LAOS: Laos is vying to become Southeast Asia’s manufacturing hub on the back of rising trade tensions between China and the United States. China is constantly seeking expansion overseas and Laos is definitely a contender for the top spot in Asia.
Thai industrial park developer Amata (which also has industrial parks in Vietnam) recently announced the launch of a project in Laos aimed at wooing manufacturers who want to relocate from China.
Amata’s founder and chairman, Vikrom Kromadit, told Nikkei Asia in an interview last month that overseas expansion was the lifeline of these companies. In its brochure, Amata listed tax incentives and exemptions that investors in the Laos project would receive.
Prime location
Thailand-Taiwan Business Association vice-president Jimmy Chen said that Laos is a promising industrial location for Chinese manufacturers, reported DW, a website of the German news network Deutsche Welle.
Thailand has higher manufacturing costs compared to Laos because it has a higher standard of living, Chen pointed out.
“Both China and Thailand have heavily invested in the development of Laos as well, as they also see great potential there,” he added.
German national Tim Scheffman, who is the CEO of LTS Ventures, a Laos fintech company, said that he is confident that Laos would become a manufacturing destination in the next few years.
He told DW, “Laos has the potential to become a manufacturing hub in the region. It has a great strategic, central location in the heart of Southeast Asia. If an investor is willing to bring automation, training and flexibility, then Laos can be a great place for manufacturing.”
However, he warned that potential pitfalls for the country would be limited human resource capacity and an inefficient banking sector.
The problem with Laos
Though rich in natural resources, Laos is struggling economically.
The country, with a population of 7.5 million, has a huge foreign debt, a depreciating currency and soaring inflation at 25%.
Most of its big infrastructure projects are financed through Chinese loans, but the debts resulting from these project have put a strain on the country’s resources.
Analysts say that Laos is currently in debt distress with payment obligations crossing $1 billion a year and total borrowing at 125% of its economy.
According to Zachary Abuza, a professor at the National War College in Washington, which focuses on Southeast Asia, Laos has very little advantage over its neighbours China, Vietnam, and Thailand.
“To be a manufacturing hub you need a few things, such as an educated and trained workforce, macro-economic stability and a steady supply of energy. Laos only has the latter,” said Abuza.
Another big issue in Laos is corruption
“Laos is plagued with rampant official corruption. While that is the case in many other countries, companies usually think that the economic benefits they offer, such as market access, make it worth it. But I just don’t see that happening in the case of Laos, whose total economy is worth under $20 billion – it’s a paltry market.”