FDI Flows in as Laos Joined the WTO

Laos did not celebrate its successful accession to the WTO in a big way. It seems that the 15-year-long negotiation is just a common thing. In a country that is greatly influenced by Buddhist culture, even the word WTO is unfamiliar to the ordinary people. One year after the accession, Laos seems to be just like before.

No matter how the country itself appears, the changes that have truly occurred can not be overlooked. The massive influx of FDI is affecting the country in all aspects.

Spare No Efforts to Attract FDI

At the very beginning of the accession, Laos set up the target of attracting $8 billion investment from 2011 to 2015 and keeping a steady growth rate of 8% in economy. As for Laos, a country with an annual economic output of only $9 billion, attracting FDI is a good move if it wants to further develop its budding industry and shake off its status as one of the 48 least developed countries in the world before 2020.

Hence, one year later at the 10th CAEXPO, Lao officials from investment promotion departments devoted themselves to promoting the investment advantages of Laos, which shows that Laos has begun to beef up investment promotion after joining the WTO. It has also set up specialized investment promotion institutions and is trying to reduce FDI procedures.

In fact, Laos has begun to make every effort to improve its investment environment after its accession to the WTO. It has listed the “national treatment” into law to guarantee foreign investors’ equal rights to start a business in Laos. And the goal of zero-tariff in the ASEAN Community by 2015 as required by the WTO commodity catalogue subject to tax reduction has been on the national agenda.

According to officials at Lao Ministry of Industry and Commerce, the efficiency of relevant departments has been enhanced. License application can be done in one department within a short time. At present, education and healthcare are the priority areas for FDI. Real estate is also open to foreign enterprises at the same time.

Investment in Full Blossom

From the internal perspective, Laos has made clear its determination to attract FDI. From the external perspective, Laos’ accession to WTO has opened a door for FDI. Under such circumstances, the influx of foreign investment keeps a growth rate of 40%, which far exceeds people’s expectations. So, most foreign media’s reports on the economic situation of Laos after its accession to WTO focus on the massive influx of foreign capital.

In the context of Laos’ accession to WTO, investing in Laos has become a trend.

One month before Laos’ accession to WTO, Coca-Cola has already had their eyes on the potential opportunities that would come along with the accession, and announced that they would set up a production branch there. It claimed that Laos’ accession to WTO shows that the country has begun to integrate itself into the global economy, and this provides great opportunity for Coca- Cola to gain market in Laos.

Other infrastructure construction enterprises do not want to be left behind. Two months after Laos' accession to WTO, Shanghai Wanfeng Group carried out a development project in Vientiane. This $1.6 billion project is the largest overseas investment project by Wanfeng Group. One year after the accession, China CAMC Engineering Co., Ltd. joined the $0.6 billion restructuring project in Vientiane’s riverside area after finishing the construction of Vientiane’s new conference center by the end of 2013. This plan, which lasted 6 years, has already come into operation. Likewise, right after Laos’ accession to WTO, the Giant Consolidated Limited signed a contract with Laos, providing fund for a $5 billion railway connecting Vietnam and southern Laos.

Investment in finance has begun to rise as Laos entered the WTO. The Maybank set up its first branch in Vientiane at the end of 2011. And in January, 2014, the LCNB, a Laos- China joint venture bank invested by China's Fudian Bank and Lao bank BCEL, was opened, providing financial service to Chinese enterprises coming to invest in Laos.

Competition Comes with Opening-up

Before the accession, investors in Laos mainly came from its neighboring countries like China, Thailand and Vietnam. After the accession, as markets further open to the outside world, businessmen from around the world sense the opportunities of this sleeping country and join in the investment rush.

The massive influx of FDI have brought about real changes to those investors who had entered the Lao market early. Chinese hotel investors in Luang Prabang claimed they came to Laos for there were less pressure and competition compared with their domestic market. However, as Laos joined the WTO and enterprises from Japan, Korea, Europe and US have flooded in, house prices of Luang Prabang have risen by 5 to 6 times overnight. So, the competition is growing very fast as investment increases.

However, this virgin land always awaits far-sighted foreign investors to explore more. “One of my friends who opened a motorbike factory in his early years in Laos has now become a billionaire. In recent years, some investors have turned to education, tourism, medical treatment and real estate. As long as you like, this newly opened market always opens its door to you”.

Unavoidable Soft Spot

Laos’ accession to WTO shows its determination to integrate itself into world economy. Over the past year, disintegration of Lao natural economy has been sped up as Laos gradually implemented economic policies and laws conforming to the WTO commitment. The 8.1% growth rate of Laos in 2013 is inseparable to the favorable conditions brought about by its accession to WTO.

Some scholars believe that FDI plays a crucial role in Lao economic development, and the accession to the WTO has continuously increased those favorable external factors. Although the influx of FDI has contributed a lot to Lao economy, it has led to serious dependence on foreign capital. Once foreign capital, technology, talents and equipments become absent, Laos will be reduced to a disadvantageous situation.

However, some other scholars claim that those enterprises investing in Laos have not really gained benefits from Laos’ accession to WTO, for they have yet to improve their ability to explore markets. Due to world economic depression after the accession, Lao enterprises’ advantages in exporting could not be brought into full play. Experts denote that it needs at least 3 years for Lao enterprises to really benefit from the accession to WTO.

There is still a long way to go for Laos to shake off its status as a least developed country. By joining the WTO, Laos has just opened the door to world economy. It might be a long journey for it to find its own place in the world and stage a wonderful performance. But Laos is already on the way and is moving ahead on and on.