Economic Seminar - Synopsis
On Monday, June 9th 2014, an economic seminar entitled "Does abundance of resources guarantee development ?" has been held at the Institut français du Laos. A synopsis is now available.
Day 1 : Does abundance of resources guarantee development ?
9th June 2014
This 2 hours debate took place at the Institut Français du Laos organized as a panel discussion with :
- Dr Bounthavy SISOUPHANGTHONG - Deputy Minister of Planning and Investment ;
- Mr Jean-Marc CHATAIGNER - Deputy Director General for Globalisation, Development and Partnerships, French Ministry of Foreign Affairs and International Development ;
- Mr Richard RECORD - Economic expert to the World Bank in Laos ;
- Mr Jean-Bernard DE MILITO - Economic expert to the European Union Delegation in Laos.
The moderator was Mr Minh PHAM - former resident UNDP Commissioner in Laos
NOTE : This report preserves the anonymity of the panelists, prerequisite for their free expression during the debate. The two economists and the moderator only spoke for themselves and not for their institutions.
Provisional answer to the question asked during this first debate, the abundance of resources does not guarantee development but is not necessarily a “curse” either. Above all, it depends on the governance quality which comes with it.
Since the economic liberalization initiated in 1986, Laos has experienced strong growth. However, this growth could be hampered by four factors : environmental degradation, deepening inequalities between cities and countryside as well as the informal economy, delay in achieving some MDGs and fiscal fragility. With a development that would not trigger higher quality jobs, is there a risk that Laos becomes a "rich country with poor people" at the expense of the objective of graduating from the list of least developed countries (LDC) in 2020 ?
The government strategy remains firmly committed to maintain an 8% GDP growth over time and to build hydropower capacity, a source of incomes. In this time of integration in the ASEAN Economic Community in 2015, the quest for competitiveness through quality investments is now a public policy priority.
The link between natural resources, growth and development can be seen in the lights of other developing countries’ (especially African) experience. Situations of institutional fragility may lead to corruption and civil war. But there are exceptions to the “natural resources trap”, for instance in Botswana and Mauritius. Through policies implemented within solid institutions, and diversification and human capital development strategies, it is possible to combine natural resources exploitation and sustainable economic growth. There is therefore no fatality in the effects of natural resources exploitation : success is the result of the role of the State, good governance and voluntary economic policies anticipating market trends and meeting the needs of its population.
Fiscal policy should be able to identify other priority areas for the allocation of resources. Budgetary policy, mirror of shared governance, should determine (through allocation of incomes) the drivers of human development that should be addressed (target population, health, education).
In the case of Laos, mining and hydropower resources represent half of the GDP growth at the cost of major investments, which are leading to a growing vulnerability to the volatility of global market prices and the fluctuations of Thailand economic and political environment. This is why wages are increasing faster than productivity, why exchange rate is hampering other economic sectors neglected by investors and local workforce, at the expense of the necessary diversification of activities.
In this context, fiscal policy and redistributive mechanisms are at stake. The society’s capacity to focus its resources on the satisfaction of basics needs, especially education, health and transports, relies on the quality of governance. But in Laos, a political-centralism insufficiently balanced by civil society prevent the most efficient allocation of resources. It should be surprising, therefore, that with such a high growth rate for a decade, poverty reduction remains insufficient. Despite a considerable budget (3,7 billion USD this year), distribution did not change, education remaining at 11-13 % and health at 3-7 % whereas successful experiences in Africa are based on massive public investment in these areas, transparency of foreign private investment and resources conservation for the generations to come.
It is not only a question of means but also of their assignment. For example, an excessive part of the Lao budget dedicated to education is absorbed by teachers’ wages probably at the expense of teaching quality and of balance of knowledge. Encouraging teachers’ interdisciplinary would raise their qualification level, guarantee a more important knowledge base and allow more flexibility in their national allocation.
Finally, when 40% of state expenditures (excluding military spending) are not explained, the control of the government deficit is made all the more difficult.
To conclude, the exploitation of natural resources cannot be a panacea or even assured future incomes -“diamonds are not forever”- if it fails to improve human needs satisfaction and human capital development ensuring Laos transition towards a more diversified economy. This involves massive investments – but Laos now has means to do so – and to highlight them as a political governance issue.
Transversally, transition from a quantitative to a qualitative approach is one of the questions asked to a Laos “at a crossroads”. Economic policy is focused on the almost sole objective of high growth, achieved thanks to massive investments not so difficult to drain in the light of the attractiveness of the country’s natural resources. This policy is now questioned about the absence of more ambitious targets of regulation, redistribution and reinvestment, which realization and effectiveness will be closely linked to strengthened governance.