TCI 2015 Industrial Cluster Development in Lao PDR: Opportunities and Challenges
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The document discusses industrial cluster development opportunities and challenges in Lao PDR. The Lao government has established several Special Economic Zones through public-private partnerships to promote regional development. However, forming industrial clusters is difficult for less developed countries like Lao PDR due to inadequate infrastructure, small population size, and lack of human resource development. While SEZs offer incentives to attract investment, many firms remain reluctant to participate due to insufficient labor skills, research institutions, and competition. Overcoming geographical constraints and developing high value industries that leverage local resources will be important for Lao PDR's industrial expansion.
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TCI 2015 Industrial Cluster Development in Lao PDR: Opportunities and Challenges
- 1. Industrial Cluster Development in Lao PDR: Opportunities and Challenges Byoungki Kim Shiga University Japan Parallel Session 1.5: Accelerating Cluster Growth in Asian Countries
- 2. The Lao government has realized that promoting cluster formation is important for regional development in the future. The government has formed many Special Economic Zones (SEZ) with Public Private Partnerships (PPP) for joint development between the government and private sector in the delivery of public goods, infrastructure and services. Incentives to attract firms • General customs and tax system • Fiscal incentives • Specific promotion incentives Incentives to attract migration near the SEZs • Providing transport, electricity and water service Promoting Industrial Location Why is forming industrial clusters difficult in less developed countries such as Lao PDR?
- 3. Lao PDR • Size: 236,800 (100,210 Korea) Km2 • Population: 6.8 (50.6 Korea) million person • GDP per capita: 1,785 US$ Vientiane Capital • Size: 3,920 (884 Daegu) Km2 • Population: 797 (2,518 Daegu) 1000 person • Many SEZs have been established Lao PDR Lao is a land-locked country with inadequate infrastructure and a small population. Lao has introduced the New Economic Mechanism which shifted from a planned economy to a market- oriented economy in 1986. Locality of industry heavily depends on the population and transportation infrastructure. https://en.wikipedia.org/wiki/Cochinchina
- 4. Source: Lao Ministry of Planning and Investment Electricity Generation 6,671 Mining 5,687 Service 2,533 FDI by Countries & Sectors (1989-2014, US$ million) Country Projects Value 1 China 830 5,396 2 Thailand 746 4,455 3 Vietnam 421 3,394 4 Korea 291 751 5 France 223 491 6 Japan 102 438 7 Netherlands 16 434 8 Malaysia 101 382 9 Norway 6 346 10 UK 52 198 TOTAL 2,788 16,287 (Total 23,509 US$ million) Lao introduced FDI Law in 1988. Since then the flow of FDI has increased sharply.
- 5. Lao Ministry of Planning and Investment Specail Economic Zone Establish Amount Investor 1 Savan-Seno Special Economic Zone 2003 74 Government 100% 2 Boten Beautiful Land Specific Economic Zone 2003 500 Private 100% (China) 3 Golden Triangle Special Economic Zone 2007 87 Gvernment + Private (China) 4 Vientiane Industrial and Trade Area 2011 43 Government + Private (Taiwan) 5 Saysetha Development Zone 2010 128 Government + Private (Lao & China) 6 Phoukhyo Specific Economic Zone 2010 100 Private 100% (Lao) 7 Thatluang Lake Specific Economic Zone 2011 1,600 Private 100% (China) 8 Longthanh- Vientiane Specific Economic Zone 2012 1,000 Private 100% (Vietnema) 9 Dongphosy Specific Economic Zone 2012 50 Private 100% (Malaysia) 10 Thakhek Specific Economic Zone 2012 80 Government 100% Special Economic Zones (mil US$) Savan - Seno SEZ is the first SEZ Market-oriented economy • Leading industry has been the agriculture • Outputs of the secondary industry increased Natural resources were found • Mining industry greatly outgrew the manufacturing sector. ADB Greater Mekong Sub-region
- 6. Savan - Seno SEZ Service Sector • Banking, Financial Institution and Insurance, Tourism Promotion Service, Hotel, Resort, Restaurant, Amusement Park, Entertainment Center, Sport Center, Conference Hall, Skills Center, School, Hospital Trade Sector • Duty Free Shop, Duty Free Border Trade, Exhibition -Trade Promotion Center, Wholesale-Retail Store, Department Store Distribution Logistics Service Sector • Transportation Business, Distribution Service, Warehouse, Cool Storage Industrial Sector • Electrical Wire, Manufacturing Factory, Food-Processing Factory, Wood Products Industry, Textile, Shoe, Bag, Manufacturing Plant, Automobile Assembly, Plant and other Electronic, Parts Assembly Plant • 57 companies invested more than US$200 million for establishing factories in the zone. (September 2015) • Creating more than 1,600 jobs. • The value of products exported in the past 2 years more than US$50 million.
- 7. IMF, World Economic Outlook Database, Oct 2015 (2015 estimated) UN, World Population Prospects: The 2015 Revision (2015 estimated) 10 40 80 1300 8000 6000 4000 2000 China 8,280$ 1,376 Thailand 5,426$ 68 Vietnam 2,171$ 93 Lao 1,785$ 6.8 Cambodia 1,140$ 16 Myanmar 1,269$ 54 Population (mil) GDP per capita (current US$) Industrial Clusters Industrial Clusters Industrial Clusters SEZ (China + 1) (Thai + 1) Branch Plant Economic Zone • Increasing labor cost • Political instability • Natural disaster complementary
- 8. Lao Thailand 1st production stage 2nd production stage final production stage 3rd production stage Tax exemption Domestic or Export Manufacturing sectors are strongly reliant on outside expertise and resources, for example from China, Thailand and Vietnam may lead to proportionately less research and development spending in Laos. Branch Plant Economic Zone SEZ
- 9. Procurement of Raw Materials and Parts Source: JETRO (Japan External Trade Organization) 0 10 20 30 40 50 60 70 80 90 100 China Indonesia India Malaysia Thailand Vietnam Laos Cambodia Local Japan ASEAN China other Lao
- 10. Vertical cluster (supply chain) has some comparative advantages in labor cost and various incentives for suppliers, but disadvantages with transportation costs. SEZs in Lao are located in border district, most of them are at border with Thailand. An SEZ in border area in Lao side can be a local city in Thailand from the economic point of view (cross border facilities like international bridges and custom services have been developed). • Low-cost labor (labor intensive goods) • Insufficient Human resource development • Insufficient research institute • Firms from various fields are concentrated • Small number of firms are participating (less competition) Competitive firms do not want to participate to the SEZ Branch Plant Economic Zone
- 11. 0 50 100 150 200 Legal minimum wage 0.00 0.05 0.10 0.15 0.20 0.25 Electricity 0 20 40 60 80 100 Office rental 0 500 1,000 1,500 2,000 2,500 Transportation freight To Yokohama 40ft container Source: JETRO (Japan External Trade Organization) Comparison of Costs 1kwh US$ M2/month month
- 12. Lao is disadvantaged for industrial expansion because of it’s geographical location, insufficient human resource development including labor supply. From the Land-locked to the Land-linked Nation • High value-added clusters using local resources e.g., Precision instrument industry, industry relate to hydropower, Jewelry and agro- industry should be encouraged. • Specialized resources are often specific for an industry and important for its competitiveness. And specific resources can be created to compensate for factor disadvantages. • Wide range clusters including Thai-Lao, Lao- China, and Thai-Lao-China would also be advantageous to the development of industrial clusters in Indochina peninsula. https://en.wikipedia.org/wiki/Cochinchina