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Cablegate: Investment Climate Statement for Laos

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E.O. 12958: N/A
TAGS: ECON EINV OPIC USTR KTDB LA
SUBJECT: INVESTMENT CLIMATE STATEMENT FOR LAOS

REF: 07 STATE 158802

OPENNESS TO FOREIGN INVESTMENT
The Lao government is open to foreign investment as a matter
of policy. It allows 100% foreign ownership of investments.
The overall investment climate is poor but improving. Laos
rates very low in international indices of transparency and
ease of doing business.
The economic reforms adopted in 1988 and Decree No. 73/PO,
dated October 22, 2004, purport to promote foreign direct
investment as a means of boosting development and economic
growth. Under the 2004 Law on the Promotion of Foreign
Investment, foreign investors may invest in all business
sectors and zones of investment in the Lao People,s
Democratic Republic, except in business activities which are
detrimental to national security, have a negative impact on
the environment, or are regarded as detrimental to health or
national traditions. In recent years Laos has seen a
significant increase in FDI, especially in mining,
hydropower, and plantation agriculture. Major foreign
investors are Thailand, China, and Australia.
When bidding for the right to large contracts, companies
frequently offer the government the &option8 of purchasing
part of the company at a later date, often with money
borrowed from the investor or multilateral institutions. The
investment term of a foreign investment enterprise depends on
the nature, size, and conditions of the business project but
normally cannot exceed fifty years. Under special
circumstances, foreign investment enterprises may be extended
with the approval of the government. However, foreign
enterprises that receive extension approval from the
government may not exceed a total investment term of
seventy-five years.
Foreign investors seeking to establish operations in Laos
must submit project proposals to the Department for Promotion
and Management of Domestic and Foreign Investment (DDFI),
Ministry for Planning and Investment (MPI). The proposal is
then screened by the relevant line ministries and adjudicated
by the Prime Minister,s Office. Under Prime Minister Decree
No 301, dated October 12, 2005, proposals for projects worth
US $20 million or more require the approval of the Prime
Minister. The President and Vice President of the Department
of Domestic and Foreign Investment can approve investments of
less than $10 million USD. FDI equal to or less than $3
million USD can be approved at the provincial level by all
provinces, and in large provinces the ceiling for provincial
level approval is $5 million.
Foreign investors 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 either be a
new company or a branch office of an existing foreign
company. Throughout the period of operation of a foreign
investment enterprise, the assets of the enterprise must not
be less than its registered capital. The screening process at
the Department for Promotion and Management of Domestic and
Foreign Investment (DDFI) in the Ministry of Planning and
Investment (MPI) takes into account the financial and
technical feasibility of the project, input from relevant
line ministries, and whether the proposed project conflicts
with government policy. Upon receipt of an application, the
MPI must coordinate with relevant sectors and local
authorities to consider and respond in writing to the foreign
investor. Responses to projects, depending on project type,
are supposed to be forthcoming within 15 ) 45 working days.
Foreign investors are required to obtain a foreign investment
license, an enterprise registration certificate, and a tax
registration certificate from the MPI office nearest the
place where the foreign investors are licensed. Thereafter
they shall be considered as enterprises established in
conformity with the laws of the Lao People,s Democratic
Republic. Within 90 days from the date of receipt of an
investment license the foreign investment enterprise must
commence business activities. If the investors fail to do
so, the foreign investment license is subject to termination.
In addition to the investment license, foreign investors are
required to obtain other permits. These include a business
registration which must be annually renewed from the Ministry
of Industry and Commerce, a tax registration from the tax
department in 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 Public Works and Transportation, etc.), appropriate
permits from local authorities, and an import-export license,
if needed. Obtaining the necessary permits can pose a
challenge to foreign investors, especially in areas outside
the capital. The recent creation of a &one-stop shop8 for
many permits within the Ministry of Planning and Investment
should help ease permitting difficulties in the future.
Lao law provides for contracts. The following link is for a
translation of the Lao contract law.
http://www.undplao.org/whatwedo/bgresource/go v laolaws.php

