(kindly provided by the Embassy of Peoples Democratic Republic of Laos to the United States of America)
Since 1986 the Lao Government has introduced and open-door policy and has taken a number of measures to achieve a market economy by reforming its administrative structure and policy accordingly. The government’s policy has emphasized both revenue raising and expenditure containing measures. Meanwhile, structural reforms have been accentuated, notably in creating an atmosphere for investment, privatization, liberalization, decentralization, and the initiation of an appropriate regulatory framework to meet the immediate needs of the emerging private sector. Following the open-door policy, in 1988 the Lao Government adopted a code for foreign direct investment (FDI), hoping to have revenue generated and job opportunities created in the country. Since then the FDI in various fields has increasingly flowed into the country.
In parallel to the FDI, the government has begun to transform the centrally planned economy into the market one by fostering the private sector and reforming the public administrative machinery. The primary purpose of public sector reform in the Lao context is to facilitate a market-oriented economy by initiating more private investment, mainly for export-oriented production, and improving public sector performance. In order make private FDI viable, the Lao Government has to take a number of necessary measures to tailor its administrative machinery to facilitate international business transactions as follows:
As the country possesses substantial natural resources, a strategic geographic situation and the government’s policy favoring foreign direct investment, the following selected sectors are potentially attractive for investment in Laos:
Selected Potentially Attractive Sectors:
In fact Laos has substantial potential in mineral ores where occurrences of gold, tin, iron lead, zinc, precious stones, coal, lignite, limestone, gypsum, etc., have been identified in many parts of the country. The Lao Government so far has given some concession areas such as oil, gas, gold, lignite and gemstones to foreign investors in order to explore and develop different minerals. To develop these minerals important financial and technological inputs are required.
Foreign direct investment is particularly sought in the mining sector because of its capital-intensive investment combined with scarce domestic financial resources and its high potential for export. From 1988 up to the 19th August 1997 the foreign investment in this sector was ranked third in terms of aggregate value (about US$ 125,535,764). Fiscal regulations such as royalty rate, corporate income tax and other financial incentives in the mining sector are widely recognized as competitive by international standards. This indicates the firm commitment and strong support of the government to pave the way for foreign direct investment in the sector.
The market for fossil fuel in neighboring countries is tremendous. This would be an area offering excellent prospects to foreign investors. Recently, an agreement was signed with private investors to implement a lignite power plant project in the northwest of Laos for exporting electricity.
In the short-term, other minerals having high prospect for export would be gemstones, which require simple extraction equipment and could be easily transported. Some medium and long-term investment opportunities in the mining sector would be:
Laos has also substantial potential from its water resources for hydropower generation. Many tributaries of the Mekong River offer possibilities for the construction of dams and reservoirs to produce low-cost electric energy for export to neighboring countries, in which the demand for power has increased abruptly year after year. It is estimated that the country possesses over 18,000 MW of hydropower installed capacity, of which only 2 percents has been so far developed. The government promotes the development of hydropower projects in many locations throughout the country.
With the huge resources located close to the biggest power demand country in the sub-region such as Thailand, the hydropower sector will continue to be one of the main foreign exchange earners for Laos. Without financial sources other than public investment funds and external soft loans, hydropower development would probably continue at the same slow rate as experienced in the eighties. This would lead to a loss of opportunity for foreign exchange earners badly needed for the development of other sectors.
On this basis, and in line with the new economic policy, the government has begun since the beginning of the 90s to seek the participation of foreign investors in projects beyond the financial capacity of the public and soft loan investments. Since 1988, when the Lao government launched public sector reform resulting from FDI by accepting private participation in hydropower generation for export, the development in the power exporting industry has been very impressive. Until now, seven projects have already reached concession agreements, of which two are scheduled for commissioning by 1998, one by 1999, and the four remaining will be in operation by the year 2000. The government signed MOUs for 18 projects and another 10 of over 100 MW capacity have been initially contacted and site investigations have been undertaken. The development period will depend on the mobilization of funding in which the private investors will be encouraged to participate actively. Assuming the construction is carried out as scheduled, the total installed capacity will amount to 1,845 MW with annual generation of 11,837 GWH in the year 2000 and 7,279 MW with annual generation of 36,700 GWH in 2010.
Plains and plateaus offer possibilities for development of agriculture and livestock. Coffee, cotton, sugar, fruits and vegetables can be grown under good soil and climatic conditions. The Lao Government gives special privileges to develop the agricultural sector and investors are invited to bring into the country their capital, know-how and techniques to develop agro-based production for export.
