1. Introduction
2. Problem statement and background information
3. Overview & Regulatory Mapping of the NGPES
4. Risk Analysis and the impact on the rural communities
4.1. Economic Risks
4.2. Social Risks
4.3. Environmental Risks
5. Analysis of the stakeholders involved
6. Recommendation and Conclusion
References
The Lao People’s Democratic Republic (Lao PDR) is one of the smallest and poorest nations in Asia. However, in recent years, the country has experienced massive economic growth since their shift toward a more market-oriented economy and many trade and investment reforms (Menon and Warr, 2013, p.1). Since the 1980’s, the Lao government focused on boosting natural resource-based exports, resulting in the country's constantly strong economic growth of approximately 6,5 percent (Pimhidzai, 2015, p.13). Despite the economic growth at national levels, it can be observed that inequality and an uneven spatial development has risen. This is due to deficiencies in the public development strategy of the Lao government, which main objective is to free the country from the status of “least developed country” (LDC) as soon as possible. This particular objective is embodied within the framework of the so-called “National Growth & Poverty Eradication Strategy” (NGPES). The strategy of shifting the focus toward an export-led growth strategy is subject to many risks and uncertainties especially to the rural people of the Lao PDR, who are particularly vulnerable to external threats and who benefit at least from the country’s economic growth.
With specific focus on the Lao PDR’s natural resource exports and its adverse effects, the following essay will examine economic, environmental, and societal risks associated with the government’s regulatory growth strategy.
In order to maintain its high economic growth, the Lao government arranged major investments in the extractive industry. Since 1987, the government started to adopt a wide range of market-oriented trade and investment reforms, leading to a shift away from agriculture toward natural resource-based exports (Menon and Warr, 2013, p.1). As a part of the so-called “New Economic Mechanism” (NEM), the reforms started to produce impressive results. According to the Asian Development Bank, GDP growth averaged 6.4% a year between 1990 and 1997 (Menon and Warr, 2013, p.1). Moreover, real capita per income doubled between 1990 and 2011, from $227 to $592 (Menon and Warr, 2013, p.1). However, although their fiscal policy led to a general decline in poverty incidence, the Gini coefficient of inequality increased from about 30% to 35%, showing that income disparities were widening at the same time (Menon and Warr, 2013, p.11). This shows an immediate correlation between economic growth and rising inequality. This might be due to the fact that the development of Lao economy represented both, an objective, as well as a lucrative business for the government and especially foreign investors.
In 2011, mining operations in rural areas, which consist mainly of the mining of gold, copper, bauxite, and brown coal, amounted to 80% of all foreign direct investments and made up 45% of total exports (Pimhidzai, 2015, p.14). Although this export-led strategy led to a significant reduction of the national poverty rate, many local communities suffer up to date from the negative effects of the increasing number of projects in the mining sector. Tax breaks, insufficient regulatory policies, the lack of occupational safety of workers and a rising disregard of the environmental protection make the Lao PDR an attractive destination for foreign investors who aim to make fast profits. Like in many other LDC’s, the parties who benefit the most consist particularly of the wealthy elites, the government, and big companies, which revenues have no direct benefit to its people. Critics argue that the fast economic growth strategy of the Lao PDR’s government benefitted the rich more than the poor and posed many additional risks to the poor. This development is accompanied and driven by rising inequality, weak institutions, and high levels of corruption. Therefore, the major investment projects related to the exports of natural resources undertaken by (foreign) investors do not only favour the widening gap but do also have adverse effects on environmental and social levels which will be analysed more deeply in the following.
The Lao PDR’s National Growth & Poverty Eradication Strategy (NGPES) is one of 8 national programmes and was first implemented in 1996 (NGPES, p.4). According to Somsavat Lengsavad, Deputy Prime Minister and Minister of Foreign Affairs of the Lao PDR, one of the strategic objectives of the NGPES is “eradicating poverty in a sustainable manner” (NGPES, p.4). Furthermore, in the official document the NGPES is described as “a comprehensive framework for growth and development and has a particular focus on the improvement of the poverty situation in the poorest districts. It has thus a dual objective: enhancing growth and development, and reducing poverty” (NGPES, p.4).