However, since Laos is a communist one-party state, the
sanctity of contracts is subject both to political
interference and a number of socialist principles enshrined
in the law. For example, according to the contract law:
A contract can be voided if it is disadvantageous to
one party, and
A voidable contract can be declared void by the
disadvantaged party.
Although a commercial court system exists, in practice 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.
In 2006 the Lao government ceased imposing import
restrictions on trading companies, whether foreign or
domestic, in an effort to let the market respond to actual
demand. The Lao government no longer requires companies to
file an annual import plan for approval by the Ministry of
Commerce. The main exception is the fuel industry, where
individual companies are still required to file an annual
import plan. The government controls the retail price and
profit margins of gasoline and diesel. A large American oil
company announced in late 2007 it was leaving the Lao market
to focus on more profitable countries within Asia. Government
documents articulating the restrictions and explaining the
policy are difficult to obtain. Goods that are always
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.
For a detailed list of import & export restrictions please
visit http://www.moc.gov.la/default.asp.
Agriculture production and most manufacturing production is
private. State-owned enterprises (SOEs) currently account for
only one percent of total employment. Approximately 97
percent of manufacturing units are small (fewer than 10
employees). Among the medium and large units, 35 percent are
privately owned by Lao citizens and 55 percent are joint
ventures with foreigners. The rest are owned by the
government (including provincial governments). Foreign
companies interested in acquiring SOE,s should apply through
the Department for Promotion and Management of Domestic and
Foreign Investment (DDFI) in the Ministry of Planning and
Investment (MPI). Equity in medium and large-sized SOE,s
can be obtained through a joint venture with the Lao
government.
CONVERSION AND TRANSFER POLICIES
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. Australian, Vietnamese, Thai, and
Malaysian banks currently have a presence in Laos. Bank
accounts must be maintained in accordance with the Enterprise
Accounting Law. The 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 so long as they request approval from the
Lao government. These transactions are conducted at the
official exchange rate on the day of execution, upon
presentation of appropriate documentation. Supply of foreign
exchange has in the past been limited in Laos, which imposed
a de facto limit on repatriation of capital. Foreign
currency inflows in recent years, however, have reportedly
solved this problem and large multinationals in Laos report
no problems with access to foreign exchange. Foreign
enterprises must report on their performance annually and
submit annual financial statements to the Ministry of
Planning and Investment (MPI).

EXPROPRIATION AND COMPENSATION
Foreign assets and investments in Laos are protected by laws
and regulations against seizure, confiscation, or
nationalization except when this is deemed necessary for a
public purpose, in which case foreign investors are to be
compensated. While there have been no expropriations, the
Lao Government has revoked the foreign investment license of
companies in a less than transparent process. Revocation of
an investment license cannot be appealed to an independent
body, and companies whose licenses are revoked must then
liquidate their assets relatively rapidly. A company that
fails to begin conducting business within ninety days of
registering could be dissolved, if it does not have a
reasonable explanation.
DISPUTE SETTLEMENT
According to the Foreign Investment Law, investors involved
in investment disputes must seek arbitration before taking
legal action. If arbitration does not result in an amicable
settlement, litigants may submit their claims to the economic
arbitration authority of Laos, or that of the investor,s
country, or an international organization agreed on by both
parties. In practice, there are no adequate independent
arbitration venues in Laos. Foreign investors are therefore
generally advised to seek arbitration outside the country,
since Laos, nascent domestic arbitration authority lacks
enforcement powers. Laos is not a member of the
International Center for the Settlement of Investment
Disputes. It became a party to the New York Convention of
1958 on the Recognition and Enforcement of Foreign Arbitral
Awards on September 15, 1998, but Laos has never been asked
to enforce a foreign arbitral award. Laos is a member of the
United Nations Convention on International Trade Law.
In disputes involving the Ministry of Planning and
Investment, decisions can only be appealed back to the
Ministry itself. There is no independent body. Thus a
company which feels it is receiving unfair treatment from the
government has no independent recourse. In 2007 two
U.S.-owned small companies were involved in disputes with the
Lao government. One company had its investment license
revoked and the U.S. owners were given no option other than
to liquidate their assets. Another is still working with Lao
authorities to resolve the issue. The Lao government has
cooperated with the Embassy in addressing the disputes.

