Laos a draw for investors, but obstacles remain

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Laos A Draw For Investors, But Obstacles RemainWith growth rates of around seven per cent in recent years, Laos is one of the best performing in ASEAN. The country’s GDP rose from $17 billion in 2017 to $18.3 billion in 2018, while foreign direct investment (FDI) inflows increased from $660 million in 2017 to $1.6 billion in 2018, a recent country analysis by business consultancy Dezan Shira & Associates showed.

Laos is also strategically located between China and its economically more advanced ASEAN neighbours – Vietnam and Thailand. In recent years, the country’s energy sector has experienced massive investments largely due to the country’s natural hydropower resources, the analysts noted.

In 2018, however, the agricultural and export-based businesses experienced a setback due to several floods that hindered logistics and destroyed crops. But the electricity, construction and tourism sectors performed well. Several investment projects in hydropower and transport, including the railway link from China to the capital, Vientiane were launched in 2018.

Despite the official government line, which is very welcoming of FDI, several obstacles remain. The local free market economy combined with strong communist state control mechanism makes FDI partially complex. Requirement for foreign investors to comply with special rules – in particular concerning strategic areas like mining and hydropower where the government largely has to approve projects – increases the need to use a local partner while investing in large projects.

Legal uncertainty – especially lack of transparency – may also deter investors. Many existing laws are unclear if not contradictory. However, the 2016 Law on Investment Promotion clarified investment policies and introduced comprehensive tax incentives.

As in several other ASEAN nations, Special Economic Zones (SEZs) provide the main avenues for overseas investment. The Foreign Investment Law facilitates the establishment of SEZs. However, as of 2018, only 12 of 40 planned SEZs have been established.

In April 2018, the new law on intellectual property was enacted. The law makes it possible to oppose a trademark, industrial design and patent registration easily within 60 to 90 days. Overall, the law provides a clear regulatory framework that is reliable and transparent for foreign investors.

While the growth prospects for Laos in 2019 are positive, the country’s GDP growth rate is expected to slightly drop to around 6.5 per cent this year.

Laos’ economy is forecast to be mainly driven by the electronic parts manufacturing sector and the power sector. The tourism sector also has potential for growth due to an expected increase in tourists from countries outside ASEAN.

Overall, hydropower will remain a major driver of growth in 2019. As the energy sector is largely based on exports, investments in projects for improving connectivity with the energy markets of China, Vietnam and Thailand will be an additional focus of FDI in 2019.

 

 

 

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With growth rates of around seven per cent in recent years, Laos is one of the best performing in ASEAN. The country’s GDP rose from $17 billion in 2017 to $18.3 billion in 2018, while foreign direct investment (FDI) inflows increased from $660 million in 2017 to $1.6 billion in 2018, a recent country analysis by business consultancy Dezan Shira & Associates showed. Laos is also strategically located between China and its economically more advanced ASEAN neighbours – Vietnam and Thailand. In recent years, the country’s energy sector has experienced massive investments largely due to the country’s natural hydropower resources,...

Reading Time: 2 minutes

Laos A Draw For Investors, But Obstacles RemainWith growth rates of around seven per cent in recent years, Laos is one of the best performing in ASEAN. The country’s GDP rose from $17 billion in 2017 to $18.3 billion in 2018, while foreign direct investment (FDI) inflows increased from $660 million in 2017 to $1.6 billion in 2018, a recent country analysis by business consultancy Dezan Shira & Associates showed.

Laos is also strategically located between China and its economically more advanced ASEAN neighbours – Vietnam and Thailand. In recent years, the country’s energy sector has experienced massive investments largely due to the country’s natural hydropower resources, the analysts noted.

In 2018, however, the agricultural and export-based businesses experienced a setback due to several floods that hindered logistics and destroyed crops. But the electricity, construction and tourism sectors performed well. Several investment projects in hydropower and transport, including the railway link from China to the capital, Vientiane were launched in 2018.

Despite the official government line, which is very welcoming of FDI, several obstacles remain. The local free market economy combined with strong communist state control mechanism makes FDI partially complex. Requirement for foreign investors to comply with special rules – in particular concerning strategic areas like mining and hydropower where the government largely has to approve projects – increases the need to use a local partner while investing in large projects.

Legal uncertainty – especially lack of transparency – may also deter investors. Many existing laws are unclear if not contradictory. However, the 2016 Law on Investment Promotion clarified investment policies and introduced comprehensive tax incentives.

As in several other ASEAN nations, Special Economic Zones (SEZs) provide the main avenues for overseas investment. The Foreign Investment Law facilitates the establishment of SEZs. However, as of 2018, only 12 of 40 planned SEZs have been established.

In April 2018, the new law on intellectual property was enacted. The law makes it possible to oppose a trademark, industrial design and patent registration easily within 60 to 90 days. Overall, the law provides a clear regulatory framework that is reliable and transparent for foreign investors.

While the growth prospects for Laos in 2019 are positive, the country’s GDP growth rate is expected to slightly drop to around 6.5 per cent this year.

Laos’ economy is forecast to be mainly driven by the electronic parts manufacturing sector and the power sector. The tourism sector also has potential for growth due to an expected increase in tourists from countries outside ASEAN.

Overall, hydropower will remain a major driver of growth in 2019. As the energy sector is largely based on exports, investments in projects for improving connectivity with the energy markets of China, Vietnam and Thailand will be an additional focus of FDI in 2019.

 

 

 

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