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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.  According to the World Bank, Laos’ GDP growth fell from 6.3 percent in 2018 to 4.8 percent in 2019 due primarily to natural disasters that affected the agricultural sector.  The COVID-19 outbreak is expected to further intensify the country’s macroeconomic vulnerabilities in 2020, with limited fiscal and foreign currency buffers constraining the ability of the Government of Lao PDR to mitigate the economic impacts of the pandemic.  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 aimed at improving the 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 seeking to move toward greener growth and sustainable development.

The exploitation of natural resources and development of hydropower drove the rapid economic growth over the last decade, with both sectors largely led by foreign investors. However, the Lao government recognizes that growth opportunities in these industries are finite and employ few people, and has therefore recently began prioritizing and expanding the development of high-value agriculture, light manufacturing, and tourism, while continuing to develop energy resources and related electrical transmission capacity to 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 the countries along its borders. 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 China-Laos Railway, which will connect Kunming in Yunnan Province with Vientiane, Laos. The railway is expected to be completed and operational by 2021.  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.

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, under the administration of the new Prime Minister Thongloun Sisoulith is making efforts to improve the business environment.  Its current five-year plan (2016 – 2020) directs the government to formulate “policies that would attract investments” and to “begin to implement public investment and investment promotion laws.”  The Prime Minister’s publicly-stated goal is to see Laos improve its World Bank Ease of Doing Business ranking, and in February 2018, he issued a Prime Minister order laying out specific steps ministries were to take in order to improve the business environment.  These efforts are having some impact – for example, it now takes to less than 40 days to obtain a business license, whereas just 4 years ago it took 174 days, and other nonessential steps were eliminated.  The current administration remains active against corrupt practices, with the government and National Assembly in 2019 disciplining hundreds of officials for corruption-related offenses.  Despite these efforts, the Laos’ Ease of Doing Business ranking has fallen from 139 in 2016 to 154 in 2019.  Furthermore, the multiple ministries, laws, and regulations affecting foreign investment into Laos create confusion, and thus, require many potential investors engage either local partners or law firms to navigate the confusing bureaucracy, or turn their efforts entirely toward other countries in the region.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2019 130 of 180 http://www.transparency.org/
research/cpi/overview
World Bank’s Doing Business Report 2019 154 of 190 http://www.doingbusiness.org/
en/rankings
Global Innovation Index 2019 Not Ranked https://www.globalinnovationindex.org/
analysis-indicator
U.S. FDI in partner country ($M USD, stock positions) 2019 No Data Available https://apps.bea.gov/international/
factsheet/factsheet.cfm?Area=615
World Bank GNI per capita 2019 $ 2,450 http://data.worldbank.org/indicator/
NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Toward Foreign Direct Investment

The Lao government officially welcomes both domestic and foreign investment as it seeks to keep growth rates high and graduate from Least Developed Country status by 2024.  The pace of foreign investment has increased over the last several years.  According to Lao government statistics, mining and hydropower account for 95.7 percent of Foreign Direct Investment (FDI), and agriculture accounted for only 2 percent of FDI in 2019  China, Thailand, France, Vietnam, and Japan are the largest sources of foreign investment, with China accounting for a significant share of  all FDI in Laos.  The government’s Investment Promotion Department encourages investment through its website www.investlaos.gov.la , and holds an annual dialogue with the private sector and foreign business chambers though the Lao Business Forum process.

The 2009 Law on Investment promotion was amended in November 2016, with 32 new articles introduced and 59 existing articles revised.  Notably, the new law, an English version of which can be found at www.investlaos.gov.la , clarifies investment incentives, transfers responsibility for SEZs from the Prime Minister’s office to the Ministry of Planning and Investment, and removes strict registered capital requirements for opening a business, deferring instead to the relevant ministry.  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 that have a negative impact on the natural environment.  Nevertheless, 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 procedural steps prior to commencing operations.  Many foreign business owners and potential investors claim the process is overly complex and regulations are erratically applied, particularly to foreigner investors.  Investors also express confusion about the roles of different ministries, as multiple ministries become involved in the approval process.  In the case of general investment licenses (as opposed to concessionary licenses, which are issued by Ministry of Planning and Investment), foreign investors are required to obtain multiple permits, including an annual business registration from the Ministry of Industry and Commerce (MOIC), 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., MOIC for manufacturing, and 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 and time consuming, 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 SOEs can be obtained through a joint venture with the Lao government.