Laos, legal system is evolving, but remains incomplete in
many regards. Laws sometimes contradict each other and often
lack implementing regulations. For example, tax exemptions
and low import duties guaranteed to foreign investors under
the foreign investment law are not reflected in customs or
tax law. Supported by the Japan International Cooperation
Agency (JICA), Singapore, and the United Nations Development
Program (UNDP), some laws have been officially translated
into English. These include the business, tax, bankruptcy,
customs, and secured transaction laws. Implementing
regulations for the Foreign Investment Law, which are crucial
to enforcement, were approved on October 10, 2005. The
reliability of unofficial translations varies considerably,
which can create an environment of uncertainty and ambiguity
among foreign investors. Application of Lao law remains
inconsistent and knowledge of the laws themselves is often
limited (especially outside the capital). The existence of a
large number of government decrees, sometimes unpublished,
further complicates the situation. While the trend under the
current government is towards more openness and more
accountability, investors are cautioned to recognize that
economic and legal reform remain a work in progress.
Projects funded by the Australian government, the EU, the
U.S., and the UN Development Program to assist Lao accession
to the World Trade Organization (WTO) include components
aimed at bringing Lao commercial law into conformity with WTO
standards. A commercial court was established during 2003,
and began to hear cases in 2005. The Lao Bar Association was
set-up in 2007.

Laos has no anti-trust statutes. The 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. There is no record of
foreign-owned enterprises, whether as debtors or as
creditors, petitioning the courts for a bankruptcy judgment.
PERFORMANCE REQUIREMENTS AND INCENTIVES
Laos does not impose performance requirements per se.
Foreign investors are encouraged to give priority to Lao
citizens in recruiting and hiring. According to the foreign
investment law, foreign personnel can be hired, although they
may not exceed ten percent (10%) of the enterprise,s total
labor force. In the case of skilled labor, or politically
important projects, the Ministry of Planning and Investment
has confirmed that enterprises can hire over 10% foreign
labor if necessary. Before bringing in foreign labor, the
enterprise must apply for work permits from the Ministry of
Labor and Social Welfare. A foreign personnel list must also
be submitted to the Planning, Monitoring and Evaluation
Division of the Department for Promotion and Management of
Domestic and Foreign Investment (DDFI).
Incentives for Foreign Investment: Laos grants incentives for
foreign investment depending on the sectors and zones of
investment promotion. The government defines promoted
activities under Article 16 as follows:

1) production for export;
2) activities relating to agriculture or forestry, and
agricultural, forestry and handicraft processing activities;
3) activities relating to industrial processing, industrial
activities using modern techniques and technology, research
and development, and activities relating to the protection of
the environment and biodiversity;
4) human resource development, skills development and public
health;
5) construction of infrastructure;
6) production of raw materials and equipment to be supplied
to key industrial activities; and,
7) development of the tourism industry and transit services.

The Law on the Promotion of Foreign Investment:

http://www.undplao.org/whatwedo/bgresource/go v laolaws.php

describes geographical and tax incentives in articles 17 and
18.

Foreigners employed in Laos, including foreign investors,
must pay an income tax of 10 percent of their total income to
the Lao Government, unless they are citizens of a country
with which the Lao Government has signed a double taxation
agreement. The United States has no such agreement with
Laos. The turnover tax is scheduled to be replaced in 2009
with a Value Added Tax (VAT).
Foreign investors are not required to pay import duty on
equipment, spare parts and other materials used in the
operation of their enterprises. Raw materials and
intermediate goods imported for the purpose of processing and
re-export are exempt from import duties. Raw materials and
intermediate goods imported for the purpose of import
substitution are also eligible for import duty reductions on
a case-by-case basis. On an individual basis, foreign
investors are also eligible for profit tax and import duty
reductions or exemptions, if the investment is significantly
large or determined to have a significant benefit to Laos,
socio-economic development. To date the Lao Government
appears to have honored its incentives.

