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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 averaged just below eight percent, placing Laos amongst the fastest growing economies in the world. Over the last thirty 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 Association of Southeast Asian Nations (ASEAN) Economic Community (AEC) in 2015 prompted major reforms of economic policies and regulations aimed at improving the business and investment environment. The Lao government is increasingly tying its economic fortunes to the economic integration of ASEAN and export-led development.

The rapid economic growth over the last decade has been driven by the exploitation of natural resources and development of hydropower, with both sectors largely led by foreign investors. However, the government recognizes that growth opportunities in these industries are finite, and has prioritized the development of high-value agriculture, light manufacturing, and tourism while continuing development of a range of energy resources and improving electrical transmission capacity to neighboring countries.

The Lao government hopes to leverage its lengthy land borders with Burma, China, Thailand, and Vietnam, and to implement policies that will make Laos “land-linked” rather than landlocked, prioritizing easy access to larger, emerging neighbor economies. The government hopes to increase exports of agriculture, manufactured goods, and electricity to its more industrialized neighbors. Some businesses and international investors are beginning to use Lao production bases as an opportunity to reach the broader Mekong region, including southern China. Others are placing parts of their global value chains in Laos, often as a way to diversify from existing production bases in Thailand or Vietnam. New Special Economic Zones (SEZs) in Vientiane and Savannakhet have attracted major manufacturers from Europe, North America, and Japan.

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. Investors report that corruption at all levels of the public sector and government administration remains a major concern.

Corruption, policy and regulatory ambiguity, and the uneven application of law are disincentives to further foreign investment in the country. The Lao government is making efforts to improve and its 2016-2020 five-year plan directs the government to formulate “policies that would attract investments” and to “begin to implement public investment and investment promotion laws.” Investors, however, report that practice and implementation has not yet caught up with the spirit of new laws. Furthermore, the multiple ministries and three separate methods for foreign investment into Laos lead to confusion, with many potential investors engaging either local partners or law firms to navigate the often confusing bureaucracy, or turning their efforts entirely toward other countries in the region.

Table 1

Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2016 123 of 176 http://www.transparency.org/
research/cpi/overview
World Bank’s Doing Business Report “Ease of Doing Business” 2016 139 of 190 doingbusiness.org/rankings
Global Innovation Index 2016 Not ranked https://www.globalinnovationindex.org/
analysis-indicator
U.S. FDI in Partner Country ($M USD, stock positions) 2015 N/A http://www.bea.gov/
international/factsheet/
World Bank GNI Per Capita 2015 $1,740 http://data.worldbank.org/
indicator/NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

The Lao government officially welcomes both domestic and foreign investment as it seeks to maintain high growth rates and graduate from Least Developed Country status. The pace of foreign investment has increased over the last several years and according to the Asian Development Bank, GDP growth in 2016 was 6.8 percent and is projected at 7 percent for 2017. According to Lao government statistics, mining and hydropower account for 80 percent of Foreign Direct Investment (FDI), with China, Vietnam, Thailand, Korea, France, and Japan the leading sources of foreign investment. The government’s Investment Promotion Department encourages investment through its website , and engages in annual dialogue with the private sector and foreign business chambers though the Lao Business Forum process.

The 2009 Law on Investment Promotion introduced uniform business registration requirements and tax incentives which in most cases apply equally to foreign and domestic investors. An update to the investment law was approved by the National Assembly in 2016 and was awaiting presidential approval as of early 2017. Foreigners may invest in any sector or business except in cases where the government deems the investment to be detrimental to national security, health or national traditions, or to have a negative impact on the natural environment. Even in cases where full foreign ownership is permitted, many foreign companies seek a local partner. Companies involved in large FDI projects, especially in mining and hydropower, often either find it advantageous or are required to give the government partial ownership.

Foreign investors are typically required to go through several steps prior to commencing operations. Many foreign business owners and potential investors describe the process as being overly complex, with regulations applied erratically, particularly toward foreigners. Investors also describe confusion over the roles of various ministries, with multiple ministries unexpectedly involved in the approval process. In addition to an investment license, foreign investors are required to obtain various permits, including; an annual business registration from the Ministry of Industry and Commerce; a tax registration from 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 Energy and Mines for power sector development); appropriate permits from local authorities; and an import-export license, if applicable. Obtaining the necessary permits can be challenging, especially in areas outside the capital.

