Author (s):
UNIDODate:
May 2003
Publication (if applicable):
N/AAbstract (if Available):
The present report concludes that, although nominal wage costs in Lao PDR are amongst the lowest in the region, and in the world, labour productivity has to be improved to transform this comparative advantage into a competitive advantage on domestic and export markets.Although the Constitution envisages an economic system for Lao PDR based on market mechanisms, a review of the Government’s overall approach to industrial planning concludes that it still contains most features of a typically centrally planned economy. The current focus on import substitution, which has little future, needs to be shifted towards a stronger focus on export orientation with significantly larger potential. The “import-export equilibration plan” needs to be replaced by other
means to address fundamental problems related to the country’s trade deficit.
The most important aspects of the business environment are the legal framework and judiciary system; business registration and licensing; trade policies; investment policies; the banking sector; taxation; vocational training; information dissemination; infrastructure; and, institutional support. The report concludes that there are weaknesses in all these areas, but it is within the Government’s power to remedy these weaknesses by decisive and concerted cross-ministerial action.
The Medium-term Strategy and Action Plan for Industrial Development consists of 99 recommendations for specific action. The strategy has five main thrusts, viz. (i) good governance; (ii) creation of an enabling business environment, in particular for SMEs; (iii) support for productivity and competitiveness improvements; (iv) improving access to finance; and, (v) increased international trade integration. 59 project and technical assistance proposals are made in support of implementation.
A major problem is that the Government is not very well geared to actually implement the Action Plan. Although the Ministry of Industry and Handicrafts has an overall mandate to promote industrial development, it lacks the legal instruments to effectively pursue this mandate. On the other hand, other ministries and Government agencies, which administer the relevant legal instruments, have other mandates and are not primarily concerned with promotion of industrial development.
To improve the Government’s implementing capability, two organizational measures are proposed. The first one is to merge the Ministry of Industry and Handicrafts (MIH) and the Ministry of Commerce (MOC) into one single Ministry of Trade and Industry, while hydropower, electricity and mining would be covered by a separate Ministry of Natural Resources. The second proposal is to form a joint MIH/MOC Secretariat to serve the Steering Committee for Production of Commercial Goods (SCPCG) chaired by the Vice Prime Minister for Economic Affairs.
For implementation of the proposed Strategy and Action Plan for Industrial Development, an appropriate first step would be to submit it to the SCPCG for its deliberations, prioritization of activities and endorsement. Following such an endorsement, a Prime Minister’s Instruction, or equivalent, needs to be issued to ensure actual implementation of the Strategy and Action Plan by all concerned ministries and other Government agencies. In the meantime, the pending Prime Minister’s Decree on promotion of SMEs needs to be promulgated without delay.