Annual business license renewal is contingent upon
certification that corporate income taxes have been paid.
The tax code was streamlined and simplified in April 2005,
but some investors still report significant difficulties in
obtaining tax certifications in a timely manner.
The Foreign Investment Law stipulates that foreign investors
and their families, including foreign professionals and
foreign employees of an enterprise, shall be facilitated by
issue of multiple entry visas and, if approved by the
government, long term residence in the Lao PDR. They also,
in theory, have the right to apply for Lao nationality in
accordance with the Law on Nationality.
RIGHT TO PRIVATE OWNERSHIP AND ESTABLISHMENT
The government recognizes the right of private enterprise
ownership, and foreigners may transfer shares of a
foreign-invested company without prior government approval.
However, the business law requires that all shareholders be
listed in the articles of association, and changes in the
articles of association of a foreign-invested company must be
approved by DDFI-Ministry of Planning and Investment (MPI) ,
per the Enterprise Law http://www.moc.gov.la/default.asp.
Thus, transferring shares in a foreign-invested company
registered in Laos does require the indirect approval of the
government (DDFI-MPI).
PROTECTION OF PROPERTY RIGHTS
Foreign investors are not permitted to own land. The
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. This includes mortgage leases.
Secured interests in property are inadequately covered by the
Secured Transactions Law of 1994. Because the law offers no
instructions for the creditor to enforce security rights (the
creditor, for example, can only request repayment from the
debtor), the law favors the debtor. Moreover, since the
Ministry of Finance,s registry system is not computerized,
and cannot cross-reference records, it is difficult to
determine if a piece of property is encumbered. Enforcement
of a mortgage is further complicated by the legal protection
given mortgagees against forfeiture of their sole place of
residence.
Laos issued a trademark decree in January 1995. The National
Science and Technology Organization (NSTO), part of the Prime
Minister,s Office, controls the issuance of trademarks on a
first-come, first-register basis. Applicants do not have to
demonstrate prior use. There are currently over 15,854
trademarks registered in Laos.
Laos became a member of the ASEAN Common Filing System on
patents in 2000 but lacks adequate personnel qualified to
serve as patent examiners. A draft decree on patents was
sent to the Prime Minister in February 2000 for approval and
in 2002 the Prime Minister,s Office issued patent
regulations. Since Thailand and Laos have a bilateral
Intellectual Property Rights (IPR) agreement, in principle a
patent issued in Thailand would also be recognized in Laos.
Currently, no system exists to issue copyrights in Laos.
Laos became a member of the World Intellectual Property
Organization (WIPO) Convention in January 1995 and the Paris
Convention on the Protection of Industrial Property in
October 1998; it has not yet joined the Bern Convention on
Copyrights. Although WIPO began to assist Laos in drafting
an intellectual property law in 1996, a WTO-compliant law has
not yet been implemented. In December 2007 the National
Assembly approved a law the Lao government claims will cover
its U.S. Bilateral Trade Agreement (BTA) responsibilities, as
well as be WTO compliant. The law is currently being
rewritten to accommodate additional suggestions from the
National Assembly, and will then need approval by the
President before coming into effect. Overall, there is
currently little protection for intellectual property rights
in Laos, although the authorities have taken steps to crack
down on some pirated goods.
TRANSPARENCY OF THE REGULATORY SYSTEM
The principal laws, regulations, decrees and guidelines
governing international trade and investment, as well as
the current protection of intellectual property, are
available to the public, although not all have been
officially translated into English. Laws and their schedules
for implementation are customarily published in Lao daily
newspapers, and relevant line ministries are beginning to put
laws and regulations on websites. The website for UNDP Laos
maintains a partial list of translated Lao laws:
http://www.undplao.org/whatwedo/bgresource/go v laolaws.php
The Enterprise Law No 11/NA, Vientiane, dated 9 November
2005, and the Business Law No 005/94, 18 July 1994 have been
approved and are awaiting final implementation decrees. The
lack of clear decrees has slowed implementation of the laws.
These laws can find on the following websites:
http://www.na.gov.la/eng/hethong.htm;
http://www.poweringprogress.org/energy sector/legislation.htm
http://www.moc.gov.la/gioithieuAP.asp
In addition, implementation of the budget law commenced with
the restructuring of the Ministry of Finance (MoF) via Prime
Ministerial Decree Number 80 of February 28, 2007. In
September 2007 the Prime Minister issued Order No 35
instructing the MoF to move ahead with centralization of
customs, tax and treasury departments.
A lack of transparency in a centralized decision-making
process, as well as the difficulty encountered in obtaining
information, augment the perception of the regulatory
framework as arbitrary and inscrutable. There have been
reports that the government has recently begun discussing
some proposed laws and regulations with the business
community, and acted upon the advice given, before making
final decisions. The Lao Tourist Association has repeatedly
urged the Lao government at the &Lao Business Forum,8 a
business-government meeting sponsored by the Lao government
and the International Finance Corporation (IFC), to discuss
proposed laws with industry prior to implementation.

