Industrial Development Strategiesfor Lao PDR
The1st 2018 Regular Meeting
Japanese Chamber of Commerce and Industry, Vientiane
28 May 2018
Masahito Ambashi
Economist of ERIA
(Economic Research Institute for ASEAN and East Asia)
1Why and What Lao PDR at the Crossroads?
⚫ “Crossroads” has two meanings:
1. The timing currently Lao PDR is facing
when alternative policies and strategies
are required.
[Industrial development]
2. The geographic weakness of a“landlocked” country turns thepotential strength of becoming a “landlinked” country.
[Taking advantage of global/regionalvalue chains and production networks]“Lao PDR at the Crossroads” is one of answers tosummit theme in 2016: “Turning Vision into Reality
for Dynamic ASEAN Community”, which was a great
contribution made by Lao PDR.

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Strategy 1: Manufacturing Promotion⚫ Export-oriented manufacturing is the key in terms of:(1) market size, (2) labour productivity, and (3) job creation.
Drivers of a growth for developing country
Domestic Market(of a Developing Country)

International Market(Including AdvancedEconomies)

Agriculture

Low return on labour
Large job creation

Industry(Mining)High return on labourSmall job creation

Industry(ManufacturiServices(Limited marketsize)
High return on labour
Large job creation(Hard to reach)3Strategy 2: Productivity Improvement⚫ Labor shift benefits the whole economy of Lao PDR by realising:(a) Agricultural productivity increase;(b) Job creation through industrial promotion.
Labour Shift

Labor Productivity in Each Sector (2013)

Agriculture

TourismTransportequipment

Job creation(through development)
Garment/
Otherlabourintensive

Electric/
Electronics
machinery

SME Finance
EnergyTransportation
Source: Calculation from World Bank data.

48 Core Industrial Sectors1. Transportation, energy, and SME finance (SME): Foundation of other sectors;
2. Agriculture/food processing and tourism: Drivers of balanced development;
3. Garment, transport equipment, E&Es: Drivers of accelerated economic growthby export.
"Drivers of acceleratedgrowth""Drivers of balanceddevelopment"

Tier 1a, 1b

Tier 2Tier 3

Industrial estates
Agriculture/foodprocessingTourism

Garment/
other labor
intensive

SME financeTransport
equipment

Electric/
electronics
machinery

Foreign
directinvestment

External finance
EnergyTransportation"Foundation of economic activities"

5Policy Recommendations on Industrial Sectors
SectorScenarios

Challenges(1) Agriculture andFood Processing• High value addition through ‘sixth
industrialisation’• Efficient rice production through a ‘bestpractice’ package• High-quality commercial crop production atlocal cooperatives• Establishment of a new value chain (e.g.
dairy products)• Capacity building in farming technology• Procuring packaging materials• Improving cold chains(2) Mining andEnergy• Expansion of regional power interchange• Promotion of bioethanol production• Establishing a leading position at the ASEAN
Power Grid
• Partnering with neighbouring countries• Establishing a subsidy system to guarantee
the profitability of bioethanol(3) Garment andOther LaborIntensive Industries

Garment industry• Production of high value added productswith low seasonality• Participation in the fast fashion supply chain
for ASEAN nations
Other labour-intensive industries• Production using a large amount of low-costlabour and electricity, such as copper wire,
casting and moulding• Production of high value-added light
products, such as medical devices• Ensuring smooth transport to Bangkok• Ensuring one-stop service at VITA Park6

Sector

ScenariosChallenges

Electric andElectronicMachinery• Production of electronic components with arelatively short commodity cycle and with aflexibly adjusted production volume, such asconnectors (LANs, USBs, etc.) and theircables• Improving distribution

Transport
Equipment(Automobiles andMotorcycles)• Production and exportation to Thailand oflabour-intensive components, such as cableharness and automobile seat covers• Stabilising power supply• Improving road conditions

Tourism• Promotion of ‘key visuals’ for core markets(Thailand, Viet Nam, and China)• Attraction of visitors from Japan, Korea, andChina during the summer vacation season(July–August)• Investigating the needs of travellers fromdifferent countries• Improving sanitation, etc.
• Relaxing the procedure for applying for a
guided tourFinance• Utilisation of funds from internationalorganisations• Capacity building of commercial banks incredit assessment• Establishment of a domestic and regionwide credit guarantee system• Capacity building of SMEs

• Managing SME finance risks in the banking
sector• Providing incentives for book-keeping in
SMEs

Transportation• Launch of consolidation services(Savannakhet Logistics Hub)• Utilisation of railways to reducetransportation costs (Vientiane LogisticsHub)• Arranging joint operation of theSavannakhet Logistics Hub by several private
logistics companies• Arranging joint operation of theSavannakhet Logistics Hub between thegovernment and the people• Improving customs
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Dissemination Activities

The Mekong-Five Economic Forum(3 July 2015)

National Assembly Training Seminar(21 July 2016)

The 8th Mekong-Japan Economic Ministers Meeting(6 August 2016)

National Policy Dialogue(30 March 2016)

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The Follow-up of the Lao PDR at the Crossroads⚫ The objective of the follow-up is to effectively and strategically
implement policy options presented by “Lao PDR at theCrossroads: Industrial Development Strategies 2016-2030”.
⚫ This follow-up mechanism forms a significant complement to the“8th Five Year National Socio-Economic Development Plan(2016-2020)” and “10 Year Socio-Economic Development
Strategies/Vision 2030”.
⚫ Also, it aims to be consistent with and provide inputs for existingdevelopment mechanisms such as Millennium Development
Goals (MDGs) formulated by UNESCAP.

9Framework and Members

ERIA• Arrange “process control” workshopswhere the government of Lao PDR (GOL)
and agencies deliberate on how tostrategically implement industrial policies.

GOL(MOIC, MPI,MPWT, etc.)• Organize and manage proactively sub-levelworking groups together with agencies todiscuss the details of projects.
• Communicate with MPI about promisingprojects if appropriate.

JICA, JETRO,etc.

Cooperate with the GOL to realize projects
through continuous discussions
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WGs Items of the Follow-up⚫ WG 1: Agriculture▪ Sending JICA agriculture experts to MOIC
▪ Business matching between Lao agriculture supplies and Japanese foodprocessing companies based in Thailand▪ Strategic paper of agro-processing⚫ WG 2: Labour-Intensive Industries▪ Handicraft as gifts▪ Strategic paper: (1) garments, (2) wood processing including furniture,(3) Artisan craft including Lao silk, (4) IT in use of cheap electricity charges,(5) One District One Product (ODOP)⚫ WG 3: SMEs
▪ Start-up support▪ Tax–customs incentives and financial support of start-ups and innovation▪ Capacity building of white paper writing on SMEs
⚫ WG 4 : Industrial Parks▪ Survey study on best practices of industrial estates and special economic zones
in Cambodia, Myanmar, Thailand, and Vietnam▪ Capacity building for improvement of management skill
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Time Frame
The intended outcome is assumed by 2020.
1. 1st workshop (28 February 2017):
Discuss interested projects between the GOL
and agencies
2. 2nd workshop (8 May 2017):
Present GOL’s interested projects to agencies
and have a discussion
3. 3rd workshop (5 September 2017):
Report on the agreed projects and discuss how
to promote these projects
4. 4th workshop (6 February 2018):
Review and report on the progress of theprojects launched in 2017 to the MOIC Minister,
the Ambassador of Japan and the ERIA
President
5. 5th workshop (September 2018):
Progress report and new round of finding out
new projects between the GOL and agencies

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