NERI: Lao Economy Needs Diversification
An economic update released last month by the National Economic Research Institute (NERI), a government body led by former Prime Minister Bouasone Bouphavanh, stated that the mining sector’s contribution to the country’s economy will continue to drop over the coming years as a lower output is predicted for this natural resource-based sector.
NERI did not identify the factors contributing to the lower productivity of the mining sector. However, it is widely recognized that the mining sector, particularly two major mining operations, has seen a fall in the production of raw materials. One of these is the Sepon mine, the operations of which are expected to close in 2020 due to the exhaustion of resources.
Despite the mining sector’s lower contribution to the economy, economists at the institute remained confident that Laos’ overall economic growth rate would fall between 6.5% and 7% in 2018, already a comparatively high rate in Southeast Asia.
According to NERI’s report, another major driving force for the economy is electricity generation. A number of hydropower facilities have launched commercial operations, including the Hongsa Lignite power plant, Nam Ou 2 and 5 hydropower plants, Xekaman 1 and Nam Mang 1 hydropower plants.
Apart from hydropower, the construction industry will play an essential role in reinforcing strong economic growth, according to the economists. They cited the construction of the Laos-China Railway as a key driver of this sector’s development. Additionally, the services sector, particularly retail sales, will make a significant contribution to the economy.
International banks such as the World Bank and Asian Development Bank recently released their own economic forecasts, and their findings were consistent with those of the National Economic Research Institute.
These international development partners have repeatedly advised the Lao government to diversify its economic base and to cease its dependence on natural resources – a perspective that is viewed as unsustainable. They also want the government to pay greater attention to the development of agriculture, in which a majority of the population is employed. They said the emergence of this sector as a key economic driver will lift a larger number of people from poverty.
The government has taken note of the current situation and has embarked on a mission, spearheaded by the current Prime Minister, to improve the business climate to attract more investment in non-resource sectors. However, observers said this mission is very challenging and will take time.