Laos and global engagement

Integration with the world economy carries risk

Originally published on 31 January 2014

A consistent theme from our recent meetings in Laos was the nation’s accelerating engagement with the rest of the world.

Investors and businesspeople in Laos generally regard engagement as a positive development, although not without some peril for the developing Lao economy.

The Lao government’s focused pursuit of membership in the World Trade Organization, resulting in accession last year, demonstrated the nation’s commitment to reforming and developing its economy through global integration, and several people told us that it has helped encourage investors to consider, or reconsider, Laos as a destination. The recent entry to Laos of Coca-Cola, the ubiquitous global consumer brand, is seen as a symbolic milestone of increased engagement.

The next big event in Laos’s integration with the world economy is the advent of the ASEAN Economic Community (AEC), targeted to take effect 31 December 2015.

Most observers see the AEC as a huge opportunity for Laos, given its central location in mainland Southeast Asia, and the massive transportation infrastructure projects underway that will link the country to its neighbours.

At the same time, however, there is real concern about Laos’s readiness to compete with the larger and more developed ASEAN economies. Some see a risk that foreign competitors with greater scale and experience will overwhelm Lao industries, including the fledgling consumer sector, while more liberal labour mobility policies could hurt local employment.

The good news is that, despite the rapidly approaching target date, AEC implementation is more likely to happen through a gradual phase-in, rather than a one-time event. The Asian Development Bank reported last year that “fully achieving the AEC by the end of 2015 seems highly improbable” given the number of outstanding obstacles yet to be resolved among member nations, and that “it would be best to view 2015 as a milestone rather than a ‘must-do’ target.”

Investors and businesspeople in Laos take comfort from this assessment, and are hopeful that Lao government and industry leaders will prioritise the nation’s preparation for its pending integration with ASEAN.