VZCZCXRO4702
RR RUEHDT RUEHPB
DE RUEHHM #0533/01 1830832
ZNR UUUUU ZZH
R 020832Z JUL 09
FM AMCONSUL HO CHI MINH CITY
TO RUCNARF/ASEAN REGIONAL FORUM COLLECTIVE
RUEHC/SECSTATE WASHDC 5928
INFO RUEHHI/AMEMBASSY HANOI 3842
RUEHHM/AMCONSUL HO CHI MINH CITY 6164

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 
 
--------------------------------------------- --------- 
 
¶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 
 
--------------------------------- 
 
¶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 
 
--------------------------------------------- -------- 
 
¶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" 
 
------------------------------------ 
 
¶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 
 
------- 
 
¶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