Lao Economy

Investment By Private Sector Slows

Investment by privately-owned Lao and foreign businesses has become sluggish despite government measures to improve the business climate in Laos.

Speaking to Vientiane Times on Friday, a senior economist from the National Economic Research Institute, Dr Leeber Leebuapao, attributed the slowdown to both external and internal factors.

The economic easing in the region and the world has affected Laos, especially the slower growth in China and Vietnam.

According to the East Asia Pacific Economic Update released by the World Bank recently, the developing economies of East Asia are projected to grow by 6.7 percent in 2015 and 2016, down slightly from 6.9 percent in 2014. China’s growth was expected to moderate to around 7 percent in the next two years compared with 7.4 percent in 2014.

Mining and rubber used to be the main attractions drawing private investment to Laos but they no longer play a starring role due to the falling prices of commodities on world markets.

Dr Leeber said fewer large land concessions had been is sued recently. Only existing projects approved in the past continued to move forward.

He said investment opportunities and competitiveness were increasing in the region with international investors shifting their interest to Myanmar.

Government budgetary tensions as a result of revenue shortfalls, along with the decision to halt the initiative to convert assets into capital, were all linked to the downturn in investment. However, many entrepreneurs are shifting their interest to hydropower, special economic zones and services, which could be the main drivers of growth in the future.

Investment by the private sector represents more than 50 percent of the country’s entire investment which is why the government has policies to improve the investment climate and business operations.

Dr Leeber said the policies were good but more needed to be done in terms of the implementation process.

In February this year, Vientiane authorities held a meeting with the private sector. During the meeting, the business sector asked the government to urgently address problems relating to the transportation of goods, services, tax payments, and the export of raw materials.

One of the main challenges for Lao businesses is access to financing and the high interest on loans charged by banks. Numerous procedures are required for the approval of business operations, which further creates obstacles.

According to a government report, in the first six months of 2014-15 the value of domestic and foreign private investment reached US$3 billion in 179 projects.

However, the government is aiming for only US$2.27 to US$2.29 billion in private sector investment next fiscal year in a move aimed at sustaining economic growth at 7.5 percent.

In the next five-year plan, the government will focus on human resource development in an effort to produce the skilled labour necessary to meet the country’s development needs and ensure that more Lao people can benefit from regional integration.

Source: Vientiane Times