Environmental Impacts of Trade Liberalization in the Hydropower, Mining and Construction Material Sectors of Lao PDR

In Lao PDR, investment has been booming in the industrial sectors of mining, hydropower and construction materials with actual Foreign Direct Investment (FDI) more than doubling between 2004 and 2006. This paper provides a preliminary commentary on the key environmental concerns of these three sectors and examines both positive and negative environmental impacts that may arise as a result of increased trade and investment, combined with inadequate policies and standards to monitor these activities.

Key findings:

• Due in part to the improved national investment policy climate, investment has been booming in the industrial sectors of mining, hydropower and construction materials. With actual investment more than doubling between 2004 and 2006, this trend is expected to continue well into the next decade.

• The scale and growth of FDI in Lao PDR should also be viewed within the international context of the increasing demand for resources. Global demand for energy, minerals and construction materials is high, and Lao PDR, being well-endowed with these resources, is in a strong position to accept only the most economically-, environmentally- and socially-beneficial investments for the country.

• The hydropower, mining and construction materials sectors can all be viewed as large "ecological footprint" sectors—that is, they all have substantial impacts on the natural environment because of their use and reliance upon natural resources. The extent of environmental impacts as a result of growth in these sectors will be determined by the policy and regulatory framework in which increased trade takes place, in order to accentuate the opportunities and mitigate potential negative environmental impacts.

• The Government of Lao PDR is making a concerted effort to review its FDI policies and practices to ensure that the country benefits economically, socially and environmentally from this investment. However policy-makers are finding it difficult to keep pace with the scale of investment and economic growth.

Key recommendations:

• improve environmental governance by developing the commitment of the government and the private sector to address environmental concerns, strengthen institutional capacity (especially at the provincial and district levels) to implement government policies, and ensure better coordination/collaboration between all levels of Lao society;

• build closer regional cooperation on investment to ensure environmental concerns across the region are addressed;

• facilitate a domestic business environment that attracts responsible business and international best practice; and

• realize growth-led environmental conservation opportunities such as supplying the energy-efficient construction materials sector regionally.