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Laos

Executive Summary

Laos, officially the Lao People’s Democratic Republic (Lao PDR), is a rapidly growing developing economy at the heart of Southeast Asia, bordered by Burma, Cambodia, China, Thailand, and Vietnam. Laos’ economic growth over the last decade, prior to the COVID-19 pandemic, averaged just below eight percent, placing Laos amongst the fastest growing economies in the world. Over the last 30 years, Laos has made slow but steady progress in implementing reforms and building the institutions necessary for a market economy, culminating in accession to the World Trade Organization (WTO) in February 2013. The Lao government’s commitment to WTO accession and the creation of the ASEAN Economic Community (AEC) in 2015 led to major reforms of economic policies and regulations with the aim to improve Laos’ business and investment environment. Nonetheless, within ASEAN, Laos ranks only ahead of Burma in the World Bank’s “Ease of Doing Business’ rankings. The Lao government is increasingly tying its economic fortunes to the economic integration of ASEAN and export-led development and is prioritizing the digital economy, logistics, green growth, and more sustainable development.

Prior to Laos’ second COVID lockdown in September 2021, the World Bank predicted that Laos’ economic growth rate would increase from 0.5 percent in 2020 to 3.6 percent in 2021 on the prediction that Laos would soon open its borders. However, limited fiscal and foreign currency buffers have posed a challenge to the government’s ability to mitigate the economic impacts of COVID-19. Overall, the pandemic has resulted in an intensification of the country’s macroeconomic vulnerabilities. When compared to other countries in the region, foreign direct investment (FDI) inflows to Laos have been relatively stable and driven by the construction of infrastructure and power projects. In 2022, if the pandemic is brought under control and the government effectively implements fiscal support measures, international and Lao economists project GDP growth will reach four percent.

The exploitation of natural resources and the development of hydropower has driven rapid economic growth over the last decade, with both sectors largely led by foreign investors. However, because growth opportunities in these industries are finite and employ few people, the Lao government has recently begun prioritizing and expanding the development of high-value agriculture, light manufacturing, and tourism, while continuing to develop energy resources and related electrical transmission capacity for export to neighboring countries.

The Lao government hopes to leverage its lengthy land borders with Burma, China, Thailand, and Vietnam to transform Laos from “land-locked” to “land-linked,” thereby further integrating the Lao economy with the larger economies of its neighbors. The government hopes to increase exports of agriculture, manufactured goods, and electricity to its more industrialized neighbors, and sees significant growth opportunities resulting from the Laos-China Railway, which connects Kunming in Yunnan Province, China with Laos’ capital city Vientiane. Some businesses and international investors are beginning to use Laos as a low-cost export base to sell goods within the region and to the United States and Europe. The emergence of light manufacturing has begun to help Laos integrate into regional supply chains, and improving infrastructure should facilitate this process, making Laos a legitimate locale for regional manufacturers seeking to diversify from existing production bases in Thailand, Vietnam, and China. New Special Economic Zones (SEZs) in Vientiane and Savannakhet have attracted major manufacturers from Europe, North America, and Japan. Chinese and Thai interests also have plans for new SEZ projects.

Economic progress and trade expansion in Laos remain hampered by a shortage of workers with technical skills, weak education and health care systems, and poor—although improving—transportation infrastructure. Institutions, especially in the justice sector, remain highly underdeveloped and regulatory capacity is low. Despite recent efforts and some improvements, corruption is rampant and is a major obstacle for foreign investors.

Corruption, policy and regulatory ambiguity, and the uneven application of laws remain disincentives to further foreign investment in the country. The Lao government is making efforts to improve the business environment. Its 8thfive-year National Socio-Economic Development Plan (NSEDP) (2016-2020) directed the government to formulate “policies that would attract investments” and to “begin to implement public investment and investment promotion laws.” The former prime minister, now president, has stated his goal was to see Laos improve its World Bank Ease of Doing Business ranking (Laos is currently ranked #154). In February 2018 and January 2020, the Office of the Prime Minister issued orders laying out specific steps ministries were to take to improve the business environment. These efforts made an impact. For example, due to streamlining of application processes, it now takes to less than 17 days to obtain a business license, compared to 174 days a few years ago.

