BUILD IT AND THEY WILL COME, OR MAYBE NOT: THE LAOS-VIETNAM

UNCLAS SECTION 01 OF 03 HO CHI MINH CITY 000533

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECON ETRD EINV ELTN EWWT PREL PGOV LA VM
SUBJECT: BUILD IT AND THEY WILL COME, OR MAYBE NOT: THE LAOS-VIETNAM
EAST-WEST ECONOMIC CORRIDOR

REF: A. 07 HCMC 921 ("EWEC CONFERENCE")

B. VIENTIANE 88

HO CHI MIN 00000533 001.2 OF 003



1. (SBU) Summary. Although the bridges, the state-of-the-art
tunnel, and the all-weather road that knit Thailand, Laos, and
Vietnam together via the "East-West Economic Corridor" (EWEC)
have been built, initial hopes for a surge in investment and
trade along the route remain unfulfilled. For a number of
reasons, including the fact that the road traverses very
undeveloped regions, not much has come to Vietnam via the EWEC
except a modest number of Thai tourists. While Laos' cheap land
and labor are attracting Vietnamese resource-extraction firms,
these firms are stymied by the same obstacles hindering other
development along the EWEC. Poor harmonization of border
procedures and opaque Laotian investment requirements -- not to
mention the context of the lightly populated, poverty-stricken
area traversed by the route -- conspire to make the EWEC more of
rural road project than an economic corridor, according to
Vietnamese Government (GVN) officials as well as Vietnamese and
international investors. While Danang officials acknowledge the
EWEC's thus-far unfulfilled potential and appear willing to
subsidize social and economic development along the Laotian
portion of the corridor, they are also lobbying multilateral
development banks to line up support for a more southerly "EWEC
2" that they claim would provide immediate benefits by
connecting existing economic centers and following the route
that trucks actually take. End Summary.



Breakfast in Thailand, Lunch in Laos, Dinner in Danang

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2. (SBU) At a 2007 conference in Danang inaugurating the EWEC,
Vietnam's Ministry of Foreign Affairs predicted that the boom in
trade and investment generated by the 1,450 km Burma-to-Vietnam
corridor would render Danang an international hub of trade,
finance, and industry (Ref A). Although crucial EWEC
infrastructure components such as the Mukdahan bridge spanning
the Mekong River between Thailand and Laos and the $200 million
USD Hai Van tunnel north of Danang now make it possible to drive
the 500 km from the Thai-Lao border to Danang in a day, the
predicted boom in trade and investment has failed to
materialize. During a four-day traverse of the Lao-Vietnam
portion of the EWEC in mid-June, a delegation from USCG HCMC and
Embassy Vientiane heard the same story from many different
officials and business people: burdensome border paperwork,
opaque Laotian investment procedures, and the lack of economic
activity on the sparsely-populated and poverty-stricken Laotian
stretch of the EWEC stifle the corridor's potential. Danang
officials noted that the only bright spots were a modest
increase in the number of Thai tourists and the volume of Lao
lumber -- much of it likely illegal -- entering Danang.




3. (SBU) Major Vietnamese investors in Laos -- typically
state-owned enterprises or large, politically well-connected
private firms, such as Foodinco Song Da Corp, Sovico or the
Saigon Investment Group (which are involved variously in rubber,
cassava, hydropower, mining, and real estate) -- all noted that
in Laos, it appears that all business starts with politics. It
is essential for high-level GVN officials to arrange matters
with their GoL counterparts before any project could proceed.
As Mr. Luu Huy Bien, General Director of the state
infrastructure conglomerate Song Da Corporation, put it,
"Company to company contact is impossible." Even high-level
Government of Laos (GOL) support is no guarantee of expediency.
The Savan-Seno Special Economic Zone (SSEZ) located at the
western Laotian terminus of the EWEC, is a case in point. The
SSEZ is administered directly by the Office of the Lao Prime
Minister, not the Ministry of Planning and Investment, as normal
procedure would dictate. Licensed in 2003, the SSEZ is still in
the land-clearance stage, and has leased only 60 of a total of
234 ha, according to the Executive Director of the Malaysian
firm licensed to develop the SSEZ, Mr. Ong Chin Chai.