In order to meet these objectives, the NGPES consists of 3 policy guidelines:
1. Moving constantly towards a market-oriented economy
2. Improvement of infrastructure, and
3. Improvement of the well-being and livelihoods of the people
Although the NGPES of the government represents an optimistic and relevant policy guideline, which wants to eradicate poverty and “keep the momentum of growth” (NGPES, p.4), there is no denying the fact that the policy remains an insufficient mean of eradicating poverty in a sustainable manner. As I see it, the NGPES, combined with the other national programmes represent a necessary tool, yet there is a lack of a legal basis. Most policy guidelines are linked with several trade and investment reforms with the aim of making the country more attractive for foreign investors in order to keep the economic growth at same levels. Especially with focus on companies in the extractive mining sector, who are not willing to adhere to many rules and do not create sufficient jobs for the local citizens, it remains questionable how effective these regulations with reference to poverty reduction and the decrease of inequality, truly are. In my opinion, there is a tremendous need of strengthening and extending existing rules. This is not only important to meet the objectives more sustainably, but also in order to decrease the potential number of risks exposed to the poor people. Moving towards a market-oriented economy is a great tool but can also be linked with many risks. When the state starts to intervene less and less, there is the risk that monopolies of foreign companies arise which revenues will eventually not benefit the people, but only the companies. With regard to the improvement of infrastructure and its linkage to foreign capital providers I see also the risk of increasing national debts and reductions of public funds for important health and education services. This, combined with the environmental destruction which is also linked with an export-led growth strategy of natural resources, pose additional risks to the people and the environment.
With reference to the relevant aspects of a regulatory map, I would conclude that the NGPES does not accord fully with the public interests. Of course, the reduction of the poverty rate carried a great share of the population out of absolute poverty. However, this could have been done more quicker if the government would have focused on a more sustainable strategy. The strategy that is followed by now poses risks to the environment and the people. By only focusing on exporting natural resources and due to the fluctuation of resource prices, the Lao PDR is at risk of losing all investors, because at any time they might find regions with cheaper prices and conditions. Because the government did only focus on this specific sector during the last decades, this would represent a major danger for the national economy. Another point that needs to be considered is the lack of transparency and the existence of corruption within the country. This makes it increasing difficult to make companies adhere to existing legal standards.
With reference to the identification of the types of risks, the economic, social and environmental risks are considered as strategic risks. In order to integrate the above-mentioned risks into public decision-making, it is essential to analyse their potential impact. Therefore, the following will examine, analyse and assess to what extent the government’s strategic policy programmes effect the rural people of the Lao PDR in more detail.
It can be observed that the major investment projects, which are directly linked with the framework of the NGPES, led to increasing government debts. As a result, public services in the health and education sector have been neglected which has a direct influence on those who struggle financing basic health and education needs. Especially those living in isolated and rural areas with insufficient road accesses are particularly affected. Not only in the Lao PDR, but also globally, many people living in rural areas face higher transportation costs due to long-distances to basic health and education institutions. High levels of poverty, weak public infrastructure and general weak risk governance contribute to their vulnerability to risks. Within the framework of the NGPES, it can be observed that bad governance led to a situation in which provincial governances can make decisions arbitrarily. Due to the fact that corruption is very common in the Lao PDR, this represents a major risk problem. Big companies or other institutions which control a lot of capital can exploit this gap and, due to the lack of legal regulations, bribe local governances. Another problem is the fact that many foreign companies disregard local regulations on creating enough jobs for the local people. This might result in a higher unemployment rate in rural areas, where most people depend on these jobs. By disregarding this factor, many livelihoods are facing major economic risks. Moreover, as stated above, numbers show that general inequality is rising in the Lao PDR although economic growth is constant. Rising inequality does not only influence the question of equal income distribution and unemployment, but also fiscal crises and the failure of financial mechanisms and institutions. These factors do also influence basic human needs such as access to clean water, education, health services and food. Rising inequalities between rural and urban areas might therefore also contribute to an increase of malnutrition, deceases, and an increase of the illiteracy rate in rural regions.
[...]
