Investment in Laos continues despite state spending cuts

Investment in Laos continues despite state spending cuts

Private investment in Laos has continued to grow despite the government tightening its belt to prevent an economic crisis.

The Ministry of Planning and Investment announced last week that in the first six months of this fiscal year, the government approved 713 investment projects with a combined investment value of US$3 billion.

The increasing local and foreign investment in Laos is one of the best reflections that businesspeople still feel confident to invest in the country despite the winding back of government expenditure.

The service sector was the top sector in which local and foreign companies invested in the first six months of this fiscal year. From October to March, the government approved 686 investment projects in the service sector with a combined investment value of US$2 billion.

The construction of hotels, apartments and shopping malls has been booming in Vientiane over the past months. Banking and retail sales also helped drive growth in the service sector.

Policymakers expect the service sector will see 9.3 percent growth this fiscal year, accounting for 39.1 percent of GDP. With rising investment in the services, it is expected the sector will see 9.6 percent growth in the 2014-15 fiscal year, accounting for 38.8 percent of GDP.

The second largest sector that local and foreign enterprises gained approval from the government to invest in was electricity generation. The approved investment value in the energy sector was US$383 million.

The mining sector was the third sector of interest among enterprises investing in Laos. The government approved nine mining investment projects with a combined investment value of US$60 million.

The mining investment projects that the government approved were considered necessary despite the moratorium on new mining projects as they were related to other industrial enterprises, such as cement production.

The ministry also reported the credit value of the banks in Laos continued to rise, one of the best reflections that businesspeople feel confident borrowing money from banks to invest in and expand their businesses.

As of March, the credit value of the banks in Laos reached 42,387 billion kip increasing from 38,229 billion in September 2013.

Increasing local and foreign investment will play a significant role in boosting GDP growth in Laos as the government reduces state investment projects. The government has suspended a number of infrastructure investment projects as part of efforts to reduce spending .

Economists said the government's decision to tighten expenditure to safeguard macro-economic stability will create more confidence among investors considering doing business in Laos.

However, one of the main challenges is that the rising cost of goods will cause negative impacts on the purchasing power of state employees which have had their cost of living allowance cut.

vientiane times