From land-locked to ‘land-linked’, Laos is the diamond in the rough that will surpass everyone’s expectations within the next few years.
The economy of the Lao People’s Democratic Republic (Lao PDR) continues to grow vigorously. However, because it is a resource-rich country with an economy heavily reliant on mining and hydropower, the government of the day realizes that more focus on diversifying the economy is needed. The government has plans to strive for strong macroeconomic management, a sound fiscal framework, and effective budget management. While the government has consolidated expenditures to contain the deficit, it needs to increase fiscal and foreign reserves to absorb any future shocks.
The Asian Development Bank based in Manila has identified the needs of the Lao PDR as consistent with the rapidly evolving development needs of a lower-middle-income country.
Under its national socioeconomic development plans, the government has adopted a policy to transform the Lao PDR from a landlocked to a ‘landlinked’ country, and is aiming to be eligible to graduate from Least Developed Country status by 2020.
Having decelerated since 2013, growth in Laos is projected to pick up over the next 2 years. In 2015, it achieved one of the highest GDP growths among ASEAN countries at almost 7% and this is set to continue over the next few years as the country transforms itself. Inflation has ebbed to its lowest in 6 years and is forecast to remain modest. Lower global oil prices have helped to bolster a fragile external position.
“In 2015, Laos achieved one of the highest GDP growths among ASEAN countries at almost 7% and this is set to continue over the next few years as the country transforms itself.”
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The country is set to maintain and continue its stable, growth-oriented policies with the assurance given by the new Prime Minister and President recently. The political system in Lao PDR is very similar to Vietnam and taking a leaf out of the example of rapid growth achieved by its eastern neighbour over the last couple of decades, it has embarked on regional cooperation with its immediate neighbours.
GREATER MEKONG SUBREGION (GMS)
The Greater Mekong Subregion (GMS) comprises Cambodia, the People’s Republic of China, Lao People’s Democratic Republic, Myanmar, Thailand, and Vietnam.
The six countries entered into a programme of subregional economic cooperation, designed to enhance economic relations among the countries.
The GMS Program, with support from ADB and other donors, helps the implementation of high priority subregional projects in transport, energy, telecommunications, environment, human resource development, tourism, trade, private sector investment, and agriculture.
Substantial progress has been achieved in terms of implementing GMS projects. Priority infrastructure projects worth around USD11 billion have either been completed or are being implemented. Among these are the upgrading of the Phnom Penh (Cambodia)-Ho Chi Minh City (Vietnam) highway and the East- West Economic Corridor that will eventually extend from the Andaman Sea to Da Nang.
FAVOURABLE FACTORS
The economy of Laos is expected to pick up in 2016 and 2017 due to an expansion of electricity exports, construction, and services. A better trade performance and investment inflows coupled with lower fuel costs will also help ease the trade balance and inflation.
The country’s gross domestic product (GDP) is expected to grow at 6.8% for 2016, up slightly from 6.7% in 2015, before rising to 7.0% in 2017. The impact of slow growth in China on trade and investment is countered, in part, by the gradual recovery forecast for Thailand, which will aid exports, tourism, and remittances, as well as from robust growth in Vietnam.
Laos also benefits from the recent signing of the TPPA by Vietnam as most of its exports by sea is from Da Nang in Vietnam.
Electricity production is projected to maintain strong growth as new hydropower plants come onstream this year, together with the 1.9 gigawatt Hongsa power plant, which will make its first full-year contribution to GDP. Construction work on additional hydropower plants; new commercial, industrial and residential developments; and robust expansion of services driven by growth in tourism, finance and telecommunications, will also underpin GDP growth.
Despite stronger tax collection efforts and restrained growth in public administrative spending, the fiscal deficit is expected to widen to 5% of GDP in 2016, compared to 4.7% last year, due to expected lower global demand and softer prices for gold and copper, which will weigh on revenue collection.
Lower oil prices will help sustain downward pressure on merchandise imports in 2016, while exports will rise mainly on increased sales of electricity to Thailand. Inflation in 2016 is projected to remain subdued as a result of low forecasts for global oil prices and local food prices. Inflation was 1.3% in 2015 and is expected to rise slightly to 1.8% in 2016 before edging higher in 2017 due to projected higher oil prices.
Of great significance also is the fact that Laos lies geographically in the path of the New Silk Road and One- Belt-One-Road trade and economic initiative by China. It also benefits from the recent signing of the TPPA by Vietnam as most of its exports by sea is from Da Nang in Vietnam.
This country should be on every businessman’s [and property investor’s] radar.
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