In 2021, the former prime minister assumed the presidency of a new administration with a stated focus on economic issues. This continuity provides a foundation to build on Laos’ previous National Socio-Economic Development Plan. Laos’ new development plan, the 9th NSEDP (2021-2025), will be published later this year with a focus on graduating Laos from Least Developed Country (LDC) status in 2026 and become an upper-middle income country. One of the government’s priorities is to diversify the economy and improve the investment climate encouraging both domestic and foreign investment to accelerate economic growth. The government is focused on a post-COVID economic recovery through policies to achieve macro-economic stability, connectivity through improved infrastructure, and green, sustainable growth initiatives. Sectors such as agriculture, natural resource development, and tourism are emphasized in the draft 9th NSEDP plan. Further development of investment-related policies and other regulations can be expected from the new government.

The current administration remains active in firing or disciplining corrupt officials, with the government and National Assembly in 2019 disciplining hundreds of officials for corruption-related offenses. Despite these efforts, Laos’ Ease of Doing Business ranking fell from 139 in 2016 to154 in 2020. The multiple ministries, laws, and regulations affecting foreign investment in Laos creates confusion, and requires potential investors to engage either local partners or law firms to navigate a confusing and cumbersome bureaucracy.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perception Index 2021 128 of 180 http://www.transparency.org/research/cpi/overview
Global Innovation Index 2020 117 of 132 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2021 N/A https://apps.bea.gov/international/factsheet/
World Bank GNI per capita 2020 $ 2,520 https://data.worldbank.org/indicator/NY.GNP.PCAP.CD

 

1. Openness To, and Restrictions Upon, Foreign Investment

3. Legal Regime

4. Industrial Policies

5. Protection of Property Rights

6. Financial Sector

8. Responsible Business Conduct

There is low general awareness of responsible business conduct (RBC) and corporate social responsibility (CSR). There is no systematic government or NGO monitoring of RBC. RBC is not generally included in the government’s investment policy formulations. No concerns regarding human rights and their relation to RBC have been reported so far, however there are ongoing concerns about various forms of trafficking in some of Laos’ Golden Triangle Special Economic Zone.

Additional Resources

Department of State

Department of the Treasury

Department of Labor

Department of Commerce

9. Corruption

Corruption is a serious problem in Laos that affects all levels of the economy. The Lao government has developed several anti-corruption laws, but enforcement remains weak. When he assumed office in early 2016, then Prime Minister Thongloun Sisoulith focused on government anti-corruption efforts. Lao media and the National Assembly now regularly report on corruption challenges and the sacking or disciplining of corrupt officials. In September 2009, Laos ratified the United Nations Convention against Corruption. In March 2021, Thongloun was named President of the Lao PDR. He and newly appointed Prime Minister PhankhamViphavanh indicated they will continue to prioritize good governance in their new administration. Laos is ranked 128th out of 180 countries on Transparency International’s 2021 Corruption Perceptions Index (CPI), advancing six spots since 2020.

Domestic and international firms have repeatedly identified corruption as a problem in the business environment and a major detractor for international firms exploring investment or business activities in the local market.

The Lao State Inspection and Anti-Corruption Authority (SIAA), an independent, ministry-level body, oversees analyzing corruption at the national level and serves as a central office for gathering evidence of suspected corruption. Additionally, each ministry and province has a SIAA office independent from the organization in which it is housed. These SIAA offices feed into the SIAA’s central system.

According to Lao law, both giving and accepting bribes are criminal acts punishable by fine and/or imprisonment. Nonetheless, foreign businesses frequently cite corruption as an obstacle to operating in Laos. Often characterized as a fee for urgent service, officials commonly accept bribes for the purpose of approving or expediting applications. Laos is not a signatory to the OECD Convention on Combating Bribery.

In 2014, an asset declaration regime entered into force for government officials, which required them to declare income, assets, and debts for themselves and their family members; this was further strengthened in 2017 and 2018. Officials are now required to file a declaration on any assets valued over $2,500, including land, structures, vehicles, and equipment, as well as cash, gold, and financial instruments. These declarations are reportedly held privately and securely by the government. If a corruption complaint is made against an official, the SIAA can compare the sealed declaration with the official’s current wealth. Whether this program has worked or is working remains unclear.

