Private Sector Development in Laos

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The Lao PDR Constitution of 1991 protects state, collective, and private forms of ownership. During the 1990s an active legislative program laid the foundations for developing market based rules and institutions to support private sector development. Today, agricultural production and most manufacturing production are in private hands, and SOEs only cover around one percent of employment. Nearly 97 percent of manufacturing units are small (less than 10 employees). Of the medium and large units, 35 percent are privately owned by Lao PDR citizens and 55 percent are joint ventures with foreigners. The remainder is owned by government. Foreign investment inflows have increased rapidly, in both resource and non-resource sectors (mainly hydropower, mining, agriculture, processing industries, and tourism). Between 2003 and 2008, actual investments increased from US$110m to about US$770m. The main foreign investors are from Thailand, China, Vietnam, Australia, Malaysia, Singapore, South Korea, Taiwan, India, France, the Netherlands, and the United States. The National Social and Economic Development Plan recognized the need to improve the business environment and promote domestic and foreign private investments to foster growth, reduce poverty, and achieve the Millennium Development Goals.

Key Development Progress

In order to further improve the investment climate in the country, the National Assembly has approved a new unified Investment Promotion Law in July 2009 to replace two existing investment laws. Among other measures, the new law has abolished very lengthy and cumbersome licensing approval procedures for general investment activities, and created a level playing field for both domestic and foreign investors by harmonizing business entry procedures and investment incentives. However, this Law as well as the new Minerals Law (endorsed by the NA in December 2008) has not yet been officially promulgated.

Implementation of the Enterprise Law and the Law on Processing Industry is continuing. Several important steps have recently been taken by GOL to simplify business entry, such as elimination of a minimum capital requirement for starting a business, introduction of a simplified business registration system in major provinces as part of the Enterprise Law implementation, and abolishment of establishment licenses for general manufacturing firms based on the Law on Processing Industry.

Several mechanisms for public-private dialogue to identify and address business constraints have been established and are operational at both the central and provincial levels, such as the Lao Business Forum, Provincial Public-Private Dialogues, and direct dialogues between LNCCI and various business associations and the GOL. However, the efficiency and effectiveness of these dialogues need to be enhanced further as several issues raised in past dialogues still have not been resolved, such as the tourist arrival fee, investment incentives, procedures for importing assistance goods funded by ODA, and other issues.