Thursday, August 13, 2009

Little Laos proves largely immune to global crisis (Feature)

Vientiane, Laos - Laos, a landlocked communist country whose main industries are hydroelectricity and beer, has proven largely immune to the world economic crisis, although this accomplishment has prompted more humour than praise.

'Laos has survived the crisis because we have no economy to suffer,' joked one senior Lao technocrat who asked not to be named.

'There is no financial crisis here because Lao banks never lend money,' said a foreign businessman, again anonymous.

Humour aside, the Asian Development Bank (ADB) is bullish on Laos' growth prospects in 2009, which it has forecast at 5.5 per cent of gross domestic product (GDP), considerably above the 3.3 per cent predicted by the International Monetary Fund (IMF).

'We feel the crisis is not going to affect the production base for Laos because the economy is so much domestic driven,' said Christopher Hnanguie, country economist for ADB. 'The exposure to external capital is very limited, so in terms of external factors affecting the economy, it's not really there.'

The Lao government, even more optimistically, foresees 7.5 per cent GDP growth this year.

Laos, with its modest population of 6.8 million, has few labour-intensive, export-oriented industries, like those of its South-East Asian neighbours.

Laos' main export-dependent industries include hydro-electricity, going to neighbouring Thailand at cheap rates, copper and gold mining as well as tourism.

Copper prices have fallen this year and tourism is expected to see a 20-per-cent decline in income, as fewer high-end travellers are going to Laos this year, but this has not affected domestic beer sales yet.

Lao Brewery, the partly state-owned company that makes Beer Lao, reported a 6 to 7-per-cent increase in sales during the first six months of the year.

The company, after opening a new brewery in Pakse, southern Laos, two years ago, now has a capacity to make 200 million litres of beer a year, and claims more than 95 per cent of the domestic market, despite competition from Tiger beer, also brewed in Laos.

'If you look at the Lao market, nearly 90 per cent of what we consume comes from Thailand,' Lao Brewery managing director Kissana Vongsay said. 'Except for one thing. Beer. You cannot find Thai beer in Laos, which is strange.'

It is, since nearly everything else is smuggled from Thailand into Laos across the Mekong River. This speaks well for the popularity and affordability of Beer Lao.

Other than Beer Lao consumption, the domestic economy has been driven by a mini construction boom in Vientiane, where new roads and hotels have been built in anticipation of the Southeast Asian Games, to be hosted by the capital from December 7 to 18.

The state has also invested heavily in various infrastructure projects to mark the 450th anniversary of Vientiane as the capital of Laos in 2010, providing a fiscal stimulus of sorts.

A watershed for the Lao economy this year will be the launch of the Nam Theun II hydroelectric project on December 15.

The plant, a joint venture between the Lao government, Electricite de France (EDF) and two Thai companies, will have a capacity to produce 1,088 megawatts of electricity, of which some 95 per cent will be exported to Thailand.

Over the next 25 years Nam Theun II should earn Laos 2 billion dollars in tax and dividend revenues. Revenues will, however, be small at first. In 2010, some 11 million dollars in royalty taxes are due to be handed over which are already slated for the education and health budgets, two sadly neglected social services.

Another key event has been the passing of an amended investment code aimed at attracting more foreign investment.

The amended law, approved by the National Assembly last month, includes liberal clauses such as allowing foreigners who invest more than 300,000 dollars in Laos to own property, but not the land it is built on. But, this communist-era caveat holds true for Lao property holders as well.

'The big change is that foreign investors will enjoy the same conditions as domestic investors,' said Boutha Khatthiya, deputy director general of the Ministry of Planning and Investment.

The amended investment code is also part of Laos' efforts to enter the World Trade Organization (WTO) next year.

Also next year, on October 10, 2010 the government plans to launch the country's first stock market, with 10 companies listed.

These ambitious plans to enter the global economy, at a time when Laos' lack of interaction has saved it from suffering a global kickback, has raised some questions about its pace of development.

'It's a bit too fast,' ADB economist Hnanguie said. 'I'm not very confident about the analysis done in advising the government about the pace we're going at but some quarters say 'let's just do it and we can adjust as we go along.''

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