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Laos – Land-linked with long-term Potential

COUNTRY FACTSHEET LAOS


1. COUNTRY INTRODUCTION:

Country Profiles - LaoThe Lao People’s Democratic Republic is bordered by China, Vietnam, Cambodia, Thailand and Myanmar. With its 7 million inhabitants, it is a classical transit link between these countries. It is often called “land-locked”, but should rather be called “land-linked” as its strategic position amongst other Asian countries may hold great potential in the transportation and logistics sector. Given its cultural proximity to the economically strong Thailand, it is understandable that Laos is, both politically and economically, strongly oriented towards Vietnam to balance the strong influence of Thailand and, to a certain extent, China. Laos’ relations with Vietnam are excellent, primarily because the communist parties of both countries formed a close alliance during the Vietnam war which has continued to the present day. The government of Laos began decentralising control and encouraging private sector development in 1986, in parallel with the “Doi Moi” reforms in neighbouring Vietnam. Economic growth averaged 6% per year from 1988-2008 except during the short-lived drop caused by the Asian financial crisis that began in 1997. Laos’ growth has more recently been amongst the fastest in Asia and averaged nearly 7% per year for the last decade.
Laos has abundant mineral wealth, much of which remains unexploited, although many foreign firms are active. The economy has benefited from high-profile foreign direct investment in hydropower dams on the Mekong river and its many tributaries, copper and gold mining, logging, and construction, although some projects in these industries have drawn criticism for their environmental impacts. The power sector, especially hydropower and coal, is open to foreign investment, with many international firms represented. Agribusiness has also attracted foreign investment. However, Laos’ economy is heavily dependent on capital-intensive natural resource exports. Laos’ infrastructure is still underdeveloped, particularly in rural areas. It has a basic, but improving, road system, and limited external and internal land-line telecommunications. Electricity is available to 83% of the population. Agriculture, dominated by rice cultivation in lowland areas, accounts for about 15% of GDP and 73% of total employment.
The Lao economy remains dominated by Thailand, Vietnam, and China, with heavy participation in certain sectors by Korea, France, Japan, India, Malaysia, Singapore and Australia. As an LDC, Laos has been granted an Everything but Arms (EBA) arrangement by the EU since 1990 and a Generalised System of Preferences (GSP) from 38 developed countries. It gained Normal Trade Relations status with the US in 2004 and was admitted to the World Trade Organisation in 2013. Laos took the chairmanship of ASEAN in 2016. The country is still dominated largely by development cooperation agencies, such as the German GIZ. The European Chamber of Commerce and Industry in Laos (ECCIL) was founded in 2011, and supports European investors in their market entry.

 

2. KEY ECONOMIC DATA:

Population: 7 million
GDP (Current US$): US$ 13.76 billion / EUR 13 billion1
GDP (Current US$, per capita): US$ 1,921.00 / EUR 1,814
GDP (PPP): US$ 40.96 billion / EUR 38.7 billion
GDP (PPP, per capita): US$ 5,719.00 / EUR 5,400
Real GDP Growth: 7.5% year-on-year
Consumer Price Index (CPI): 1.6%
Labour Force: 3.5 million
Unemployment Rate: 1.4%
Main Industries: Mining (copper, tin, gold, gypsum); timber, electric power, agricultural processing, rubber, construction, garments, cement, tourism
Main Exports: Wood products, coffee, electricity, tin, copper, gold, cassava
Exports Partners: Thailand 30.4%, China 27%, Vietnam 17.6% (2015)
Main Imports: Machinery and equipment, vehicles, fuel, consumer goods
Imports Partners: Thailand 60.9%, China 18.6%, Vietnam 7.3% (2015)
Currency: Lao kip (LAK)
Ethnic groups: Lao 54.6%, Khmou 10.9%, Hmong 8%, Tai 3.8%, Phuthai 3.3%, Lue 2.2%, Katang 2.1%, Makong 2.1%, Akha 1.6%, other 10.4%, unspecified 1%
Religions: Buddhist 66.8%, Christian 1.5%, other 31%, unspecified 0.7%
Languages: Lao (official), French, English, various ethnic languages
Literacy Rate: 79.9%

