namely in Kep town (resort has 32 four-star bungalows resort due to be completed by end-2009) Transport & communications 2.1 7.2 n.a • Only a quarter or 24% of the population has access to mobile networks • The number of subscribers has increased approximately by 1.2 mln or 45% compared to 2007. This is expected to increase to 13 mln subscribers by 2013 • In July 2009, Telecom Cambodia has inaugurated a new 650km link national fibre backbone that connects the south western coast to the north, near Laos’ border • The Government has offered Build-Operate-Transfer concessions to several companies to rehabilitate portions of national highway systems and to upgrade provincial airports • In June 2009, the Government signed a 30-year agreement with Australia’s Toll Holdings to upgrade the national railway system (f) Forecast n.a Data not available at time of publication PricewaterhouseCoopers 69 Investment overview Foreign direct investment (FDI) FDI continues to be focused mainly on the garment, tourism, and real estate sectors. Asian investors from ASEAN, China, Hong Kong, Taiwan, South Korea continue to dominate inflows. Recent interest in agribusiness are coming from Middle Eastern investors. According to December 2008 World Bank estimates, FDI inflows into Cambodia fell from KHR3.6 trn (US$866 mln) in 2007 to about KHR3.3 trn (US$800 mln) in 2008, and may fall to under KHR2.5 trn (US$600 mln) in 2009. Fiscal stimulus package Th Government has extended a tax holiday for corporate income tax payments for foreign direct investors from 2010 until 2012. Although the direct budgetary impact will not be felt over 2009 to 2010, the measure may help retain any companies that could have closed down due to the slump in garment exports. Efforts are underway to support agricultural producers and provide trade financing to exporters. Stock exchange The Government signed an agreement to set up the country’s first stock market with Korea Exchange (KRX) on 24 March 2009. The agreement gives the Ministry of Finance 55% of shares and KRX the remaining 45%. Proposed regulations of corporate governance for listed companies from Securities and Exchange Commission of Cambodia (SECC) is currently being discussed. The stock exchange is expected to be launched in December 2009. 70 Asia’s emerging gems: Investment brief Special economic zones (SEZ) SEZ in Cambodia brings together all industrial and other related activities including general IZs and/or EPZs in one designated area. Each SEZ is designed to have a production area which may include a free trade area, service area, residential area and tourist area. These zones are expected to help diversify the Cambodian export structure, which is presently heavily oriented towards garment products. There are 21 SEZs located at Koh Kong, Poipet, Savet, Phnom Den, Sihanoukville and Phnom Penh, of which six are being actively developed as of March 2009. Priority sectors • Agriculture • Physical infrastructure especially transportation and telecommunication • Water supply and electrical power • Human resource development • Export-oriented and labour-intensive industry • Tourism • Oil and gas and other mineral resources such as bauxite and iron ore Incentives for SEZ developers include: • Nine year tax exemption on profit • No value added tax and export tax • Import duty exemptions: -- Import of equipment -- Construction of equipment -- Means of transportation used in infrastructure construction in SEZs -- Machinery and equipment for construction of connecting roads and other infrastructure for public services • Investment guarantees relating to nationalisation, price fixing and all foreign exchange transactions • Land concession up to 99 years • Free repatriation of profit • Additional tax incentives as provided for under the Law on Investment for zone investors Tax brief A sub-decree implementing the amended Law on Investment, which came into effect on 27 September 2005, applies to all projects registered with the Council for the Development of Cambodia (CDC) and municipal/provincial sub-committee as Qualified Investment Projects (QIP). The sub-decree provides that investments falling within a Negative List are not entitled to investment incentives. The Negative List includes: • Commercial activities • Imports and exports trading • Transportation services (except the railway sector) • Currency and financial services • Tobacco products • Telecommunication services • Real estate development Resident companies are subject to corporate income tax on worldwide income while non-resident companies are taxed on income derived in Cambodia only. Resident companies earning foreign sourced income can receive credits for foreign taxes paid. Other taxes include minimum tax, value added tax, capital gains tax, import duties, personal income tax, specific tax, withholding tax and other taxes. Cambodia Persons chargeable to tax Persons Type of tax Resident companies Foreign-owned enterprises or branches Corporate tax or minimum tax, whichever is higher Cambodian citizens Personal tax Foreign individuals having a residence or a principal place of abode in Cambodia Personal