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Laos, a landlocked country, was one a closed economy, isolated from the world. But now, the image is entirely different. Millions of tourist every year visit Laos to explore the old cities, and the rich culture. Before when you tell a foreigner that you were Lao, they would say "where's that?". Now? they say "yea...I've been to that country, it's wonderful and very nice!". Ten years ago you wouldn't expect people to be speaking English nor driving luxury cars, nor studying abroad. Today? it's a completely different story. The Lao government has opened the country's doors to globalization and favors free markets. Laos no longer is a land of the unknown to many people. So why is that? why is Laos on the rise? the sections below is an analysis of the current economic and business environment that would answer the questions to why Laos is developing rapidly, and where are the opportunities.
For the past five years (2005-2009) the Lao economy (GDP) has been growing on an average rate of 7.4%, a rate similar to surrounding countries such as Thailand, Vietnam and China. Data from the Economist Intelligent Unit in 2006, showed that the top three industries that contributed to those growth was agriculture & forestry (42.8%), industries (32%), and services (25.3%). The main countries we export our goods to are Thailand, Vietnam, China, South Korea and the UK. And the main products we export to those destinations are gold and copper, timber, garments, and electricity. This shows us that most of our economy is heavily dependent on exports and those exports are only commodities. In the long term, this is very unsustainable. To secure a sustainable growth the country has to realize that we have to create local demand and instead of exporting commodities, it would be wiser to export finished goods. When you sell commodities you would get a certain return, true, however, if you process it and turn it into a finished product, it adds value to your product, and you can sell it at a higher price, therefore, higher profits.
To create local demand, it is best for the government to ensure the population is growing at a certain rate, but not decreasing. It is best to try to reduce the death rate of babies. It is as equally important to invest in infrastructure to facilitate investments. In addition, once the country has the infrastructure, it would facilitate businesses and investments, hence, creating employment. Additionally, infrastructure would also support the value chain of products. We want to make sure in the future we export finished goods, and that cannot be achieved if we lack the supporting infrastructure such as roads, technology, buildings and so on.
Investments
Foreign investments has continued to flow into Laos, with mainly China and Vietnam investing in the mining sector, while Thailand's main investments are in hydro-power projects. Therefore, to facilitate the investments and make the country a more attractive place for investments, the government is trying to reform it's foreign trade regime, with the primary objective to join the WTO. To achieve that the government has reported to the WTO that it has been working on the reform of its investment laws, following by the approval of the National Assembly of a new investment law that provides an equal treatment of domestic and foreign investment.
Forecasts
After the slowing down of GDP growth in 2009 due to , the Economist, has forecasts the GDP growth in 2010 to be 7% and 7.5% in years 2010 and 2011, respectively. A surge in commodity prices such as gold, copper, and oil has encouraged more investors to come into the country to look for new discoveries and secure the resources. This especially applies for China and Vietnam where both countries are experiencing dramatic growth in their local economies, meaning their hunger for commodities has risen to very extreme levels that their mining companies seek for new explorations as well as buying out other companies like we saw the takeover of Seppon mining.
Moreover, hydro-power projects including the newly opened Num Theun 2, as well as an expansion of foreign-invested mining operations are expected to make significant contributions to growth.
According to the ADB, industrial production rose by 17% in 2009 due to the expansion in construction, mining and hydro-power. Agriculture is estimated to have grown by 2.3% amid an expansion in plantation and a reduction in farming. Growth in this sector should accelerate once coffee and rubber plantations mature
Currency
The kip has continued to appreciate against the US dollar. The factor that is contributing to the strength of the Lao kip is because of the inflow of investments, and the depreciation of the US dollar in world currency markets due to bad economic data. The rising Lao kip has concerned a lot of exporters especially garment exporters, which employ more than 20,000 people. They have expressed concerns about losing their competitiveness due to the rising in the kip. Foretasted exchange rate for the end of 2010 is 8,320 per dollar and 8,464 in 2011.
