Beyond hydroelectricity and beer: Laos to liberalize economy and grow
By Jon Fernquest
Today's
article looks at the small country of Laos and its recent efforts to jumpstart its own economic development.
Starting out as a relatively undeveloped economy may actually give Laos an advantage, an "advantage of backwardness."
Such an advantage can be gained by late developing economies if they can muster together enough economic resources to start putting to good use the technologies that more advanced economies have already developed.
More advanced economies have to go through the painful process of developing and adopting new technologies. Eventually one of many new technologies wins out and is adopted for permanent use.
More "backward" economies then have access to these tried and tested technologies without incurring the cost of development that the more developed economies incur.
This idea was first put forward by the economist Alexander Gerschenkron in the 1950s.
This time it might well be the turn of Laos to gain such an "advantage of backwardness."
This seems to be one implication of this insightful article by Peter Janssen, a veteran journalist who has been covering Southeast Asia for years and who now works for DPA in Bangkok.
Today's article begins after the vocabulary:
advantage of backwardness
- when a less developed economy can skip steps in development
that more advanced economics bear the costs of developing
muster resources - bring together all the things (workers, machines, ideas) needed to successfully complete a project
jumpstart - starting quickly (from: starting a car with electricity from the battery of another car)
X has access to Y - able to get and use Y
tried and tested technologies -
incurring the cost of Y - be the one who spends the money for Y
Alexander Gerschenkron - an famous development economist in the 1950s (See Wikipedia)
implication of Y - the things that are likely to happen as a result of Y
DPA (Deutsche Presse-Agentur) - the biggest press agency and supplier of news in Germany (See Wikipedia)
muster resources - bring together all the things (workers, machines, ideas) needed to successfully complete a project
jumpstart - starting quickly (from: starting a car with electricity from the battery of another car)
X has access to Y - able to get and use Y
tried and tested technologies -
incurring the cost of Y - be the one who spends the money for Y
Alexander Gerschenkron - an famous development economist in the 1950s (See Wikipedia)
implication of Y - the things that are likely to happen as a result of Y
DPA (Deutsche Presse-Agentur) - the biggest press agency and supplier of news in Germany (See Wikipedia)
Little Laos proves largely immune to global crisis
By Peter Janssen Aug 13, 2009, 3:32 GMTVientiane, Laos - Laos, a landlocked communist country whose main industries are hydroelectricity and beer, has proven largely immune to the world economic crisis, although this accomplishment has prompted more humour than praise.
'Laos has survived the crisis because we have no economy to suffer,' joked one senior Lao technocrat who asked not to be named.
'There is no financial crisis here because Lao banks never lend money,' said a foreign businessman, again anonymous.
Humour aside, the Asian Development Bank (ADB) is bullish on Laos' growth prospects in 2009, which it has forecast at 5.5 per cent of gross domestic product (GDP), considerably above the 3.3 per cent predicted by the International Monetary Fund (IMF).
'We
feel the crisis is not going to affect the production
base for
Laos because the economy is so much domestic
driven,'
said Christopher Hnanguie, country economist for ADB. 'The exposure to
external capital
is
very limited,
so in terms of external
factors affecting the economy, it's not really there.' The Lao government, even more optimistically, foresees 7.5 per cent GDP growth this year.
Laos, with its modest population of 6.8 million, has few labour-intensive, export-oriented industries, like those of its South-East Asian neighbours.
Laos' main export-dependent industries include hydro-electricity, going to neighbouring Thailand at cheap rates, copper and gold mining as well as tourism.
Copper prices have fallen this year and tourism is expected to see a 20-per-cent decline in income, as fewer high-end travellers are going to Laos this year, but this has not affected domestic beer sales yet.
Lao Brewery, the partly state-owned company that makes Beer Lao, reported a 6 to 7-per-cent increase in sales during the first six months of the year.
The company, after opening a new brewery in Pakse, southern Laos, two years ago, now has a capacity to make 200 million litres of beer a year, and claims more than 95 per cent of the domestic market, despite competition from Tiger beer, also brewed in Laos.
'If you look at the Lao market, nearly 90 per cent of what we consume comes from Thailand,' Lao Brewery managing director Kissana Vongsay said. 'Except for one thing. Beer. You cannot find Thai beer in Laos, which is strange.'
