Laos: Southeast Asia’s Newest Boom Economy

Via The Wall Street Journal, an interesting look at Laos:

A man walks around the That Luang Stupa in Vientiane, the capital of Laos.

Pop quiz: Which country is likely to have the fastest-growing economy in Southeast Asia this year?

Indonesia, the region’s emerging powerhouse? Myanmar, investors’ flavor of the month as it opens to the Western world? Or maybe Thailand, which is rebounding nicely from last year’s epic floods?

Wrong on all the above. The correct answer is Laos, which for years has been overlooked as too small, too complicated, and in many cases just too weird to merit serious attention from mainstream investors.

Yet no economy in Southeast Asia appears to be more immune to this year’s global economic slowdown. Laos is on track to post an impressive 8.3% growth rate in 2012, according to the International Monetary Fund, which would almost certainly put it at the top of the table for Southeast Asia given what’s happening elsewhere in the region. Cambodia is on track to come in second with 6.5% growth, the IMF says, followed by Myanmar at 6.2%. Indonesia and Thailand are roughly in the same ballpark.

To be sure, 8.3% growth isn’t exactly going to set investors’ hearts aflutter given that landlocked Laos has Southeast Asia’s smallest economy, and the opportunities for making money there are limited. Road and rail links are limited and the lack of a skilled labor makes Laos a tough bet for large manufacturing operations.

But this year’s strong performance underscores the longer-term trend in a country that has consistently been one of Asia’s outperformers, including average growth of 7% a year over the past decade. Although nominally a Communist nation, Laos has liberalized its economy since the 1980s, and income levels have been rising.

Much of the country’s growth these days is coming from mining, hydroelectric power and construction, all of which are relatively insulated from the turmoil in Europe and the related drop in export activity that has hurt some other Southeast Asian nations. Some economists fear Laos may be over-reliant on those sectors, despite their resilience this year.

But Laos is expected to be accepted into the World Trade Organization on Friday, and over time that should help it attract more diverse drivers for the economy, including more of the manufacturing that has transformed other Southeast Asian nations. Leaders are especially hopeful Laos can lure some of the garment-factory investment that has helped create tens of thousands of jobs in nearby Cambodia.

Either way, Laos is already seeing the impact of all the recent growth, with conspicuous consumption noticeably on the increase. Shiny new Cadillacs and Mercedes Benz cars – and even at least one Ferrari – are spotted on Vientiane’s streets. Sushi restaurants, boutique hotels and wine bars are proliferating.

A. Barend Frielink, deputy country director for the Asian Development Bank in Vientiane, says he almost ran into a Bentley in town recently.

“There is suddenly a lot of cash” in Laos, he said—so much so that economists don’t have a fully satisfactory explanation for all the spending. Partly it’s because Vientiane has undergone such a construction boom in recent years, with major projects to build new hotels and upgrade roads. Analysts have also pointed to gains from illicit drug trading and logging, though the economy has also earned a lot from its more legitimate sources of growth, including mining, that have helped spawn a larger consumer class.

Either way, “some thresholds have been crossed” in Laos, he says. “Every day I see a brand new sports car.”


This entry was posted on Friday, October 26th, 2012 at 4:58 pm and is filed under Uncategorized.  You can follow any responses to this entry through the RSS 2.0 feed.  Both comments and pings are currently closed. 

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