June 13, 2014 3:31 am JST

Laos courting foreign companies to speed development

TAMAKI KYOZUKA, Nikkei staff writer

BANGKOK -- Eager to shed its status as one of the least developed developing countries, Laos is searching for new economic growth engines and aims to lure Japanese and other foreign companies already operating in neighboring nations such as Thailand.

     Hopes are being lifted in the city of Pakse, about 600km south of the capital Vientiane, where plans call for establishing Laos' third special economic zone for manufacturers. The area produces coffee and vegetables, and companies in the processed food industry are expected to climb aboard. The government wants to make the zone home to smaller businesses with just a few dozen workers, officials say.

     Laos' two existing special economic zones geared toward manufacturing already serve over 40 companies, many of which are Chinese. Japanese businesses, such as Nikon and Toyota Boshoku, are operating plants in the city of Savannakhet, between Vientiane and Pakse.

     The government hopes that foreign companies will adopt a "Thailand-plus-one" business model, relocating some production to Laos to soften the blow from rising Thai personnel costs. The country's per capita gross domestic product stood at $1,477 last year, roughly a quarter that of Thailand, and Laos' political stability is also seen as attractive.

     According to the International Monetary Fund, Laos' economy grew at a roughly 8% pace between 2010 and 2013. Growth was driven by such areas as agricultural products, natural resources and exports of hydroelectric power.

     But exports of gold, copper and other natural resources, a pillar of the economy, are sluggish amid an economic slowdown in China. The Japan External Trade Organization's Vientiane office estimates that growth this year will dip into the 7% range. This makes it imperative that the government seek new growth drivers in order to keep GDP expanding faster than 8% and realize its goal of removing Laos from the list of the least developed countries by 2020.

     One of the best ways for the government to revolutionize the country's outdated industrial structure is to attract foreign capital and foster manufacturing. Planning and Investment Minister Somdy Douangdy says $7 billion to $8 billion in private-sector investment will be required for the economic growth strategy that runs through 2020. Hopes are high that part of this may come from the over 4,000 Japanese businesses operating in Thailand.

     But not all Japanese companies are so keen to hop across the border. "We can't get any workers to come, so there's no way to increase production when we want to," complained an official at a Japanese company with facilities in Laos.

     At just under 7 million, Laos' population is smaller than that of its neighbors. And an increasing number of Laotians are said to have relocated to Thailand in search of higher wages.

     Some observers are concerned that the launch of the Association of Southeast Asian Nations' economic community in 2015 may exacerbate disparities among member nations. As one of the slower-developing Asean countries, Laos must lay the groundwork to turn the expected increase in the exchange of goods, funds and people to its advantage.