The Mekong: who’s training who? And who’s supplying who?

In the Mekong there’s a pronounced disparity between the size and relative development stage of each of the region’s economies - apparent to anyone who has spent time doing business there.

A key plank of the region’s development agenda is its Special Economic Zones, with a staggered approach evident across both Asia and the Mekong in particular.

" SEZs are succeeding in attracting investment and production into the Mekong economies that would have otherwise not have occurred."
Eugenia Fabon Victorino & Weiwen Ng, Economists, ANZ

So how are companies based in these SEZs performing and are they having a positive effect on economic performance?

It does appear this is the case. New ANZ research suggests EZs are succeeding in attracting investment and production into the Mekong economies that would have otherwise not have occurred.

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Three types

As the Asia Development Bank noted in their ASEAN Economic Report 2015, there are broadly three types of SEZs currently operating across the Mekong.

First-stage enclave type SEZs.  These are relatively small and new, employing low-skilled workers in a range of low value-added industries largely for export

Second-stage linked-type SEZs.  These have grown to such an extent that they have helped diversify an economy’s production base, in particularly by strengthening linkages with the domestic economy

Third stage reform-driving-type SEZs.  These final-stage SEZs break down barriers between the SEZ and the broader economy by facilitating nationwide reforms in labour and product markets.

As part of its ongoing presence in the Mekong, ANZ conducted a survey of its clients operating in the region’s special economic zones. Below are some highlights of the insights we gained.


SEZs appear to enable structural changes to occur relatively quickly through a combination of both ‘linkages’ and demonstration effects.  Skill transfers are readily apparent and dynamic, occurring across all Mekong economies, with Vietnam a clear origin.

For SEZs in the region, ‘Train the Trainer’ programs are working as both incentives for talented workers and aiding the retention of skilled staff while also serving as a further medium for skills transfer.

The skills tipping point to higher salaries is relatively – and surprisingly –low, being dictated by just two factors. The two basic skills at which salaries start to inflect upwards are a basic knowledge of English and a basic knowledge of manufacturing/production line processes.

Vietnam appears to be cascading up value chains faster than expected and positive flow-ons are being created for Cambodia, Laos and Myanmar as a result, creating the economic space for their first steps into basic manufacturing.

Still a ‘skills gap’ is most often highlighted as a key frustration with most clients reporting they devote an unproductive amount of time to micro-managing staff.


This ‘skills gap’ appears to follow a ‘barbell’ shape with the management skill set and practice of the Special Economic Zones often seen as falling short of expectations.

Most clients surveyed do not have, or were not prepared to share, their exit strategies or at what point the negative externalities identified from operating in the Special Economic Zone were likely to prompt an exit. 

This suggested considerable ‘sunk costs’ were involved in the decision to move into a  SEZ, very long-term plans were in place, and that companies choosing to enter frontier markets were fully aware of the myriad of risks and in for the “long haul”.

Myanmar was the only frontier economy where production was seen as viable in an autonomous sense to service a domestic market. Indeed, we found most estimates and forecasts of the size at which a sustainable consumer market would emerge in Myanmar to be particularly optimistic.

For the majority of Mekong economies, SEZs were seen as providing significant insulation from the uncertain environment outside the zone.  Where this was not the case, confidence in the management of the SEZ became the paramount consideration.

If there is one consistency we found across all economies, it was the answer to the question, ‘would this economy have attracted FDI in the absence of SEZs?’  The answer was a resounding no.


Given the relative stages of development and industrialisation of each of the Mekong economies, a simple benchmarking across countries of their SEZ performance would miss the point that each countries SEZ’s are positioned at varying stages of global supply chains.

There is not a common unifying benchmark we could use to adequately measure success.  In this sense we note:

Cambodia is enjoying success in its SEZs via developing strong linkages and spillovers to local labour markets and positioning its SEZs geographically to take full advantage of connectivity.  The challenges Cambodia’s SEZs will face are rapidly rising labour costs not commensurate with the rise in skill set hence productivity may become an issue in the future. 

Laos, perhaps because of its landlocked nature has developed very strong internal and external linkages, and has the more successful SEZs appear to be those that again focus on connectivity, particularly with Thailand and Vietnam.  A focus on simpler (the single window) customs clearance is still required and there is the risk government resources may be spread too thinly across multiple SEZs.

Myanmar provides the clearest example of the purpose and advantages of SEZs in the Mekong economies.  With our survey having occurred just after the election, there was very low visibility on key overarching macro and legislative policies.  The SEZ should be providing an ecosystem of certainty within this environment hence we see enormous potential for Myanmar’s SEZs to succeed if this certainty can be provided.

Vietnam is increasingly becoming the apex economy in the Mekong cluster in terms of providing skills transfer to Myanmar, Laos and Cambodia.  Internally, Vietnam’s SEZs are enjoying economies of agglomeration and Vietnam is attracting the lion’s share of FDI into the region as a result

Eugenia Fabon Victorino & Weiwen Ng are economists at ANZ

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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