1. Investment volume and scale from Vietnamese enterprises into Laos during 2005-2010

In 1989, Vietnam started to invest abroad into Japan. In 1993, the first project for exploiting stannum was registered by Vietnam in Laos. During 1993-1998, projects of investments from Vietnam into Laos were few (only 4 projects with total registered capital of 2.8 million USD). However, since 1999, projects into Laos have climbed in both quantity (number of projects) and quality (volume). Among invested sectors, industry had the fastest growing investments by Vietnamese enterprises in Laos in the period of 2005-2010 (with 88 projects).

Table 1: Investment volume of Vietnamese enterprises in Laos during 2005-2010

Unit: million USD

Source: Foreign Investment Agency, Ministry of Planning and Investment

It can be seen that Vietnamese enterprises’ investments in Laos rose sharply in total registered investment volume. While in 2005, there was only 450.45 million USD, it reached 692.72 million USD in 2007 and 1,302.42 million USD in 2009. From 2005 to 2009, investment volume increased 2.89 times, equal to an annual average growth of 30.3%/year. In 2010 in particular, the number of projects rose to 26; however, total invested capital dropped to only 132.11 million USD.

The average investment volume in services reached 36.2 million USD/ project which is very high; yet in fact, most projects are in small scale. The average volume rocketed only after the project for golf and real estate business of Long Thanh Golf in Vientiane in 2009 with the capital of 1 billion USD.

Projects in Agriculture – Forestry sector had the average volume of 21.3 million USD / project which is quite high. This is because most projects in this sector are for rubber tree planting which require large scale of capital and industrial organization for the best efficiency.

Industry sector had average investment volume of 14.7 million USD / project which is lower than the total average of all sectors (19.9 million USD).

Construction sector had the lowest average volume in the period since large enterprises had little interest in this sector due to its low efficiency. The reason is: after winning a construction bid, enterprises are paid neither in advance nor in parts, but endure long debts which are hard to recover.

Total average capital scale of all projects in 2005-2010 of 19.9 billion USD/ project was relatively high for Vietnamese enterprises’ projects in Laos. If schedules are followed and registered capital scales are reached, performance and economies of scale will improve for Vietnamese enterprises in this country.

2. Investment efficiency in Laos

Economic efficiency

So as to assess investment results in Laos, the author conducted a survey of some projects in Laos operating in industry sector. According to the survey results, the number of enterprises which earned no profits or even had losses accounted for high proportion among respondent enterprises (50%); among the rest, most enterprises earned average or low profits. Profitable enterprises were mainly those in mining field (33% of respondents) and processing field (17%).

Successful projects are those registered in the early years of 2005- 2010 period (3 projects in 2005, 4 projects in 2007; 1 in 2008). The survey results are consistent with reality since projects in mining and processing industries require long implementation and only operate after several years.

Regarding total investment of all surveyed projects with 961.9 million USD, gained profits are minor (about 0.37 million USD/ year). However, projects for hydroelectricity have not yielded profits yet (while investments are large), that contributed to reduce the efficiency of surveyed projects.

Social efficiency

* Revenue increase for state budget: According to the survey, tax contribution of OFDI projects of Vietnam into Laos was inconsiderable. Among 16 respondents, only 9 (equivalent to 56.25%) paid taxes to Vietnam’s State budget, specifically:

- Number of enterprises paying 300 million dong/ year of taxes: 4 (3 in mining and 1 in processing)

- Number of enterprises paying 300-500 million dong/ year of taxes: 4 (3 in mining and 1 in processing)

- Number of enterprises paying 500 million – 1 billion dong/ year of taxes: 1 (in mining)

- Number of enterprises paying over 1 billion dong/ year of taxes: 2 (1 in mining and 1 in electricity, gas and water production and supply).

- Number of enterprises paying no taxes: 7 (43,75% of respondents).

Thus, the aim for increasing budget revenues for Vietnamese enterprises’ investment projects registered in 2005-2010 was not achieved corresponding to their potential. The tax payments were even lower than those that could be made if the enterprises invested at home, and were also smaller than capital value of the projects.

* Exploitation of cheap input for production in Vietnam: Most projects are now in construction and exploration stage and thus, product distribution back to Vietnam is insignificant. Most products imported to Vietnam from the projects are Gypsum (about 200,000 tons/ year), timber (approximately 60,000 m³/ year).

* Job creation for Vietnamese labor: Most projects of Vietnam in Laos used labor directly and indirectly. However, due to legal restraints of the host country, Vietnamese enterprises could not bring many labors into Laos. By the time of a survey (September 30 2009), the number of Vietnamese employees in Vietnamese enterprises’ industrial projects in Laos was about 5,600 people, accounting for 58% of total employment in the projects, of which 54% worked in electricity and water production and supply, 34% in mining and 12% in processing industry.

