ASEAN in the global economy & Laos economic changes Workshop on “Lao PDR towards AEC 2015” 19 and 21 February 2013, Lao PDR Dr. Witada Aunkoonwattaka Trade and Investment Division, ESCAP

2

3 Source: ASEAN Community in Figures 2011 The region of huge potential

The region of economic divide GDP per capita by ASEAN states Source: ASEAN Economic Community Chartbook 2011

5 Source: ASEAN Community in Figures 2011 The region of high trade dependence

….But, limited intra-ASEAN trade Extra-ASEAN trade remains playing a dominant role.. Source: ASEAN Economic Community Chartbook 2011

7 Source: ASEAN Community in Figures 2011 …and limited intra-ASEAN investment

What are the implications? High diversity : Integrating the markets will be very difficult. Limited intra-ASEAN trade & investment: intra- ASEAN market Integration is not a major driver of ASEAN Integration. AEC with free movement of goods, services, skilled labour, and freer movement of capital: AEC will bring “production integration” more than market integration

ASEAN IPN for Automobiles 9

Made in the World 10 Source: Meng and Miroudot, based on Xing and Detert (2010))

11 Source: ASEAN Community in Figures 2011 Reflected in sources of investment,

12 Source: ASEAN Community in Figures 2011 …in country we trade,

…. in products we trade 13 Source: ASEAN Community in Figures 2011

Loa PDR: Economic changes

A decade of robust growth Source: Base on data from CEIC

Robust export performance Source: Base on UNcomtrade data from WITS

Increasing openness Source: Base on IMF data from CEIC

Heavy reliance on natural resource Source: Base on UNcomtrade data from WITS

Crowding out manufacturing exports Source: Base on UNcomtrade data from WITS

What lies ahead with a membership in WTO and AEC? Higher degree of economic openness –Increasing trade dependence (within the ASEAN and ASEAN+6 but perhaps even wider?) Inflows of FDI –Natural resources and hydro electricity –Light manufacturing –Tourism –Agriculture Higher export revenue –Driven mainly by mining and electricity exports

Challenges Will Lao PDR be fitted into the “Factory of Asia”? –Real value is productivity gains Fighting the natural resource curse –Volatility of mining commodity prices –Real exchange rate appreciation –Crowding out manufacturing –Fiscal over-spending in response to high revenue –Rent seeking and corruptions –Increasing inequality

Way forward Powering development with resource income –Efficient logistics –Hard and soft infrastructure –Human capital development Create attractive and competitive environment for FDI –Improving institution mechanisms –Remove barriers to trade and investment Prudential macro-management –Structural budget rules –Well-managed foreign exchange reserve –Using financial derivatives to control volatility

Thank you

Appendix

Service exports Service exports (billion USD) 140,600488,800 Services in total export 30.6%21.9% Travel services (in total services) 69.4%78.1% Source: Base on WTO service-trade data