Economic Development in a LandLocked Country The Case

Economic Development in a Land-Locked Country ーThe Case of Laosー Institute of Developing Economies,

Where is Laos? 2021/10/25 （C） IDE-JETRO All rights reserved. 2

Source: http: //www. lib. utexas. edu/maps/asia. html 2021/10/25 （C） IDE-JETRO All rights reserved. 3

China Source: http: //www. asean. or. jp/en/asean/know/base/outline. html 2021/10/25 （C） IDE-JETRO All rights reserved.

Source: http: //www. lonelyplanet. com/maps/asia/laos/ 2021/10/25 （C） IDE-JETRO All rights reserved. 5

What kind of country is Laos? 2021/10/25 （C） IDE-JETRO All rights reserved. 6

General info about Laos Name: Lao People’s Democratic Republic Political Regime: Socialist Foundation: December

General info about Laos （Source) Speaker 2021/10/25 （C） IDE-JETRO All rights reserved. 8

List of least developed countries Africa: 33 countries Asia : 14 countries Afghanistan, Bangladesh,

Three important factors 1. Landlocked country, no seaport Ø Logistical problems 2. Small population

Economic development in Laos 2021/10/25 （C） IDE-JETRO All rights reserved. 11

Economic growth of Laos 10 8 6 4 2 2006 2007 2008 2009 2010

（％） Economic growth in SEA Source: Speaker. 2021/10/25 （C） IDE-JETRO All rights reserved. 13

What is the driving force for economic development? 2021/10/25 （C） IDE-JETRO All rights reserved.

Economic development in Laos Ø Driving forces of development in Laos ①Mining (gold, silver,

Basic policy of Laos Ø 2 + 3 policy ü Laos provides land labor

FDI and mining/electricity Million Dollars Source: Speaker. 2021/10/25 （C） IDE-JETRO All rights reserved. 17

FDI by country (2000 -2011) Rank Country Number of Projects Amount 1 Vietnam 410

Laos exports Million Dollars 3 000 2 500 2 000 Others 1 500 Mining/Electricity

Agricultural products Ø Rubber, maize, sugarcane, etc. ü Demand in China is increasing Ø

Agricultural products Ø Advantages of rubber ü Not affected by soil ü Able to

Agricultural products Source: Speaker 2021/10/25 （C） IDE-JETRO All rights reserved. 22

Agricultural products Source: Speaker 2021/10/25 （C） IDE-JETRO All rights reserved. 23

Agricultural products Source: Speaker 2021/10/25 （C） IDE-JETRO All rights reserved. 24

Agricultural products Source: Speaker 2021/10/25 （C） IDE-JETRO All rights reserved. 25

Agricultural products Source: Speaker 2021/10/25 （C） IDE-JETRO All rights reserved. 26

The China factor 120000 100000 80000 60000 enforcement 40000 Investment trade 20000 1996 1997

2021/10/25 0 （C） IDE-JETRO All rights reserved. 1996 1997 1998 1999 2000 2001 2002

Is Laos’ dependence on natural resources sustainable? 2021/10/25 （C） IDE-JETRO All rights reserved. 29

Problem Ø Environmental problems ü Influence on biodiversity Ø Drain on resources ü Resources

From natural resources to manufacturing 2021/10/25 （C） IDE-JETRO All rights reserved. 31

Manufacturing sector Before: landlocked country = disadvantage Today : land-linked = advantage Why? :

Source: http: //www. amchamvietnam. com/greater-mekong-subregion-gms-road-network-in-2015 -adb/ 2021/10/25 （C） IDE-JETRO All rights reserved. 33

Source: ADB(2012). 2021/10/25 （C） IDE-JETRO All rights reserved. 34

Manufacturing sector Past: production in one country Today: international division of labor Japan Design/

Manufacturing sector Factory worker wages in 2012 Guangdo ng (China) Bangkok (Thailand) Hanoi (Vietnam)

China + one Ø Garment factory Shift a factory Export by ship China Factory

Vietnam ＋ one Company: Mani (medical equipment) Materials from Japan to Vietnam and semi-

Thailand + one Company: Nikon (camera) Intermediate goods - Finished products from Thailand to

Source: Nikon HP. 2021/10/25 （C） IDE-JETRO All rights reserved. 40

Benefits for Laos? Ø Creates jobs for people Ø Stable jobs instead of short-term

Why can Laos be a “plus one” country ? 1. 2. 3. 4. 5.

Are there any logistics problems? 2021/10/25 （C） IDE-JETRO All rights reserved. 43

Logistics/distribution Ø Problem of a landlocked country 1. No sea and no port 2.