tax Non-resident companies - carrying on activities in Cambodia Tax rate applicable Persons Rates Corporate income tax 20% • General • Companies engaged in oil and gas, and certain 30% mineral exploitation activities 5%1 • Companies engaged in insurance activities Minimum tax 1% of turnover Capital gains tax 20%2 Personal income tax 0% to 20% Value added tax (VAT) 0% and 10% Import duties 0% to 35% Specific tax on certain merchandise and services 0% to 33.33% Note: 1 On gross premium income 2 Capital gains form part of taxable profit Investment incentives Tax holidays are available to a QIP. A QIP is allowed the following tax incentives: • Exemption from minimum tax • Tax holiday of up to six years • Import duty exemptions A QIP is required to obtain a Certificate of Compliance (CoC) from the CDC annually to qualify for the investment incentives. Withholding taxes Payments made to residents Rates Interest paid by a resident taxpayer 15% Interest paid by a resident taxpayer bank 4% and 6% Royalties 15% Rent 10% Services (except payment to VAT registered taxpayers supported by VAT invoices) 15% Payments made to non-residents Rates Tax treaty networks Dividends 14% No tax treaties have been negotiated. Interest paid by a resident tax payer 14% Rent 14% Management or technical services 14% PricewaterhouseCoopers 71 Cambodia 72 Asia’s emerging gems: Investment brief Market insights Cambodia 2020 Graduate from “Least-Developed Country” status World reputation Government targeted growth sectors Growth corridors/ promoted zones • World’s 6th largest garment exporter • World’s 8th largest rice exporter • Manufacturing (garment industry) • Tourism • High-tech agricultural businesses (mainly rice, sugar cane, rubber, palm oil and fishery industries) • Infrastructure (transportation and telecommunication) • Upstream hydropower • Mining • Six out of 21 SEZs are actively developed as of March 2009 (Koh Kong, Poipet, Savet, Phnom Den, Sihanoukville and Phnom Penh) • Phnom PenhSihanoukville Growth Corridor’s SEZ port (to be completed by end2009) Government, FDI and capital market • Government -- Launched trade development project worth US$12 mln promoting export products (March 2009) • FDI -- Commitment to WTO policy • Capital market -- Set up country’s first stock exchange by end2009 PricewaterhouseCoopers 73 74 Asia’s emerging gems: Investment brief Laos is a country blessed with an abundance of natural resources. Gold and copper make up half of the country’s exports. The long-term vision of Laos is to graduate from the United Nation’s Least Developed Country status by 2020. In achieving this vision, it is working towards achieving its Millennium Development Goals by slowly opening up to global partnerships in economic development. Guided by the New Economic Mechanism implemented in 1986, Laos is gradually moving away from being a predominantly agriculturalbased nation to a growing industrial economy. The Government is sponsoring major improvements in the transportation system and developing the construction industry. Laos is also emerging as the “Battery of Asia” as the Government is now tapping into its massive hydropower potential as its next environmentally sustainable source of economic growth. LAOS At a glance Economic overview Investment overview Tax brief Market insights PricewaterhouseCoopers 75 At a glance 6.3 million population Total area 236,800 sq km Capital Vientiane Language Lao, French, English and various ethnic languages Currency Exchange rate (as at 30 June 2009): US$1 = LAK8,517.50 (Laotian Kips) Government Communist state Administrative divisions 16 provinces and one capital city Strengths • Pro-business government, with aims to attract FDI • Low labour costs • Abundant natural resources e.g. mining and hydropower which account for more than half of total investment and exports • Situated in an economic growth zone, sharing borders and common interests with Thailand, Vietnam, Cambodia and China • Stable political environment, with the ruling Lao People’s Revolutionary Party continuing to be in control Weaknesses • High poverty rate and among the world’s least developed countries • Inadequate legal frameworks leading to opaque regulations and a poorly resourced bureaucracy • Weak physical infrastructure • Lack of capital, knowledge and technology know-how required for sustainable economic development • Shortage of skilled workers • Landlocked mostly rural nation, with small domestic market of 6 mln population • Foreigners are not allowed to own land in Laos Opportunities • New foreign investment law to end discrimination against foreign investors • Investment in hydropower could reach LAK44.3 trn (US$5.2 bln) over the next five years; the country plans to become Southeast Asia’s powerhouse • Government is also attracting investments in light manufacturing, mining, forestry and agriculture sectors • Infrastructure investments e.g. Thailand and Vietnam governments have been investing in Laos infrastructure e.g. railway, bridges and power Threats • Prolonged global recession on export sectors • Many state-owned banks have difficulty managing their debt and will need to