Regional Economic Integration of Laos into ASEAN, Trade and Entrepreneurship Development (RELATED)

Project description

Title: Regional Economic Integration of Laos into ASEAN, Trade and Entrepreneurship Development (RELATED)
Commissioned by: German Federal Ministry for Economic Cooperation and Development (BMZ)
Country: Laos
Lead executing agency: Ministry of Planning and Investment; Ministry of Industry and Commerce, Lao National Chamber of Commerce and Industry
Overall term: 2017 to 2019

Laos. Cross-border trade on the Lao-Thai Friendship Bridge (Bild: Lucas Wahl) © GIZ

Context

The creation of the ASEAN Economic Community (AEC) in 2015 marked a milestone in regional economic integration in Southeast Asia. The AEC has since established a highly integrated market consisting of 625 million consumers with a combined purchasing power of USD 2.3 trillion. For a small, landlocked country like Laos, the ASEAN market and production base offers great economic potential by opening up more opportunities to access regional markets and value chains. 

However, the new AEC-driven opportunities go hand-in-hand with a number of challenges for the country’s public and private sectors. The Lao Government, for instance, is tasked with implementing the regulatory and procedural changes required to bring the country in line with ASEAN agreements. Beside extensive technical knowledge, the continuous coordination of government actors from many different sectors and agencies is also a necessity. 

Meanwhile, the business sector has to cope with increasing trade liberalisation and stiffer competition from more advanced ASEAN economies. At present, Laos’ main exports are energy and mineral resources, both of which are comparatively capital-intensive and have limited effects on local employment. The vast majority of Lao businesses are small and medium-sized enterprises (SMEs). Strengthening SME development would therefore enable Laos to integrate more inclusively and sustainably into the AEC.

Objective

The Lao Government has improved the regulatory and procedural framework for regional trade and investment. The private sector in Laos is able to take advantage of AEC-driven opportunities, while mitigating related risks.

Approach

Together with key stakeholders from the public and private sector, RELATED addresses three main areas, in which it aims to: 

  1. Improve AEC-related policy framework conditions in the areas of trade in goods, trade in services and investments.
  2. Develop and provide demand-oriented AEC-related services for the private sector.
  3. Improve the conditions for an increased competitiveness of AEC-oriented private enterprises in selected sectors.

RELATED conceptually advises the further development and regular update of the AEC 2025 Consolidated Strategic Action Plan for Laos in the areas of trade in goods, trade in services and investments. In addition, the project supports the implementation of selected measures of this action plan for 2018-2020. RELATED also technically advises relevant authorities to adapt national regulations, procedures and standards in line with AEC commitments in selected sectors.

Regarding the provision of AEC-related services for the private sector, a particular focus is given to the support of the ASEAN SME Service Centre. Demand-oriented AEC-related services include sector-specific information on major changes brought about by the AEC for Lao enterprises, their implications and measures to prepare for them. Sector-specific, practice-oriented toolkits for Lao exports to the ASEAN market are also supported. Training courses and workshops help companies in Laos to meet standards for the ASEAN market, to integrate into regional value chains and to use e-commerce to access the ASEAN market. 

With regard to competitiveness, the RELATED project mainly focuses on selected business sectors: coffee, tourism, transport and logistics. The project supports training material and courses on total quality management. Assistance to on-the-job advisory ensures that the learned content during the courses is implemented in daily practices. Demonstration farms allow smallholder farmers in the cof-fee sector to study best practices in total quality management at any time.

Results

One of the focuses of RELATED consists of supporting its partners to fulfil their commitments arising from ASEAN agreements. The project assisted in the elaboration of the AEC 2025 Consolidated Strategic Action Plan for Lao PDR 2018-2020. 

RELATED helps implement elements in the areas of trade and investment to improve the ease of doing business, following Prime Minister’s Order 002. Firstly, the project supports the identification and prioritisation of regulatory and procedural reform processes to be implemented by 2020. In order to further decrease the transaction costs for Lao enterprises and consumers, RELATED helps amend the Lao regulatory framework for e-commerce in line with the ASEAN Agreement on Electronic Commerce. 

With regard to trade in services, RELATED continuously supported the finalisation of the ninth and tenth package of commitments under the ASEAN Framework Agreement on Services (AFAS). As for trade-related investments, RELATED has provided intensive assistance for Lao PDR’s two main investment laws – the revision of the Investment Promotion Law and the Prime Minister’s Decree on Special Economic Zones (SEZ). This involved overseeing alignment with the ASEAN Comprehensive Investment Agreement (ACIA).

On the sector level, RELATED helps to translate the ASEAN Sustainable Tourism Standards into national standards. In addition, the project strengthens the regulatory framework for transport and logistics, amongst others by assisting in the elaboration of the Prime Minister’s Decree on Dry Ports and the Ministerial Regulation on Truck Terminals.

With RELATED’s support, the Lao National Chamber of Commerce and Industry (LNCCI) and the Department of Small and Medium Enterprise Promotion (DOSMEP) in the Ministry of Industry and Commerce have launched the first ASEAN SME Service Centre in Lao PDR. RELATED assists it intensively to develop and provide AEC-related services. 

Practice-oriented manuals have been developed for Lao coffee trade procedures entering into the ASEAN market. As a result, Lao coffee cooperatives reduce their dependency from traders and can directly sell their coffee at an adequate price to more lucrative markets. RELATED assists in a study on business linkages between SMEs and large exporting companies in Lao PDR. The study helps to identify challenges for these linkages, to formulate measures to bridge the gap and thus to allow Lao SMEs to indirectly have access to regional markets and value chains.

RELATED assists in the implementation of the ASEAN Mentorship Program in Lao PDR. Experienced entrepreneurs team up with promising start-ups to pave the way into the AEC. The support to the ASEAN Business Awards encourages Lao enterprises to become more visible on the regional level, to enter into new business relations and to benefit from the transfer of entrepreneurial and technical know-how. The project has also enabled Lao private sector stakeholders to participate in B2B events in ASEAN. For example, Lao tourism operators have organised hundreds of business meetings at the Singapore-based ITB Asia between 2015 and2017, resulting in a significant number of new business deals.

RELATED supports the establishment of pilot Provincial ASEAN SME Service Centres in the Luang Prabang and Champasak provinces. The project also assists the centre to establish strategic linkages with similar institutions in ASEAN to improve the flow of information and the provision of services.

The decisive criterion for Lao enterprises to benefit from the AEC is their competitiveness. RELATED supports its partners in establishing an enabling system – comprised of all relevant stakeholders – to enhance the competitiveness of Lao enterprises. Relevant measures include a study visit to Thailand and technical meetings. The project also assists in a study on the competitiveness of Lao enterprises - at the firm level - compared to their ASEAN neighbours, covering all parts of the Lao economy. 

In addition to training courses and on-the-job advisory, in the tourism sector, RELATED strengthens the application of sustainable consumption and production measures (saving water, energy, reducing and recycling waste) in travel agencies, hotels, guesthouses and restaurants. These practices do not only protect the environment, but also help to save on costs. In the coffee sector, RELATED assisted to establish the first Coffee Demonstration Farm in Lao PDR. In transport and logistics, the project helps to enhance the competitiveness of Lao SME transport operators and improve the efficiency of Lao logistics facilities, such as dry ports and truck terminals.

Laos  © GIZ