Logistics/distribution in Laos Ø Transportation cost ü Laos Bangkok $2, 161 more ü Bangkok

Logistics/distribution in Laos Ø Not far from ports in Thailand Vietnam Ø It takes

Four advantages for Laos 1. Located in the center of the region 2. Integrated

Is Laos lucky? ↓ Yes 2021/10/25 （C） IDE-JETRO All rights reserved. 49

Contribution of Japan to Lao development 2021/10/25 （C） IDE-JETRO All rights reserved. 50

Japanese companies Ø Investment in the manufacturing sector ü Job creation for hundreds of

Japanese government (Million $) Ø Japan is the top donor First Second Third Fourth

Japanese government Ø Field of aid assistance ü Socioeconomic infrastructures roads, bridges, airports, health,

Japanese assistance It is not an exaggeration to say that Lao development would not

Conclusion Ø Lao economy is growing Ø Dependence on natural resources and FDI and

Thank you very much for your attention today！ If you have any question or

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General info about Laos Name: Lao People’s Democratic Republic Political Regime: Socialist Foundation: December 2, 1９７５ Size: ２３６, ８０ 0 km２ Population: ６. ５ million Ethnicity： 49 officially recognized ethnic groups Language：Lao Religion: Theravada Buddhism, Animism Economic Status: one of the least developed countries 2021/10/25 （C） IDE-JETRO All rights reserved. 7

List of least developed countries Africa: 33 countries Asia : 14 countries Afghanistan, Bangladesh, Bhutan, Nepal, Laos, Myanmar, Cambodia, Kiribati, Samoa, Solomon Islands, Timor-Leste, Tuvalu, Vanuatu, Yemen Latin America: Haiti

Three important factors 1. Landlocked country, no seaport Ø Logistical problems 2. Small population Ø Small market, labor force is limited 3. Abundance of available land Ø Very little money, technology, and qualified human resources, but a lot of “land” 2021/10/25 （C） IDE-JETRO All rights reserved. 10

Economic growth of Laos 10 8 6 4 2 2006 2007 2008 2009 2010 8. 3% 7. 8% 7. 5% 7. 9% 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 0 2011 2012 8. 1 7. 9 Source: Speaker. 2021/10/25 （C） IDE-JETRO All rights reserved. 12

Economic development in Laos Ø Driving forces of development in Laos ①Mining (gold, silver, copper, zinc, bauxite, limestone, sapphire, and many more) ②Electricity (hydropower) ③Agricultural plantations (rubber, maize, etc. ) Use of large amount of land Need foreign direct investment 2021/10/25 （C） IDE-JETRO All rights reserved. 15

Basic policy of Laos Ø 2 + 3 policy ü Laos provides land labor force ü Foreign company provides capital, technology, and a market Ø External dependency Ø To maintain 8% growth ü Foreign direct investment: $15 -17 billion/year ü ODA $700 million/year. RO All rights reserved. ü 70% of public investment financed by ODA 2021/10/25 16

FDI by country (2000 -2011) Rank Country Number of Projects Amount 1 Vietnam 410 4, 770, 379, 911 2 China 721 3, 428, 341, 879 3 Thailand 519 2, 854, 110, 732 4 South Korea 255 595, 847, 036 5 France 150 474, 859, 420 6 Japan 79 347, 542, 321 7 India 17 149, 760, 102 8 Malaysia 77 138, 375, 226 9 Australia 48 101, 445, 184 10 Singapore 61 93, 432, 209 Source: Ministry of Planning and Investment , Laos. 2021/10/25 （C） IDE-JETRO All rights reserved. 18

Agricultural products Ø Rubber, maize, sugarcane, etc. ü Demand in China is increasing Ø Chinese investment in rubber plantations ü Growing demand for rubber in the world market and China ü 1990– 2004 Chinese investment in northern Laos, especially in rubber 2021/10/25 （C） IDE-JETRO All rights reserved. 20

Agricultural products Ø Advantages of rubber ü Not affected by soil ü Able to grow in sloping land ü Farmers can earn cash Ø Disadvantages of rubber ü Takes seven years to produce sap ü Influenced by changing prices ü Cheated by traders 2021/10/25 （C） IDE-JETRO All rights reserved. 21

The China factor 120000 100000 80000 60000 enforcement 40000 Investment trade 20000 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 0 Source: Speaker. 2021/10/25 （C） IDE-JETRO All rights reserved. 27

2021/10/25 0 （C） IDE-JETRO All rights reserved. 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2012 2010 2008 2006 2004 2002 2000 1998 1996 1994 1992 1990 GDP growth of Laos China factor 10 9 8 7 6 5 4 3 2 1 28

Problem Ø Environmental problems ü Influence on biodiversity Ø Drain on resources ü Resources will not last forever Ø Does not increase workers’ income ü Unstable unemployment Ø Expropriation peoples’ land ü Insufficient compensation 2021/10/25 （C） IDE-JETRO All rights reserved. 30

Manufacturing sector Before: landlocked country = disadvantage Today : land-linked = advantage Why? : Linked with neighboring countries by road and bridges supported by Asian Development Bank (ADB) and other countries such as Japan 2021/10/25 （C） IDE-JETRO All rights reserved. 32

Manufacturing sector Past: production in one country Today: international division of labor Japan Design/ Planning Intermediary Parts Laos Assembling/ Processing Intermediary Parts World Market 2021/10/25 （C） IDE-JETRO All rights reserved. Thailand Assembling/ Processing World Market Export 35