Reliable statistics are difficult to obtain, yet with the slowdown of the world economy, there is no question that foreign investment has begun to fluctuate in comparison to previous years.  According to the United Nations Conference on Trade and Development (UNCTAD), FDI inflows to Laos decreased 17 percent to USD 1.3 billion in 2018 after peaking in 2017 but still 30 percent higher than 2016.  Laos received around USD 1.07 billion in FDI from China in 2019.  Total FDI stock in Laos has increased from USD 5.7 billion in 2016 to USD 8.6 billion in 2018.

Limits on Foreign Control and Right to Private Ownership and Establishment

As discussed above, even though foreigners may invest in most sectors or businesses (subject to previously noted exceptions), 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.

Other Investment Policy Reviews

The OECD releases its most recent investment policy review of Laos on July 11, 2017.  More details can be found at http://www.oecd.org/daf/inv/investment-policy/oecd-investment-policy-reviews-lao-pdr-2017-9789264276055-en.htm 

Business Facilitation

Laos does not have a central business registration website yet, but the Ministry of Industry and Commerce (MOIC) has improved its online enterprise registration site, http://www.erm.gov.la , to accelerate the registration process. As discussed above, over the last four years the total time for business registration has been reduced significantly. The timelines and the different government agencies involved in the process can still vary considerably, however, depending on locations and the type of business.  As a result, many investors and even locals often hire consultancies or law firms to shepherd the labor-intensive registration process.

The Lao government has attempted to streamline business registration using a one-stop shop model.  For general business activities, this service is in the MOIC, http://www.erm.gov.la.  For activities requiring a government concession, the service is in the Ministry of Planning and Investment.  For SEZs, one-stop registration is run through the Ministry of Planning and Investment or in special one-stop service offices within the SEZs themselves (under the authority of the Ministry of Planning and Investment), as is the case at Savan Seno SEZ.

Business owners give the one-stop shop concept mixed reviews.  Many acknowledge that it is an improvement but describe it as an incomplete reform with several additional 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.

Outward Investment

The Lao government does not actively promote, incentivize, or restrict outward investment.

2. Bilateral Investment and Taxation Treaties

According to the United Nations Conference on Trade and Development (UNCTAD), Laos has bilateral investment agreements with Australia, Belarus, Cambodia (not in force), China, Cuba, Denmark, France, Germany, , Japan, Republic of Korea, Kuwait, Malaysia (not in force), Mongolia, Myanmar, Netherlands, Pakistan, Russia Federation, Singapore, Sweden, Switzerland, Thailand, the United Kingdom, and Vietnam.  On February 1, 2005, a Bilateral Trade Agreement (BTA) entered into force between the United States and the Government of Laos that contains some investment provisions.  The original BTA is available on MOIC’s website.

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 that 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, www.laoofficialgazette.gov.la .  Draft bills are also available for public comment through the official gazette website, although not all bills are posted for comment or in the official gazette, and the provinces seldom post their local legislation.  Though the situation 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 still 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 nine companies listed on the Lao stock exchange.  Regulations dictate that companies listed on the exchange must be held to accounting standards, but the government’s capacity to enforce those standards is low.

The government now publicly releases the enacted budget, which includes the total amount of domestic and external debt obligations for the whole country.

International Regulatory Considerations

Laos is a member of the ASEAN Economic Community (AEC), and is seeking to implement all AEC-agreed standards domestically.  However, the local capacity to develop regulatory standards is weak, while enforcement of technical regulations is weaker still. On the positive side, the Lao government has been diligent at notifying draft technical regulations – such as its new law on standards – to the WTO committee on Technical Barriers to Trade (TBT).

Legal System and Judicial Independence

Laos currently has a poorly developed legal sector.  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 various ministries and officials only exacerbated the country’s poor legal framework.  While there have been dramatic improvements in the legal system over the last decade, there are relatively few lawyers, many judges lack formal training and experience, and laws often remain vague and subject to broad interpretation.

The existing system incorporates some major elements of the French civil law system, but it is also influenced by legal systems of the former Soviet Union and some of its neighbors in the region.  Court decisions are neither widely published nor do they necessarily affect future decisions.  Despite being bureaucratically independent of the government cabinet, the Lao judiciary is still subject to government and political interference.