be radically reformed • Difficult place to do business, ranked 167 out of 183 countries in World Bank’s Doing Business 2010 Report • In practice, trade and investment are more heavily regulated, including import and export licensing 76 Asia’s emerging gems: Investment brief Economic overview % Laos 2007 2008 2009(f) 2010(f) 2013(f) GDP 7.5 7.2 4.4 4.7 6.6 • Growth is driven mainly by mining, hydropower and services • Slower growth in 2009 and 2010 as the global economic downturn hits exports of clothing and copper, as well as tourism Inflation 4.5 7.6 0.2 2.6 4.0 • Average annual inflation of 7.6% in 2008 and continues to be low in 2009 • After peaking at 10.3% in May 2008, the year-on-year inflation rate dropped to 2.4% in January 2009 mainly due to sharp decline in oil and food prices • Lower fuel prices brought down the cost of transportation, construction materials and other products, leading to further decline in core inflation Unemployment 2.4 2.4 n.a n.a n.a • 70% of the labour force is in agriculture and a large portion of the population lives in poverty • More than 48,000 labour workers have been laid off their jobs since early 2009 due to the global economic crisis • However, the Government remains positive that Thai, South Korean, Malaysian and Japanese employers in local companies have all expressed interest in hiring an additional 25,000 workers in 2009 (f) Commentaries Forecast n.a Data not available at time of publication Source: IMF for GDP and inflation data; CIA World Factbook for unemployment data PricewaterhouseCoopers 77 Chart 47 Top sectors by GDP contribution, 2007 Manufacturing 23% 40% GDP LAK33.2 trn (US$3.9 bln) 13% Agriculture Wholesale & retail trade 6% 5% 13% Real estate & construction Others Source: Mining & quarrying IMF Chart 48 Trade information, 2007 Garments 15% Mining 50% Exports LAK8.9 trn (US$ 1.05 bln) Wood & wood product 13% 5% 8% 9% Source: World Bank Others Agricultural Electricity Note: Latest estimates in 2008 indicate that Laos’ exports maintained at US$1 bln. Exports are dominated by gold and copper which grew by 21.2% over the year. 78 Asia’s emerging gems: Investment brief Imports LAK17 trn (US$2 bln); capital goods (60%), intermediate goods (10%) Major trading partners Thailand, China and Vietnam Laos Sectoral performance review Growth% Sector 2006 2007(f) Commentaries Mining & quarrying 52.8 33.0 • Mining of precious metals is an important component of the country’s economy. Copper and gold comprise more than half of Laos’ exports • Export from mining contributed LAK4.7 trn (US$553 mln) in 2007 • With more than 570 types of mineral deposits identified, Laos is among the world’s most resource-rich countries Agriculture 2.9 2.7 • Laos is mainly an agricultural country, with the agriculture sector contributing about 40% of GDP • The sector’s main output are crops, livestock and fisheries • Agriculture, which employs over 70% of the labour force, was hit by severe floods in late August 2008 which damaged 10% of the arable area and curtailed production of rice and vegetables • The Government is taking steps to improve the irrigation system to bolster farm output Manufacturing 14.8 13.9 • Manufacturing in Laos is an emerging sector - main products are garments and wood products • Laos is a location for cost-effective manufacturing of garments and high-end woven fabrics, exporting largely to Thailand and Europe • Orders for clothing exports in early 2009 were down by 15-20%, reflective of the global financial crisis Electricity 1.1 - 2.9 • The Government plans to tap the Mekong river’s massive potential to turn Laos into the major energy provider to the region • Laos currently has 10 operational hydropower plants with a combined capacity of 700 MW (Megawatt) and eight more plants with a combined capacity of 2,500 MW under construction • The Government has invited independent power producers to develop the hydropower industry Wholesale & retail trade 8.2 8.9 • The wholesale and retail trade industry contributes some 12.6% of GDP in 2007 • Preparations to join the WTO in 2010 were stepped up last year, with the formation of a new body to coordinate the effort and oversee associated trade-related reforms. Laws and regulations are being amended to meet WTO requirements Transportation, storage & communication 7.5 8.1 • The Government put in place a new telecoms regulator, the National Post and Telecommunications Authority (NPTA) in October 2007 • The number of subscribers increased approximately 1.1 mln or 100% compared to 2007. It is expected to increase to 5.1 mln in 2013 • The Lao Telecommunication Company which holds 80% of the market share in the telecommunications sector, recently launched its 3G phone services in July 2009 (f) Forecast Note: 2008 and 2009 data not available at time of publication PricewaterhouseCoopers 79 Investment overview Special economic zone (SEZ) Incentives for SEZ developers Laos has one SEZ known as SavanSeno Special Economic Zone (SSEZ) which is at its initial stage of development. SSEZ is geographically located close to the new highway that links Southwest China and Southeast Asia. This SEZ is expected