Laos looking ahead
Laos is one of the poorest countries in South East Asia, but as the globally economy recovers and commodity prices pick up, the country looks set for a future of relatively strong growth, if not widespread prosperity, and this has been exemplified in the government’s recent decision to open a stock exchange in the country, which it is hoped will bring much-needed capital flowing into the country to fund investment projects in industry and infrastructure, catalysts for further growth in the economy.
Laos is one of the smallest countries by population in Asia, with just 6 million people and over 20% of them living in poverty. The civil war after independence and, until recently, the relative isolation of the country from international markets, have created a situation whereby our GDP per head is just $900, compared to China or Thailand’s (our two most powerful neighbors) with GDPs per capita of around $4,000.
The shifting of fortunes and the change in the government’s approach to the international marketplace is largely a result of recent developments in the country’s commodities and hydroelectric power industries.
Laos has many rivers flowing through our mountainous regions and it is hoped that these rivers can be utilized in the development of hydroelectric power, which will in turn provide Laos with the means by which to export electricity to the region.
The problem is a lack of finance for such ventures, and it is hoped that the newly established Securities and Exchange Commission (SEC) will provide the means by which large amounts of capital can be injected into the economy. The SEC is the organization that will oversee the creation of a stock market in Laos.
Korea Exchange, the fourth largest stock exchange in Asia will be jointly involved in the project, which will initially cost around $20 million.
The stock exchange will help fuel the economy which has been averaging growth rates of 7%, despite the global downturn, and the government has set an 8% growth rate goal between now and 2015 in order to eradicate poverty and bring the country on-par with other emerging markets in Asia.
Prime Minister Bouasone Bouphavanh announced at the World Economic Forum on East Asia that his government wanted to “lift the country from underdevelopment by 2020”. At the same time, the government has said that the launch of the stock exchange will have no impact on their control over the economy citing China’s policy on market-based growth in conjunction with central control.
Details on how this will be achieved have been vague, however, while some quarters have also questioned the longevity of the hydro-electric development goals, in which the government has placed so much faith.
“'Massive investments have been made in extractive industries: mining, hydropower and industrial plantations,” said a letter written to government by a group of local non-governmental organisations, adding that while these investments provided strong growth in the short-term “there are high and potentially negative impacts on the environment and socio-economic development”.
These concerns may be well-founded, as the letter points out, these projects “are land-intensive, there is little value added in Laos, and the labour force is often foreign”. Therefore, the building and operation of hydroelectric dams may provide increased revenue to the government and other members of a select few, it will not provide the much-needed ‘trickle down’ effect essential to the development of the entire country.
Furthermore, the dams will wipe out vast areas of rainforest and eco-systems vital for environmental sustainability as well as potential tourism destinations.
Meanwhile, Chinese, Vietnamese and Thai mines are expressing strong interest in the country’s minding and hydro-electric power sectors.
Banpu, Thailand’s largest coal mining company, has announced plans to spend $225 million on its 40% ownership in the Hongsa power plant, a project worth over $3 billion which will see the largest power plant in the country built upon completion. This in addition to completion of the Nam Theun 2 hydro plant, which cost $1.45 billion to build and generates over 1000 megawatts.
There are seven huge dams currently being built as part of the government’s plans for a total of 55, which will make the country a powerful energy exporter. The stock exchange is expected to raise the money needed to fund these projects.
China’s Minmetals Corp, meanwhile, is increasing production capacity at its copper mine in Savannakhet province, 80,500 tonnes of cathode will be mined next year compared with 65,000 in 2009. Vinacomin, Vietnam’s largest coal mining company, has told Laos news media that it is extremely interested in carrying out exploration of the country for possible investment and a major regional zinc producer, Padaeng Industry Pcl, told Laos news providers that it was planning to expand in the country and close some facilities in Thailand.
These heavy industry sectors seem set for strong growth then, and the government is hoping it will spread to the rest of the country, for now, the SEC says that mining, hydro-electric power companies, manufacturing and telecommunications firms are expected to be the first to list on the exchange.
When the stock exchange is eventually launched later in the year, it will undoubtedly have a rocky start as investors looking to get rich quick pump in and pull out large amounts of money in short-term investments, and this will be fueled by unease as to the legitimacy of a newly liberalized market, but after two to three years it is expected the real growth envisioned in the plans will be realized.
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