* Reforms vaunted, but regulation still a concern
* WTO entry could help reformers
* Resource-driven economy but manufacturing on the rise
By Martin Petty and Paul Carsten
BANGKOK, Oct 25 Isolated for decades,
impoverished and landlocked, Laos is not an obvious choice for
But the Communist country of 6.4 million people hopes to
change that with its expected entry into the World Trade
Organization (WTO) on Friday, capping years of steady reforms
aimed at building a modern economy and tapping a Southeast Asian
boom as global manufacturers hunt for lower-cost alternatives to
"Laos now seems to be genuinely competitive, unlike before,"
said Hal Hill, a professor at Australian National University who
specialises in Southeast Asian economies.
After 15 years of talks, the 157-member, Geneva-based world
trade body is expected to confirm Laos as a member on Friday.
Laos' parliament expects ratification by 2013, touting the move
as crucial for reducing one of Asia's worst poverty rates.
The transition, however, looks difficult. Reducing red tape
and enforcing pro-business regulations are proving more
formidable for the Lao People's Revolutionary Party (LPRP) than
crushing political dissent and chasing anti-communist rebels
during nearly four decades of authoritarian, single-party rule.
In one imminent test case, Macau-based casino operator Sanum
Investments Ltd has started international arbitration
proceedings after the government took away its 60 percent stake
in the Thanaleng Slot Machine Club in the Lao capital,
Sanum President Jody Jordahl says his Lao partners conspired
with "extremely well-connected people" to take control of the
club when it started to generate good profits. Sanum could also
be stripped of its stake in casino Savan Vegas for failing to
pay $23 million in taxes that Jordahl said were not part of
their agreement. Sanum executives face jail.
"They have regulations but no intention to follow them. If
this is how they'll treat foreign investors, then they're not
ready to be integrated into the global economy," Jordahl said.
Officials in Laos did not respond to interview requests.
Thanks to a mining and hydro-power boom, Laos is already one
of Asia's fastest growing economies, expanding 7.9 percent this
year with double-digit growth in exports and imports, according
to the Asian Development Bank. Japanese cars and sport utility
vehicles clog the streets of once-sleepy Vientiane.
According to the WTO, more than 90 laws and regulations have
been enacted and amended to meet the requirements of the global
trade group in a spasm of reform that has also seen the opening
of a stock exchange in 2011 and plans to host an Asia-Europe
Meeting summit next month.
Some view Laos' accession to the WTO as mostly symbolic. It
agreed to maximum import tariffs on goods averaging 18.8
percent, limits on agriculture subsidies and market-access
pledges in 10 industries. Still, Hill says the WTO entry could
help reformers push their agenda.
"Sometimes reformers at home find it easier to get reform
through by joining regional or international associations. It
puts a bit of check on more protectionist pressures like large
state enterprise," he said.
Laos could also learn from its bigger communist neighbour,
Vietnam, whose entry to the WTO in 2007 supercharged exports and
accelerated its transformation into one of Asia's
fastest-growing economies. Reforms in the country of 89 million
people have since stalled as banks contend with crippling bad
Like Vietnam, Laos began opening its socialist economy in
Laos already enjoys trade privileges from most Western
markets, China and the 10-state Association of Southeast Asian
Nations, of which Laos is a member and which takes 70 percent of
its $2.2 billion annual exports.
"Much of what's exported from Laos is minerals, basic
commodities, electricity exports from hydro-electric dams to the
region," said Ken Stevens, managing partner at frontier
investors Leopard Capital. "I expect more of the same - a
But manufacturing is on the rise. Since 1990, manufacturing
has averaged 12 percent annual growth, ratcheting up its share
of gross domestic product to 20 percent, according to a 2010
Australian National University (ANU) paper. Food and beverages
account for three-quarters and garments are the single biggest
"For a tiny economy like Laos, garment manufacturing really
is quite important," said Hill, author of the ANU study. "It
signifies the country can compete in 'footloose' exports - where
they are able to compete on the basis of being genuinely
competitive rather than state-supported."
(Editing by Jason Szep and Robert Birsel)