4
oreaLatviaLithuaniaakuBrusselsGuangzhouKabulMuscatPortOfSpainStockholmTripoliBamakoBratislavaHanoiJubaBrusselsGuangzhouKabulMuscatPortOfSpainStockholmTripoliBamako Doing Business in Laos | 1 | Laos is a one-party communist ruled country in Southeast Asia, bordered by Myanmar and China to the northwest, Vietnam to the east, Cambodia to the south and Thailand to the west. Its economic model bears some relation to its Chinese and Vietnamese counter- parts, in that it has implemented market-based economic practices while maintaining a very high degree of political control. Despite economic reforms, the business climate in Laos is still chal- lenging. Ranking 139 out of 189 economies on the World Bank’s 2016 Doing Business Report, the country scores lower than most other countries in the region. Factors affecting business climate include corruption and red tape, opaque custom procedures and tax regulations, a lack of skilled manpower, poorly developed infra- structure and a weak judicial system and the absence of a proper framework to govern public-private-partnership projects. Another factor making it more challenging to access the Lao market in sec- tors such as infrastructure, hydropower and mining, is the relative dominance of several Asian investors, most notably from China and Vietnam. As a landlocked country, Laos is strongly dependent on its neighbouring countries for foreign trade. However, despite its challenging business climate, the Laotian eco- nomy has been growing 7% per year for the last two decades and is expected to grow at 7-8 percent annually through 2020. Since 2006, national income has doubled due to the investment boom, based on natural resources and fueled by mining and exports of hydropower. Continuing foreign direct investment (FDI) inflows to the mining and hydropower sector are likely to sustain economic growth in the coming years. In recent years, a considerable number of foreign companies have invested in Laos, including European companies. The politically stable country is among Asia’s lowest labor cost countries, has a young population and due to its LDC sta- tus it enjoys 100 percent duty-free, quota-free access for most goods to many export markets including the EU. Laos became WTO member in 2013 and its membership of the Association of Southeast Asian Nations (ASEAN) provides businesses in Laos the advantages of the ASEAN Economic Community, a single market of over 600 million people covering 10 countries in the region. For Dutch entrepreneurs, business opportunities can be found in several sectors, in particular agriculture, forestry and mining. In addition, the relatively low labor costs and the recent establish- ment of Special Economic Zones (SEZs) may offer opportunities to Dutch companies with the ambition to produce and export goods within the Southeast Asian region and beyond. Other interesting sectors include hydropower, tourism, infrastructure and logistics. Laos is one of the Least Developed Countries (LDC’s) in the world with a population of 6.8 million people and an average income per capita of US$1,725 (2014). Its economy has been expanding by 7% on average over the last two decades, but the landlocked country is still heavily dependent on foreign aid. Despite the challenging business climate, Dutch entrepreneurs can find business opportu- nities in several sectors. These include agriculture, forestry, mining and other labor-intensive industries focussed on export within the Southeast Asian region or beyond.

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Page 1: Doing Business in Laos - Netherlands and you€¦ · Doing Business in Laos | 1 | Laos is a one-party communist ruled country in Southeast Asia, bordered by Myanmar and China to the

KoreaLatviaLithuaniaakuBrusselsGuangzhouKabulMuscatPortOfSpainStockholmTripoliBamakoBratislavaHanoiJubaBrusselsGuangzhouKabulMuscatPortOfSpainStockholmTripoliBamakoBratislavaHanoiJuba

Doing Business in Laos

| 1 |

Laos is a one-party communist ruled country in Southeast Asia, bordered by Myanmar and China to the northwest, Vietnam to the east, Cambodia to the south and Thailand to the west. Its economic model bears some relation to its Chinese and Vietnamese counter-parts, in that it has implemented market-based economic practices while maintaining a very high degree of political control.

Despite economic reforms, the business climate in Laos is still chal-lenging. Ranking 139 out of 189 economies on the World Bank’s 2016 Doing Business Report, the country scores lower than most other countries in the region. Factors affecting business climate include corruption and red tape, opaque custom procedures and tax regulations, a lack of skilled manpower, poorly developed infra-structure and a weak judicial system and the absence of a proper framework to govern public-private-partnership projects. Another factor making it more challenging to access the Lao market in sec-tors such as infrastructure, hydropower and mining, is the relative dominance of several Asian investors, most notably from China and Vietnam. As a landlocked country, Laos is strongly dependent on its neighbouring countries for foreign trade.