Tourism Up, Border Hassles Steady

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4. (SBU) While increased tourism is a bright spot, tourism
service providers complain that much larger numbers of leisure
travelers would use the EWEC if border procedures were
simplified. The Amcit general counsel of "Savan Vegas," a
U.S.-invested casino in Savanakhet often referred to as "Lao
Vegas," at the western Laotian terminus of the EWEC, said the
operation was losing money because the Mukdahan bridge border

HO CHI MIN 00000533 002.2 OF 003


crossing, which the casino's primarily Thai customers cross to
return home, closes at ten pm. Because of slow processing,
customers must leave the casino by six or seven pm to ensure
they can return to Thailand. In Danang, Mr. Le Nguyen Hong of
the Danang Department of Culture, Sport, and Tourism (DoCST)
outlined city efforts to cater to the increasing number of Thai
tourists, including the "Night Beach" project that keeps the
city's beaches open and lit 24/7. He admitted, however, that
due to safety concerns regarding left-vs-right-side driving,
private Thai vehicles are not allowed in Vietnam (and vice
versa) except when traveling in registered caravans, a
restriction that essentially bars most Thais traveling by
private vehicle. And tourism is further impeded by the lack of
lodging and restaurant options along the route. (Note: Between
Savannakhet and the Lao Bao border crossing with Vietnam, our
delegation searched in vain for a public bathroom, too.)



Cheap Land, Cheap Labor, and Less Competition in Laos

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5. (SBU) Despite the border hassles and circuitous investment
procedures, Vietnamese investment in Laos is increasing. Drawn
by cheap land, cheap labor, and less competition ("You only have
to worry about the Chinese," said Managing Director Mr. Luu Duc
Khanh of infrastructure investor Sovico Holdings),firms with
sufficient political clout to access the GOL hierarchy are
investing in industrial agriculture (rubber, cassava),mining
(gold, copper) and hydropower. Mr. Le Thanh Hung of the
Quasa-Geruco company, a subsidiary of Vietnam Rubber Co., said
that he leases 9,000 ha along the EWEC for seven dollars per ha
per year, while lower quality land in Vietnam now costs $30 USD
per year. Mr. Tang, manager of Foodinco's cassava and rubber
plantation along the EWEC, said that he leased land for the
Vietnam-equivalent annual rate of $30 USD per ha, but noted that
price was not the issue, saying "there is no more land for
rubber in Vietnam." Mr. Ong of the Savan-Seno Special Economic
Zone said that once the zone is up and running, average wages
for light industrial work at the zone would average one to one
and a half USD per day. (Comment: This is slightly less than
the minimum wage in rural Vietnam and considerably less than the
minimum wage in urban Vietnamese centers. End comment.)




6. (U) The challenges in this part of Laos are nevertheless
daunting, even when considering the economic potential. The Lao
portion of the EWEC, Road 9, runs through some of the country's
most desolate and heavily scarred areas; the old Ho Chi Minh
Trail bisects the road a few kilometers from the Vietnam border,
and consequently this area remains highly contaminated with
unexploded ordinance (UXO). Most interlocutors we met along the
road said the extent of UXO contamination was much worse than
they had anticipated, and was causing them to rethink their
business plans. Moreover, as one travels away from Savannakhet
the ethnic Lao population declines as a share of the total and
is replaced by primarily illiterate Mon-Khmer who live in very
primitive conditions and are generally less prepared to enter a
modern industrial labor force. Most homes here have no
electricity or running water. One Vietnamese entrepreneur told
us that he had to radically adjust his calculations of how much
training his workers would need, and that he also now has to
factor in schools, clinics, and wells when planning for his
workforce.



Danang Already Lobbying for "EWEC 2"

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7. (SBU) Danang political, economic, port, tourism and customs
officials all acknowledged that EWEC has been a disappointment.
Officials reiterated that land and labor are cheap along the
EWEC, but emphasized that the sparsely populated landscape
cannot provide enough workers to maintain plantation
agriculture, let alone an industrial economy. Port officials
told us that the only export of note from Laos was timber, which
was accumulating at such a rate that the port was running out of
warehouse space. Dr. Le Huu Doc, Vice Director of the Danang
Department of Planning and Investment, proposed a more southerly
"EWEC 2" running from Bangkok (through Pakse to Sekong) to
Danang (on route 14B in Vietnam). If a remaining 80-km stretch
of dirt road could be paved, this route would generate an
immediate boost to Danang's economy because it ran through the
"very rich and productive" Boloven plateau, according to Dr.
Doc. Doc has already pitched EWEC 2 to the Director of the ADB,
and JETRO has sent a team to do a feasibility study.

HO CHI MIN 00000533 003.2 OF 003





COMMENT

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8. (SBU) As more than one interlocutor told us, the greater
Mekong sub-region now has a transportation corridor, not an
economic corridor. The road has been built and, in contrast to
the Lao portion of the North-South Economic Corridor (ref B),
remains in good condition. Despite this successful engineering,
the economic results thus far are mixed at best. One thing is
clear: Vietnam's influence in Laos is growing, as the "bigger
brother" endeavors to both develop and take advantage of Laos'
much weaker human resources and much more abundant (if rapidly
dwindling) natural resources. It's an old story, the saga of
the "brothers" Laos and Vietnam, and one that predated their
partnership in constructing the old Ho Chi Minh trail complex.
Today, as before, their common destinies are bound up in the
fate of a road. End comment.




9. (U) This cable was coordinated with Embassy Vientiane and
Embassy Hanoi.
FAIRFAX