AGRICULTURE INVESTMENT TRENDS-THE ROLE OF PUBLIC AND PRIVATE SECTOR IN Lao PDR. By Linkham Douangsavanh, Ph.D Mr. Pasalath Kunsy

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1 AGRICULTURE INVESTMENT TRENDS-THE ROLE OF PUBLIC AND PRIVATE SECTOR IN Lao PDR By Linkham Douangsavanh, Ph.D Mr. Pasalath Kunsy

2 Achievements of the 6 th NSEDP Stable Macroeconomic Growth Average GDP Growth: 7.9% per year Inflation rate has decreased steadily, averaging 5.15% Total Investment: 28.8% of the GDP per year Budget Revenue: 16.5% of GDP and public expenditure 21.2% of GDP Budget deficit 4.7% of GDP Trade deficit 5.4% GDP Foreign Reserves covers 6 months of imports

3 Achievements of the 6 th NSEDP Domestic and Foreign Investments Total Public Investment: 24,747 billion kip (US$ 2.9 Billion) of which, Domestic (Government) financing 3,982 billion kips; (US$ 468 Million) ODA 20,765 bill. kip (est. US$ 2.4 Billion, average US$ 488 million per year); Total Private Investment; approved private domestic and foreign direct investments in the past five years stood at US$ 9.7 billion USD, of which FDI amounted to US$ 8 billion Private domestic investments amounted to US$ 1.7 billion

4 Enabling Environment for Business Agriculture Law Foreign Investment Promotion Law Enterprise Law Ministry of Planning and Investment Investment Promotion Department Committee for Promotion and Management of Investment Investment promotion incentives: profit tax exemptions for different zones

5 Lao Agriculture is Open to Investment

6 Core agribusiness sectors of economic interest: production China Mostly in the North Rubber, tea, vegetables, livestock, NTFPs Rubber processing Europe North, South France: Jatropha, benzoin Hungary: livestock Japan Central, South Eucalyptus, Acacia, vegetables Korea Central, South, North Jatropha, NTFPs Singapore South Trade zones, coffee Thailand Central, South Sugar cane, coffee, vegetables, cassava, pigs, cattle, maize, macadamia nuts, oil palm, peanuts, castor bean, cardamom Viet Nam South, North Cassava, rubber, livestock, forestry, NTFPs, maize, cattle, buffalo

7 Rubber trees in perspective Total land area = mil ha (FAO) Total forest area = mil ha (FAO) Forest cover target in 2020: 15 mil ha (Lao subworking group on forestry) DOF forest cover target for 2010 = 12 mil ha Total agriculture land = mil ha (FAO) Total arable land = mil ha (FAO) Concessions as of 2009 = 1.5 mil ha MAF industrial plantations target 2020 = 0.5 mil ha (Barney, 2007) Rubber planted = 0.4 mil ha (LaoFAB, 2009)

8 Agro-processing: North Organic tea to China Rubber to China Maize to China, Thailand, Viet Nam Soybeans to Thailand White sesame to Thailand NTFPs to China, Japan, Korea Core agribusiness sectors of economic interest: processing

9 Core agribusiness sectors of economic interest: processing Agro-processing South Okra to Japan Coffee to Hongkong, Europe, Thailand Cabbages to Thailand, Viet Nam Bananas to Thailand, Viet Nam Cotton indigo products to Japan Peanuts to Thailand, Viet Nam Cassava to Viet Nam Rubber to Viet Nam Soybeans to Thailand, Viet Nam

10 Core agribusiness sectors of economic interest: processing Agro-processing: Central Maize to Thailand Sweet corn to Europe Vegetables to Europe Peanuts to Thailand Cassava to Thailand Black glutinous rice to Europe, some organic

11 Observations on investments and investors Successful agribusinesses are well financed and have a good working relationship with Government Beer Lao is the model for mega-projects