There are several possible vehicles for foreign investment. Foreign partners in a joint venture must contribute at least 30 percent of the company’s registered capital. Wholly foreign-owned companies may be entirely new or a branch of an existing foreign enterprise. Equity in medium and large-sized state owned enterprises (SOEs) can be obtained through a joint venture with the Lao government.

Although reliable statistics are difficult to obtain, there is no question that foreign investment has increased dramatically over the last several years. According to the United Nations Conference on Trade and Development (UNCTAD), total FDI stock doubled between 2008 and 2013, reaching USD $2.8 billion. There are also small but growing signs of growth in higher-quality FDI at Special Economic Zones focused on light manufacturing.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreigners may invest in any sector or business except in cases where the government deems the investment to be detrimental to national security, health, or national traditions, or to have a negative impact on the natural environment. Even in cases where full foreign ownership is permitted, many foreign companies seek a local partner in order to navigate byzantine official and unofficial processes. Companies involved in large FDI projects, especially in mining and hydropower, often either find it advantageous or are required to give the government partial ownership. The registered capital requirement for foreign investors is extremely high, 1 billion LAK, or USD $120,000, when compared to other countries in the region, and does not vary based on the type or scale of the business.

Other Investment Policy Reviews

The Organisation for Economic Co-operation and Development (OECD) expects to release its new investment policy review of Laos in the second quarter of 2017. More details can be found at on the Lao country page on the OECD website .

The World Bank’s 2014 Lao PDR Investment Climate Assessment is available at https://www.worldbank.org/en/country/lao/publication/lao-pdr-investment-climate-assessment-2014-policy-uncertainty-in-the-midst-of-a-natura-resources-boom .

Business Facilitation

Laos does not have a central business registration website. Timelines and government agencies involved in business registration can vary considerably. Many investors and even locals will hire consultancies or law firms to shepherd the effort-intensive registration process, which can take anywhere from a few weeks to several months.

The Lao government has attempted to streamline business registration through the use of a “one-stop-shop” model. For general business activities, this service is located in the Ministry of Industry and Commerce. For activities requiring a government concession, the service is located in the Ministry of Planning and Investment. For Special Economic Zones (SEZ), one-stop registration is run through the Secretariat to the Lao National Committee on Special Economic Zones (SNCSEZ) in the Office of the Prime Minister. According to Prime Minister’s Decree 177, the Savan-Seno SEZ authority is required to establish one-stop services to facilitate the issuing of investment licenses and improve the efficiency of business operations.

Business owners and foreign investors give the one-stop-shop concept mixed reviews. Many acknowledge that it is an improvement, though describe it as an incomplete reform with several steps that must still be taken outside of the “single stop.” Businesses also complain that there are often different registration requirements at the central and provincial levels. The World Bank’s Ease of Doing business report ranks Laos at 139th of 190 economies globally. Within the East Asia and Pacific region, the country ranks 22nd of 25 in terms of ease of registering a business.

Outward Investment

The Lao government does not actively promote, incentivize, or restrict outward investment. Due to the small size of the local economy, few Lao firms are able to undertake significant foreign investment projects.

2. Bilateral Investment Agreements and Taxation Treaties

According to UNCTAD, Laos has bilateral investment agreements with Australia, Burma, Cambodia, China, Cuba, Denmark, France, Germany, India, Indonesia, Japan, Kuwait, Malaysia, Mongolia, Netherlands, North Korea, Pakistan, Philippines, Russia, South Korea, Singapore, Sweden, Switzerland, Thailand, the United Kingdom, and Vietnam. On February 1, 2005 a Bilateral Trade Agreement (BTA) came into force between the U.S. and the Lao governments, which contains some investment provisions.

Laos and the United States do not have a bilateral taxation treaty.