Manufacturing sector Factory worker wages in 2012 Guangdo ng (China) Bangkok (Thailand) Hanoi (Vietnam) $395 $345 $145 2012 Vientiane Phnom (Laos) Penh (Cambodia) $132 $74 Yangon (Myanmar) $53 Source: JETRO Ø Companies are shifting some of their production processes to less expensive countries 2021/10/25 （C） IDE-JETRO All rights reserved. 36

China + one Ø Garment factory Shift a factory Export by ship China Factory Taiwa n Laos final product Investment Japan Raw material Thailand Source: Speaker 2021/10/25 Export by truck （C） IDE-JETRO All rights reserved. Export by ship 37

Vietnam ＋ one Company: Mani (medical equipment) Materials from Japan to Vietnam and semi- Myanmar (1999) finished products from Vietnam to Japan Intermediate goods between Vietnam and Myanmar / Lao PDR (2003) Source: Based on Ueki (2013). Vietnam Japan (1996) Technical assistance from Vietnam to Myanmar and Lao PDR Technical assistance from Japan to Vietnam -

Thailand + one Company: Nikon (camera) Intermediate goods - Finished products from Thailand to Japan (1999) Lao PDR Thailand (2013) Third factory Source: Based on Ueki (2013). Mother factory Techcal assistance from Second factory Vietnam to Myanmar & Lao PDR Japan Market from Japan to Vietnam Ø There are more than 7, 000 Japanese companies in Thailand 2021/10/25 （C） IDE-JETRO All rights reserved. 39

Benefits for Laos? Ø Creates jobs for people Ø Stable jobs instead of short-term construction work ü Nikon employs 800 laborers Ø Less dependence on natural resources Ø Does not require skilled workers ü Labor intensive industry ü Relatively easy production process 2021/10/25 （C） IDE-JETRO All rights reserved. 41

Why can Laos be a “plus one” country ? 1. 2. 3. 4. 5. Labor costs are cheaper Geographical proximity Connected by corridor Transportation costs are not so expensive Lao and Thai languages are very similar 2021/10/25 （C） IDE-JETRO All rights reserved. 42

Logistics/distribution Ø Problem of a landlocked country 1. No sea and no port 2. High cost in logistics/distribution Ø The case of Laos ü Cannot use the Mekong River ü No railroad, only planes or truck ü Trucks are the only choice for many companies 2021/10/25 （C） IDE-JETRO All rights reserved. 44

Logistics/distribution in Laos Ø Transportation cost ü Laos Bangkok $2, 161 more ü Bangkok Japan $1, 190 Ø Labor cost is much cheaper in Laos ü Laos $132/person ü Thailand $345/person $213 less Ø Nikon ü (800×$345)-(800×$132)=$170, 400 ü $170, 400÷$2161=78 2021/10/25 （C） IDE-JETRO All rights reserved. 45

620 Km 650 Km 725 Km 490 Km 687 Km 46

Logistics/distribution in Laos Ø Not far from ports in Thailand Vietnam Ø It takes about 10 -15 hours Ø One day (including customs procedures) Ø The Lao government has invested in the Vung Ang Port in Vietnam to use it as a domestic port 2021/10/25 （C） IDE-JETRO All rights reserved. 47

Four advantages for Laos 1. Located in the center of the region 2. Integrated into the production network in Asia 3. Geographical proximity with industrial clusters in China, Thailand, and Vietnam 4. Access to ports in Thailand Vietnam 2021/10/25 （C） IDE-JETRO All rights reserved. 48

Japanese companies Ø Investment in the manufacturing sector ü Job creation for hundreds of people (for example, Nikon Co. , Ltd created 800 jobs) ü Income creation ü Transfer of technology 2021/10/25 （C） IDE-JETRO All rights reserved. 51

Japanese government (Million $) Ø Japan is the top donor First Second Third Fourth 2006 Japan 64. 05 Sweden 23. 73 France 29. 91 Germany 18. 34 2007 Japan 81. 46 France 35. 51 Germany 23. 76 Australia 20. 33 2008 Japan 66. 29 Germany 28. 83 Australia 28. 10 France 25. 39 2009 Japan 92. 35 Australia 29. 61 Germany 27. 36 Korea 25. 14 2010 Japan 121. 45 Australia 32. 68 Korea 27. 75 Germany 24. 80 Source: Ministry of Foreign Affairs of Japan. 2021/10/25 （C） IDE-JETRO All rights reserved. 52

Japanese government Ø Field of aid assistance ü Socioeconomic infrastructures roads, bridges, airports, health, power and transmission lines, education, human resources, and more ü Dispatching Japanese experts and volunteers in every area 2021/10/25 （C） IDE-JETRO All rights reserved. 53

Conclusion Ø Lao economy is growing Ø Dependence on natural resources and FDI and ODA (external factors) Ø Geographical proximity with industrial clusters in the region Ø Integrated into production networks in the region Ø From landlocked in the past to land-linked today 2021/10/25 （C） IDE-JETRO All rights reserved. 55

Thank you very much for your attention today！ If you have any question or comments, you can reach me at the following email address: ↓ Norihiko_Yamada@ide. go. jp 2021/10/25 （C） IDE-JETRO All rights reserved. 56