tci 2015 industrial cluster development in lao pdr: opportunities and challenges
TRANSCRIPT
Industrial Cluster Development in Lao PDR: Opportunities and Chal-
lenges
Byoungki KimShiga UniversityJapan
Parallel Session 1.5: Accelerating Cluster Growth in Asian Countries
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 incentivesIncentives 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?
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 PDRLao 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
Source: Lao Ministry of Planning and Investment
Electricity Generation
6,671
Mining5,687
Agricultu
re
2,770
Service2,533
Industry & Handicraft1,972
Others 1,363
Construction 826
Hotel &
Restaurant 1,023
Telecommunication
663
FDI by Countries & Sectors(1989-2014, US$ million)
Country Projects Value1 China 830 5,3962 Thailand 746 4,4553 Vietnam 421 3,3944 Korea 291 7515 France 223 4916 Japan 102 4387 Netherlands 16 4348 Malaysia 101 3829 Norway 6 346
10 UK 52 198TOTAL 2,788 16,287
(Total 23,509 US$ million)
Lao introduced FDI Law in 1988. Since then the flow of FDI has increased sharply.
Lao Ministry of Planning and Investment
Specail Economic Zone Establish Amount Investor1 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 SEZis the first SEZ
Market-oriented economy• Leading industry has been the agriculture• Outputs of the secondary industry
increasedNatural resources were found• Mining industry greatly outgrew the
manufacturing sector.ADB Greater Mekong Sub-region
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 StoreDistribution Logistics Service Sector • Transportation Business, Distribution Service, Warehouse, Cool StorageIndustrial 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$50
million.
IMF, World Economic Outlook Database, Oct 2015 (2015 estimated)UN, World Population Prospects: The 2015 Revision (2015 estimated)
10 40 80 1300
8000
6000
4000
2000
China8,280$ 1,376
Thailand5,426$ 68
Vietnam2,171$ 93
Lao1,785$ 6.8 Cambodia
1,140$ 16
Myanmar1,269$ 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
Lao
Thailand
1stproduction
stage
2nd
productionstage
finalproduction
stage
3rd
productionstage
Tax exemption
Domesticor
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
Procurement of Raw Materials and Parts
Source: JETRO (Japan External Trade Organization)
China
Indonesia
India
Malaysia
Thailand
Vietnam
Laos
Cambodia
0 10 20 30 40 50 60 70 80 90 100
Local Japan ASEAN China other
Lao
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
Bangkok
Hanoi
Hochim
inhDanan
Vientiane
Phnom penh
Yangon0
50
100
150
200
Legal minimum wage
Bangkok
Hanoi
Hochim
inhDanan
Vientiane
Phnom penh
Yangon0.00
0.05
0.10
0.15
0.20
0.25
Electricity
Bangkok
Hanoi
Hochim
inhDanan
Vientiane
Phnom penh
Yangon0
20
40
60
80
100
Office rental
Bangkok
Hanoi
Hochim
inhDanan
Vientiane
Phnom penh
Yangon0
500
1,000
1,500
2,000
2,500
Transportation freightTo Yokohama40ft container
Source: JETRO (Japan External Trade Organization)
Comparison of Costs1kwh
US$
M2/month
month
Vientiane
Vientiane
Vientiane
Vientiane
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