Open for business, if anyone wants to come
The Special Economic Zone in Savannakhet is talking big about its ambitions to help lift Laos, and Thai investors also see opportunities
Friends with benefits: The Thai-Lao bridge from Mukdahan is busiest on weekends. Thais visit the Indochina market in Laos, while Lao people cross to the Thai side to go to the cinema or buy groceries (Photos by Pattarapong Chatpattarasill)
Crossing the Thai-Lao Friendship Bridge from Mukdahan one is immediately struck by a gleaming new four-storey office set up as a one-stop shop to attract and support foreign investors.
Inside the air-conditioned and marble-floored offices of Laos’ Savan-Seno Special Economic Zone (SaSEZ) building, employees sit behind school-style wooden desks eager to attend to anyone who walks through the front door.
On a recent March morning when Spectrum visited, we were the only clients. We asked to see the governor of Savannakhet and were immediately ushered to the second floor for more meetings with assistants.
It seemed too informal and friendly, until we were asked to provide a written request to meet the governor, which it turned out could take weeks to process. Still, the obliging and friendly demeanour of staff made a strong impression.
MEKONG PASSAGE: Tourists enjoy the scenery at the Second Thai-Lao Friendship Bridge. The bridge connects the northeastern province of Mukdahan with Savannakhet in western Laos.
“Investors find it very easy to meet with high-ranking government employees of Laos,” said Thailand-based legal consultant Vinay Ahuja. Mr Vinay was based in Vientiane for several years and his firm DFDL provides legal advice for businesses trying to set up in Laos.
The Savannakhet SEZ is the first of 42 planned across Laos as part of a government strategy to lift the landlocked nation out of third world status by 2020.
The SEZs were approved by a prime ministerial decree in 2003. But with the deadline looming to shake its third world status, there is growing urgency to attract investors via tax concessions and favourable land leasing arrangements.
EARLIEST OPPORTUNITY
The office, known as the SEZA, was completed a few months ago as a one-stop service bureau to issue investment licences, business registrations, import and export licences and work permits for foreigners. The SaSEZ is divided into four zones with different sectors of operation. Zones A and D are managed by the Thai firm Savan City, and are for projects in the residential, entertainment and financial industries.
BORDER TRADE: Workers in Mukdahan load up goods from Thailand to sell in Laos.
Zone B, covering 20 hectares, is situated in Uthumphon near the Laos-Thailand border and is to be developed as a logistics park. According to the website of the Thai consulate in Savannakhet, two Thai companies, Double A logistics and Nann Logistics, and the Japanese firm Logitem are already investing in the zone.
Zone C is managed by Savan Pacific Development Co Ltd, a joint-venture between Pacifica Streams Development Sdn Bhd of Malaysia (70%) and the Laos government (30%). It is tasked with developing the first government-approved free trade and special economic zone in Savannakhet province.
“The investors do not have to visit any of Laos’ ministerial departments for applications,” said Tee Chee Seng, a Savan Park manager. “This one-stop service policy assists — especially foreign investors by saving on unnecessary costs and providing more investment protection, privileges and incentives.”
Savan-Seno is Laos’ first SEZ and was established following the 2003 decree to designate the country’s second-largest city as a regional investment hub.
But to do that without foreign investment is a tall order.
Laos depends mostly on Chinese and Japanese private investors to boost economic growth. As of December 2013, Laos had also received UScopy.4 billion (around 45 billion baht) from the Asian Development Bank.
The ADB is the main financier for projects in the country, which it categorises as “lower middle-income”. The Second Thai-Lao Friendship Bridge, which joins Mukdahan and Savannakhet, was funded by the Japan Bank for International Cooperation (JBIC) under a loan scheme between the two governments.
UP AND RUNNING
In Zone C, business is humming along with foreign investors taking advantage of the generous benefits from the Lao government.
“As of today, the SEZA has issued 41 licences to investors taking advantage of the generous benefits from the Lao government. “As of today, the SEZA has issued 41 licences to investors in Savan Park,” Mr Tee said. “The foreign investors came from as far away away as France, Holland, Canada, Hong Kong, Japan, Malaysia, Thailand and other places.” Mr Tee said areas being invested in include lens manufacturing, car parts, plane accessories, tin refining, paint , toy and cosmetic products as well as logistics and transport services.