Contract law in Laos is lacking in many areas important to trade and commerce.  The law provides for the sanctity of contracts, but in practice, contracts are subject to political interference and patronage.  Businesses report that contracts can be voided if they are found to be disadvantageous to one party, or if they conflict with state or public interests.  Foreign businessmen describe contracts in Laos as being “a framework for negotiation” rather than a binding agreement, and even when faced with a judgment, enforcement is weak and subject to the influence of corruption.  Although a commercial court system exists, most judges adjudicating commercial disputes have little training in commercial law.  Those considering doing business in Laos are strongly urged to contact a reputable law firm for additional advice on contracts.

One positive development from 2019 is that under the leadership of MOIC, Laos became the 92nd State Party to join the United Nations Convention on Contracts for the International Sale of Goods.

Laws and Regulations on Foreign Direct Investment

As discussed above, the 2009 Law on Investment promotion was amended in November 2016. The new law provides more transparency regarding regulations and procedures, and provides greater detail about what specific responsibilities fall under the Ministry of Planning and Investment.  The 2016 Law on Investment Promotion introduced uniform business registration requirements and tax incentives that apply equally to foreign and domestic investors.  As noted above, 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.  For reasons discussed above, despite changes in the law, many companies continue to seek a local partner.

Most laws of interest to investors are featured on the Lao Trade Portal website, http://www.laotradeportal.gov.la , with many laws and regulations translated into English, or the Lao Official Gazette, http://laoofficialgazette.gov.la , or the official website of the  Ministry of Planning and Investment, www.investlaos.gov.la , or the newly created Lao Law App.

In sum, neither the government’s investment bureaucracy nor the commercial court system is well developed, although the former is improving and reforming.  Investors have experienced government practices that deviate significantly from publicly available law and regulation.  Some investors decry the courts’ limited ability to handle commercial disputes and vulnerability to corruption.  The Lao government has repeatedly underscored its commitment to increasing predictability in the investment environment, but in practice, with some exceptions in the creation and operation of SEZs, and investments by larger companies, foreign investors describe inconsistent application of law and regulation.

Competition and Anti-Trust Laws

There have been no updates since 2017.  A new competition law was approved in 2015 that 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 (MOIC).  According to the legislation, it should include senior officials from multiple ministries as well as business people, 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 MOIC 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 land grabs are feared by Lao nationals and expatriates alike.  In the event of a government expropriation, the Lao government is supposed to provide fair market compensation.  Nevertheless, a business relying on a specific parcel of land may lose its 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 quickly liquidate their assets.  Small landholdings, land with unclear title, or land on which taxes have not been paid are 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, resolution of a dispute resolution should occur through the following process: mediation, administrative dispute resolution, dispute resolution by the Committee for Economic Dispute Resolution, and finally, litigation.  However, due to the underdeveloped state of the Lao legal system, foreign investors are generally advised to seek arbitration outside of the country.  There are few publicly available records on international investment disputes.   According to the 2017 investment promotion law, article 96 on Dispute Resolution by the Office for Economic Dispute Resolution in the Lao PDR or international organization to which Lao PDR is a party states: “When there is an investment-related dispute, either party thereto shall have the rights to request the Office for Economic Dispute Resolution for resolution within the Lao PDR or abroad as agreed by the parties of the dispute. The Lao PDR recognizes and enforces the award of foreign or international arbitration subject to certification by people’s court of Lao PDR.”  However, in practice, the Embassy is not aware of this new article being successfully exercised by a foreign investor.

International Commercial Arbitration and Foreign Courts

Beyond those listed above, there are no formal Alternative Dispute Resolution mechanisms provided in Lao law but based on the amended Investment Promotion Law and the law on Investment resolution law dated June 22, 2018, both parties can decide if they would like to have the arbitration in Laos or abroad as mentioned in the contract.  There is no known history of Laos enforcing foreign commercial arbitral decisions.

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 also 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 www.investlaos.gov.la  and are generally governed by the Investment Promotion Law.

Foreign Trade Zones/Free Ports/Trade Facilitation

The new 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 intended for the development of 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, but as of 2020, it has only established 12.  Some, such as Savan Seno SEZ in Savannakhet and Vientiane Industry and Trade Area SEZ, or VITA Park, in Vientiane, have successfully attracted foreign investors.  Others are accused of harboring illegal activities, such as the Golden Triangle SEZ in Bokeo Province that houses the Kings Roman Casino.  The Department of Treasury Office of Foreign Assets Control in early 2018 designated the Kings Roman Casino and its owners a Transnational Criminal Organization for engaging in drug trafficking, human trafficking, money laundering, bribery, and wildlife trafficking.  More Chinese-invested SEZs are expected to open in the coming years, especially along the China-Laos Railway line. Thai companies are also exploring new SEZ-style industrial parks in Laos.