3. Legal Regime

Transparency of the Regulatory System

Regulations in Laos can be vague and conflicting, a subject which the private sector raises regularly with the government, including through official fora such as the Lao Business Forum. The 2013 Law on Making Legislation mandated that all laws be available online at the official gazette website. Draft bills are also available for public comment through the official gazette website. Though the business climate and economic regulatory framework continues to improve, the realities of doing business in Laos can fail to correspond with existing legislation and regulation. Implementation and enforcement often do not strictly follow the letter of the law, and vague or contradictory clauses in laws and regulations provide for widely varying interpretations. Regulations at the national and provincial levels can often diverge, overlap, or contradict one another. Many local firms complain of informal or gray competition from firms that offer lower costs by flaunting formal registration requirements and operating outside of government regulatory structures.

The nascent legal, regulatory, and accounting systems are not particularly conducive to a transparent, competitive business environment. International accounting norms apply and major international firms are present in the market, though understanding and adherence to these norms is limited to a small section of the business community. There are only four companies listed on the Lao stock exchange. Regulations dictate that companies listed on the exchange are to be held to accounting standards, but capacity to enforce those standards is low. According to the Law on Making Legislation, laws should be made available for comment through the electronic gazette, though this occurs inconsistently in practice.

International Regulatory Considerations

Laos is a member of the ASEAN Economic Community (AEC), and would seek to implement any AEC-agreed standards domestically. However, the local capacity to develop regulatory standards is weak, while enforcement of technical regulations is weaker still.

Legal System and Judicial Independence

The Lao legal sector is underdeveloped and lacking in capacity. The government aims to become a “rule of law state” by 2020 and continues to work with many international donors on a comprehensive legal sector reform plan. From 1975 to 1991, Laos did not have a constitution, and government decrees, issued by many ministries and officials, provided the country’s legal framework. While there have been dramatic improvements in the legal system in recent years, there are relatively few lawyers, inexperienced judges, and laws often remain vague and subject to broad interpretation.

The existing legal system incorporates some major elements of the French civil law system, but is also influenced by the former Soviet Union’s legal system as well as those of regional neighbors. Court decisions are neither widely published nor do they dramatically affect future decisions or set precedent. The Lao judicial system is bureaucratically independent of the government cabinet, but still subject to government and political interference.

Contract law in Laos is lacking in many areas important to trade and commerce. While it does provide for sanctity of contracts, in practice, contracts are subject to political interference and patronage. Business have reported that contracts can be voided if found disadvantageous to one party, or if an agreement conflicts with state or public interests. Foreign investors have described contracts in Laos as being considered “a framework for negotiation” rather than a binding agreement, and even when faced with a judgment, enforcement is weak and susceptible to corruption and bribery. Although a commercial court system exists, in practice most judges adjudicating commercial disputes have little training in commercial law. It is advisable that those considering doing business in the country contact a reputable law firm for additional advice on contracts.

Laws and Regulations on Foreign Direct Investment

A new investment law remained under consideration as of April 2017, but is expected to be approved during the year. The 2010 Law on Investment Promotion introduced uniform business registration requirements and tax incentives that apply equally to foreign and domestic investors. Foreigners may invest in any sector or business except in cases where the government deems the investment to be detrimental to national security, health, or national traditions, or to have a negative impact on the natural environment. Aside from these sectors, there are no statutory limits on foreign ownership or control of commercial enterprises, but in practice many companies seek a local partner.

Most laws of interest to investors will be featured on the Lao Trade Portal website , , with many laws and regulations translated into English, or on the Official Gazette website . The 2012 Law on Making Legislation stipulated that any legislation not posted by the end of 2014 to the electronic Official Gazette would be void. While many laws were placed on the site before the end-2014 deadline, others older laws, which would have been voided on January 1, 2015, have been placed on the site after the deadline and without being formally re-approved by the relevant legal bodies, resulting in a legal gray area.

Neither the government’s investment bureaucracy nor the commercial court system is well developed. Investors have reported government practices that deviate significantly from publicly available law and stipulated regulations. Some investors decry the courts’ limited ability to handle commercial disputes and the judicial system’s vulnerability to corruption and bribery. The Lao government has repeatedly underscored its commitment to increasing predictability in the investment environment, though in practice, with some exception in SEZs and for larger companies, foreign investors describe inconsistent application of law and regulation.

