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About Lao PDR

The Lao People’s Democratic Republic was once one of the world’s poorest countries with an estimated 7.48 million population, under-developed infrastructure, and the lowest income levels in Asia. This small landlocked country is now regarded as the fastest growing economy in Southeast Asia.

Over the past 10 years, Laos has made great strides in opening its economy and achieving high annual GDP growth. However, this growth has been driven primarily by large-scale investments in hydropower, mining, and construction — sectors typically dominated by large companies. While SMEs make up the majority of firms and provide the greatest number of jobs among private sector employers in Laos, they often lack the resources or know-how to successfully grow their business or access new markets.

Opening and Restriction to Foreign Business

Regulatory capacity and knowledge of market economies within the Government of Laos is limited and threatens future sustainable growth and the country’s ability to address economic vulnerabilities.Foreign investors are typically required to go through several procedural steps prior to commencing operations.  Many foreign business owners and potential investors claim the process is overly complex and regulations are erratically applied, particularly to foreigner investors.  Investors also express confusion about the roles of different ministries, as multiple ministries become involved in the approval process.  In the case of general investment licenses (as opposed to concessionary licenses, which are issued by Ministry of Planning and Investment), foreign investors are required to obtain multiple permits, including an annual business registration from the Ministry of Industry and Commerce (MOIC), a tax registration from the Ministry of Finance, a business logo registration from the Ministry of Public Security, permits from each line ministry related to the investment (i.e., MOIC for manufacturing, and Ministry of Energy and Mines for power sector development), appropriate permits from local authorities, and an import-export license, if applicable.  Obtaining the necessary permits can be challenging and time consuming, especially in areas outside the capital.For the specific trade policies of the Lao government, you can refer to www.laotradeportal.gov.la

Enterprises investing in Laos mainly come from neighboring countries, China, Japan, South Korea, Thailand, France,Vietnam, etc. Among them, Chinese enterprises invest the most, and most of the commercial real estate comes from Chinese capital.

Bilateral Investment and Taxation Treaties

According to the United Nations Conference on Trade and Development (UNCTAD), Laos has bilateral investment agreements with Australia, Belarus, Cambodia (not in force), China, Cuba, Denmark, France, Germany, , Japan, Republic of Korea, Kuwait, Malaysia (not in force), Mongolia, Myanmar, Netherlands, Pakistan, Russia Federation, Singapore, Sweden, Switzerland, Thailand, the United Kingdom, and Vietnam.  On February 1, 2005, a Bilateral Trade Agreement (BTA) entered into force between the United States and the Government of Laos that contains some investment provisions.  The original BTA is available on MOIC’s website.

Industrial Policies：Foreign Trade Zones/Free Ports/Trade Facilitation

Laos has announced plans to construct as many as 40 special and specific zones, but as of 2020, it has only established 12.  Some, such as Savan Seno SEZ in Savannakhet and Vientiane Industry and Trade Area SEZ, or VITA Park, in Vientiane, have successfully attracted foreign investors.  Others are accused of harboring illegal activities, such as the Golden Triangle SEZ in Bokeo Province that houses the Kings Roman Casino.  The Department of Treasury Office of Foreign Assets Control in early 2018 designated the Kings Roman Casino and its owners a Transnational Criminal Organization for engaging in drug trafficking, human trafficking, money laundering, bribery, and wildlife trafficking.  More Chinese-invested SEZs are expected to open in the coming years, especially along the China-Laos Railway line. Thai companies are also exploring new SEZ-style industrial parks in Laos.

Financial Sector

Laos does not have a well-developed capital market, although government policies increasingly support the formation of capital and free flow of financial resources. 

Businesses report that they are often unable to exchange kip into foreign currencies through central or local banks.  Analysts suggest that concerns about dollar reserves may have led to temporary problems in the convertibility of the national currency.  Private banks allege that the Bank of Lao PDR withholds dollar reserves.  The Bank of Lao PDR alleges that the private banks already hold sizable reserves and have been reluctant to give foreign exchange to their customers in order to maintain unreasonably high reserves.  The tightness in the forex market led to a temporary 5-10 percent divergence between official and gray-market currency rates in late 2019 and early 2020, and since 2017 the Lao kip has depreciated against both the dollar and Thai baht.

In order to facilitate business transactions, foreign investors generally open commercial bank accounts in both local and foreign convertible currency at domestic and foreign banks in Laos.  The Enterprise Accounting Law places no limitations on foreign investors transferring after-tax profits, income from technology transfer, initial capital, interest, wages and salaries, or other remittances to the company’s home country or third countries provided that they request approval from the Lao government.  Foreign enterprises must report on their performance annually and submit annual financial statements to the Ministry of Planning and Investment (MPI).

Corruption

Domestic and international firms have repeatedly identified corruption as a problem in the business environment and a major detractor for international firms exploring investment or business activities in the local market.

Labor

Despite Laos’ young population, approximately 62 percent of which are 30 years of age or younger, the labor market remains tight with employers reporting shortages of labor at all levels, especially skilled labor, reflecting the relatively low level of educational attainment within Laos. 

Reference

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