Laos PDR is situated directly in the path of China’s much-talked about “One Belt, One Road” initiative which many see as an alternative to the cancelled Trans Pacific Partnership Agreement.
The high-speed rail project to the whole of continental Southeast Asia will commence from south China’s Kunming through the border town of Boten and on to Vientiane, the capital of Laos, and then cross the Mekong River.
For China, the railway connection to Indochina will facilitate closer relations with Southeast Asia that will benefit both sides. Trade between them is expected to rise to more than USD500 billion by 2017.
Moreover, China has signed a cooperation agreement with Laos and Thailand for the construction of a high-speed railway connecting China, Laos and Thailand, which is of great strategic significance for China. It will enable China to reach the Indian Ocean through Indochina without passing through the Straits of Malacca. This allows China to access resources in the Middle East and Africa even if the Strait was blocked by the US.
The link will propel one of the poorest countries in Asia into a higher gear in terms of economic growth. Currently, Laos has the lowest GDP in the whole of ASEAN but the gap is closing rapidly between this country and the other mid-level economic performers of the region. On top of that, Laos also has the second fastest GDP growth second only to Myanmar. The Asian Development Bank has forecast its growth to be at 7.5% per year for the next few years, which is almost double that of Malaysia’s rate at 4% per annum.
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I have just returned from a trip to Central Laos with the city of Savannakhet as the base, and below I will explain why the city will be the centre of growth for Laos and the nearby region in the next decade or so.
STRATEGIC LOCATION
Savannakhet is the second largest city in Laos after Vientiane. Many people have missed the important strategic location of this city. Laos is the only ASEAN country that is land-locked and the nearest sea port to this country is Da Nang in Vietnam.
This city sits on the eastern bank of the Mekong River which is also the natural border of a great part of Laos with Thailand. On the western bank of the river is the north-eastern region of Thailand, the most populous region of Thailand. There is a population of about 25 million people within two or three hours’ drive from the border. Savannakhet is also connected to Thailand by the 2nd International Friendship Bridge.
However, while Vientiane is along the high-speed rail route from China, Savannakhet is on Route 9, the East-West Economic Corridor (EWEC) which is the road link between Da Nang in Central Vietnam all the way to Yangon, Myanmar. The 2nd International Friendship Bridge forms a vital link for Route 9.
EWEC will intersect with the high-speed rail at the north-eastern Thai city of Khon Kaen. EWEC was first introduced at the 8th ministerial meeting in Manila, Philippines in 1998. It is one of the most advanced corridors under the Greater Mekong Subregion programs. EWEC is aimed at strengthening the physical connectivity and economic integration of the subreigon. As part of EWEC, Route 9 and the Friendship Bridge were the main facilitators for development.
SAVAN CITY SENO SPECIAL ECONOMIC ZONE
Recognizing the strategic importance of this location, the Laos Government has by special decree designated the city of Savannakhet as a special economic zone under the auspices of Savan City Economic Zone Authority (SEZA).
Savan City has four sites:
Site A: 436 hectares for trading, financial centre and entertainment. Site B: 20 hectares for logistics and warehousing. Site C: 220 hectares for industrial estates. Site D: 120 hectares for residential, educational, commercial, and
transportation hub.
THE KEY POINTS ABOUT INVESTMENT IN SAVAN CITY:
1. Strategic geographical location through the EWEC covering Myanmar, Thailand, Laos, Vietnam, Cambodia and Yunnan.
2. Tax Incentives:
a. Tax holiday: 2-10 years starting from profit making year.
b. Corporate Profit Tax: 8-10%
c. Personal Income Tax: 5% for both local and foreigners.
d. Dividend Tax: 5% for companies with at least two shareholders
(This shall be applied after end
tax holiday). e. Exemption and 1% Import Duty – Taxes & Duties exemption on exports; – Taxes & Duties exemption on import of raw materials, construction materials
and equipment to be used for processing; – 1% Import duty on vehicles used for administration purposes.
3. Autonomous Licensing system
4. Special privileges on exports (GSP from 42 countries and NTR by USA)
5. Low trainable labour cost
6. Attractive land lease terms: – Maximum 75 years and can be extended up to 99 years – If land lease exceeds 30 years, payment will be exempted for 12 years.
UNPOLISHED DIAMOND
Laos PDR is much like an unpolished diamond. It is a fairly large country with huge potential. The cost of manpower is one of the lowest in ASEAN:
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