EFFICIENT CAPITAL MARKETS AND PORTFOLIO INVESTMENT
Laos does not have a developed capital market. Three-month
treasury bills are occasionally offered for sale when there
is a need to absorb excess liquidity in the economy. The
largest denomination of currency is 50,000 kip (about US $5).
Credit is not available on the local market for large
capital investments, although letters of credit for export
can sometimes be obtained locally. International reserves
fluctuate, with the latest available 2007 data showing
sufficient coverage for 5 months of imports and numbering
$485 million.
The banking system is under the supervision of the Bank of
Lao PDR, and includes:
three state-owned commercial banks: Banque pour Le
Commerce Exterior Lao (BCEL), Lao Development Bank and
Agriculture Promotion Bank;
two joint-venture banks: Joint Development Bank and
Lao-Viet Bank;
five Thai banks: Bangkok, Siam Commercial, Krungthai,
Thai Military and Ayoudhiya Banks whose activities are mainly
limited to providing services to local Thai businesses;
three private banks (2 foreign and one domestic):
Malaysia - Public Bank (Berhad); ANZ Vientiane Commercial
Bank Limited and Domestic Phongsavanh Bank; and
one representative office: Standard Chartered Bank.

A new banking law passed in 2006 allows private foreign banks
to establish branches in all provinces of Laos. (Previously,
foreign banks were permitted to establish branches only in
Vientiane.) The Commercial Bank law is available on the Bank
of Lao PDR (BOL) website:http://www.bol.gov.la/index1.php.
However, implementing regulations have not yet been
published. BCEL has correspondence arrangements with the
following banks (US dollars):

JP Morgan Chase Bank, New York
Citibank, New York
Wachovia Bank, New York
American Express Bank, Ltd., New York
HSBC Bank, New York
Standard Chartered Bank, New York
Barclays Bank Plc., London
Credit Suisse First Boston, Zurich
Bank of Tokyo-Mitsubishi, Ltd, Tokyo
Natexis Banque Populaires, Singapore
Standard Chartered Bank, Singapore
Bank for Foreign Trade of Vietnam, Hanoi
TMB, Bank Public Co, Ltd, Bangkok
Bank Thai Public Co. Ltd. Bangkok
Calyon, Bangkok
Sumitomo Mitsui Banking Corporation, Tokyo

The Lao banking sector is in flux, with new private and
foreign banks opening to provide modern banking options to
Lao and foreign businesses. While continuing to receive
outside assistance, central bank supervision of the sector
remains somewhat weak and state-owned commercial banks (SCBs)
carry a heavy burden of past non-performing loans due to
directed lending and poor credit standards. The two major
SCBs, BCEL and the Lao Development Bank, carry non-performing
loan ratios of about 60 percent of loans, according to the
IMF. Although the SCBs were recapitalized as recently as
2003, and are supposed to receive two more infusions of funds
from the sale of government recapitalization bonds, the bonds
have not yet been issued. The Asian Development Bank has
provided both program loans and technical assistance to
Laos, financial sector, as have the World Bank and the IMF.
These programs have not succeeded in eliciting significant
reforms. In 2007 several agreements between Lao banks and
their Chinese and Vietnamese counterparts, aimed at
increasing the technical and human resource capacity of the
Lao banking system, came into effect. The results of these
agreements are not yet evident.
The Government of Laos is planning to open a stock exchange
in 2010, with technical assistance provided from the South
Korean government.


POLITICAL VIOLENCE
Laos is generally a peaceful and politically stable country.
The remnants of an insurgency occasionally carry out
small-scale attacks on government personnel and civilians.
Foreign persons are not deliberately targeted, and visitors
are advised to use caution when traveling in remote
districts.
CORRUPTION
The Prime Minister,s Office has made combating corruption a
priority, including issuance of an anticorruption decree in
November 1999, but corruption remains a problem. Although
the 1999 decree specifically notes the responsibility of the
state-owned mass media in publicizing corruption cases, there
has been no reporting on this issue. In 2005 an
anti-corruption law was passed by the National Assembly. To
date there have been no implementing regulations and no
prosecutions. Laos is not a signatory to the OECD Convention
on Combating Bribery. The Counter-Corruption Committee in
the Prime Minister,s Office is the Lao government agency
responsible for combating corruption. Both giving and
accepting bribes are criminal acts punishable by fine and/or
imprisonment. Besides bribes to low-level officials for the
purpose of expediting time-sensitive applications, such as
business licenses, importation of perishable items, customs,
etc., anecdotal evidence of more pervasive corruption is
growing. The State Inspection Authority in the Prime
Minister,s Office analyses corruption at the national level
and serves as a central office for gathering details and
evidence of suspected corruption. Additionally, the State
Inspection Departments in each Ministry is responsible for a
ministry,s internal problems.
Generally, the government tends to deal with corruption
problems by forcing corrupt officials to retire or move to a
new position.