Competition and Anti-Trust Laws

A new competition law was approved in 2015 which applies to both foreign and domestic individuals and entities. The law was drafted with the assistance of the German government and other donors. The competition law was one of the Lao government’s policy efforts to implement the ASEAN Economic Community, or AEC, before 2016. The law established two new government entities, the Business Competition Control (BCC) Commission and the BCC Secretariat. The BCC Commission is the senior body and its membership is decided by the Prime Minister with the advice of the Minister of Industry and Commerce. According to the legislation, it should include senior officials from multiple ministries as well as businesspeople, economists, and lawyers. The BCC Commission can draft regulations, approve mergers, levy penalties, and provide overall guidance on government competition policy and regulation. The BCC Secretariat, a lower-level institution equivalent to a Ministry of Industry and Commerce department or division, can hear complaints, conduct investigations, and conduct research and reporting at the request of the Commission.

Expropriation and Compensation

According to law, foreign assets and investments in Laos are protected against seizure, confiscation, or nationalization except when deemed necessary for a public purpose. Public purpose can be broadly defined, however, and government land grabs are feared by Lao nationals and expatriates alike. In the case of government expropriation, the Lao government is supposed to provide fair market compensation. A business relying on a specific parcel of land may lose is investment license if the land is in dispute. Revocation of an investment license cannot be appealed to an independent body, and companies whose licenses are revoked must then quickly liquidate their assets. Small landholdings, land with unclear title, or land on which tax has not been paid is at particular risk of expropriation.

Dispute Settlement

ICSID Convention and New York Convention

Laos is not a member state to the International Centre for the Settlement of Investment Disputes (ICSID Convention). It is, however, a signatory to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention).

Investor-State Dispute Settlement

According to the Law on Investment Promotion, dispute resolution should be escalated through the following methods: mediation, administrative dispute resolution, dispute resolution by the Committee for Economic Dispute Resolution, and finally, litigation. However, due to inefficiencies and underdevelopment in the Lao legal system and the limited capacity of many Lao legal administrators, foreign investors are generally advised to seek arbitration outside the country. There are few publicly available records on international investment disputes. In disputes involving the Ministry of Planning and Investment, decisions can only be appealed back to the Ministry itself. There is, as of early 2017, no separate independent body involved in moderating or adjudicating investment disputes. Thus, a company alleging unfair treatment by the government has no independent recourse.

International Commercial Arbitration and Foreign Courts

Beyond those listed above, there are no formal Alternative Dispute Resolution mechanisms provided in Lao law. There is no known history of Laos enforcing foreign commercial arbitral decisions.

Bankruptcy Regulations

The 1994 bankruptcy law permits either the business or creditor the right to petition the court for a bankruptcy judgment and allows businesses the right to request mediation. The law authorizes liquidation of assets based upon the request of a debtor or creditor. However, there is no record of a foreign-owned enterprise, whether as debtor or as creditor, petitioning the courts for a bankruptcy judgment. According to the World Bank’s Ease of Doing Business Report, Laos remains at the very bottom of the global rankings for “ease of resolving insolvency.”

4. Industrial Policies

Investment Incentives

Laos offers a range of investment incentives depending on the investment vehicle, with particular focus on government concessions and Special Economic Zones. Many of these incentives can be found at the Invest Laos website  and are generally governed by the Investment Promotion Law. According to Article 49 of the Investment Promotion Law, the government provides incentives in for investments in certain prioritized sectors, including agriculture, industry, handicraft, and services. The government looks to encourage projects that promote poverty reduction, improve living conditions, enhance infrastructure, develop human resources, and create jobs. Incentives can include up to 10 years of tax exemption.

Foreign Trade Zones/Free Ports/Trade Facilitation

The Foreign Investment Law allows for the establishment of Special Economic Zones and Specific Economic Zones (both referred to as SEZs). Special Economic Zones are intended to support development of new infrastructure and commercial facilities and include incentives for investment. Specific Economic Zones are meant to develop existing infrastructure and facilities and provide a lower level of incentives and support than Special Economic Zones. Laos has announced plans to construct as many as 40 special and specific zones over the coming years hoping to attract USD $3 billion in foreign investment.

