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Business Networking Evening
27th September 2017, Crowne Plaza
Improving the business environment in the Lao PDR –
Cooperation between the European Union and the Lao PDR
EU Ambassador to Laos
It is my pleasure to be here tonight and to give you a perspective on the cooperation between the European Union and the Lao PDR, in general terms, but mostly on the economic and trade fields.
I will make a relatively brief presentation, but I remain of course open for questions that you may have afterwards, and my very knowledgeable colleagues from the Trade Section from Bangkok are also here tonight and will be ready for an exchange of views during the evening.
I would like to wish the business community in Laos great success, because without a genuine and vibrant private sector, no country can achieve growth and development.
A word of warning though: Generally speaking I consider myself to be "culturally" sensitive, but as time is short, I take the liberty to speak my mind. There is no intention to do harm, and among friends I consider we need to be frank and candid.
In that sense, let me start by saying that I am in no way satisfied with the situation as it is today, and I will tell you why. The European Union is worldwide and especially in Southeast Asia the biggest provider of Foreign Direct Investment and the first or second trader in volume. In Laos: we are nowhere near from being really significant.
According to figures from the MPI, EU FDI stood at around 580 million USD between 2011 and 2015, which would represent around 7 % of all investments projects, including those from Laos itself. Trade, already low, declined even further in 2016 reaching less than 300 million USD, without even making use of EBA.
Public finances have been characterised by a shortfall of revenue, whereas public debt has reached around 70 % of GDP. Public deficit is over 6%, and foreign reserves cover some 2 months of imports.
Moreover skilled labour is scarce and does not correspond to the demand, to the extent that the country needs to import labour from Vietnam and China, whereas it exports unskilled labour to Thailand. That is the same as exporting cheap electricity to neighbouring countries and importing it at a higher price during peak needs.
Finally, according to the World Bank index on the “ease of doing business”, Laos has a ranking of 139 out of 190. Can it get much worse?
The good news is, remedy is around the corner, and the European Union wants to be a part of the solution.
The very first good news is of course that there is political will to change things.
We all stand united with the Prime Minister, to get this figure to double digits, and I am convinced that this country has all it takes to achieve this goal within a reasonable time. I have great admiration for the Prime Minister's vision, his personal commitment and leadership. But he cannot do it alone, he needs the whole-of-government to set the pace and create an enabling environment for the private sector to be entrepreneurial, innovative and to take the initiative to do business, create jobs and wealth for the general public good. But everyone needs to be part of it.
Let me briefly come back to the index and pick up a few aspects that I think could make a difference rather quickly.
Simplifying the rules to start a business, as well as those to construct warehouses in a decent time and giving access to electricity and credit are some of the basic conditions that need to be fulfilled in order to get better grades. I consider these rather "material" and "hard" facts and I am aware that the Government is working on them, notably in the context of the law on the promotion of investments, and the setting up of the one-stop-shop, even though progress may not be as fast as anticipated.
Even more important are however the "soft" aspects. It is paramount to guarantee legal safety. Money is like water that always flows to the lowest point, in this case to the safest place. Therefore the legal rights of lenders and borrowers need to be safeguarded, just as well as the protection of minority investors. Enforcement of contracts and costs for resolving commercial disputes, a tax system that works, including the VAT, are equally important features. The logistical processes related to importing and exporting goods also been to be improved. Needless to say that this plays an even more important role in a land-locked country that is not yet land-linked.
Let's leave it at this, I think we have a good understanding of these issues; they are regularly discussed, among others also at the Trade Sector Working Group that I have the honour to co-chair together with H.E. Mrs Khemmani Pholsena, and my colleague the German Ambassador.
Ladies and gentlemen,
What does the cooperation between the European Union and Laos look like?
First of all the European Union, bearing the genes of multilateralism, supports Laos in its endeavour to integrate within the international community, first in the context of ASEAN, but of course also in the WTO and to help it to develop and realise its own multilateral nature.
As mentioned earlier, the EU grants Laos the so-called EBA status, meaning that Laos can export anything but arms to the EU without tariffs. Unfortunately the full potential of that instrument is not exploited yet. We need to work on this!
The EU, together with the EU Member States, and Switzerland, is implementing a joint programme in Laos that delivers assistance worth approximately 500 million EUR, mostly grants, between 2016 and 2020, and which represents around 3 % of the general budget of Laos. This programme is in line with both the Government's NSEDP and our own EU "new consensus on development" which revolves around the 5 Ps: People, Planet, Prosperity, Peace and Partnership. We work together in such diverse fields as agriculture, education, environment and natural resources, health, nutrition and finally governance and private sector development.
Let me expand a little bit on the latter two, because I think that first of all they are supreme to achieve sustainable results over time, and secondly because I assume that the audience of tonight has a keen interest in private sector development.
In the field of governance, we contribute to transparency and public accountability, as well as to establish the rule of law in the Lao PDR by 2020, both self-declared goals of the government. Support will enable increased citizen's participation through the legislative and regulatory framework.
Without going into too much detail, I would just like to mention two concrete projects to illustrate these comments.
The objective of the project "Citizen Engagement for Good Governance, Accountability and Rule of Law" is to promote an environment that enables civil society engagement and to increase and broaden participation through the National Assembly. It will enhance the implementation of human rights obligations and the rule of law. In addition to the National Assembly, the project will work with several ministries, including the Ministry of Justice and Ministry of Foreign Affairs. It will therefore also help the Government to honour its international obligations in the field of human rights.