BILATERAL INVESTMENT AGREEMENTS
Laos has bilateral investment agreements with the following
countries:
Country Date Signed Date Entered Into force Duration (in
years)
Australia 4/6/94 4/8/95 10
China 1/31/93 6/01/93 10
Cuba 4/28/97 6/10/98 10
Denmark 9/28/98 5/9/99 10
DPRK 8/20/97 8/22/98 10
France 12/12/89 3/8/91 10
Germany 8/9/96 3/24/99 10
Holland 5/23/03 - 10
India 11/09/00 1/6/03 10
Indonesia 10/18/94 10/14/95 10
Malaysia 12/8/92 3/25/93 10
Mongolia 3/3/94 10/29/94 10
Myanmar 5/5/03 8/28/07 -
Netherland 5/16/03 - -
Pakistan 4/23/04 3/19/07 -
Philippines 6/8/07 - 10
Rep of Korea 5/15/96 6/14/96 15
Russia 12/6/96 22/03/06 15
Singapore 3/24/97 3/25/98 10
Sweden 8/29/96 1/1/97 20
Switzerland 12/4/96 12/4/96 10
Thailand 22/08/90 07/12/90 10
United Kingdom 6/1/95 6/1/95 10
Vietnam 1/14/96 6/22/96 10


On February 1, 2005 a Bilateral Trade Agreement (BTA) came
into force between the U.S. and the Government of Laos. Laos
and the United States do not have a bilateral taxation
treaty.

OPIC AND OTHER INVESTMENT INSURANCE PROGRAMS
The United States and Laos signed an Overseas Private
Investment Cooperation (OPIC) agreement in March 1996. In
1998 Laos signed an agreement with the Multilateral
Investment Guarantee Agency (MIGA). EXIMBANK does not
currently operate in Laos.
The kip, while not an internationally traded currency, has
been appreciating against the U.S. dollar over the past year,
thanks in part to being pegged to the Thai baht. As large
amounts of dollars continue to enter Laos it is unlikely the
kip will depreciate against the dollar barring a significant
economic downturn.

LABOR
Over 70 percent of Laos, work force of 2.6 million is
engaged in subsistence agriculture. The Lao government
estimated the total non-agricultural work force in 2007 to
number 483,560 people, roughly 25,000 of whom were employed
in garment manufacturing. The total labor force is expected
to increase by more than 30 percent over the next ten years.
The Labor Law passed in 1994 provides for the formation of
trade unions; specifies working hours and compensation
standards; allows for maternity leave and benefits; workers,
compensation and retirement benefits; and establishes
procedures for labor dispute resolution. The Lao government
raised the official minimum wage to 200,000 kip per month
(about $20 USD) in 2007. Wages for unskilled labor at
garment factories, including bonuses and lunch, now run about
290,000 kip or about US $30 monthly. Labor unions can be
formed in private enterprises, but they must operate within
the framework of the Lao Federation of Trade Unions (LFTU),
which is controlled by the Lao People,s Revolutionary Party.
In 2007, there were 3,042 trade unions nationwide, and
membership in the LFTU numbered 112,557. Strikes are not
prohibited by law, but a government ban on subversive
activities or destabilizing demonstrations makes them
unlikely.
Laos has significant human resource deficiencies in virtually
all sectors. English is not widely spoken. In 2006, about 31
percent of the population age 15 and above remained
illiterate. The shortage of skilled labor is particularly
acute in high-tech sectors. The country has a few technical
colleges, one scientific research facility--the National
Institute of Hygiene and Epidemiology--and almost no
effective post-graduate degree programs. The Lao Government
has dedicated very few of its own resources to improve the
country,s education system and tends to rely heavily on
international donors for support; there are a few state
training programs and some foreign-funded programs.
Potential investors should note the need to dedicate
substantial resources, both human and capital, to train
employees. It is not unusual for foreign investors to bring
in Thai managers due to a lack of skilled local personnel.
FOREIGN TRADE ZONES/FREE PORTS
The Foreign Investment Law allows for the establishment of
free trade zones as an investment incentive. A zone in
southern Savannakhet province, which borders both Vietnam and
Thailand, is such a Special Economic Zone. Lao laws
pertaining to trade are supposedly applied uniformly across
the entire customs territory of Laos, including all
sub-central authorities, special economic zones and border
trade regions. In reality, however, customs practices vary
widely at ports of entry in the provinces. The recent
centralization of customs collection with the central
government could lead to more uniform practices and increase
the flow of customs revenue to the central government by an
estimated fifty to seventy percent.
FOREIGN DIRECT INVESTMENT STATISTICS
GOL investment figures significantly overstate actual
investment, as they include all approved projects regardless
of whether the investment actually takes place. Both the
World Bank and the IMF have lower estimates than Lao
government figures. During 2007 the GOL approved $1.1
billion worth of foreign investment projects. Hydropower
schemes account for about 31.7 percent of that amount.
Foreign investment figures fluctuate widely from year to year
due to the prevalence of large-scale investments in the
hydropower and mining sectors. Foreign direct investment
figures from the Bank of Lao PDR for recent years follows
below:
Real FDI inflow through Bank of Lao PDR (in Million of US $)
2000 2001 2002 2003 2004 2005 2006
33.9 23.9 4.5 19.5 16.9 27.7 187.3
FDI approved (in Million of US $)
2000 2001 2002 2003 2004 2005 2006 2007
20.4 42 493.8 550 533 1,245 2,699.7 1,136