Table 2: Employees in Vietnamese projects in Laos

Source: Collection of reports by enterprises at the Conference of the Development and Use of Vietnamese labor in Laos in Danang city

However, the actual number of Vietnamese employees in Vietnam’s industrial projects in Laos strongly fluctuated (due to high seasonality, especially between rainy and dry seasons). According to current regulations of Laos, the number of Vietnamese labor in the projects must not exceed 10% of total employment, while official reports by enterprises (see Table 2) reveals a number far beyond 10%. In addition, to avoid law violations, the numbers reported to local governments were often lower than actual ones.

* Border stability: Some projects from Vietnam during 2005-2010 at the borders of Vietnam and Laos helped to construct roads, schools, and supply electricity and clean water along with industrial works for the projects…. The projects were located in neighboring areas of Military Zone II, IV and V of Vietnam. Large projects named Nam Mo hydropower project invested by Viet Lao Economic Cooperation General Company, the project of Mountain Development Company by Military Zone 4 Economic Cooperation Company….

3. Reasons for successes and limitations of Vietnamese enterprises’ OFDI in Laos during 2005-2010 with regards to enterprises

3.1 Reasons for success:

First, enterprises are well aware of the necessity to invest in Laos and have their own objectives. Thus, enterprises actively conducted market surveys and learn about business environment in the host country to choose among investment opportunities.

Second, Vietnamese enterprises recognized the importance of alliances and partnerships in new projects, and partner searching activities at investment conferences in Laos for opportunity sharing. The activities helped to enhance Vietnamese enterprises’ competitiveness in projects in Laos.

Third, enterprises gained experiences to succeed through OFDI in Laos, thus continuously making efforts to employ Laotian together with Vietnamese labor in projects, using Vietnamese employees to instruct Laotian ones from simple to more complicate stages in assembly line; enterprises made plans to use cheap labor in Laos for their projects in increasing proportion, which helps to cut costs and improve efficiency.

Fourth, together with the employment and training for Laotian labor, enterprises also improved working conditions for Vietnamese employees, taught them local language, raised compensation and benefits for them to attract skilled labor to work in Laos. Moreover, enterprises created equal working environment for both Vietnamese and Laotian labor, arranged Vietnamese employees appropriately for production, actively organized visiting trips in Laos for new recruits to get accustomed to new working conditions.

Fifth, enterprises aggressively set specific targets for branches in Laos, thus enhancing information receipt, investment promotion and access to highly feasible projects. Besides, an important reason for the development of Vietnam’s OFDI in Laos is that Vietnam’s enterprises enthusiastically submitted their proposals to the local government for policy and mechanism adjustments… when investing in Laos to secure convenience and efficiency.

In short, among the reasons for success of Vietnamese enterprises in Laos in 2005-2010, the consistent and key reason is that enterprises understood and were clear about the objectives and importance of investing in Laos. When determining their motives, enterprises actively searched for opportunities, conducted recruitment, set up branches… in Laos most effectively.

3.2 Reasons for limitations:

First, Vietnamese enterprises have not built a decent investment strategy. Enterprises have been opportunistic and unfocused in their investments without a specific plan for development in each invested locality and sector. On the other hand, Vietnamese enterprises’ strategies have been unmethodical and lacked orientation from the State. The chance of success for each project has been judged subjectively by enterprises themselves. Enterprises’ OFDIs has not been engaged in any long term policies of the State. Vietnamese enterprises compete with each other.

Second, linkages and alliances in investments among enterprises have been disrupted. Strategic partnership for upward and downward linkages has been limited. Stock market has not been the key channel for financing a project. OFDI project financing through credit institutions have been inconvenient due to the lack of guarantee and appropriate mechanism.

Third, project managers in Laos have limited capability in adopting modern time and cost management methods in projects. Enterprises have organized no training programs of project management for employees. On the other hand, assignments for a project’s board of managers have been unscientific, interruptive and unpublicized.

Vietnamese labor in Vietnam’s OFDI projects in Laos has been unprepared, unaccustomed to international environment, incapable of cooperating with local labor and using Laotian language. Also, most of them think that their positions in Laos are just temporary. Payments are not commensurate with capabilities and not to coefficient.

Facilities for work and leisure in Laos remain poor, and so do labor healthcare services. Enterprises have not built good services facilities for labor in project bases.

Vietnamese enterprises’ production technologies are not advanced ones. Technological innovation has been slow, thus products’ competitiveness has been weak.

Fourth, before 2008, Vietnamese investors had no mechanism for mutual assistance in Laos. When the Business Association of Vietnam – Laos – Cambodia was established, it soon linked some enterprises. However, there remain some Vietnamese enterprises in Laos which have not been enthusiastic to participate in the association to protect their own interests.

In order for Vietnam’s OFDIs in Laos to succeed and achieve set objectives, Vietnamese enterprises need to take chances and overcome challenges, and be well aware of reasons for successes and failures to gain profits in Laos in the coming time.