Agriculture: The economic growth of the Lao PDR depends to a large extent upon the performance of the agricultural sector, which contributed 51% of the GDP in 1997. Coffee is by far the most promising product for export. The Lao PDR has the most potential land/person in the Greater Mekong sub-region and has large and unexploded fertile land and favorable climatic conditions, particularly in the Bolaven basaltic plateau. This could offer promising opportunities for low-intensive investment in the agro-processing industry for export based on annual and perennial crops.
The on-going improvement of main national roads linking major provinces, together with the high rate of urbanization have created favorable conditions for investment in the import-substitution agro-processing industries.
Forestry: It has been estimated that the Lao PDR has the highest ratio of forest to total area in Asia. Wood products including lumber are one of the main export earners of the Lao PDR. In view of its long term sustainable development objectives and the preservation of the environment, the government is implementing a policy of striking a balance between exploitation and conservation and shifting from export of logs and lumber towards the promotion of wood finished-product processing. Due to a shortage of capital and the technical know-how in the country, the development of the wood-processing sub-sector also needs investment and the introduction of new technology from foreign countries.
In the industrial sector, besides mining and hydro energy development, light manufacturing industries such as garments, wood-based semi and finished products, and high value-added goods can be produced for export by using cheap electric energy and local labor. Laos is a "Generalized System of Preference" (GSP) receiving country for many markets in the world.
In Laos, transportation infrastructure is inadequate and considered a major impediment to trade, co-operation and the exploitation of rich mineral resources, particularly those located in the hinterland.
Further major commitments are required before minimum standards can be satisfied and most of the shortcomings could be addressed by such cooperation efforts as:
Tourism and Hostelry
Small-scale tourism is also being promoted. The country is endowed with many historical and natural sites. Since 1990 the number of tourist arrivals has increased rapidly from 14,400 persons in 1990 to 346,460 persons in 1996 (National Tourism Authority, 1995). Meanwhile, there are very few world-class hotels in the country.
In the field of services investment in banking, insurance, transportation, communications, hostelry and trade are encouraged. To respond to requirements of the emerging primary and secondary industries in the country, a tertiary industry, such as service development needs to expand.
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The Government of Laos announced its policy to promote foreign investment. The investment promotion law has been in effect since 1989 and a revised law was issued on 19 March 1994 with an effective date 60 days after enactment.
An important part of the revised investment promotion law is that which relates to the types of investment. Before the revision, there existed three types of investment – joint investment, wholly foreign investment and investment under contract. The third type was removed due to its complexity which confused investors. It only accounted for 4% of the total foreign investment projects.
The revised law reduces the approval steps required for investment projects to just one, which is known as the one-stop-service system, and the duration of the examination of the project was decreased from 90 days to 60 days. Meanwhile, registration of the enterprise must be completed within 90 days, half the time required before the revision.
Tax reduction was also made in several areas, as well as tax exemptions. A single rate of 20% annual profit tax is applicable for foreign investments. Import duty on machinery and equipment is only 1% and income tax for foreigners living in Laos is 10% of the total income earned.
Income and profit from the investment of a foreign investor can be sent back to his/her own country, or a third country, through any bank located in Laos under the foreign exchange rate set by the Bank of the Lao PDR. This is also applicable for foreigners who work in Laos providing all payments required prior to repatriation have been completed.
The Foreign Investment Management Committee (FIMC)
The FIMC is a "one-stop" for the potential investor in Laos. Ultimately the FIMC staff will coordinate the course of and application for investment in the country through the various levels and spheres of approval, informing the investor regularly about the status of the application.
Initially, however, the FIMC can and will provide a comprehensive look at Laos and its potential for the investor. It has the latest statistics, such as demographic data, past accomplishments and careful analysis of what can be done.
FIMC personnel will listen carefully to the projects the potential investor has in mind, offer recommendations for alteration based on the needs of the country, government requirements and other feasibility factors.
For a very modest fee, the FIMC will provide facsimile materials for the investment application and guide the applicant through the process of completing them, including a feasibility review upon re-submission, to the FIMC.
Finally, the staff will coordinate movement of the application with various departments concerned.
Foreign Investment Projects
These particular areas of investment are covered here for illustration purposes: hydroelectricity, tourism and textiles. The selection made was based on the fact that Laos has enormous capability in these three fields.
Information on electricity and energy in Laos appears in a report of the Foreign Division, the Office of the investment Promotion Committee, revealing that the Lao Government gives first priority to energy production, which includes the development of energy from water and the increase of local supplies through the extension of the power grid as well as the distribution of electricity throughout every province with the surplus being exported to earn income for the country, The Electricity du Laos and its regional units hold responsibility for this. The former is in charge of generating, supplying and distributing electricity in the Vientiane area and the latter is responsible for generating and distributing electricity in 6 provinces. The Electricity du Lao is also responsible for the approval of the construction of additional station in remote areas.