to become a hub for trade, services and manufacturing activities for the Greater Mekong Sub-region (GMS) nations. The categories of business activities planned to be develop in the SSEZ include the following: Under Article 17 and 18 of the Law on the Promotion of Investment, the Government has specified 3 promoted zones, which are based on geographical locations and socio-economic conditions. The zones and incentives are as follows: • Export Processing Zone • Free Trade Zone • Free Service and Logistic Centre (which should include tourism, banking and other activities) Description Incentives Zone 1 Mountainous, plain and plateau zones with no economic infrastructure to facilitate investments • Profit tax exemption for seven years • Thereafter, subject to profit tax at the rate of 10% Zone 2 • Profit tax exemption for five years, Mountainous, plain and • Thereafter, subject to a reduced plateau zones with a certain level of economic profit tax rate of half of 15% for three years infrastructure suitable to accommodate investments • Thereafter, profit tax rate of 15% to some extent Zone 3 Mountainous, plain and plateau zones with good infrastructure to support investments • Profit tax exemption for two years • Thereafter, subject to a reduced profit tax rate of half of 20% for two years • Thereafter, profit tax rate of 20% Note: Profit tax exemption starts from the date of the foreign enterprise’s commencement of operations. For tree plantation activities, profit tax exemption commences from the date the enterprise starts making a profit. Foreign direct investment Stock exchange Fiscal stimulus package According to the Ministry of Planning and Investment (MPI), the Government has licensed more than 40 FDI projects with total capital exceeding LAK8.5 trn (US$1 bln) in the first half of the 2008-2009 fiscal year. Over 2007-2008, the country attracted 161 FDI projects valued at LAK5.5 trn (US$650 mln). Vietnam is the leading foreign investor in Laos, followed by Thailand and China. The Laotian Government is currently working in association with South Korean securities officials to establish a stock market exchange in the country. The Government had signed an agreement with the Korea Exchange in 2007 to set up a jointventure bourse in Laos. The stock exchange is expected to commence operations in October 2010 and is likely to list five companies on its opening. In February 2009, the Government announced a list of measures to help cope with the economic crisis. The key measures are aimed at: According to the United Nations Conference on Trade and Development (UNCTAD), Laos attracted LAK2.8 trn (US$324 mln) in FDI in 2007, up sharply by 73% from LAK1.6 trn (US$187 mln) in 2006. The MPI singled out hydropower, construction materials, tourism, energy and mining as sectors that welcome foreign investments. 80 Asia’s emerging gems: Investment brief • Strengthening revenue management and prioritising public spending to focus on projects/programmes impacting growth and domestic demand • Supporting growth, especially to promote agricultural production, tourism and local investment, increasing the domestic lending, reviewing and streamlining approved FDI projects and improve the quality of the public sector services and coordination • Mitigating the social impacts of the crisis, especially for the poor and unemployed The Government has also cut the corporate income tax rate for domestically-owned enterprises in the garment sector to the level paid by foreign-owned firms. Tax brief Income tax is assessed on income/profits earned from any source related to Laos, regardless of whether the enterprise is a Lao resident or a foreign-owned enterprise/ branch carrying on a business in Laos. Currently, there are no rules in relation to the determination of corporate residence. In practice, an entity which has been incorporated in Laos and received corporate licences/certificates from the MPI, the Ministry of Industry and Commerce and the Ministry of Finance is subject to tax payment obligations under the tax laws. All entities incorporated in Laos are subject to withholding tax on payments to be made to foreign entities (non-incorporated/ registered entities in Laos). Generally, the Government offers various incentives to attract investments in the country. Both local and foreign investors are granted tax exemptions, reduced corporate taxes, reduced duties and business turnover taxes on imported equipment and raw materials and investment permissions and guarantees. Further, foreign investors can negotiate for various other incentives from the MPI based on their individual investments. Tax incentives Tax holidays are available for companies undertaking promoted activities or operating in promoted zones in Laos. Depending on the promoted zones, the general concessionary tax rates will apply: Laos Persons chargeable to tax Persons Type of tax Resident companies Foreign owned enterprises or branches 1. Corporate tax and minimum tax 2. Business turnover tax Non-resident companies - carrying on activities in Laos 1. Withholding corporate tax 2. Business turnover tax Lao citizens Personal tax Foreign