“We have successfully attracted several multinational companies looking to expand their manufacturing bases overseas,” he said. “We have Toyota Boshoku, Essilor International, Celestica and AERO Works, which have already started their manufacturing operations.” A major contributor to the zone’s success is a cross-border transport agreement reached by Laos, Thailand and Vietnam which speeds up the customs process, enabling goods to get to international markets more quickly. “Containers and goods inspected and sealed by Lao customs officials in Savan Park require no further declarations be made in either Thailand or Vietnam,” he said. “They can go straight to the sea port in Danang, Vietnam for shipping to Japan and China or Laem Chabang port in Thailand for shipping to Europe and the United States.”
A LONG WAY TO GO Projects at sites A and D — which focus on the residential, entertainment and finance sectors — are managed by the Thai firm Savan City, which holds 70% of a joint-venture with the Lao government. Savan City chief executive Chanchai Jaturaphagorn said the SEZ’s location means that in the future it will need accommodation, service and entertainment facilities. “Savannakhet itself does not possess any major attraction,” Mr Chanchai said. “However, the city is located on the East-West Economic Corridor (EWEC). “Other foreign investors proposed an industrial park on the Mekong side to the Lao government, but due to environmental concerns the government approved an ‘eco city’ plan instead.”
But when Spectrum observed the sites there appeared to be a long way to go before Mr Chanchai would see his visions realised. While some construction preparation was under way in Zone D, the riverside Zone A was little more than scrub and forest bisected by dirt roads.
Mr Chanchai said he first proposed development projects on the Laos side of the Mekong River in 2005, winning approval in 2007.
READY TO GO: Aderans manufacturing centre has the capacity to hire 4,000 employees. But when Spectrum visited there appeared to be only construction and security staff and no manufacturing under way.
“By 2008, the Savan City firm was set up and I was able to obtain the renewable 50-year land lease on zones A and D,” he explained. “Later in 2009, the Lao government revised the regulations, allowing land leases of up to 99 years for investors. As a result, the leasing contract I am holding now is for 149 years.”
Mr Chanchai said Zone A comprised a waterfront plot of 305 hectares, which he predicted would be the region’s next financial hub, equipped with high-quality hotels and hospitals, banking and business precincts and a duty-free shopping centre. Recently, Mr Chanchai revealed a funding-per-project scheme between Savan City and a Malaysian investor, Asean Union Group. He said there would be marketing investment opportunities in a 350-room hotel, a duty-free pavilion, petrol station and tourist and financial districts in Zone A.
He declined to reveal which investors had vied for businesses in Zone A, but insisted construction would start soon on serviced apartments, a community mall and sports complex.
PRICE OF PROGRESS: Lao people who live in makeshift shacks must move out to make way for future development projects in the SaSEZ. FUTURE FOUNDATIONS: Savan City is developing new housing units under the scheme.
STARTING TO TAKE SHAPE
In Zone D, development looked slightly more promising. Signs were hoisted showing planned residential projects and workers shacks had sprung up on the 118 hectare site in expectation of the construction to start soon.
One factory — in reality a string of military green one-storey sheds — has already been set up for the Japanese Aderans group, which makes wigs.
Mr Chanchai said the Aderans manufacturing centre is the largest in Southeast Asia and has the capacity to hire 4,000 employees. But when Spectrum visited there appeared to be only construction and security staff and no manufacturing under way.
The residential projects will cater for employees as well as locals who have been resettled from Zone A.
Last month, the Thai hospital group Vichaivej signed a memorandum of understanding with the Lao government to build a 150-bed hospital in Zone D. The Vichaivej group confirmed the MOU had been signed , but declined to reveal the budget or construction time frame.
Mr Chanchai said construction of the 12-storey Vichaivej hospital building would begin next month and take 18 months to complete. The Savan City CEO also said compensation payments were being calculated for around 100-200 families living mostly in shacks in zones A and D.
He said they would be based on how much land the residents held and could vary from household to household. But one onsite engineer told Spectrum that as the government had issued an SEZ decree, residents must move without being compensated. He said new accommodation would be provided by SEZ developers, although no clear guidelines had be