Generally, the Lao government places a high priority on trade facilitation measures in international fora, particularly as it relies upon trade across its neighboring countries in order to reach seaports.  Nonetheless, Laos has struggled to harmonize its own internal processes.   For example, 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, which has been a significant improvement, and in early 2019 the Department of Customs introduced electronic customs payments at the Lao – Thai Friendship Bridge for passengers.  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, but in practice, large investors have been able to extract additional government concessions on 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 enacted 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, although progress has been slow; and is complicated by sensitive issues including community-held land rights, traditional land rights, slash-and-burn or shifting cultivation, and a history of expropriation for infrastructure, mining, and power projects. A draft revision to the Law on Land Rights has been previewed at multiple National Assembly sessions, but continues to be delayed because of the numerous sensitivities.

Foreign investors are not currently permitted to own land.  However, Article 16 of the 2016 Law on Investment Promotion allows investors to obtain land for use through long-term leases or as concessions, 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.

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

Laos provides for secured interests 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.  Titles and ownership are not clear, and some areas practice communal titling.

Intellectual Property Rights

Intellectual property protection in Laos is weak, but steadily improving.  The USAID-funded Lao PDR-U.S. International and ASEAN Integration (USAID LUNA II) project assisted the Lao government’s efforts to increase its capacity in the area of intellectual property rights (IPR) and to progress on the IPR-related commitments undertaken as a part of Laos’ 2013 WTO accession package. USAID LUNA II worked with the Ministry of Science and Technology’s Department of Intellectual Property to establish an online portal that provides detailed information regarding the registration of copyrights, trademarks, geographic indicators and plant varieties, https://dip.gov.la . Interested individuals can use the portal to complete the application forms online. The portal officially launched in February 2019. Additionally, USAID LUNA II provided technical support to the Lao government in amending the Law on Intellectual Property.

The Ministry of Science and Technology controls the issuance of patents, copyrights, and trademarks.  Laos is a member of the ASEAN Common Filing System on patents but lacks qualified patent examiners. The bilateral IPR agreement between Thailand and Laos dictates that a patent issued in Thailand 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 Berne 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).  Amendments to the 2011 Law on Intellectual Property were made public in May 2018. 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 2020 Special 301 Report and the USTR 2019 Review of Notorious Markets does not list any physical or online markets based in Laos.

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, Electricite 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 March 2020, there are eleven companies listed on the LSX: BCEL, EDL-Gen, Petroleum Trading Laos (fuel stations), Lao World (property development and management), Souvanny Home Center (home goods retail), Phousy Construction and Development (Construction and real estate development), Lao Cement (LCC), Mahathuen Leasing (leasing), Lao Agrotech (palm oil plantation and extraction factory), Vientiane Center (property development and management), and Lao ASEAN Leasing (LALCO) ( financing and leasing).  News and information about the LSX is available at http://www.lsx.com.la/ .

Businesses report that they are often unable to exchange kip into foreign currencies through central or local banks.  Analysts suggest that concerns about dollar reserves may have led to temporary problems in the convertibility of the national currency.  Private banks allege that the Bank of Lao PDR withholds dollar reserves.  The Bank of Lao PDR 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 5-10 percent divergence between official and gray-market currency rates in late 2019 and early 2020, and since 2017 the Lao kip has depreciated against both the dollar and Thai baht.

Lao and foreign companies alike, and especially small- and medium-sized enterprises (SMEs), note the 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 nation’s central bank, and includes more than 40 banks, most of them commercial.  Private foreign banks can establish branches in all provinces of Laos.  ATMs have become ubiquitous in urban centers.  Technical assistance to Laos’ financial sector has led to some reforms and significant improvements to Laos’ regulatory regime on anti-money laundering and countering the financing of terrorism, but overall capacity within the financial governance structure remains poor.

The banking system is dominated by large, government-owned banks.  The health of the banking sector is difficult to determine given the 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 by the state-run banks, in particular.  The IMF and others have encouraged the Bank of Lao PDR to facilitate recapitalization of the state-owned banks to improve the resilience of the sector.

While publicly available data is difficult to find, non-performing loans are widely believed to be 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.  In recent years Laos is projected to continue running a budget deficit of 4-5 percent, which coupled with rising public or publicly held debt estimated over 60 percent of GDP, add to concerns about Laos’ fiscal outlook.   In 2018 Laos passed a new law on Public Debt Management aimed at reducing the debt-to-GDP ratio in the coming years.