The Vientiane Industry and Trade Area SEZ, or “VITA Park,” and the Savan-SENO Special Economic Zone in Savannakhet province are developing as production, supply, and distribution centers with increasingly sophisticated manufacturing businesses. Savannakhet has drawn several large foreign investors and opened a new dry port and logistics center in early 2016. Other SEZs in the northern part of the country have targeted growth through a tourism model, relying on casinos to attract tourists from neighboring countries. Prostitution, wildlife trafficking, and drug trafficking have been reportedly problematic in some of the northern tourism-focused SEZs.

Generally, the Lao government places a high priority on trade facilitation measures in international fora, particularly as it relies on trade with neighboring countries in order to access sea ports. Nonetheless, Laos has struggled to harmonize its own internal processes. Cross-border trade laws and regulations should be applied uniformly across the entire customs territory of Laos. In reality, however, customs practices vary widely at different ports of entry. With assistance from Japan, the Lao government instituted a new system for electronic collection of customs fees at several major border crossings in 2016. On several border crossings with Vietnam, Lao and Vietnamese officials jointly conduct inspections to facilitate movement of goods.

Performance and Data Localization Requirements

Laos does not have performance requirements. Requirements relating to foreign hiring are governed by the 2014 Labor Law, though in practice, large investors have been able to extract additional government concessions on the use of foreign labor. Some foreign-owned businesses have criticized labor regulations for strict requirements that foreign employees not travel abroad during the first months of their Lao residency.

Laos does not currently have laws or regulations on domestic data storage or localization requirements.

5. Protection of Property Rights

Real Property

The government continues to consider changes to its existing land policy, though progress has been slow and is further complicated by sensitive issues including community-held land rights, traditional land rights, slash-and-burn or “shifting cultivation,” and a history of government expropriation of infrastructure, mining, and power projects.

Foreign investors are not currently permitted to own land in fee simple. However, Article 58 of the Law on Investment Promotion stipulates that foreign investors with registered investment capital of USD $500,000 or above are entitled to purchase land use rights of less than 800 square meters in order to build housing or office buildings. The Lao government grants long-term leases, and allows the ownership of leases and the right to transfer and improve leasehold interests. Government approval is not required to transfer property interests, but the transfer must be registered and a registration fee paid.

A creditor may enforce security rights against a debtor and the concept of a mortgage does exist. Although the Lao government is engaged in a land parceling and titling project, it remains difficult to determine if a piece of property is encumbered. Enforcement of mortgages is complicated by the legal protection given to mortgagees against forfeiture of their sole place of residence.

Laos provides for secured interest in moveable and non-moveable property under the 2005 Law on Secured Transactions and a 2011 implementing decree from the Prime Minister. In 2013, the State Assets Management Authority at the Ministry of Finance launched a new Secured Transaction Registry (STR), intended to expand access to credit for individuals and smaller firms. The STR allows for registration of movable assets such as vehicles and equipment so that they may be easily verified by financial institutions and used as collateral for loans.

Outside of urban areas, land rights can be even more complex, in such areas titles and ownership are not clear, with some areas practicing communal titling.

Intellectual Property Rights

Intellectual property rights (IPR) protection in Laos is weak, but government efforts to improve IPR protections are steadily improving. The U.S.-funded Lao PDR-U.S. International and ASEAN Integration (LUNA II) project is assisting the Lao government to build capacity in the area of IPR and to assist with progress on the IPR-related commitments undertaken as a part of Laos’ 2013 WTO accession package.

Government reorganization in 2011 created the Ministry of Science and Technology, which controls the issuance of patents, copyrights, and trademarks. While Laos is a member of the ASEAN Common Filing System on patents, the country lacks qualified patent examiners. Given that Thailand and Laos have signed a bilateral IPR agreement, in principle a patent issued in Thailand would also be recognized in Laos.

Laos is a member of the World Intellectual Property Organization (WIPO) Convention and the Paris Convention on the Protection of Industrial Property but has not yet joined the Bern Convention on Copyrights.