12 The Cast of Characters Coffee Dao Heung Sinouk Lao Mountain Coffee AGPC Olam International (Pakxong Highlands??? )(Thai-Singapore) Vegetables Lao Agro Industry (Vientiane Province) Mme. Inpeng (Champasak) Taniyama-Siam (Sekong) Textiles La ha (cotton indigo) (Savannakhet) Lao Sericulture (Mulberries) (Xieng Khouang) Benzoin Agroforex (Houa Phanh) Sugar cane Mitr Lao (Savannakhet) Khonekene (Savannakhet) TCC Capital Land (Champasak) Jatropha Kolao Tree plantations Oji Stora Enso Cassava (South) Binh Dinh Pharmaceutical and Medical Equipment Company (BIDIPHAR) CBF Pharma Company (a Lao- Viet Nam joint-venture) Ou Phu Ko Co. (Viet Nam)

13 The Cast of Characters Rubber Dak Lak Rubber Co. (Viet Nam) Seunly Company (China) Sino-Lao Rubber Co., Ltd. (China) Natural Rubber of Yunnan (China) Zenhua Rubber (China) Siphan Salika Rubber Development Jianfong Rubber Development Co., Ltd.

14 How to proceed The next phase of agribusiness development

15 Entering the Lao value chain Emphasize commodity-based projects Corporate taxes can be negotiated based on social sensitivity of the agribusiness Lao version of CSR: Corporate Social Responsibility Examples: Contract farming with producers Transfer of technology to producers Micro-financing for producers Training of officials for accredited certification International standard SPS laboratories: BOT basis = build operate and transfer (to GoL) Value-added processing in country Profit sharing with producers

16 P-P-P-P A network of PARTNERSHIPS Public & public: Government to Government MOU: Lao Government and Singapore Government Public & private: Government to private company: MOU: Lao Government and private company Private & producers: Private company to producers Contract farming: Private company and producers

17 How to proceed Prerequisite: Role for the Lao Government at the policy level GoL sits on the board GoL coordinates, facilitates, arbitrates, resolves problems GoL assists with negotiations with farmers during start-up and with problems as they arise

18 How to proceed Alternative #1 -- Terms and conditions: Management contract for 1 or more irrigated areas Minimum size = 5,000 ha Experienced producer groups are in place Contract farming are with producers or producer groups Case Study: Gnommalath Plain, Khammouane Province

19 How to proceed Alternative #2 -- Terms and conditions: Barren land available as a land concession 30 year renewable lease 30 ha 1,000 ha Operate as a nucleus estate Contract farming outreach program with local farmers Lease land from farmers Use farmers as workers while transferring technology Case Study: Taniyama-Siam, Thateng District, Sekong Province Okra: Sekong to Japan in 72 hours

20 policy recommendations The Sixth Plan ( ) was translate programme into actions and methods for economic development that incorporate foreign investments. There will be an immediate materialization of laws related to foreign investments. The 5th National Assembly already made some changes to the mechanisms, policy, plans, procedures for granting investment permits, etc. These will be monitored regularly for further improvement and to enlarge the investment environment. This will create fast investment procedures, which will become simpler.

21 Agricultural development Targets - Reform the laws and regulations involved in setting up enterprises and streamline the process; - Finalisation, implementation and enforcement of the implementing regulations for the Business Law; - Improve the quality and professionalism of public service provision; Increasing transparency; - Hold regular meetings between the central and local level Government and the private sector; - Reform regulations and administrative constraints that give rise to monopolies such as: lift restrictions on the movement of goods between provinces; and abolish limitations on restricting provincial contracts to local firms; - Lift some restrictions on foreign workers; - Reform the tax system, setting up proper monitoring agencies; - Increase foreign investment; - Continue to develop regulations and business operation laws and improve the business licensing processes; reduce unnecessary procedures; and increase fast and convenient services to businesses and entrepreneurs; - Promote the establishment of enterprises, cooperatives and family businesses in all areas permitted by the Government; Increase people s access to financing.

22 Lessons learned Technology driven market-transition has been risky Cash crops should not be promoted unless the market is well-understood Local-level organization should focus not only on production, but also processing and marketing Equity in access to opportunities is key to understanding the economic impact of markets The skills to support market-oriented production are still lacking at the local level need for not only technical expertise, but also experience with contracts, marketing and negotiation

23 Improvement in the capacity of research centres and seed multiplication stations to sustainably produce large quantity of high quality seed according to demand of the most appropriate varieties for the different Lao conditions

24 The End Thank you