Why Laos?
Laos is one of five remaining communist countries in the world.
Although it continues its transition
to a market economy, the legacy of
communism continues to weigh on both governance and the economy.
Thailand, Vietnam, and China dominate the Lao economy, with heavy participation in certain sectors by Korea, France, Japan, India, Malaysia, Singapore and Australia. American companies play almost no role in Laos.
Human capacity in Laos is low and finding skilled workers a major challenge.
Statistics from the Economist Intelligence Unit and U.S. Government, for 2008 except where noted:
- Population: 6.0 million
- GDP: $4.5 billion
- GDP per capita: $874
- Total Imports (fob): $1.4 billion
- Total imports from U.S.: $18.3 million
- Total Exports to U.S.: $42.4 million
Trade Agreements
Laos became a member of ASEAN in 1997 and has committed to bringing its tariff rates into line with its AFTA commitments. Laos is currently in negotiations to join the World Trade Organization. The following countries have granted Generalized System of Preference (GSP) status to Laos: Japan (for all products); Australia (no import tax); European Union; South Korea; Norway and Switzerland. Laos has also signed trade agreements with 18 countries, including: Vietnam; China; Cambodia; Burma; Thailand; North Korea; Philippines; Mongolia; Indonesia; Malaysia; Bulgaria; Russia; India; Belarus; Argentina; the United States; Kuwait and Turkey
Market Opportunity
- The power sector, especially hydropower and coal, is open to foreign investment, with many international firms represented.
- Laos has abundant mineral wealth, much of which remains unexploited although many foreign firms are active.
- Agribusiness, including plantation agriculture (rubber/coffee/timber/corn), has attracted foreign investment.
- The Lao government has targeted tourism, especially ecotourism, as a major area of future growth. Laos was rated the #1 “Place to go” by the New York Times in 2008.
Government Regulations Regarding Foreigners Doing Business in Laos
The Lao government is open to foreign investment as a matter of policy. It allows 100% foreign ownership of investments. The overall investment climate is poor but improving. Laos rates very low in international indices of transparency and ease of doing business.
The economic reforms adopted in 1988 and Decree No. 73/PO, dated October 22, 2004, aim to promote foreign direct investment as a means of boosting development and economic growth. Under the 2004 Law on the Promotion of Foreign Investment, scheduled to be updated at the end of 2009, foreign investors may invest in all business sectors and zones of investment in the Lao People’s Democratic Republic, except in business activities which are detrimental to national security, have a negative impact on the environment, or are regarded as detrimental to health or national traditions. In recent years Laos has seen a significant increase in FDI, especially in mining, hydropower, and plantation agriculture. According to Lao government figures, the five largest foreign investors are Thailand, China, Vietnam, France, and Japan.
Large FDI projects, especially in mining and hydropower, often
either find it advantageous or are required to give the
government partial ownership, frequently with money borrowed from
the investor or multilateral institutions. Perhaps the most
well-known is the Nam Theun II dam, whose 25% government
ownership stake was financed by a wide range of international
financial institutions. The investment term of a foreign
investment enterprise depends on the nature, size, and conditions
of the business project but normally cannot exceed fifty
years. Under special circumstances, foreign investment
enterprises may be extended with the approval of the
government. However, foreign enterprises that receive
extension approval from the government may not exceed a total
investment term of seventy-five years.
Foreign investors seeking to establish operations in Laos must
submit project proposals to the Department for Promotion and
Management of Domestic and Foreign Investment (DDFI), Ministry
for Planning and Investment (MPI). The proposal is then
screened by the relevant line ministries and adjudicated by the
Prime Minister’s Office. Under Prime Minister Decree No
301, dated October 12, 2005, proposals for projects worth $20
million USD or more require the approval of the Prime
Minister. The Minister of MPI can approve investments below
$20 million USD while the Vice Minister can approve investments
of less than $10 million USD. FDI equal to or less than $3
million USD can be approved at the provincial level by all
provinces, and in four of the larger provinces – Vientiane
Capital, Savannakhet, Champasack, and Luang Prabang, the ceiling
for provincial level approval is $5 million.
Foreign investors in a joint venture must contribute at least
thirty percent (30%) of the venture’s registered capital.
Capital contributed in foreign currency must be converted into
Kip based on the exchange rate of the Bank of the Lao People’s
Democratic Republic on the day of the capital contribution.
Wholly foreign-owned companies may either be a new company or a
branch office of an existing foreign company. Throughout
the period of operation of a foreign investment enterprise, the
assets of the enterprise must not be less than its registered
capital. The screening process at the Department for Promotion
and Management of Domestic and Foreign Investment (DDFI) in the
Ministry of Planning and Investment (MPI) takes into account the
financial and technical feasibility of the project, input from
relevant line ministries, and whether the proposed project
conflicts with government policy.