In 2011 the National Assembly passed a comprehensive revision of the Law on Intellectual Property which brings it into compliance with WIPO and Trade-Related Aspects of Intellectual Property standards (TRIPS). The consolidation of responsibility for IPR under the Ministry of Science and Technology is a positive development, but the Ministry lacks enforcement capacity.

Laos is not listed in USTR’s Special 301 Report or the Notorious Markets report.

For additional information about treaty obligations and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/ .

6. Financial Sector

Capital Markets and Portfolio Investment

Laos does not have a well-developed capital market, although government policies increasingly support the formation of capital and free flow of financial resources. The Lao Securities Exchange (LSX) began operations in 2011 with two stocks listed, both of them state-owned; the Banque Pour l’Commerce Exterieur (BCEL), and the power generation arm of the electrical utility, Electricité du Laos – Generation (EDL-Gen). In 2012, the Lao government increased the proportion of shares that foreigners can hold on the LSX from 10 to 20 percent. As of April 2017, there are only five companies listed on the LSX: BCEL, EDL-Gen, Petroleum Trading Laos (fuel stations), Lao World (property development and management), and Souvanny Home Center (home goods retail). News and information about the LSX is available at online at the exchange’s website .

Businesses report that they are often unable to exchange kip into foreign currencies through central or local banks. Analysts have suggested that concerns about dollar reserves have led to temporary issues with the convertibility of the national currency. Private banks allege that the central bank withholds dollar reserves. In response, the Bank of Lao PDR similarly alleges that the private banks already hold sizable reserves and have been reluctant to give foreign exchange to their customers in order to maintain unreasonably high reserves. The tightness in the forex market led to a temporary 5 to 10 percent divergence between official and gray-market currency rates in late 2016.

Lao and foreign companies alike note that there is a lack of long-term credit in the domestic market. Loans repayable over more than five years are very rare, and the choice of credit instruments in the local market is limited. The Credit Information Bureau, developed to help inject more credit into markets, still has very little information and has not yet succeeded in mitigating lender concerns about risk.

Money and Banking System

The banking system is under the supervision of the Bank of Lao PDR, the central bank, and includes more than 40 banks. Private foreign banks can establish branches in all provinces, and ATMs have become ubiquitous in urban centers. Technical assistance to Laos’ financial sector has led to some reforms but overall capacity within the financial governance structure remains weak.

The banking system is dominated by large, government-owned banks. The health of the banking sector is difficult to determine given a lack of reliable data, though banks are widely believed to be poorly regulated and there is broad concern about bad debts and non-performing loans that have yet to be fully reconciled, in particular by the state-run banks. The IMF and others have encouraged the central bank to facilitate recapitalization of the state-owned banks to improve the resilience of the sector.

Concerns over weak local banking regulation, lax enforcement, and exposure to risk stemming from a lack of money-laundering controls has led some western banks to terminate correspondent banking relationships with Lao banks. The central bank temporarily ceased licensing new banks in 2014, justifying the move as a means to better regulate existing banks and assess their compliance with existing regulations.

While there is no publicly available data on non-performing loans, it is widely believed that they pose a major concern in the financial sector, fueled in part by years of rapid growth in private lending. The government’s fiscal difficulties in 2013 and 2014 led to non-payment on government infrastructure projects. The construction companies implementing the projects in turn could not pay back loans for capital used in construction. Many analysts believe the full effects of the government’s fiscal difficulties have not yet worked their way through the economy.

Foreign Exchange and Remittances

Foreign Exchange

There are no published, formal restrictions on foreign exchange conversion, though restrictions have previously been reported. Due to the small size of the market for Lao kip, the currency is rarely convertible outside the immediate region. In 2013, the economy suffered fiscal and monetary difficulties, which resulted in low levels of foreign reserves. In response, the Bank of the Lao PDR imposed daily limits on converting funds from Lao kip into U.S. dollars and Thai baht, leading to challenges in obtaining foreign exchange in Laos. Again in late 2016, banks and some businesses reported restrictions on foreign currency conversion, though others claimed they had no trouble accessing foreign currency.