Between 2000 and 2007, DDFI
approved approximately $6.27 billion in investment projects.
According to DDFI figures, 23 &U.S.8 projects were approved
between 2000 and 2007, including 6 projects worth a total of
$4.52 million in 2007. Foreign investment now comes
primarily from other Asian countries, particularly Thailand
(traditionally Laos, largest trade and investment partner),
China, Vietnam, France, Japan, India, Australia, and Korea.

Foreign Investment Licensed in the Lao PDR by countries of
origin, from 2000 through September 2007, in U.S. Dollars.
(Source: Department for Promotion and Management of Domestic
and Foreign Investment (DDFI), Ministry of Planning and
Investment (MPI).
Rank Country Number of Projects Capital
1 Thailand 169 1,355.704,001
2 China 237 1,138,881,152
3 Vietnam 120 535,707,572
4 France 58 428,277,679
5 Japan 33 420,376,553
6 India 3 350,200,000
7 Australia 27 330,897,196
8 Korea 105 294,435,705
9 Malaysia 33 135,260,392
10 Singapore 22 100,260,392
11 Canada 9 48,561,750
12 Switzerland 5 31,561,750
13 England 14 17,396,500
14 Russia
10 16,375,310
15 Norway 1 12,800,000
16 Taiwan 8 12,600,000
17 USA 23 12,137,226
18 Poland 1 5,000,000
19 Germany 14 4,181,508
20 Italy 3 3,600,000
21 Peru 1 3,000,000
22 Cambodia 4 2,069,500
23 Panama 1 1,750,000
24 Holland 2 1,300,000
25 Myanmar 4 1,180,000
26 Island 2 1,100,000
27 Israel 1 1,020,000
28 Indonesia 1 1,000,000
29 Sweden 4 995,135
30 Belgium 4 900,000
31 Sri Lanka 1 200,000
32 Cuba 1 185,000
33 Portugal 1 100,000
34 Turkey 1 100,000
35 Nepal 1 100,000
36 Philippines 1 100,000
37 Spain 1 28,125

Foreign Investment Licensed in Lao PDR by Sector, from 2000
through September 2007, in US Dollars. (Source: Department
for Promotion and Management of Domestic and Foreign
Investment (DDFI, Ministry of Planning and Investment.)
Ranks Sector No. of Projects Capital
1 Electricity 40 3.294,791,585
2 Agriculture 157 785,340,225
3 Mining 139 624,853,829
4 Industry & Handicraft 187 450,988,772
5 Service 171 318,888,580
6 Trading 98 271,641,554
7 Hotel and Restaurant 59 160,661,245
8 Construction 23 159,686,874
9 Wood industry 38 84,207,154
10 Banking 10 45,096,000
11 Telecom 3 39,940,000
12 Garment 33 24,156,688
13 Consultancies 30 7,913,252
Total 988 6,268,174,758

In 2007, the Lao PDR continued to experience rapid growth of
FDI. Actual FDI is expected to increase by about 24.5
percent, from roughly $319 million in 2006 to about $785
million in 2007. The rapid growth has been driven by large
investments in industry, especially hydropower, agriculture
and mining.

Huso

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