For the past five years (2005-2009) the Lao economy (GDP) has been growing on an average rate of 7.4%, a rate similar to surrounding countries such as Thailand, Vietnam and China. Data from the Economist Intelligent Unit in 2006, showed that the top three industries that contributed to those growth was agriculture & forestry (42.8%), industries (32%), and services (25.3%). The main countries we export our goods to are Thailand, Vietnam, China, South Korea and the UK. And the main products we export to those destinations are gold and copper, timber, garments, and electricity. This shows us that most of our economy is heavily dependent on exports and those exports are only commodities. In the long term, this is very unsustainable. To secure a sustainable growth the country has to realize that we have to create local demand and instead of exporting commodities, it would be wiser to export finished goods. When you sell commodities you would get a certain return, true, however, if you process it and turn it into a finished product, it adds value to your product, and you can sell it at a higher price, therefore, higher profits.
To create local demand, it is best for the government to ensure the population is growing at a certain rate, but not decreasing. It is best to try to reduce the death rate of babies. It is as equally important to invest in infrastructure to facilitate investments. In addition, once the country has the infrastructure, it would facilitate businesses and investments, hence, creating employment. Additionally, infrastructure would also support the value chain of products. We want to make sure in the future we export finished goods, and that cannot be achieved if we lack the supporting infrastructure such as roads, technology, buildings and so on.
Investments
Foreign investments has continued to flow into Laos, with mainly China and Vietnam investing in the mining sector, while Thailand's main investments are in hydro-power projects. Therefore, to facilitate the investments and make the country a more attractive place for investments, the government is trying to reform it's foreign trade regime, with the primary objective to join the WTO. To achieve that the government has reported to the WTO that it has been working on the reform of its investment laws, following by the approval of the National Assembly of a new investment law that provides an equal treatment of domestic and foreign investment.
Forecasts
After the slowing down of GDP growth in 2009 due to , the Economist, has forecasts the GDP growth in 2010 to be 7% and 7.5% in years 2010 and 2011, respectively. A surge in commodity prices such as gold, copper, and oil has encouraged more investors to come into the country to look for new discoveries and secure the resources. This especially applies for China and Vietnam where both countries are experiencing dramatic growth in their local economies, meaning their hunger for commodities has risen to very extreme levels that their mining companies seek for new explorations as well as buying out other companies like we saw the takeover of Seppon mining.
Moreover, hydro-power projects including the newly opened Num Theun 2, as well as an expansion of foreign-invested mining operations are expected to make significant contributions to growth.
According to the ADB, industrial production rose by 17% in 2009 due to the expansion in construction, mining and hydro-power. Agriculture is estimated to have grown by 2.3% amid an expansion in plantation and a reduction in farming. Growth in this sector should accelerate once coffee and rubber plantations mature
Currency
The kip has continued to appreciate against the US dollar. The factor that is contributing to the strength of the Lao kip is because of the inflow of investments, and the depreciation of the US dollar in world currency markets due to bad economic data. The rising Lao kip has concerned a lot of exporters especially garment exporters, which employ more than 20,000 people. They have expressed concerns about losing their competitiveness due to the rising in the kip. Foretasted exchange rate for the end of 2010 is 8,320 per dollar and 8,464 in 2011.
Hot Industries
finance: despite a strong growth in the economy, the banking sector is not sufficient to support local businesses capital requirements. The launch of the stock exchange will provide additional source of financing. However, trading is not expected to open til early 2011. Two brokerage firms have emerged, one is between a partnership between BCEL and , and a Thai company KT Zmico; the other one is a cooperation between Kolao and South Korea's Daishin group. Mining, industries and tourism companies will be the first to be listed.
Mining: recently the government has posed to introduce new mining laws that may slow down the granting of new concessions. In the future mining companies would have to apply for a license at every stage of the development.
finance: despite a strong growth in the economy, the banking sector is not sufficient to support local businesses capital requirements. The launch of the stock exchange will provide additional source of financing. However, trading is not expected to open til early 2011. Two brokerage firms have emerged, one is between a partnership between BCEL and , and a Thai company KT Zmico; the other one is a cooperation between Kolao and South Korea's Daishin group. Mining, industries and tourism companies will be the first to be listed.
Mining: recently the government has posed to introduce new mining laws that may slow down the granting of new concessions. In the future mining companies would have to apply for a license at every stage of the development.
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Transportation: Laos' transportation system is expanding. The government is building new roads, new bridges to connect to Thailand, and railway systems to facilitate trade and logistics which will cost approximately $4billion!
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