individuals Personal tax Tax rate applicable Persons Rates Standard corporate income tax 35% Withholding corporate tax: • Commercial activities • Production activities • Transportation and construction activities • Services activities 1.75% 2.8% 3.5% 7% Minimum tax (on annual revenue) • for production • for services 0.25% 1% Capital gains tax 10% Personal income tax • Lao individuals • Foreign employees 5% to 25% 10% Business turnover tax* 5% and 10% Excise tax 5% to 90% Import duties A variety of rates * To be replaced with value added tax (VAT) at 10% by 1 January 2010 Withholding taxes Zone 1 10% (after tax holiday of seven years) Other payments made to non-residents Rates Dividends; interest; security fees 10% Zone 2 15% (after tax holiday of five years and reduced rate of 7.5% for three years) Royalties 5% Zone 3 20% (after tax holiday of two years and reduced rate of 10% for two years) Tax treaty networks Laos entered into double tax agreements (DTA) with China, South Korea, Thailand and Vietnam. It is in negotiations with Brunei, Kuwait, North Korea and Russia. There are also talks with Malaysia on the DTA. PricewaterhouseCoopers 81 Laos 82 Asia’s emerging gems: Investment brief Market insights Laos 2020 Graduate from “Least-Developed Country” status World reputation Government targeted growth sectors Growth corridors/ promoted zones • A leading resourcerich country in the world • Cheap location for manufacture of garments and highend woven fabrics • Transforming into major energy provider for the Greater Mekong Sub-region • Hydropower & energy • Mining (mainly copper and gold) • Manufacturing (garment & wood products) • Infrastructure • Agriculture • International hub for trade, services and manufacturing activities for the Greater Mekong Subregion • Savan-Seno Special Economic Zone -- Location for Export Processing Zone, Free Trade Zone and Free Service and Logistic Centre Government, FDI and capital market • Government -- Liberalisation of foreign investment law (released by end of 2009) • FDI -- To adopt WTO policies in 2010 • Capital market -- Commencement of stock market exchange (October 2010) PricewaterhouseCoopers 83 84 Asia’s emerging gems: Investment brief APPENDICES Sources Abbreviations Glossary of ratings List of charts PwC contacts Industry contacts Acknowledgements PricewaterhouseCoopers 85 Appendices Sources PricewaterhouseCoopers conducted the research using publicly available information gathered between December 2008 and September 2009 from international financial and economic institutions, national statistical offices as well as economic and industry intelligence services. Key sources include: General sources Country specific sources • ADB, “Asian Development Outlook 2009”, March 2009 • Bloomberg, 2009 • CIA, “The World Factbook”, April 2009 • EIU, “Country View”, May 2009 • IMF, “World Economic Outlook Database”, April 2009 • PwC, “EM20 Index 2009 Interim Update: Balancing Risk & Reward”, April 2009 • UNCTAD, “World Investment Prospects Survey”, 2007-2009 & 2008-2010 • WEF, “The Global Competitiveness Report 20092010”, September 2009 • World Bank, “Battling the forces of global recession: World Bank economic update for the East Asia and Pacific Region”, April 2009 • World Bank, “Doing Business 2010 Report”, September 2009 • v3.moodys.com • www.adb.org • www.cia.gov • www.economist.com • www.eiu.com • www.factiva.com • www.imf.org • www.pwc.com • www.standardandpoors.com • www.unctad.org • www.wikipedia.org • www.worldbank.org Malaysia • BMI, “The Malaysia Business Forecast Report Q2 2009”, January 2009 • Central Bank of Malaysia, “Annual Report 2008/2009”, March 2009 • Central Bank of Malaysia, “Financial Stability Report 2008/2009”, March 2009 • Ministry of Finance, “Economic Report 2008/2009”, August 2008 • www.bnm.gov.my • www.ecerdc.com • www.iskandarmalaysia.com.my • www.mscmalaysia.my • www.ncer.com.my • www.sarawakscore.com.my • www.sdc.gov.my Thailand • BMI, “The Thailand Business Forecast Report Q1 2009”, November 2008 • National Economic and Social Development Board (NESDB), “Economic Outlook: Thai Economic Performance in Q4 and Outlook for 2009”, February 2009 • www.bot.or.th • www.boi.go.th • www.ieat.go.th • www.nesdb.go.th • www2.mof.go.th Vietnam • BMI, “The Vietnam Business Forecast Report Q2 2009”, February 2009 • IMF, “Country Report No. 09/110”, April 2009 86 Asia’s emerging gems: Investment brief • MPI, “Vietnam’s IPs, EPZs and EZs: Ideal Places for Manufacturing Base”, 2007 • Vietnam Law & Legal Forum, “Decision No. 1353/QD-TTg of September 23, 2008, approving the Scheme on planning of development of Vietnam’s coastal economic zones up to 2020” • www.gso.gov.vn • www.mof.gov.vn Cambodia • IMF, “Country Report No. 09/47”, February 2009 • IMF, “Country Report No. 09/48”, February 2009 • Phnom Penh Chamber of Commerce, “Invest in Cambodia”, July 2007 • www.cambodiasez.gov.kh • www.cambodiainvestment.gov.kh • www.cia.gov • www.investincambodia.com • www.maff.gov.kh • www.mot.gov.kh • www.nbc.org.khw • www.ppcc.org.kh Laos • IMF, “Country Report No. 08/350”, October 2008 • IMF, “Country Report No. 08/340”, October 2008 • www.bol.gov.la • www.iisd.org • www.invest.laopdr.org • www.edl-laos.com Abbreviations Abbreviation Full term Abbreviation Full term ASEAN Association of Southeast Asian Nations GMS ADB Asian Development Bank Greater Mekong Sub-region (China, Vietnam, Cambodia, Thailand, Myanmar and Laos) BEZ Bordergate economic zone GSO General Statistics Office of Vietnam bln Billion HASTC Hanoi Securities Trading Center BMI Business Monitor International HDD Hard disk drives Bol Board of Investment HK Hong Kong CDC Council for the Development of Cambodia HNX Hanoi Stock Exchange CIT Corporate income tax HOSE Ho Chi Minh Stock Exchange CNY Chinese Renminbi HTZ High-tech zone CPO Crude palm oil ICT Information and communications technology DTA Double taxation agreement IE Industrial estate ECER East Coast Economic Region IEAT Industrial Estate Authority of Thailand E&E Electrical and electronics IM Iskandar Malaysia EIU Economist Intelligence Unit IMF International Monetary Fund EM Emerging market IP Industrial park EPZ Export processing zone IPO Initial public offering EU European Union IZ Industrial zone EZ Economic zone JPY Japanese Yen FCWT Foreign contractor withholding tax JV Joint venture FDI Foreign direct investment KHR Cambodian Riel FIC Foreign Investment Committee KLCI Kuala Lumpur Composite Index FIZ Free industrial zone LAK Laotian Kips GDP Gross domestic product LMW Licensed Manufacturing Warehouses GLC Government-linked companies PricewaterhouseCoopers 87 Abbreviations Abbreviation Full term Abbreviation Full term MAI Market for Alternative Investment SCORE Sarawak Corridor of Renewable Energy MIFC Malaysia International Financial Centre SDC Sabah Development Corridor mln Million SET Stock Exchange of Thailand MNC Multinational corporation SEZ Special Economic Zone MDeC Multimedia Development Corporation SME Small-medium enterprise MOSTI Malaysian Ministry of Science, Technology & Innovation SOE State-owned enterprise MPI Ministry of Planning and Investment SSO Services and outsourcing MSC Multimedia Super Corridor S&P Standard & Poor’s MW Megawatt THB Thai Baht NCER Northern Corridor Economic Region TPM Technology Park Malaysia NPL Non-performing loan trn Trillion O&G Oil and gas UK United Kingdom PIZ Promoted industrial zone UNCTAD United Nations Conference on Trade and Development PwC PricewaterhouseCoopers UPCoM Unlisted Public Companies Market QIP Qualified investment project US United States of America R&D Research & development VAT Value added tax RM Ringgit Malaysia VND Vietnamese Dong SBT Specific business tax WEF World Economic Forum WTO World Trade Organisation 88 Asia’s emerging gems: Investment brief Glossary of ratings Standard & Poor’s long-term borrowings credit rating Standard & Poor’s credit ratings varies from AAA (highest – capacity to meet its financial commitment on the obligation is extremely strong) to D (lowest – being payment in default). The ratings from ‘AA’ to ‘CCC’ is modified by the addition of a plus (+) or minus (-) sign indicating relative standing within the major rating categories (i.e. A+, BBB and BBB-). Malaysia A- More susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher-rated categories. However, the obligor’s capacity to meet its financial commitment on the obligation is still strong. Thailand BBB+ Exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation. Vietnam BB Less vulnerable to non-payment than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions, which could lead to the obligor's inadequate capacity to meet its financial commitment on the obligation. Source: www.standardandpoors.com Moody’s long-term borrowings credit rating Moody’s credit ratings varies from Aaa (highest – judged to be of high quality, with minimal credit risk) to C (lowest – judged to be typically in default, with little prospect for recovery of principal or interest). Moody’s appends numerical modifiers 1, 2, and 3 to each generic rating classification from Aa through Caa (i.e. A2, Ba3 and Caa1): • Modifier 1 - obligation ranks in the higher end of its generic rating category • Modifier 2 - mid-range ranking • Modifier 3 - a ranking in the lower end of that generic rating category Malaysia A3 Upper-medium grade and are subject to low credit risk. Thailand Baa1 Subject to moderate credit risk. They are considered medium-grade and as such may possess certain speculative characteristics. Vietnam Ba3 Judged to have speculative elements and are subject to substantial credit risk. Source: v3.moodys.com PricewaterhouseCoopers 89 Glossary of ratings EIU country risk analysis EIU’s country risk model evaluates the ability (and willingness) of a country to pay its debt. The primary focus of the model assessment are on sovereign risk, currency risk and banking sector risk and two types of generic risk: political risk and economic structure risk. Ratings of countries’ risk varies from AAA (highest – capacity and commitment to honouring obligations not in question under any foreseeable circumstances) to D (lowest – very weak capacity and commitment to honouring obligations) BBB Capacity and commitment to honour obligations currently but somewhat susceptible to