However, despite its challenging business climate, the Laotian eco-nomy has been growing 7% per year for the last two decades and is

expected to grow at 7-8 percent annually through 2020. Since 2006, national income has doubled due to the investment boom, based on natural resources and fueled by mining and exports of hydropower. Continuing foreign direct investment (FDI) inflows to the mining and hydropower sector are likely to sustain economic growth in the coming years. In recent years, a considerable number of foreign companies have invested in Laos, including European companies. The politically stable country is among Asia’s lowest labor cost countries, has a young population and due to its LDC sta-tus it enjoys 100 percent duty-free, quota-free access for most goods to many export markets including the EU. Laos became WTO member in 2013 and its membership of the Association of Southeast Asian Nations (ASEAN) provides businesses in Laos the advantages of the ASEAN Economic Community, a single market of over 600 million people covering 10 countries in the region.

For Dutch entrepreneurs, business opportunities can be found in several sectors, in particular agriculture, forestry and mining. In addition, the relatively low labor costs and the recent establish-ment of Special Economic Zones (SEZs) may offer opportunities to Dutch companies with the ambition to produce and export goods within the Southeast Asian region and beyond. Other interesting sectors include hydropower, tourism, infrastructure and logistics.

Laos is one of the Least Developed Countries (LDC’s) in the world with a population of 6.8 million people and an average income per capita of US$1,725 (2014). Its economy has been expanding by 7% on average over the last two decades, but the landlocked country is still heavily dependent on foreign aid. Despite the challenging business climate, Dutch entrepreneurs can find business opportu-nities in several sectors. These include agriculture, forestry, mining and other labor-intensive industries focussed on export within the Southeast Asian region or beyond.

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Priority sectors

Agriculture, forestry and mining

Agriculture has recorded a modest but steady average growth of 2-3% per year and employs more than 70% of the Laotian work-force, mostly in small scale farming. The majority of agricultural production is related to rice, but other crops, including maize, cof-fee, rubber, sesame, cotton and tobacco, are important agricultural products as well. The Lao government encourages famers to shift their focus to more commercially viable crops.

Forestry is an important economic sector for Laos. The country has valuable forest resources, including teak, rosewood and ebony. The land is suitable for various types of tree plantations and there is a lot of land available.

Mining is an important industry for the Laotian economy. The pro-duction of copper, gold and silver is significant and these metals belong to the most important export products of Laos. However, the value of mining exports has been decreasing since the econo-mic slowdown of China started and decreasing global metal prices.

Hydropower

Laos has set the goal to become the “Battery of Southeast Asia” in the next few years. Today, the Mekong River generates more than 20,000 Megawatts of electricity for Laos, but has been largely left untapped. The large growth potential of the hydropower sector is expected to attract more foreign capital in the years to come. In 2019 the construction of the Xayaburi Dam will be completed and the government gave its green light for the construction of the Don Sahong hydroelectric dam. The negative environmental impact of these projects have resulted in strong concerns from neighboring countries about Laos’ electricity ambitions.

Despite these regional headwinds, the Asian Development Bank (ADB) is supporting the Lao government financially and economi-cally. Together with other regional banks it provides Laos with a loan of US$ 50 million and US$ 72 million for the construction of the two dams in the Mekong River. Moreover, the ADB will provide

technical assistance pertaining to the sustainability of projects. The implementation of sustainable water management, expertise on delta technology and water technology can provide interesting business opportunities for Dutch companies.

Tourism

The number of tourists visiting Laos has been increasing strongly over the last decade with up to 650.000 tourists visiting the country in 2014. Although Laos has obvious infrastructural deficits, there are regular domestic flights between provincial capitals, and inter-national flights connecting Laos to the outside world. This provides tourists with the possibility to travel to and within Laos easily.