In order to facilitate business transactions, foreign investors generally open commercial bank accounts in both local and foreign convertible currency at domestic and foreign banks in Laos. The Enterprise Accounting Law places no limitations on foreign investors transferring after-tax profits, income from technology transfer, initial capital, interest, wages and salaries, or other remittances to the company’s home country or third countries provided that they request approval from the government. Foreign enterprises must report on their performance annually and submit annual financial statements to the Ministry of Planning and Investment (MPI).

The central bank, Bank of Lao PDR, maintains an adjustable peg against the U.S. dollar for the Lao kip, or LAK, and allows fluctuations within a band of plus or minus five percent. The peg is adjusted to account for fluctuations in value of both the U.S. dollar and the Thai baht. In recent years, the kip’s value has fluctuated far less than the allowed five percent from the adjustable peg. In 2016, the kip appreciated against the Thai baht while depreciating slightly against the U.S. dollar.

Remittance Policies

Formally, all remittances abroad, transfers into Laos, foreign loans, and payments that are not denominated in Lao kip must be approved by the Bank of Lao PDR, the central bank. In practice, many remittances are understood to flow into Laos informally, and relatively easily, from a sizeable Lao workforce based in Thailand. Remittance-related rules can be vague and official practice is reportedly inconsistent. There have been no recent changes to remittance laws or policies in Laos.

Sovereign Wealth Funds

There are no known sovereign wealth funds in Laos.

7. State-Owned Enterprises

The Lao government maintains ownership stakes in key sectors of the economy such as telecommunications, energy, finance, airlines, and mining. Where state interests conflict with private ownership, the state is in a position of advantage.

There is no centralized, publicly available list of Lao SOEs. The Lao government reports that there are 135 State-Owned Enterprises in Laos with more than USD $5 billion in assets. The government occasionally floats the idea of increasing private ownership in SOEs, such as Lao Airlines, through partial listings on the LSX, or spinning off parts of larger enterprises, such as the state electrical utility, EDL.

The government has not specified a code or policy for its management of SOEs and has not adopted OECD guidelines for Corporate Governance of SOEs. There is no single government body that oversees SOEs. Several separate government entities exercise SOE ownership in different industries. SOE senior management does not uniformly report to a line minister. Comprehensive information on boards of directors or their independence is not publicly available. While there is scant evidence one way or the other, private businesses generally assume that court decisions would favor an SOE over another party in an investment dispute.

Privatization Program

There is no formal SOE privatization program, though Prime Minister Thongloun has openly discussed subjecting some SOEs to greater competition and possible privatization. The government has over the past several years occasionally floated ideas of increasing private ownership in some SOEs through partial listings on the LSX, or through spinning off and privatizing parts of others. The government’s rhetoric on privatization has not, however, resulted in any firm actions.

8. Responsible Business Conduct

There is limited general awareness of responsible business conduct (RBC) and corporate social responsibility (CSR) practices among the public and private sectors. There is no systematic government or NGO monitoring of RBC, and RBC is not generally included in the government’s investment policy formulations. The government has expressed interest in the Extractive Industries Transparency Initiative, but considers it a long-term objective.

9. Corruption

Corruption is prevalent in Laos, and affects all levels of the economy. While the government has made efforts to address the issues and developed several anti-corruption laws, enforcement remains weak, with no high-profile cases ever having been brought to trial. According to the state inspection authority, the government has prosecuted some individuals for corruption, but public knowledge of the prosecution and allegations is limited. Reports are made only to the National Assembly and press coverage of such National Assembly sessions tends to cover the issue broadly without giving details. Since assuming office in early 2016, Prime Minister Thongloun Sisoulith has put a renewed focus on the government’s anti-corruption efforts. In September 2009, Laos ratified the United Nations Convention against Corruption.

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. Transparency International’s Corruption Perception Index ranked Laos at 123rd of 176 countries worldwide in its 2016 report.

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

According to Lao law, both giving and accepting bribes are criminal acts punishable by fines 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, requiring them to declare income, assets, and debts for themselves and their family members; this requirement was further strengthened in 2017. Officials must file a declaration of assets valued over USD $2,500, including land, structures, vehicles and equipment, as well as cash, gold, and financial instruments, which is 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. The extent to which this program has worked or is working in practice remains unclear.