Foreign Exchange and Remittances

Foreign Exchange

There are no published, formal restrictions on foreign exchange conversion, though restrictions have previously been reported, and because the market for Lao kip is relatively small, the currency is rarely convertible outside the immediate region.  Laos persistently maintains low levels of foreign reserves, which are estimated to cover only 1.1 months’ worth of total imports.  The reserve buffer is expected to remain relatively low due to structurally weak export growth in the non-resource sector and debt service payments. The decline in reserves was due to a drawdown of government deposits primarily for external debt service payments, some intervention in the foreign exchange market to manage the volatility of the currency (notwithstanding a more flexible currency), and financing the continuing current account deficit. The Bank of the Lao PDR (BOL) occasionally imposes daily limits on converting funds from Lao kip into U.S. dollars and Thai baht, or restricts the sectors able to convert Lao kip into dollars, sometimes leading to difficulties in obtaining foreign exchange in Laos.

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 Lao government.  Foreign enterprises must report on their performance annually and submit annual financial statements to the Ministry of Planning and Investment (MPI).

According to a recent report from Laos’ National Institute for Economic Research (NIER), the increasing demand for USD and Thai Baht for the import of capital equipment for projects and consumer goods,  coupled with growing demand for foreign currency to pay off foreign debts has resulted in a depreciation of the exchange rate in 2019. The official nominal kip/U.S. dollar reference rate depreciated by 3.59% in 2019, while the kip/Baht exchange rate depreciated by 7.59%.

Remittance Policies

There have been no recent changes to remittance law or policy in Laos.  Formally, all remittances abroad, transfers into Laos, foreign loans, and payments not denominated in Lao kip must be approved by the BOL.  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.

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 State-Owned Enterprises (SOEs).  The Lao government’s most recent figures report that there are now more than 187 SOEs in Lao PDR. 133 SOEs are 51 – 100 percent State owned. The registered capital was more than USD 26 billion. At the end of 2017, the total assets of 60 SOEs managed by State Property Management Department of Ministry of Finance was more than USD 13 billion (80.51percent of GDP). The net profit from SOEs was around USD 156 million of which USD 105 million was the Government dividends.  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, and the government has over the past several years occasionally floated ideas for increasing private ownership in some SOEs through partial listings on the LSX, or through spinning off and privatizing parts of others.

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.

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.   Since assuming office in early 2016, Prime Minister Thongloun Sisoulith has put a renewed focus on government anti-corruption efforts, and Lao media and the National Assembly now regularly report on corruption challenge and the sacking of disciplining of corrupt officials.  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.

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 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 of any assets valued over USD 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 are 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 715032; Fax: 021 715006; 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.  There was a string of unexplained attacks on vehicles traveling in remote areas of Xaysomboun province in late 2015 and 2016 which caused several diplomatic missions to issue travel warnings to their citizens, but such incidents have not been repeated in recent years.  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, approximately 62 percent of which are 30 years of age or younger, 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 tri-partite 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 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.  In 2018, the minimum wage was approximately USD130 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 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 unfamiliar to many.

12. U.S. International Development Finance Corporation and Other Investment Insurance Programs

The U.S. International Development Finance Corporation’s (DFC) predecessor agency, the U.S. Overseas Private Investment Corporation (OPIC) and Laos signed a bilateral agreement in 1996.  DFC currently has no exposure in Laos, but the organization is actively exploring options for programming 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) 2018 $18,129 2018 $17,954 www.worldbank.org/en/country 
Foreign Direct Investment Host Country Statistical source USG or international statistical source USG or international Source of data:
BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) N/A N/A N/A N/A BEA data available at
https://www.bea.gov/international/
direct-investment-and-multinational-
enterprises-comprehensive-data
 
Host country’s FDI in the United States ($M USD, stock positions) N/A N/A N/A 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 N/A N/A 2018 51% UNCTAD data available at
https://unctad.org/en/Pages/DIAE/
World%20Investment%20Report/
Country-Fact-Sheets.aspx
 

Table 3: Sources and Destination of FDI
Data not available.

Table 4: Sources of Portfolio Investment
Data not available.

14. Contact for More Information

Athnasak Sisouk
Economic and Commercial Assistant
U.S. Embassy, Km 9, Tha Deua Rd, Vientiane Laos
(+856) 21 487-000
AthansakS@state.gov

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