It is, since nearly everything else is smuggled from Thailand into Laos across the Mekong River. This speaks well for the popularity and affordability of Beer Lao.
Other than Beer Lao consumption, the domestic economy has been driven by a mini construction boom in Vientiane, where new roads and hotels have been built in anticipation of the Southeast Asian Games, to be hosted by the capital from December 7 to 18.
The state has also invested heavily in various infrastructure projects to mark the 450th anniversary of Vientiane as the capital of Laos in 2010, providing a fiscal stimulus of sorts.
Hydro-electric projects
A watershed for the Lao economy this year will be the launch of the Nam Theun II hydroelectric project on December 15.The plant, a joint venture between the Lao government, Electricite de France (EDF) and two Thai companies, will have a capacity to produce 1,088 megawatts of electricity, of which some 95 per cent will be exported to Thailand.
Over the next 25 years Nam Theun II should earn Laos 2 billion dollars in tax and dividend revenues. Revenues will, however, be small at first. In 2010, some 11 million dollars in royalty taxes are due to be handed over which are already slated for the education and health budgets, two sadly neglected social services.
Foreign investment laws liberalized
Another key event has been the passing of an amended investment code aimed at attracting more foreign investment.The amended law, approved by the National Assembly last month, includes liberal clauses such as allowing foreigners who invest more than 300,000 dollars in Laos to own property, but not the land it is built on. But, this communist-era caveat holds true for Lao property holders as well.
'The big change is that foreign investors will enjoy the same conditions as domestic investors,' said Boutha Khatthiya, deputy director general of the Ministry of Planning and Investment.
The amended investment code is also part of Laos' efforts to enter the World Trade Organization (WTO) next year.
Also next year, on October 10, 2010 the government plans to launch the country's first stock market, with 10 companies listed.
These ambitious plans to enter the global economy, at a time when Laos' lack of interaction has saved it from suffering a global kickback, has raised some questions about its pace of development.
'It's a bit too fast,' ADB economist Hnanguie said. 'I'm not very confident about the analysis done in advising the government about the pace we're going at but some quarters say 'let's just do it and we can adjust as we go along.''
(Source: Bangkok Post, business, Little Laos proves largely immune to global crisis, Peter Janssen Aug 13, 2009, link)
Vocabulary:
X immune to Y - X
cannot be affected by Y
X proves largely immune to Y- over time X has shown itself to usually not be affected by Y
landlocked country - country has no coastline touching sea or ocean
communist - a form of government in which the state operates under a one-party system and declares allegiance to Marxism-Leninism - the political philosophy or ideology behind Communist states (See Wikipedia)
Marxism-Leninism - the political ideas of Marx and Lenin (See Wikipedia)
hydro-electricity - creating electricity with the power of river water (See Wikipedia)
accomplishment - an achievement, a goal that has been achieved
X prompted Y - X caused Y
technocrat - an engineer or scientist with power in government or politics
anonymous - did not give name
bullish - belief that the stock market or the economy is going to get better in the near future
prospects for Y - the possibility or likelihood that event Y will happen in the future
growth prospects - the likelihood that there will growth in the near future
forecast - what experts believe will happen in the future
production base - a main place where goods are manufactured and produced
domestic driven - caused by events inside the country
exposure, risk exposure - something that you do puts you at risk , could be affected negatively
capital - money invested in businesses
external capital - money from outside the country invested in businesses
exposure to external capital is very limited -
external factors affecting the economy - things outside the country that affect the economy of the country
labour-intensive - using a lot of cheap labour (instead of expensive machines or capital equipment)
X-oriented - done for goal or purpose X
export-oriented - done for to produce export goods
brewery - a factory that makes beer
smuggled - brought into a country illegally
affordability - able to buy because not too expensive
Beer Lao - the name of a range of beers (lager, light beer and dark beer) produced by the Lao Brewery Company (LBC) of Vientiane, Laos (See Wikipedia)
Beer Lao consumption - people buying and drinking Beer Lao
mini - small
construction boom - a period of time when lots of buildings are being built
built in anticipation of X - built expecting event X to happen in the future
Southeast Asian Games - a sort of mini-Olympics for ASEAN states (See Wikipedia)
fiscal stimulus - temporary increases in government spending or tax cuts to get the economy moving and growing again