Resources to Report Corruption

Contact at the government agency responsible for combating corruption:

Mr. Viengkeo PhonAsa
Director General
Anti-Corruption Department, State Inspection and Anti-Corruption Authority
Sivilay Village, Xaythany District, Vientiane Capital, 13th South Road
Tel: office: 021 715006, 021 715010; cell: 020 2222 5432

10. Political and Security Environment

Laos is generally a peaceful and politically stable country. The risk of political violence directed at foreign enterprises or businesspersons is low. However, a string of unexplained attacks on vehicles traveling in the area of Xaysomboun province in late 2015 and 2016 caused several diplomatic missions to issue warnings to their citizens to avoid the area and at least one major mining company to alter its security stance. The motives for the attacks remain unclear, and there were no new reports of violence in 2017. There has been little-to-no political violence in the last decade.

The Communist Party, or the Lao People’s Revolutionary Party (LPRP), remains firmly in control of the government, and the 11-member Politburo and the 69-member Party Central Committee populate the highest ranks of the cabinet agencies, the judiciary, and the legislature. The last elections for the National Assembly were held in March 2016, which saw the Party take 144 of 149 seats in the National Assembly. Bounnhang Vorachith serves as head of the LPRP as well as the President of Lao PDR, while Prime Minister Thongloun Sisoulith concurrently holds the LPRP’s second-ranking seat. Though nominally communist, the LPRP has increasingly embraced market principles, regional economic integration, and private investment.

11. Labor Policies and Practices

The Lao labor market is very tight with employers reporting shortages of labor at all levels. The World Bank reported in 2014 that nearly half of advertisements for low-skilled workers in Laos receive no applications.

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, which is associated with the ruling Lao People’s Revolutionary Party, is the primary representative of labor and represents workers in tripartite processes.

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. The new law 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 the 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 investment vehicle or use of a special economic zone.

The new labor law authorizes strikes if several steps of dispute resolution fail; however, the country does not have a history of labor strikes. A cultural distaste for open confrontation and the general shortage of labor continue to make strikes highly unlikely. Further regulations on strikes and labor dispute resolution are expected in 2017, which, while unlikely to drastically change current practices, could provide foreign investors or foreign-operated companies further certainty regarding responsibilities related to labor protections.

Employment contracts are required under the labor law, but are rarely used in practice. As of early 2016, the government continued to work on new regulations relating to labor dispute resolution mechanisms.

Collective bargaining is typically undertaken by representatives of the Lao Federation of Trade Unions, 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 the concept is unfamiliar to many.

12. OPIC and Other Investment Insurance Programs

The U.S. Overseas Private Investment Corporation (OPIC) and Laos signed a bilateral agreement in 1996. OPIC currently has no exposure in Laos, but the organization is actively exploring options for programing in the country.

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) 2015 $12.37 billion 2016 $13.7 billion (est.) www.worldbank.org/en/country 
Foreign Direct Investment Host Country Statistical Source* USG or International Statistical source USG or international Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in Partner Country ($M USD, stock positions) 2015 $150 million N/A N/A BEA data available at http://bea.gov/international/direct_investment_
multinational_companies_comprehensive_data.htm
 

*Local GDP statistics from National Institute of Economic Research, investment statistics from Ministry of Planning and Investment.

Table 3: Sources and Destination of FDI

There is currently no reliable data on the sources and destination of FDI in Laos. However China, Vietnam, Thailand, Korea, France, and Japan are cited by the Ministry of Planning and Investment as the largest leading sources of foreign investment.

Table 4: Sources of Portfolio Investment

There is currently no data available on the sources of portfolio investment in Lao.

14. Contact for More Information

Noah Geesaman
Economic and Commercial Officer
GeesamanN@state.gov

Joseph Narus
Economic and Commercial Officer
NarusJJ@state.gov

Athnasak Sisouk
Economic and Commercial Specialist
AthansakS@state.gov

U.S. Embassy, Km 9, Tha Deua Rd, Vientiane Laos
(+856) 21 487-000

2017 Investment Climate Statements: Laos
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