Laos looks to unlock potential of regional connectiveity

Laos is hoping to unlock the potential of regional connectivity by not only focusing on infrastructure development but also boosting economic activity along key economic corridors. 
The government is developing key road and rail networks to connect Laos with its neighbours, particularly China, Vietnam and Thailand, transforming itself from a land-locked to a land-linked country.
In its latest economic update for Laos, the World Bank highlighted some of the main challenges and key reforms needed for Laos to fully benefit from improved connectivity and transit services.
“Significant investments include the Laos-China railway, the East-West economic corridor, and key road networks,” stated the World Bank.

“The challenge is to ensure that Laos can fully benefit from this improved connectivity, not only as a transit country but also through increased economic activity and export volumes, value-added services, and the creation of new and better jobs.”
Just recently the World Bank’s Board of Executive Directors approved the US$132 million Southeast Asia Regional Economic Corridor and Connectivity Project, aiming to improve transport connectivity and regional trade along an east-west corridor.
Under this project, National Road 2 in northern Laos, which runs for almost 300 kilometres from the Thai border to the Vietnamese border, will be improved and widened to meet Asian highway standards.
However, Lao investments in infrastructure faces some challenges due to high construction costs.
“The cost of these investments is high and Laos will only benefit from improved connectivity if it can successfully undertake complementary policy reforms and improve connective road infrastructure,” stated the Bank. “Business and investment environment reforms must be accelerated to capture the full benefits. In addition, the railway poses macro-fiscal risks associated with contingent liabilities and will also present social and environmental risks if management is not sound.”
The World Bank recommended following critical reforms which could reduce the risks and maximise the benefits of improved connectivity:
- Address transport connectivity gaps to ensure open access to railway and logistics infrastructure, and efficient road links to production and consumption centres;
- Promote more efficient cross-border transit, improved logistics and value chains, simplifying market entry and removing operational barriers in the logistics sector;
- Deepen and accelerate trade facilitation reforms by establishing an effective transit management regime;
- Improve the business environment to attract investment and generate jobs;
- Improve access to and modernise business services;
- Promote more productive and job-creating sectors where Laos has a comparative advantage, for example, in high-value added agricultural products and nature-based tourism;
- Streamline tax incentives based on economic rationale, reducing state liabilities and ensuring compliance with the public debt management law;
- Improve compliance with social and environmental regulations through stringent assessment and enforcement.

By Somsack Pongkhao
 (Latest Update May 27, 2022)