By the end of 1996, The Lao Government had signed contracts with approximately 20 foreign companies for investments in establishing power producing plants in Laos. Of this total, 2 projects have already begun operating: Nam Theun-Hinboun, and Huey Ho.
Moreover, Laos has about 10 more projects of this kind waiting for the foreign companies to invest in. Most of these projects are in the area between Luangnamtha and Luangprabang.
Today, tourism receives much more promotion from the Lao Government. After the establishment of the National Tourism Authority of Lao PDR, there exist 14 tourism companies, all of which have been licensed by the government. New regulations on tourism have been set up as well.
There are 38 foreign companies counter trading with the company representing the tourism industry of Laos. Of this total, 17 companies belong to Thai’s.
Revenue from the tourism business of Laos in 1992 amounted to US$ 9 million, a substantial amount for a country newly opening its door to tourism. Statistics on tourists in 1996 showed an approximately 17% increase, compared with that for 1995.
As 1999 will be a Visit Laos Year it is expected that the number of foreign tourists will increase considerably.
To prepare efficiently for such a situation, the government cooperated with an economic alliance of Thailand, China and Vietnam in planning its international tourism promotion campaign. Joint visas will be applicable at airports and at two international border pass areas-Bokeo to Bo Ten, between China and Laos, and Savannakhet to Quang Tri, between Laos and Vietnam.
Infrastructure has been improved through the support of foreign investors to come to join in the country’s hotel industry.
In 1995 Luangprabang, a former capital, was voted to be on the UNESCO world heritage list. New zoning of the town is aimed at conserving its beauty. In the conserved area, construction of buildings more than 12 metres high – or higher than those that already exist – is not allowed. There is also a provision that any construction must be at least 8 metres from the road. The north of the Mekong is considered a development area, as is anywhere there is an important temple with accompanying village without an industry.
In order to enable Laos to become a sub-regional tourism central by the year 2000, plans have been laid to develop five major provinces – Vientiane, Luangprabang, Huoixai, Champasack and Savannakhet – as points of sale for tourist are set up.
Tourist destination in Vientiane include historical sites, ancient ruins, and a shopping centre for foreigners. Luangprabang is to be promoted as the north'’ tourism centre. Tourist attractions in Luangprabang are its natural beauty and the interesting history of the province. Huoixai in Bokeo Province is the focal point of tourism linking the sub-region, or economic quadrangle, as well as Myanmar, China and the north of Thailand. Champasack will be developed for its natural tourist attractions. Major sites here are Khone Phapheng Waterfall and Si Phan Done (4,000 islands) with Done Khong as the biggest island. Savannakhet will become a tourism and trade centre for Thailand, Laos and Vietnam, with Route 9 linking all three.
It should be noted that guides and tour companies are both restricted occupations for those with Lao nationality only.
Textile investment in Laos draws substantial attention from foreigners, especially Thais, due to a certain extent to the country’s capability in this regard. The consequence is that Laos has become a major exporter of garments.
Key support to textile investment is in the area of raw materials, factory land rents and wage rates. Most importantly, Laos has been granted trade privileges by the European Community, Canada and Japan.
Since the promotion of textile factories in Laos in 1988, the sub-regional manufacturing base began to switch from Thailand, by way of the Mekong River, to Laos. The transfer contented to 1994. Textile investment in Laos had by then recorded as 63 projects amounting to US$ 55,130,878.
Some Major Foreign investors in the Mining Sector
By the end of 1995, some 50 foreign and local investments in various mineral resources had been approved. The main ones are:
- MMC – Bunduon (a Malaysian company) has been given a concession to explore and mine gold ore within an area of 6,139 square kilometres. The contract was signed with the Lao Government on 4 December 1995.
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As an observer with some participation in the 27th ASEAN Ministers Meeting in Bangkok, July 1994, Laos decided to request for an extension of cooperation and assistance from ASEAN. The nine fields in which more cooperation was requested were banking, finance, investment management, rural development, urban development, political development, tourism promotion, planning and performance for public management and civil servant training. Most of the current investments in Laos, however, are those from Thailand. They are:
1. The Loxley Group
The Loxley Group entered a joint investment with the Ital-Thai Group, who have been most
successful in the Thai wine and spirits market. The Group partners hold 25.5% each while the Lao Government holds 49%. The total investment in the project is US$5 million. Loxley has been extremely successful in this regard as the joint venture has managed to get 94% of the market.
2. The M Group
There have been three projects for which the M Group Public Co., Ltd. has signed both
investment contracts and Memorandum of Understanding with the Lao Government:
The Lao Star Company appointed Space System/Loral Co., Ltd. To construct two
L-Star Satellites. L-Star 1 will be launched in 1998 and will be used for digital Direct-to-Home television broadcasts. L-Star 2 will be put into orbit in 1999. The Arianespace Company will provide all launch facilities including the launch vehicles to place both satellites in orbit. Telesat Canada Co., Lid. Has been appointed by ABCN to conduct initial control and testing for the project.