a watershed - an important event that signals important change
capacity to produce - the maximum amount they are able to produce
Nam Theun II - a hydroelectricity project in Laos (See next entry)
Theun-Hinboun, Nam Theun-Hinboun Hydropower Project in Laos - biggest hydropower project in Laos, Nam Theun 2 was French-led with assistance by the World Bank and the Asian Development Bank (See case study from University of Michigan and critical report with press release , 25-09-08; and University of Sydney, 1999)
dividend - part of company's profits paid to owners of a stock
revenues - money coming into a business
royalty taxes - taxes paid for the right to use some right owned by the government
X slated for Y - plans for event X to happen at time Y
neglected - not given enough care and attention
social services - things like health care and education that the government provides the public
amend - change a law
amended investment code - the changed laws for foreign investment
amended law - a changed law
a clause - details or sentences in a law or contract
liberal clauses - the details of the contract or law are easy to follow (not strict)
a caveat - a warning
X enjoy the same conditions as Y - X have the same conditions as Y
ambitious plans - very impressive but difficult plans needing lots of energy and work
pace of development - speed of economic growth
X proves largely immune to Y- over time X has shown itself to usually not be affected by Y
landlocked country - country has no coastline touching sea or ocean
communist - a form of government in which the state operates under a one-party system and declares allegiance to Marxism-Leninism - the political philosophy or ideology behind Communist states (See Wikipedia)
Marxism-Leninism - the political ideas of Marx and Lenin (See Wikipedia)
hydro-electricity - creating electricity with the power of river water (See Wikipedia)
accomplishment - an achievement, a goal that has been achieved
X prompted Y - X caused Y
technocrat - an engineer or scientist with power in government or politics
anonymous - did not give name
bullish - belief that the stock market or the economy is going to get better in the near future
prospects for Y - the possibility or likelihood that event Y will happen in the future
growth prospects - the likelihood that there will growth in the near future
forecast - what experts believe will happen in the future
production base - a main place where goods are manufactured and produced
domestic driven - caused by events inside the country
exposure, risk exposure - something that you do puts you at risk , could be affected negatively
capital - money invested in businesses
external capital - money from outside the country invested in businesses
exposure to external capital is very limited -
external factors affecting the economy - things outside the country that affect the economy of the country
labour-intensive - using a lot of cheap labour (instead of expensive machines or capital equipment)
X-oriented - done for goal or purpose X
export-oriented - done for to produce export goods
brewery - a factory that makes beer
smuggled - brought into a country illegally
affordability - able to buy because not too expensive
Beer Lao - the name of a range of beers (lager, light beer and dark beer) produced by the Lao Brewery Company (LBC) of Vientiane, Laos (See Wikipedia)
Beer Lao consumption - people buying and drinking Beer Lao
mini - small
construction boom - a period of time when lots of buildings are being built
built in anticipation of X - built expecting event X to happen in the future
Southeast Asian Games - a sort of mini-Olympics for ASEAN states (See Wikipedia)
fiscal stimulus - temporary increases in government spending or tax cuts to get the economy moving and growing again
a watershed - an important event that signals important change
capacity to produce - the maximum amount they are able to produce
Nam Theun II - a hydroelectricity project in Laos (See next entry)
Theun-Hinboun, Nam Theun-Hinboun Hydropower Project in Laos - biggest hydropower project in Laos, Nam Theun 2 was French-led with assistance by the World Bank and the Asian Development Bank (See case study from University of Michigan and critical report with press release , 25-09-08; and University of Sydney, 1999)
dividend - part of company's profits paid to owners of a stock
revenues - money coming into a business
royalty taxes - taxes paid for the right to use some right owned by the government
X slated for Y - plans for event X to happen at time Y
neglected - not given enough care and attention
social services - things like health care and education that the government provides the public
amend - change a law
amended investment code - the changed laws for foreign investment
amended law - a changed law
a clause - details or sentences in a law or contract
liberal clauses - the details of the contract or law are easy to follow (not strict)
a caveat - a warning
X enjoy the same conditions as Y - X have the same conditions as Y
ambitious plans - very impressive but difficult plans needing lots of energy and work
pace of development - speed of economic growth