changes in economic climate. BB Capacity and commitment to honour obligations currently but susceptible to changes in economic climate. B Capacity and commitment to honour obligations currently but very susceptible to changes in economic climate. CCC Questionable capacity and commitment to honour obligations. Patchy payment record. CC Somewhat weak capacity and commitment to honour obligations. Patchy payment record. Likely to be in default on some obligations. Source: www.eiu.com 90 Asia’s emerging gems: Investment brief List of charts Country economic performance Chart 1 Country’s GDP growth Chart 2 Country’s inflation rate Chart 3 Country’s stock market indices Chart 4 Exchange rate of country’s currency against the US Dollar Chart 5 The PwC EM20 Index Chart 6 World Bank: Ease of doing business Chart 7 UNCTAD: Most attractive location for foreign direct investment (FDI) Chart 8 WEF: Global Competitiveness Index Malaysia Economic overview Chart 9 Top sectors by GDP contribution, 2008 Chart 10 Trade information, 2008 Leading corporates Chart 11 Top 10 Companies on Bursa Malaysia Chart 12 Electrical & electronics Chart 13 Retail - Departmental store Chart 14 Banking Chart 15 Property Chart 16 Construction Chart 17 Plantation Investment overview Chart 18 Gross approved FDI inflows Chart 19 Gross approved FDI inflows by sectors, 2008 Chart 20 Promoted industries in the growth corridors PricewaterhouseCoopers 91 List of charts Thailand Economic overview Chart 21 Top sectors by GDP contribution, 2008 Chart 22 Trade information, 2008 Leading corporates Chart 23 Top 10 Companies on Stock Exchange of Thailand Chart 24 Electrical & electronics Chart 25 Automotive & parts Chart 26 Retail - Convenience/Departmental store Chart 27 Construction Chart 28 Banking Chart 29 Agriculture Investment overview Chart 30 Gross approved FDI inflows Chart 31 Gross approved FDI inflows by sectors, 2008 Chart 32 Thailand investment zones 92 Asia’s emerging gems: Investment brief Vietnam Economic overview Chart 33 Top sectors by GDP contribution, 2008 Chart 34 Trade information, 2008 Leading corporates Chart 35 Top 10 companies on Ho Chi Minh Stock Exchange and Hanoi Stock Exchange Chart 36 Financial services Chart 37 Industrial products & services Chart 38 Utilities & infrastructure Chart 39 Real estate Chart 40 Electrical & electronics Chart 41 Food & beverages Investment overview Chart 42 Gross approved FDI inflows Chart 43 Gross approved FDI inflows by sectors, 2008 Chart 44 Vietnam economic zones Cambodia Economic overview Chart 45 Top sectors by GDP contribution, 2007 Chart 46 Trade information, 2007 Laos Economic overview Chart 47 Top sectors by GDP contribution, 2007 Chart 48 Trade information, 2007 PricewaterhouseCoopers 93 PwC contacts Malaysia Thailand Vietnam PricewaterhouseCoopers Level 10, 1 Sentral Jalan Travers Kuala Lumpur Sentral P O Box 10192, 50706 Kuala Lumpur, Malaysia PricewaterhouseCoopers 15th Floor Bangkok City Tower 179/74-80 South Sathorn Road Bangkok 10120, Thailand Hanoi Tel: 60 (3) 2173 1188 Fax: 60 (3) 2173 1288 Email: [email protected] Website: www.pwc.com/my Advisory Services Transactions (Deals) Datuk Mohd Anwar bin Yahya Tel: 60 (3) 2173 1811 [email protected] Assurance Services Mohammad Faiz Azmi Tel: 60 (3) 2173 0867 [email protected] Tax Services Khoo Chuan Keat Tel: 60 (3) 2173 1368 [email protected] 94 Asia’s emerging gems: Investment brief Tel: 66 (0) 2 344 1000 Fax: 66 (0) 2 286 3456 Email: [email protected] Website: www.pwc.com/th PricewaterhouseCoopers 7th Floor Pacific Place 83B Ly Thuong Kiet, Hoan Kiem Hanoi, Vietnam Tel: 84 (4) 3946 2246 Fax: 84 (4) 3946 0705 Website: www.pwc.com/vietnam Advisory Services Transactions (Deals) Charles Ostick Tel: 66 (0) 2 344 1167 [email protected] Advisory Services Transactions (Deals) Paul Coleman Tel: 84 (4) 3946 2246 (ext 1600) [email protected] Assurance Services Nangnoi Charoenthaveesub Tel: 66 (0) 2 344 1381 [email protected]. com Assurance Services Tax Services Tax Services Thavorn Rujivanarom Tel: 66 (0) 2 344 1444 [email protected] Dinh Thi Quynh Van Tel: 84 (4) 3946 2246 (ext 1500) [email protected] Nguyen Phi Lan Tel: 84 (4) 3946 2246 (ext 1000) [email protected] Vietnam Cambodia Laos Ho Chi Minh PricewaterhouseCoopers 123 Norodom Boulevard Sangkat Tonle Bassac Khan Chamcar Mon Phnom Penh, Cambodia PricewaterhouseCoopers Units 1-3, 4th Floor ANZ Vientiane Commercial Building 33 Lane Xang Ave. Ban Hatsady, Chanthaboury P O BOX 7003 Vientiane, Lao PDR PricewaterhouseCoopers 4th Floor Saigon Tower 29 Le Duan, District 1 Ho Chi Minh City, Vietnam Tel: 84 (8) 3823 0796 Fax: 84 (8) 3825 1947 Website: www.pwc.com/vietnam Advisory Services Transactions (Deals) Stephen Gaskill Tel: 84 (8) 3823 0796 (ext 1600) [email protected] Tel: 855 (23) 218 086 Fax: 855 (23) 211 594 Email: [email protected] Website: www.pwc.com/kh Partner Paiboon Tunkoon Tel: 855 (23) 218 086 [email protected] Director Assurance Services Ian Lydall Tel: 84 (8) 3823 0796 (ext 1000) [email protected] Senaka Fernando Tel: 855 (23) 218 086 [email protected] Tel: 856 (21) 222 718 Fax: 856 (21) 222 723 Email: [email protected] Website: www.pwc.com/lao