Private sector investment goes off the boil

Investment by domestic and foreign enterprises has not grown as planned despite the government’s augmented measures to boost private sector growth and sustain the economy.
The Minister of Planning and Investment, Dr Souphanh Keomixay, told Vientiane Times recently that private companies invested in 1,266 projects over the first six months of this year, with registered capital of US$3.6 billion.
Nevertheless, the actual capital transferred through banks was only US$1.09 billion, equal to 40 percent of the target for the year.
An economist from the Lao National Economic Research Institute, Dr Sathabandith Insyxiengmay, said sluggish private sector growth was a result of the government’s budget policy to prioritise the repayment of debt.
He said moderated credit growth is a definite indicator of the slower growth of private investment.
In the first quarter of this year, credit growth sank to 3.13 percent with investors pessimistic about business opportunities and potential investment returns.
“Four to five years ago, Laos recorded 20 percent credit growth, and then it dropped to 15 percent. But growth in this sector is now below 10 percent,” Dr Sathabandith said.
He acknowledged that banks had toughened up their lending requirements to minimise risk and problems relating to non-performing loans.
The slower private investment is also associated with the government’s delays in repaying debts owed to private companies.
The delayed repayment of government debt has placed added burdens on companies, hindering their expansion as they endeavour to repay loan interest and principal to banks.
Meanwhile, the government has prioritised the repayment of debts to companies by not approving new state-funded projects from now until 2020. The budget trimmed from this sector will partly be used to service the country’s debt.
Economists say Laos has a huge opportunity to attract more foreign investors since the US-China trade war is forcing regional companies to consider relocating their production base from China to Southeast Asian nations to avoid any impacts from the trade dispute.
Dr Sathabandith said several companies had already relocated factories to Vietnam and Thailand, so Laos needs to do more to improve the investment climate and generate more confidence among foreign investors about shifting their investment to Laos.
Government bodies have been urged to remove red tape and treat all enterprises equally through the proper enforcement of the country’s laws.
Private investment accounts for more than 50 percent of the country’s economy and generates many jobs for local people. So it is essential to address investors’ problems and create an environment that encourages people to do business.

By Somsack Pongkhao
(Latest Update August 1, 2019)