The Lao government encourages foreign investments in the tou-rism sector. Since 2012, the tourism industry is open to FDI with foreign equity of up to 70% and several natural tourist sites are welcoming FDI.

Foreign Direct Investment (FDI)

The Netherlands is one of the largest EU investors in the country. Laos and the Netherlands signed a bilateral investment treaty, con-taining various benefits and protective provisions for Dutch investors.

Since 2011 Laos has increasingly been trying to attract foreign investors. Its seventh National Socio-Economic Development Plan (NSEDP) targets an ambitious annual GDP growth of at least 7,5% of which 60% is to be generated by private investments.

Laos puts itself in the market as a political stable and safe country with low risks from natural disasters, low labor costs and an abun-dance of natural resources. The government strongly encourages investors to invest in the Special Economic Zones, the Export Processing Zone, industrial parks, tourism and ICT.

Its 2010 Law on Investment Promotion includes shortened proce-dures, access to local financial capital and combined legislation for both domestic and foreign investors. In addition, the government created the RELATED Program to encourage political reform to pro-tect and support FDI.

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Special Economic Zones (SEZs)

The newly established SEZs in Laos offer potential opportunities for foreign enterprises. The SEZs in the northern part of the country are largely utilized by Chinese investors, whereas the SEZs in the Savannakhet region seem to attract some European investors.

However, the business climate remains difficult and unpredictable. Rules are not applied equally to all, there is a high level of corrup-tion and rules are subject to random changes. Moreover, the infra-structure deficits (including roads, energy and telecomunication) contain a high risk for doing business, land and electricity rates in the SEZs tend to be high and skilled labour is not always available.

Infrastructure and logistics

As mentioned above, Laos needs to improve its infrastructure. The country ranks 32nd (out of 100 countries) on the ‘logistic risks’ index of the Business Monitor International and 94th (out of 144 countries) on the infrastructure subindex in the Global Competitiveness 2014/15 Report. Through a public-private-part-nership program the Laotian government encourages and co-finances infrastructure projects by making it easier to set up busi-nesses, tax registration and permits.

Do’s and don’ts in LaosBe preparedGood preparation is essential before exploring your business opportunities in Laos. Get to know the country and its culture, as well as the economic and political climate. Make good use of the knowledge and services available from branch organizations and government authorities. Talk to entrepreneurs with experience in doing business in Laos.

Build relationshipsBuilding and maintaining personal relationships is essential for doing business in Laos. Personal relationships can be the key to successful business commitments. A reliable local partner can speed up the preparatory work considerably and could be the most effective way to reach Laotian consumers.

Understand business etiquette• The traditional Lao gesture of greeting is the “nop”, “phanom” or

“wai”, where the palms are placed together in a prayer-like gesture in front of the face. Nowadays, however, the handshake is becoming increasingly common for both men and women, particularly during the conduct of business.

• The safe dress code is to go formal and use conservative colours.• Don’t show your temper and do avoid conflict (loss of face).

Always be polite and show respect to your business counterpart.

• Be patient, very often things do not move at the same pace as in the West.

Know your challengesLaos has a lot to offer, but there are undoubtedly many challenges in doing business here.• Understand where to expect challenges: culture and language,

laws and regulations, intellectual property rights, trade barriers, personnel and bureaucracy.

• Develop a solid business plan and do market research: set clear goals and ambitions, know your niche market and know about your competitors.

• Make sure you do due diligence prior to entering into contracts or other commercial arrangements.

• Grey areas cannot always be clarified, and should be recognized as a potential risk element.

• English is not widely spoken.

Act responsible• Corruption can pose a serious barrier for doing business in Laos.

The Embassy is often counselling to avoid corruption and reduce the risks of doing business in Laos.

• The Netherlands government supports enterprises which imple-ment Corporate Social Responsibility (CSR). Enterprises should put in place a process to integrate social, environmental, ethical and human rights concerns into their business operations and core strategy in close collaboration with their stakeholders.

