But with a new focus on trading with other countries in the sub-region, it
now stands to prosper by being transformed into a ‘land-linked’ country. Laos
had adopted a market-oriented economy and experienced satisfactorily high rates
of growth prior to the global economic crisis. The country was able to attract
foreign investment and increase exports to both regional and distant markets.
But where other countries had a tendency to concentrate on developed countries
as trading partners and overlook regional and emerging markets, Laos realized it
was well placed to take advantage of its geographical proximity to emerging
markets.
To boost and sustain high growth, however, it is imperative for Laos to
integrate the regional and world trading systems. It is currently a member of
the Association of Southeast Asian Nations (ASEAN) and the ASEAN Free Trade
Area, and is in the process of acceding to the World Trade Organization.
Emphasizing the need to develop the private sector to spur investment and
increase exports, Laos is implementing a ‘land-linked country’ regional
integration strategy to create a market and production base that is favourable
to member countries.
Within the context of the Millennium Development Goals and the Laotian
strategic imperative to graduate from least developed country status by 2020,
the strategy has already benefited the country’s economy with growth in exports,
foreign direct investment, official development assistance, private sector
development and tourism. The concepts of regional and global supply and value
chains have also been introduced, but despite all efforts, the reality of
business is always challenging. The impact of the global financial crisis, trade
barriers and increased competition are among the difficulties faced by local
entrepreneurs. The weakening of the US dollar and the relative strengthening of
the local currency have also meant financial risk for exporters, especially
small and medium-sized enterprizes (SMEs).
In the light of this situation, trade support institutions and development
communities need to support SMEs to integrate the regional and world value
chains. As the business network and the supply chain are yet to be established,
we have facilitated and promoted investment from neighbouring countries. The
policy of value creation and retention has also been put forward since there is
a need to transfer from a quantitative to a qualitative level of export
development. Laos can no longer rely on exploiting and exporting its natural
resources, but needs to industrialize based on these resources.
From a macro-management perspective, this policy is easier said than done.
Foreign investors are seeking to expand their business especially in terms of
vertical integration. Subsequently, raw materials, particularly mineral ore and
timber, from Laos are exported to supply processing industries in neighbouring
countries. In the case of timber, the nature of the problem is complicated
because countries such as China, Thailand and Viet Nam are large importers of
timber to supply their advanced wood-processing industries. Local efforts to ban
the export of timber in Laos is a controversial issue fuelled by the conflicting
arguments over whether it is better to adopt bans in order to force the
development of a local wood-processing industry or take advantage of the revenue
gained from exports, particularly in the initial phase of the country’s capital
accumulation. The continued export of timber with little value creation has
disadvantaged the local wood-processing industry, which suffers from inadequate
inputs of raw material and a sawmill capacity exceeding timber supply. The
wood-processing industry is also troubled by the lack of funding sources,
skilled labour and markets for processed wood products.
The opportunities to assist SMEs in moving up the value chain require trade
support institutions, development communities and businesses to think and act
differently. Essentially it is about how best to make use of local natural
resources. Laos has adopted a holistic approach by creating a more favourable
investment climate in terms of infrastructure, legal frameworks and economic and
financial incentives. Trade support and promotion organizations need more
focused and specialized programmes to assist SME exporters. Diversification of
products and markets is a means to reduce risk. Developing regional markets,
especially through South–South trade, offers the potential to exploit
geographical proximity and less demanding product standards and trade barriers.
The Asian region has proved resilient and fast-emerging in terms of economic
growth in spite of the recent world economic slowdown. As a small economy
surrounded by a vast and growing market, Laos is at an advantage, but access to
trade finance and marketing information are areas that need to be addressed.