Lao Star also has a project to create a multimedia network in the Asian Region as well as other forms of digital data communications.
3. The EGCO Group
The joint investors with the Thai-Lao company are the Electricity Generation Co., Ltd. or EGCO.
4. The Shinawatra Group
On 12 October 1993, the Government of the Lao PDR, signed a Master Agreement to develop telecommunications and broadcasting in Laos. The Shinawatra Group assigned Shinawatra International PLC, to sign the joint venture investment contract on 22 January 1994 to establish a joint venture company under the name Lao Shinawatra Telecom Co., Ltd. with the proportion of investment 49:51 between Shinawatra and the Lao Government. The company was to operate a telecommunication project for 20 years.
Later, the government made it a policy to allow the private sector to play a role in national telecommunication system development. The Shinawatra Group proposal was viewed as in the best interest of the government, with the Group expressing sincere determination and readiness to join in the development of Lao telecommunications system. On 8 October 1996, the Lao Government and Shinawatra signed two contracts in Vientiane. The first was the Master Agreement for the Development of Telecommunications Services in the Lao People’s Democratic Republic; and the other was a Joint Venture Agreement to establish Lao Telecommunications Co., Ltd. both the Lao telecommunications providers, ETL, and Lao Shinawatra Telecom Co., Ltd. were merged to form the new company, Lao telecommunications Co., Ltd. or Lao Telecom. The government holds 51% while Shinawatra International Plc. Invests 49%. The concession lasts 20 years with an investment of not less than US$ 400 million. The objective is to develop and provide services in the field of telecommunications in Laos consisting of the following projects:
5. The Electricity Generation Authority of Thailand
Thai-Lao Lignite Co., Ltd. has signed a contract employing the Electricity Generating Authority (EGAT) of Thailand as its advisor in a survey of the reserve of lignite coal. EGAT is to assist in the preparation of a feasibility study of electricity generation using lignite coal at a 600 megawatts thermal power plant in the area of Hongsa District in Xayabury Province.
The contract states that the duration of this cooperation is for 9 months. The Lao Buck Company from Germany, project advisor, proposed EGAT taking into consideration its expertise in surveying and coal mining. EGAT, with the approval of the Thai Government, has an agreement to purchase 15,000 megawatts of electricity from the Thai-Lao Lignite Company in 1997.
The Morgan Stanley Company is the financial advisor for the whole project, worth approximately US$1,500 million.
The prerequisite survey made by Lao Buck (Germany) found that the area surveyed, six square kilometers in the Xienghone-Hongsa area, showing 50 deposits of lignite coal amounting to more than 200 million tones. The quantity assured the company of its capability to generate electricity and a project to construct four power plants with a planned capacity of 150 megawatts was set up. The number of plants may be changed to 3 with 200 megawatts capacity. Constructionof each plant requires two years.
6.The Vieng Phoukha Group
The first project is to construct a road connecting Huoixai with the border area in the North, over a distance of more than 100 kilometres. It will be a laterite road that is later to be expanded and covered with asphalt.
7.The Asia Tech Group
8. The Panicharoen Group
Panicharoen Lao-Thai (1990) Co., Ltd. invested in the distillation of liquor and alcohol at Bang Yo Village, Pakse, Champasack Province. The Group originally put in almost US$ 400,000 which was later expanded to US$ 2 million. Total production capacity is 30,000 liters/day.
Moreover, the Group has speeded up its project to expand its production and marketing bases to other indochinese countries. The first base was established in Laos by taking-over the business of a liquor factory in Champasack. The factory, Panicharoen Lao-Thai Co., Ltd. has been changed to be Panicharoen Lao-Thai (1990) CO., Ltd with the Group holding 90% of the company. The rest, 10%, belongs to a Lao businessman. The factory is located about 6 kilometers from the town of Pakse, Champasack.
9. Champasack Palace Hotel & Travel Co., Ltd.
Champasack Palace Hotel & Travel Co., Ltd. has invested US$ 1.8 million in renting Champasack Palace in Champasack province and renovating it as an international hotel.
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SUPPORTING FACTORS FOR INVESTMENT
Major supporting factors for investments in Laos are:
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Investments with interesting potential and protected by revised the Law on the Promotion and Management of Foreign Investment in the Lao PDR may be classified as follows:
To promote and encourage foreign investment, the Lao law on foreign
investment and management gives a large range of incentives such as:
For more information on doing business in Laos, the Embassy of Peoples Democratic Republic of Laos to the United States of America has kindly provided extensive information in the following Guide to Doing Business in Laos. This can be viewed online or printed to assist you in your research and business efforts.
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Runckel & Associates