4Despite huge strides to become middle income by 2020 and an admirable growth forecast of 7% in 2017, there are signs that not everything is rosy.
The economy of the Lao People’s Democratic Republic is on track to meet forecasts ofslightly higher economic growth this year and next. Electricity generation from the growing number of hydropower plants and the Hongsa lignite-powered plant is trending up.
Construction on new hydropower projects, residential and commercial buildings, and facilities in special economic zones are contributing to the growth in GDP.
Better weather in 2016 has improved prospects for agriculture, though the risk remains that monsoon rains could cause floods. Gold output from the two major mines rose by 15% in the first half of 2016, but copper production declined by 4%. Tourist arrivals also fell by 4% in this period.
‘FRENZIED’ CONSTRUCTION
Laos has traditionally taken pride in its aura of laidback cool. But that sleepy image is taking a battering amidst the building frenzy currently underway in the country’s capital. Numerous shopping malls are going up around the city, most notably the Vientiane New World project, a mix of shops, restaurants and offices stretching along the Mekong riverfront. Away from the downtown area, meanwhile, new arrivals and real estate initiatives continue to leave their imprint at six Special Economic Zones (SEZs), sites implemented by the government to attract investors. Incentives here include exemption from duties and taxes on equipment and construction materials and reduced income taxes, effective carrots when attracting big-name foreign companies such as Japan’s Nikon and Toyota, both of which have set up factories there.[ihc-hide-content ihc_mb_type=”show” ihc_mb_who=”1,2,3,4,5,6,7,8″ ihc_mb_template=”1″ ]
So what are the factors that have spurred the Vientiane market into such an unfamiliar burst of energy? The advent of the ASEAN Economic Community (AEC) is one driver, and another is the “One Belt One Road” initiative by China. As the Lao economy opens up, several big international banks such as Malaysia’s Maybank have moved in. Increased competition between banks has brought about a more favourable lending climate for consumers.
Anyone who has paid attention to Laos over the past decade or so, however, will know that these drastic changes have long been on the cards. The construction surge comeson the back of a decade of 7-8% annual economic growth that has seen the national economy double in size since 2006, according to the Asian Development Bank.
Foreign Direct Investments (FDI), mostly from neighbouring countries such as Vietnam, China and Thailand, drive much of this growth. Small and land-locked, Laos has traditionally been overlooked as a hub for trade. Now, though, its location at the crossroad of regional powerhouses has given it a leg up. The Lao government is promoting a slogan of “land-linked” to turn its location to its advantage, pushing itself as a transit country for land-based trade.
Investors certainly appear to be biting. According to data from the Laos’ Investment Promotion Department, the top nine FDI nations ploughed USD1.27 bil into the country’s coffers in 2015. FDI topped USD18 bil between from 2002 and 2012, with China, Thailand, and Vietnam the leading sources of capital followed by Korea, France, and Japan.
‘MIDDLE-INCOME’ SOON
All these investments are key to the government’s ambitions to achieve “middle income” status for the country by 2020.
Yet beyond this surface sheen is another, less uplifting, story. Environmentalists balk at Lao complicity in big damming projects, a major source of FDI, which are displacing peasant farmers and changing the Mekong River biosphere forever. That apart, Vientiane’s construction boom, which, aside from the glut of high end malls, encompasses championship golf courses, luxury real estate, is likely to be of scant value to the vast rump of the country’s population.
Although Laos has made admirable progress in poverty alleviation (rates have declined from 46% in 1992 to 23% by the end of 2015), there’s more than a reasonable possibility that supply will outweigh demand when it comes to luxury shopping or investing in upscale real estate.
With prices running at up to USD2,000 per square metre in the city centre, it is clear that Vientiane can no longer be considered a stranger to Asia’s property gold rush. Whether that benefits the many or just the few is something that remains to be seen.
DATO’ SERI MATTHEW YEOH is managing partner of Yeoh Mazlina & Partners, a member of ASEAN Legal Alliance.[/ihc-hide-content]