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Economists advise Laos to urgently diversify economic base
Laos should take serious action to diversify its economic base otherwise it will not be able to rein in inflation, an economist at the National University of Laos has said.
“It is common to see high inflation in countries that rely on the resource sector,” Associate Professor Dr Phouphet Kyophilavong said on Friday as he issued the warning.
He made the comment after the Lao National Statistics Bureau released the February Consumer Price Index, which showed that inflation had risen to 6.03 percent.
The Lao economy is mainly based on the mining and hydropower sectors. However, agriculture and other manufacturing sectors along with small and medium d businesses have seen little growth, meaning the country is unable to produce a sufficient supply of goods.
Assoc. Prof. Dr Phouphet, who is an economics researcher and lecturer at the Faculty of Economics and Business Management, said the rapid growth of the resource sector posed challenges for the expansion of the manufacturing industry and SMEs.
“We have seen an increase in the value of the kip since Laos began exporting mining products and electricity. The higher value of the kip drives up the cost of industrial products compared to other countries and makes investment in the manufacturing industry unattractive,” he said.
If Laos could not attract foreign investment in the manufacturing sector, the country would have to import the products needed for domestic consumption. At present, Laos imports most of its consumer goods from Thailand.
Assoc. Prof. Dr Phouphet said the price of imported goods was relatively high and would push the cost of living higher compared to other countries.
He also said the price of imported goods would not be stable as the kip falls against the baht. The baht has risen in value in recent months from 260 to 265 kip per baht.
He said one of the best ways to keep the price of goods stable is to boost domestic production to ensure an adequate supply of goods. Laos should take seriously the need to create incentives for businesses considering investing in the manufacturing sector.
O ther economists at the Lao National Economic Research Institute said it would not be easy to diversify the economic base because production costs and the investment capital required for manufacturing is considerable. They said Laos should seek a low level of investmen t, to create a better business climate.
The government is aware of the high cost of production and has launched a campaign in a bid to reduce the time and cost involved in approving investment proposals and business registration.
Economists say the government has a sound investment policy, but a major challenge is that officials do not ensure that this policy is fully practised.
vientine times
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