Openness to Foreign Investment
The Lao PDR is one of the ten fastest-growing economies in the world. Foreign
investment has been increasing over the last several years and continues to flow to
mining, hydropower, and agriculture.
sources of foreign investment, with each investing about $2.5 billion in
According to the 7th National Socio-Economic Development Plan, which covers the
period from 2011 to 2015,
neighborhood of 8%. To accomplish this, the government of
approximately $15 billion of total investment in the next five years, $7 to $8 billion of
which it plans to source from foreign and domestic private investment. The plan directs
formulation of “policies that would attract investments in addition to attracting Overseas
Development Assistance; begin to implement public investment and investment
promotion laws; and increase cooperation with friendly countries and international
organizations.”
years and has committed to joining the ASEAN Economic Community in 2015. Both of
these processes require considerable trade and regulatory reforms, which should make
the investment climate more attractive to Chinese enterprises.
of law. The government of Laos (GOL) has taken steps to embrace a more transparent
economic and regulatory framework, but business transactions and investments are still
carried out in an opaque manner. Additionally,
and a weak legal system.
The GOL is open to foreign investment as a matter of policy and allows 100% foreign
ownership of enterprises. The 2009 Law on Investment Promotion governs foreign
investment in
given equal treatment and incentives, although in practice this is not uniformly the case.
Foreigners may invest in any sector or business except those that the government
deems to be detrimental to national security, health or national traditions, or to have a
negative impact on the natural environment.
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,
frequently with money borrowed from the investor or multilateral institutions.
The term of a foreign investment depends on the nature, size, and conditions of the
business project but normally cannot exceed ninety-nine years, according to Article 28 of
the Law on Investment Promotion. Under special circumstances, shorter-term foreign
investments may be extended with the approval of the government but still may not
exceed a total term of ninety-nine years.
The Lao Securities Exchange opened in 2011 with two stocks listed. In January 2012,
the Lao Securities and Exchange Commission announced that it was increasing the
percentage of shares that foreign investors can hold in publicly listed companies from
10% to 20%.
Foreign investors seeking to establish operations in
investment license, an enterprise registration certificate, and a tax registration certificate.
Investors first submit project proposals to the One Stop Shop Unit in the Department of
Investment Promotion (DIP) in the Ministry of Planning and Investment (MPI). DIP
screens projects for financial and technical feasibility before forwarding them to relevant
line ministries for review. Depending on the size of the investment, they are then sent to
the Prime Minister’s Office (PM) for adjudication.
Under the 2009 amended Law on Investment Promotion and Prime Ministerial Decree
No. 119/PM issued in 2011, there are three investment categories: 1. General Business;
2. Concession Business; and 3. Activities for Development of Special Economic Zones
and Specific Economic Zones.
General Business investments include controlled businesses, defined as those
businesses which affect national security, public order, national traditions and culture,
and the environment. These activities are subject to increased scrutiny prior to
enterprise registration. Goods prohibited for import and export range from explosives
and weapons, to literature that presents a negative view of the Lao government, to
certain forestry products and wildlife. Inclusion on the list of controlled businesses is not
a prohibition on investing in those areas.
Concession Businesses are those in which the GOL retains some ownership rights.
Concessions are commonly used for investments in land, minerals, electric power,
airlines, telecommunication, and insurance and financial institutions. 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.
Foreign partners in a joint venture must contribute at least thirty percent (30%) of the
venture’s registered capital. Capital contributed in foreign currency must be converted
into kip based on the exchange rate of the Bank of the Lao People’s Democratic
Republic on the day of the capital contribution. Wholly foreign-owned companies may be
either a new company or a branch of an existing foreign enterprise. Throughout the
period of operation of a foreign investment enterprise, the assets of the enterprise must
not be less than its registered capital.
Under the 2005 Prime Ministerial Decree No 301, projects worth $20 million or more
require the approval of the Prime Minister. The Minister of Planning and Investment can
approve projects below $20 million while the Vice Minister of Planning and Investment
can approve enterprises of less than $10 million. FDI equal to or less than $3 million can
be approved at the provincial level by all provinces, and in four of the larger provinces -
Vientiane Capital, Savannakhet, Champasack, and Luang Prabang - the ceiling for
approval is $5 million.
In addition to the investment license, foreign investors are required to obtain other
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 (e.g., 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 pose a challenge, especially in areas outside the capital.
Individual companies in the petrochemical industry are required to file an annual import
plan. The government controls the retail price and profit margins of gasoline and diesel.
Government documents articulating the restrictions and explaining the policy are difficult
to obtain.
Agriculture production and most manufacturing production are private. State-owned
enterprises (SOEs) currently account for only one percent of total employment. Over
90% of manufacturers have fewer than 10 employees. Foreign companies interested in
acquiring ownership in SOEs apply through the DIP. Equity in medium and large-sized
SOEs can be obtained through a joint venture with the Lao government.
The GOL is supposed to respond to proposed new business investment within 15–45
working days. Foreign enterprises must begin business activities within 90 days from the
date of receipt of an investment license, or the license is subject to termination.
Lao law provides for sanctity of contracts, but in practice contracts are subject to political
interference and patronage. A contract can be voided if it is disadvantageous to one
party, or if it conflicts with state or public interests. Foreign businessmen have described contracts in
binding agreement. Although a commercial court system exists, in practice most judges
adjudicating commercial disputes have little training in commercial law. Those
considering doing business in