Then we have FLEGT, which stands for Forest Law Enforcement, Governance and Trade. If we manage to conclude a Voluntary Partnership Agreement, and I really hope that we will in a reasonable time frame, then this will have a very beneficial impact on the wood sector and promote in the long run exports of finished, or semi-finished wood products to the European market, based on an international recognised certification method.
I would like to stress the relevance of these projects, not because I like to discuss human rights, but because they contribute to improve the legal safety that is necessary to attract and retain foreign investors.
In the area of public finances, we have been working with the Government for more than 10 years, mostly in close cooperation with the World Bank. In the context of accompanying Laos to graduate from LDC status by 2020, we take the government's action to address corruption, but also its de- decentralisation agenda, including the "Sam Sang", very seriously and want to assist to establish a modern Public Financial Management system. A new program that builds on past successes is currently being formulated and it combines support to the Public Financial Management and Public Administration Reform. Specifically we expect the following results: improved domestic revenue mobilisation, enhanced budget credibility and transparency, strengthened public procurement and effective Public Financial Management reform coordination. Another aspect we may be looking at supporting the Government with is anti-money laundering.
Again, I would like to underline how all these programmes and actions converge with the ambition of the Government to improve the business enabling environment.
We therefore also support a strategy of "private sector development". We support economic openness and sound structural policies towards long-term sustainable economic development with a strong focus on value chains, and trade and investment policies.
Some of you certainly know the Trade for Development project, the TDF2, that has developed medium term priorities for the Government and the private sector, including the three strategic pillars model, which are: deepening economic integration, improving the business enabling environment and enhancing enterprise competitiveness.
In the context of another project, that is being formulated and will hopefully start immediately upon completion of the TDF2, we will look particularly into how we can integrate in practical terms Laos in the value chain. We will look at regulatory measures, policies, but more concretely we will also look at which sectors are most promising, with a particular emphasis on potential for the European market.
Last but certainly not least, I must mention our valued project with the European Chamber of Commerce and Industry of Laos, ECCIL, that aims at increasing and diversifying trade and investment of European business to Laos. It supports and facilitates the first steps of European companies, in particular SME's in to the country and plays an important role in advocating European business here by speaking in one voice, in particular in collaboration with the Lao National Chamber of Commerce and Industry and the Lao business forum.
We may not have achieved all of our objectives yet and there is certainly potential for improvement, but I also need to say that we had very fruitful discussions today with the ECCIL board and I look forward to getting better results in the near future, because I sense that the interest in Laos in increasing steadily in Europe.
Now, coming to the end of my intervention, I would like to get a few remarks off my chest. They are far from scientific and only based on personal experiences and observations that I have made since I first came to this wonderful country 20 years ago and have been in my current position for the last year. The list is not comprehensive and most of all I stand corrected by all of you who are more experienced and knowledgeable in doing business. So, please bear with me and give me good advice afterwards.
Ladies and gentlemen,
It's with honey that you make money. After we killed our bees in Europe there is a great demand for organic honey that Laos could reasonably fulfil.. The EU is ready to assist the sector by elaborating a plan to comply with health standards, regarding notably chemical residues.
A good marketing strategy, portraying Laos as a green country, free from pollution, with clean air and water, should also provide a lot of potential to export organic fruits, vegetables and other food to Europe, for which there is a high demand.
Last week we had a meeting of the TAP, the Tropical Agricultural Platform, an initiative of the G20 that promotes innovation in the agricultural sector. Some very interesting ideas have been developed in Laos, at this stage more in the field of poverty alleviation and nutrition, but potential exists for the export markets as well.
It have always been haunted with the question of why Laos did not invest more in the wood processing industry, including in vocational training, and I am very excited about the PM decree no. 15 and the negotiations on the Voluntary Partnership Agreement on FLEGT because I believe that this sector has great potential. European industry shows interest and we have some serious European investors who are committed to the sector and this country.
In the hydropower sector, I see that there is quite a lot of equipment being imported from Europe, but also know-how, especially in the engineering field.
I think that Laos has a great potential in solar energy, but I am told that the regulatory framework still gives too much preferential treatment to hydropower and therefore hinders the development of this other source of energy.
I will stop here, but let me finish by saying that Laos is a rich country, it has enormous natural resources, both below and above the ground and most of all it has a young population. In a world that moves away from a commodity based to service based economy, the Lao youth needs to be trained, first in languages, then in hospitality to respond to the growing needs in the tourism sector, but also in the IT sector, engineering, mathematics, finance, only to mention a few. Laos is in the lucky position to be friends with everyone in a region that has good economic growth; this is a great asset that gives it credibility and allows it to gain trust and that enables it to play an active part in the region and the world.
The European Union, on the other side is a predictable, reliable partner that promotes and defends a rule based international system. We say what we do and do what we say. Sometimes I am told that we put too much emphasis on human rights, and some people may not understand the link between human rights and business, but in the end the only global value system that we have is based on the multilateral rules that we have together elaborated in the UN system at large. Our business community is part of that system, and therefore it is truthful, reliable and predictable and it certainly brings value for money.
I thank you for your attention.