We support your businessThe Netherlands Embassy in Bangkok offers active support to Dutch companies already present in Laos and Dutch companies interested in doing business in Laos. Our main services include the

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Published by:Netherlands Embassy in Bangkok website: http://thailand.nlembassy.org, e-mail: [email protected] us on Facebook (Netherlands Embassy in Bangkok), LinkedIn (ASEAN-Neth: Dutch Business in Southeast Asia) and Twitter (@NLinThailand)

© Ministry of Foreign Affairs | December 2015

following:• Providing information on sectors and rules and regulations.• Finding potential business partners.• Supporting trade missions and visiting programs to Thailand,

Laos and Cambodia.• Organising meetings with relevant authorities at local,

provincial or government level.• Monitoring business opportunities.• Trouble shooting and advice on resolving disputes.• Advising on available instruments and services.• Promoting Dutch business in Thailand, Laos and Cambodia.

Trade fairsFor exhibitions, it is recommended to focus on regional trade fairs. A wide variety of regional and domestic trade fairs is organised in Thailand and other countries in Southeast Asia throughout the year. At several of these exhibitions, the Netherlands Embassy

organises events, such as a Holland pavillion or networking event. Please contact us for more information on relevant trade fairs and Embassy events.

Business support instrumentsThe Netherlands government has developed several instruments to support Dutch companies in doing business in Thailand. For more information, please visit the Thailand page of the Netherlands Enterprise Agency (RVO) at www.rvo.nl/Laos.

Other relevant contactsEmbassy of the Kingdom of the Netherlands in BangkokE-mail: [email protected].: +66 2309 5200http://thailand.nlembassy.org

European Chamber of Commerce and Industry in Laos. www.eccil.org

Investment Promotion Department, Ministry of Planning and Investment of Laos.www.investlaos.gov.la

Netherlands Enterprise Agency (RVO) www.rvo.nl/Laos.

Official name Lao People’s Democratic Republic

Government typeSingle-party Socialist RepublicHead of State: President Choummaly SayasoneHead of Government: PM Thongsing Thammavong

Population 6.8 million (July 2014)

Area 236.800 km2 (six times bigger than the Netherlands), landlocked countryMain cities Vientiane (capital: 760.000), Savannakhet (120.000), Pakse (80.000), Luang Prabang (50.000) Time difference + 6 hrs. (NL winter time), + 5 hrs. (NL summer time) Currency Laotian Kip (LAK); 1LAK = 100 att. 1 EUR = 8664LAK (27/11/2015)GDP growth rate 7.4% (2014), 8.0 % (2013), 7.9% (2012), 8.0% (2011), 8.1% (2010), 7.5% (2009)FDI 2014: US$ 556 million

Trade volumeTotal exports 2014: US$ 2.50 billion (1.7% to the Netherlands)Main export destinations: China (35%), Thailand (31%), India (6.3%), Japan (5.6%), UK (4.8%)

Inflation 4.1% (2014), 6.4% (2013), 4.3% (2012), 7.6% (2011), 6.0% (2010), 0.0% (2009)Global Competitiveness Index Rank 83/140 (2015/2016)Ease of Doing Business Rank 139/189 (2016)Global Corruption Perception Index 2014: Rank 145/175 (Score 25/100)Memberships WTO, ASEAN, GMS, APTA, AEC, EAS, AFTA, UNCTAD, WFTUMain trading partners Thailand, China, Vietnam, Japan, South Korea, UK, GermanyMajor exports Refined Copper (29%), Copper Ore (21%), Rough Wood (6.2%), Suits (4.2%), Sawn Wood (3.8%)

Major importsCars (4.4%), Planes, Helicopters & Spacecraft (4.0%), Delivery Trucks (3.8%), Refined Petroleum (2.8%), Iron Structures (2.4%)

Netherlands FDI in LaosThe Netherlands take account for 2.67% of the total FDI in Laos (1989-2014). It is the 7th largest investor in Laos and the second largest European investor in Laos with an amount of US$ 435 million (1989-2014).

Dutch – Lao tradeThe Netherlands is the third European trading partner for Laos. Export to NL (US$ 30.4 million): Hydrogen (53.1%), Textiles (38.8%), Food (6.9%). Import from NL (US$ 2.5 million): Refrigerators (33.5%), Aircraft Parts (22.9%), Food (12.7%).