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The Lao economy currently generates the bulk of its foreign exchange in sectors that rely on natural resources, namely hydropower, mining and tourism. A small number of large projects that have become active since 2000, including the Nam Theun 2 hydropower project and the gold and copper mines of Oxiana Resources and Pan Australian Resources, contribute about a third of the 7.1 per cent economic growth predicted for 2006. Given the reliance of rural livelihoods on natural resources and the considerable international publicity these large projects are receiving, it is not surprising that the companies and organizations involved make concerted efforts to demonstrate their commitment to sustainable socio-economic development in Laos. Large foreign investment projects thus assert the need to use natural resources in order to generate national revenue that supports poverty alleviation. Development policy supports building national capacity, national ownership of projects and decentralisation of powers. Yet financial governance in Laos is problematic. The World Bank's Economic Monitor for 2006 reports that the banking sector is still rudimentary; state restrictions limit market competition; and, implementation of reforms that aim to increase the transparency and accountability of financial management continues to be slow. These limitations raise the issue of the state's ability to channel national revenue to poverty alleviation. Lessons can be learnt from past experiences in the forestry sector that preceded the recent expansion in hydropower and mining. Timber production dominated the Lao export economy during the 1990s primarily under the guidance of state-owned enterprises (SOEs). The largest of these, BPKP, was a decade ago the most profitable business in Laos but later became the largest loss-making SOE and the epitome of corrupt institutions. While national assessments chart a steady decline in poverty from 46 per cent in 1992/3 to 33 per cent in 2002/3, the exploitation of natural resources by BPKP and similar SOEs is not considered to have contributed substantially to this achievement. Changes in leadership at the party congress and elections earlier this year are not expected to lead to any major shifts in government practice (Asian Analysis, July 2006). Thus, foreign investment in large hydropower and mining projects that incorporate development activities has the potential to contribute to poverty alleviation in areas where state governance is currently limited. Yet, ensuring long-term economic growth and stability in Laos will require growth in other sectors, such as agriculture, education and health, which are central in supporting the majority of the population.
WATCHPOINT: As Laos opens its doors to foreign investment a key issue is improving fiscal management so that its natural resources are utilised in a manner that supports poverty alleviation as well as economic growth.
About our company:
AFG Venture Group is an Asia and Australia based corporate advisory and consulting firm with over 20 years experience in creating alliances, relationships and transactions in Australia, South East Asia and India; including a 15 year history of corporate and equities advisory in Australia, undertaking merger, acquisition, divestment, fund raising and consulting for private and public companies.
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