Resources to Report Corruption

Contact at government agency or agencies responsible for combating corruption:

Mr. ViengkeoPhonasa
Director General
AntiCorruption Department, State Inspection and AntiCorruption Authority
Sivilay Village, Xaythany District, Vientiane Capital, 13th South Road
Tel: office: 021 715032; Fax: 021 715006; cell: 020 2222 5432

10. Political and Security Environment

Laos is generally a peaceful and politically stable country. In 2021, Laos once again had an orderly change of administration under its one-party system. The risk of political violence directed at foreign enterprises or businesspersons is low. There has been little-to-no political violence in the last decade, and Laos’ political stability is an attractive feature for foreign investors.

11. Labor Policies and Practices

Despite Laos’ young population, the median age is 24 years old, the labor market remains tight with employers reporting shortages of labor at all levels, especially skilled labor, reflecting the relatively low level of educational attainment within Laos. The government enacted a new labor law in late 2014 that established many new protections for workers. It also contained provisions aimed at increasing the skills of the Lao labor force and established stricter provisions on the hiring of foreign workers.

The new law also authorized independent worker’s groups to elect their own leaders and to represent their interests and engage in collective bargaining on their behalf. The Lao Federation of Trade Unions (LFTU), which is associated with the ruling Lao People’s Revolutionary Party, is the primary representative of labor and represents workers in tripartite processes. Laos’ National Assembly passed a new Trade Union Law in November 2017 but the impact of the new law on the labor market and foreign investors has yet to be determined. No official English translations of the final Trade Union Law are publicly available.

Child labor is outlawed except under very strict, limited conditions that ensure no interference with the child’s education or physical wellbeing. The 2014 law outlaws several forms of employment discrimination and provides standards for work hours. The minimum wage is set by separate regulation, and in recent years has seen annual increases after a tripartite negotiation among LFTU, the Ministry of Labor and Social Welfare, and the Lao National Chamber of Commerce and Industry. The 2014 law also established occupational health and safety standards, but inspections remain inconsistent. An International Labor Organization project undertaken in 2015 and 2016 trained labor inspectors in basic practices, with particular focus on the garment industry.

Foreign investors using a concession as an investment vehicle are reportedly able to negotiate the percentage of foreign labor to be used in the investment. However, labor standards such as minimum wage and health and safety standards should apply uniformly regardless of the investment vehicle or use of a special economic zone. In 2018, the minimum wage was approximately $130 per month.

The new labor law authorizes strikes if several steps of dispute resolution fail; however, there is no record of strikes occurring in Laos. A cultural distaste for open confrontation and the general shortage of labor continue to make strikes highly unlikely.

Employment contracts are required under the labor law but are rarely used in practice. In February 2018, the government promulgated a new decree on labor dispute resolution.

Collective bargaining is typically undertaken by representatives of the LFTU, though the 2014 labor law also provides the elected representative of independent worker’s groups the ability to negotiate their own collective bargaining agreements with employers. Basic and subsistence agriculture, informal businesses, and small family businesses make up the vast majority of employment, thus collective bargaining is relatively rare in the overall economy and unfamiliar to many.

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical source* USG or international statistical source USG or International Source of Data:  BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount  
Host Country Gross Domestic Product (GDP) ($M USD) 2020 $14,753 2019 $18,174 www.worldbank.org/en/country
Foreign Direct Investment Host Country Statistical source* USG or international statistical source USG or international Source of data:  BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) 2020 N/A 2021 N/A BEA data available at https://apps.bea.gov/international/
factsheet/
Host country’s FDI in the United States ($M USD, stock positions) 2020 N/A 2021 N/A BEA data available at https://www.bea.gov/international/
direct-investment-and-multinational-
enterprises-comprehensive-data
Total inbound stock of FDI as % host GDP 2020 N/A 2021 5% UNCTAD data available at

https://unctad.org/topic/investment/
world-investment-report
  

 

Table 3: Sources and Destination of FDI

Data not available.

14. Contact for More Information

Souliyakhom Thammavong
Commercial and Economic Assistant
U.S. Embassy, Vientiane
+856 21 487000
ThammavongS@state.gov

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