Partner Paiboon Tunkoon Tel: 856 (21) 222 718 [email protected] Director Apisit Thiengtrongpinyo Tel: 856 (21) 222 718 [email protected] Tax Services Richard Irwin Tel: 84 (8) 3823 0796 (ext 4880) [email protected] PricewaterhouseCoopers 95 Industry contacts Malaysia Thailand Vietnam Malaysian Industrial Development Authority (MIDA) Board of Investment of Thailand (BOI) Ministry Of Planning And Investment (MPI) 5th Floor, Block 4, Plaza Sentral Jalan Stesen Sentral 5 50470 Kuala Lumpur, Malaysia Tel: 60 (3) 2267 3633 Fax: 60 (3) 2274 7970 E-mail: [email protected] Website: www.mida.gov.my 555 Vibhavadi-Rangsit Road, Chatuchak, Bangkok 10900 Thailand Tel: 66 (0) 2 537 8111/15 Fax: 66 (0) 2 537 8177 Tel: 84 (4) 3843 3360/0804 3485 Fax: 84 (4) 0804 8473 E-Mail: [email protected] Website: www.boi.go.th E-mail: [email protected] Website: www.mpi.gov.vn Vietnam Trade Promotion Agency (VIETRADE) Ministry of Commerce Malaysia External Trade Development Corporation (MATRADE) Menara MATRADE Jalan Khidmat Usaha Off Jalan Duta 50480 Kuala Lumpur, Malaysia Tel: 60 (3) 6207 7077 Fax: 60 (3) 6203 7037/7033 E-mail: [email protected] Website: www.matrade.gov.my Central Bank of Malaysia Corporate Communications Dept Bank Negara Malaysia P O Box 10922 50929 Kuala Lumpur, Malaysia Tel: 60 (3) 2174 1717 Fax: 60 (3) 2174 1515 E-mail: [email protected] Website: www.bnm.gov.my 44/100 Nonthaburi 1 Road, Amphur Muang, Nonthaburi 11000 Thailand 20 Ly Thuong Kiet Street, Hanoi, Vietnam Tel: 66 (0) 2 507 8000 Fax: 66 (0) 2 507 7717 Tel: 84 (4) 3934 8143 Fax: 84 (4) 3934 8142 E-mail: [email protected] Website: www.moc.go.th E-mail: [email protected] Website: www.vietrade.gov.vn Federal of Thai Industries The State Bank of Vietnam Zone C, 4th flr, Queen Sirikit National Convention Center 60 New Rachadapisek Road, Klongtoey Bangkok 10110, Thailand 49 Ly Thai To Street, Hanoi, Vietnam Tel: 66 (0) 2 345 1000 Fax: 66 (0) 2 345 1296/99 E-mail: [email protected] Website: www.fti.or.th Bank of Thailand 273 Samsen Road Bangkhunprom, Bangkok 10200 Thailand Tel: 66 (0) 2 283 5353 Fax: 66 (0) 2 280 0449 E-mail: [email protected] Website: www.bot.or.th 96 Asia’s emerging gems: Investment brief 6B Hoang Dieu, Badinh, Hanoi, Vietnam Tel: 84 (4) 3934 3327 Fax: 84 (4) 3934 9569 E-mail: [email protected] Website: www.sbv.gov.vn Cambodia Laos The Council for the Development of Cambodia (CDC) - Cambodian Investment Board (CIB) Department of Domestic and Foreign Investment (DDFI) Government Palace Sisowath Quay, Wat Phnom Phnom Penh, Cambodia Tel: (855 23) 981 154 Fax: (855 23) 428 426 E-mail: [email protected] Website: www.cambodiainvestment. gov.kh Cambodian Government-Private Sector Forum G-PSF Coordinating Bureau 70 Norodom Boulevard Sangkat Chaktomuk, PO Box 115 Phnom Penh, Cambodia Tel: (855 23) 210 922 Fax: (855 23) 215 157 Luang Prabang Road, Vientiane 01001, Lao PDR Tel: (856 21) 222 690/222 691 Fax: (856 21) 215 491 E-mail: [email protected] Website: www.invest.laopdr.org Ministry of Industry and Commerce Phon Xay Road, Phon Xay Village Commercial and Information Technology Division P O Box 4107 Vientiane, Lao PDR Tel: (856 21) 412 009 Fax: (856 21) 412 434 E-mail: [email protected] Website: www.moc.gov.la Ministry of Foreign Affairs E-mail: [email protected] Website: www.cambodia-gpsf.org 01004, 23 Singha Road Vientiane Capital, Lao PDR The Ministry of Commerce Tel: (856 21) 413 148 Fax: (856 21) 414 009 20A-B Preah Norodom Boulevard, Phnom Penh, 12205, Cambodia Tel: (855 23) 427 358 Fax: (855 23) 213 288 E-mail: [email protected] Website: www.mofa.gov.la National Assembly of Lao PDR E-mail: [email protected] Website: www.moc.gov.kh Saysetha Vientiane Capital, Lao PDR The National Bank of Cambodia Tel: (856 21) 451 889 Fax: (856 21) 413 528 22-24 Norodom Boulevard, Phnom Penh, Cambodia Website: www.na.gov.la Tel: (855 23) 722 563/722 221 Fax: (855 23) 426 117 E-mail: [email protected] Website: www.nbc.org.kh PricewaterhouseCoopers 97 Acknowledgements We would like to acknowledge IMF, World Bank, Asian Development Bank, Business Monitor International, EIU ViewsWire and other organisations for the use of information extracted from their publications and websites. PricewaterhouseCoopers drew on the support of its partners and staff members with varied experience and knowledge. Advisors Charles Ostick Chin Suit Fang Datuk Mohd Anwar bin Yahya Dinh Thi Quynh Van Ian Lydall Khoo Chuan Keat Paiboon Tunkoon Sridharan Nair Stephen Gaskill Project leader Pearlene Cheong Project team Project manager Vivian Ko Shiau Ping Editorial Haniza Taufik Business Research Services Debjani Ghosh Miranda Kua Nguyen Tuong Van Ong Khar Keong Peter Amaczi Raweewan Wisuthachinda Sun Kim-Hor Vatcharaporn Thongjuta Creative Services Jimmy Lim Karen Chong Norzalila Ghazali 98 Asia’s emerging gems: Investment brief International Tax Dorothy Ooi Lim Yiek Lee pwc.com © 2009 PricewaterhouseCoopers. All rights reserved. “PricewaterhouseCoopers” refers to firms of PricewaterhouseCoopers in Malaysia, Thailand, Vietnam, Cambodia and Laos or, as the context requires, the network member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity. CS02665