Upon receipt of an application, the MPI must coordinate with
relevant sectors and local authorities to consider and respond in
writing to the foreign investor. Responses to projects,
depending on project type, are supposed to be forthcoming within
15–45 working days. Foreign investors are required to obtain
a foreign investment license, an enterprise registration
certificate, and a tax registration certificate from the MPI
office nearest the place where the foreign investors are
licensed. Thereafter they shall be considered as enterprises
established in conformity with the laws of the Lao People’s
Democratic Republic. Within 90 days from the date of
receipt of an investment license the foreign investment
enterprise must commence business activities. If the
investors fail to do so, the foreign investment license is
subject to termination.
In addition to the investment license, foreign investors are
required to obtain other permits. These include a business
registration which must be annually renewed from the Ministry of
Industry and Commerce, a tax registration from the tax department
in 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., Ministry of Industry and
Commerce for manufacturing; Ministry of Public Works and
Transportation, etc.), appropriate permits from local
authorities, and an import-export license, if needed.
Obtaining the necessary permits can pose a challenge to foreign
investors, especially in areas outside the capital. The
recent creation of a “one-stop shop” for many permits within the
Ministry of Planning and Investment should help ease permitting
difficulties in the future.
Lao law provides for sanctity of contracts. The following
link is for a translation of the Lao contract law.
http://www.undplao.org/whatwedo/bgresource/demogov/Lao%20Translated%20Laws/First%20Volume/4.%20Contracts.pdf
However, since Laos is a communist one-party state, the sanctity of contracts is subject both to political interference and a number of socialist principles enshrined in the law.
The Mekong Law Group, a well-known local law firm, has noted in its “Lao Legal & Investment Guide” that according to the contract law:
- A contract can be voided if it is disadvantageous to one party, and
- A contract is void if it conflicts with State or public interests.
Although a commercial court system exists, in practice most judges adjudicating commercial disputes have little training in commercial law. Those considering doing business in Laos are strongly urged to contact a reputable law firm for additional advice on contracts.
In 2006 the Lao government ceased imposing import restrictions on trading companies, whether foreign or domestic, in an effort to let the market respond to actual demand. The Lao government no longer requires companies to file an annual import plan for approval by the Ministry of Commerce. The main exception is the fuel industry, where individual companies are still required to file an annual import plan. The government controls the retail price and profit margins of gasoline and diesel. Government documents articulating the restrictions and explaining the policy are difficult to obtain. Goods that are always prohibited for import and export range from explosives and weapons, to literature that presents a negative view of the Lao government, to certain forestry products and wildlife. For a detailed list of import & export restrictions please visit http://www.moc.gov.la/default.asp.
Agriculture production and most manufacturing production is private. State-owned enterprises (SOEs) currently account for only one percent of total employment. Approximately 97 percent of manufacturing units are small (fewer than 10 employees). Foreign companies interested in acquiring SOEs should apply through the Department for Promotion and Management of Domestic and Foreign Investment (DDFI) in the Ministry of Planning and Investment (MPI). Equity in medium and large-sized SOEs can be obtained through a joint venture with the Lao government.
Laos at a Glance
- Location: Southeast Asia
- Land Boundaries: Thailand, Vietnam, Burma, China and Cambodia
- Area Total: 236,800 sq. km. (91,430 sq. mi.); slightly larger than Utah
- Climate: Tropical monsoon; rainy season (May to November); dry season (November to April).
- Population: 6.7 million (2008 est.)
- Languages: Lao (official), French, English, and various ethnic languages
- GDP Real Growth Rate: 7 percent (2007 est.)
- GDP – per capita (PPP): $710 (2007 est.)
- GDP by Sector: Agriculture: 41.3 percent; industry: 32.2 percent; services: 26.5 percent (2007 est.)
- Government type: Communist State
Country Commercial Guide
- Interested in Laos Country Commercial Guide, Please click here to download.
Upcoming Events
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Contact Us
Joshua C Archibald, Econ/Commercial Officer
U.S. Embassy, Vientiane.
Unit 8165, BOX V APO AP 96546
Tel: (856-21) 267000 ext 7156;
Fax: (856-21) 267120 or 267190
E-mail: ArchibaldJC@state.gov
Sivanphone Thoummabout, Econ/Commercial Assistant
U.S. Embassy, Vientiane.
Unit 8165, BOX V APO AP 96546
Tel: (856-21) 267000 ext 7198;
Fax: (856-21) 267190 OR 267120
Email: sivanphonetx@state.gov
Ms. Cynthia A. Griffin, Commercial Counselor
U.S. Commercial Service,
U.S. Embassy, Bangkok
GPF Witthayu Tower A, Suite 302,
93/1 Wireless Road Bangkok 10330
Tel: [662]-205-5263;
Fax: [662]-255-2915
E-mail: cynthia.griffin@mail.doc.gov
Website: www.buyusa.gov/thailand/en/