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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.

Foreign Direct Investment in Laos

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Foreign Direct Investment (FDI) inflows to Lao PDR are expected to fall considerably in 2009 due to the impact of the global economic crisis. As discussed above, the nominal FDI value is expected to decline from about $771 million in 2008 to $614 million in 2009 (or by about 20 percent) due to recent delays of new hydropower and mining projects, as well as slow growth in the non-resource sectors. Assuming the global economy continues to recover - Annex 1), FDI to Lao PDR is expected to rise considerably in the medium term, as large resource and non-resource projects resume, compounded with the expected recovery of regional and global demand.

The Requirement for Investment in Laos

The rights and activities of foreign investors in Laos are secure under the Law on the Promotion and Management of Foreign Investment in the Lao PDR. The general principles are outlined for reference.

In section Two: Forms of Foreign Investment, it is stated that foreign investors may invest in the Lao PDR in either of two forms

  1. A joint venture with one or more domestic Lao investors or
  2. A wholly foreign-owned enterprise.
  3. A joint venture is a foreign investment established and registered under the laws and regulations of the Lao PDR and which is jointly owned and operated by one or more foreign investors and by one or more domestic Lao investors. The organization, management and activities of the joint venture and the relationship between its parties shall be governed by the contract between its parties and joint venture’s. Articles of Association, in accordance with the laws and regulations of the Lao PDR. Foreign investors who invest in a joint venture must contribute a minimum portion of thirty percent (30%) of the total equality investment in that venture. The contribution of the venture’s foreign party or parties shall be converted in accordance with the laws and regulations of the Lao PDR into Lao currency at the exchange rate then prevailing on the date of equity payment (s), as quoted by the Bank of the Lao PDR.

Foreign Investment Assistance In Laos

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The development of Laos in the past century had to rely upon external sources of capital mostly with financial assistance and loans from foreign countries. Even now that Laos has opened up and is receiving a huge amount of foreign investment, a substantial part of money used in the development of the country continues to depend on foreign aid and loans. Between 1989-1991, the country received roughly US$ 80 million per annum in financial assistance from international organizations like the World Bank, the Asian Development Bank and the International Monetary Fund.

In 1994, the Lao Department of Civil Aviation prepared a plan to request foreign loans to renovate its three major airports in Vientiane, Savannakhet and Pakse as well as another dozen minor airports in other provinces. The total amount of the loan was around US$ 30 million, of which US$ 15 million was offered by the Asian Development Bank and US$ 6 million by the Nordic Development Fund. The rest, amounting to US$ 8 million, was provided by the Asia Group.

The Economy and Investment Opportunities in Laos

For more than 10 years after the alteration of both the political system and the title of the country to the Lao People's Democratic Republic in December 1975, Laos had no constitution. The Supreme People's Assembly gave approval in that year for the Lao PDR constitution, which was promulgated 15 August 1991.

The Lao constitution possesses three important features. First, the constitution is the result of Laotian unity in fighting for the recovery of independence. A provision stated that members of the People's Supreme Assembly, acting as the people's representative council, would automatically be discharged after the promulgation of the constitution.

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