1 All exchange rates as of March 2017
 

3. BUSINESS ENVIRONMENT:

The government is committed to increasing the country’s profile and attractiveness for foreign investors. Many international companies are now exploring the “Special Economic Zones” (SEZs). Currently, there are twelve approved SEZs in the country with the most successful being in Vientiane and Savannakhet provinces, hosting about 100 investors. These SEZs offer a range of incentives and tax holidays to investors depending on the industry. International investors have also been attracted by the relative abundance of inexpensive electricity and the low cost of labour. Some major international companies have already begun to invest in the SEZs, particularly near Savannakhet and Vientiane. Investors include Toyota, Nikon, and Essilor. Coca Cola opened a bottling plant in 2015.
The government is further strongly committed to becoming “the battery of Southeast Asia” by harnessing hydropower and, to a lesser extent, wind, solar, and thermal energy resources to export electricity throughout the region. The power sector is open to foreign investment, with many international firms already represented. Hydropower and transmission and distribution infrastructure will be the focus of increasing investment by the Lao government as it develops its power industry. GE already has a significant interest in the hydropower sector.
However, Laos has ongoing problems with its business environment, including onerous registration requirements, a gap between legislation and implementation, and unclear or conflicting regulations. The lack of skilled labour, inadequate infrastructure, a partly opaque legislation and the strong reliance of the country on the primary sector are posing challenges to the foreign investor Bureaucracy, non-transparent processes and slow decision-making further add to investor uncertainty. The government has committed to becoming a “rule of law” state by 2020. However, neither laws nor the court system in Laos are transparent yet. For example, sanctity of contract is not well understood in Laos, and concessions or property rights granted by the government are liable to overlap or conflict with other claims.

 

4. MARKET OPPORTUNITIES:

Increases in disposable income, particularly among elites, and a slowly but steadily expanding middle class will likely result in growing opportunities in the consumer and services sectors. To support this process, the Lao government fully liberalised the retail sector in 2015, allowing foreign retail establishments to enter the country. The Lao agricultural sector also shows promise and is a priority for the Lao government: Land is underutilised, and both Laos’ low population density and large markets for agricultural goods and livestock in neighbouring countries have brought many new investors to explore agricultural opportunities. There are further opportunities for imports of modern harvesting, planting, processing, and other technologies that can support the agricultural sector’s future growth. The government has also targeted tourism, especially ecotourism, as a major area of growth. To this end, Laos is attempting to attract more upmarket tourists to its market and has liberalised air services resulting in more frequent and less expensive flights to and from the country.

 

5. SOURCES:

Country Introduction & Key Economic Data:

The World Factbook: https://www.cia.gov/library/publications/the-world-factbook/geos/la.html
Statistical information: http://unctadstat.unctad.org/CountryProfile/GeneralProfile/en-GB/418/index.html
Economist Intelligence Unit Country Reports: http://country.eiu.com/laos
Knoema “World Data Atlas”: https://knoema.com/atlas/Lao-Peoples-Democratic-Republic

Business Environment & Market Opportunities:

Laos Country Commercial Guide: https://www.export.gov/article?id=Lao-Market-Opportunities
Lao Laws: http://www.ilp.gov.la/Lao_Law_Eng.asp
Lao Electronic Gazette: http://laoofficialgazette.gov.la
Lao Investment Laws: http://www.investlaos.gov.la/index.php/start-up/laws-and-regulations

International Rankings:

IFC/World Bank “Doing Business” Report 2017 – Ranked 139 / 191:
http://www.doingbusiness.org/~/media/wbg/doingbusiness/documents/profiles/country/lao.pdf
Transparency International “Corruption Perception Index” – Ranked 123 / 176:
http://www.transparency.org/country/lao
World Economic Form – Global Competitiveness Report (2016/2017) – Ranked 93 / 138: http://reports.weforum.org/global-competitiveness-index/country-profiles/#economy=LAO

 

Until opening of an office in Laos, ASEAN Business Partners is advising on investors’ activities in Laos from its office in Hanoi. Laos’ capital Vientiane is just an hour’s flight away from the Vietnamese capital. The traditionally good Vietnamese-Lao relationship was crucial for ASEAN Business Partners’ decision, in particular synergy effects can be used in both countries. Through its own commercial and legal management experience on the ground in Laos, ASEAN Business Partners already maintains excellent good contacts to local organizations, companies and decision makers. This is an essential condition for your business success in Laos.

 

Useful Links:

https://country.eiu.com/laos

https://www.cia.gov/library/publications/the-world-factbook/geos/la.html

http://www.adb.org/publications/lao-pdr-fact-sheet

http://www.worldbank.org/en/country/lao

http://www.asidnet.org/web/

http://countrystudies.us/laos/

http://cpi.transparency.org/cpi2013/results/

http://www.weforum.org/reports/global-competitiveness-report-2013-2014

 

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