Laos Unlocking The potential of ASEAN

Nojoud Al-AdwaniNuha Milyani

Hadeel SulemaniSara Alnasser

Nemah Alsayed

Group Members:

Location•   Laos is a landlocked country in the center

of Indochina sharing its borders with Cambodia to the south, Thailand to the west, Vietnam to the east and China and Mynmar (Burma) in the north.

• Seventy percent of its total land area. The mighty Mekong river, one of the longest rivers in the world, flows along the borders with Thailand. The river flows through nearly  1,900 kilometers of Lao territory and has always been a lifeline for the country in terms of fish supplies, transportation routes and agriculture.

• Laos population is around 27 million.• The average percentage for male is 48.56%• The average percentage for female is 51.44%• So, it is almost equal between the distribution of male and female in Laos.

Language        The official language is Lao. The local versions of Lao can differ

substantially from north and south and many of the ethnic minority groups do not speak Lao at all.

English and French are also spoken in business or by some senior government officials.

CurrencyThe Kip is the official currency.

AGE

• Youth is taking the biggest blank in Laos, so, majority of people’s age in Laos are between 18-24 with 46%. Also, youth continues to take the second space with ages from 25-34 with 25%. That marks the lowest percentage of ages vary between 35-64. So youth in Laos is highly grater than elders.

RELIGION

• The majority of people in Laos are taking Buddhism as a religion. The chart illustrate 96.4% of people are Buddhism, Islam comes in the second place with 2.1% and Christianity as the least percentage with 1.3%.

Actual Previous Highest Dates Unit Frequently

11.14 9.39 11.14 2008-2014 USD Billion Yearly

Economic Analysis

Actual Previous Highest Dates Unit Frequently

4658.79 4388.17 4658.79 2008-2014 USD Yearly

Economic Analysis

Country Year Value/ Percentage

Lao People's Democratic Republic 2008 27.6

Lao People's Democratic Republic 2002 33.5

Lao People's Democratic Republic 1997 39.1

Lao People's Democratic Republic 1992 46.0

• Population below national poverty line, total, percentage• Last Update by UN in 2008

Economic Analysis

Actual Previous Highest Lowest Dates Unit Frequency

648.80 657.85 750.86 124.40 2004 - 2013 USD Million Quarterly

Economic Analysis

Economic Analysis

Economic Analysis

Actual Previous Highest Lowest Dates Unit Frequency

565.54 525.44 645.78 11.50 2004 - 2013 USD Million Quarterly

Economic Analysis

Economic Analysis

Economic Analysis

Economic Analysis

• Economic growth in Laos has been increasing in the last years to reach its highest GDP in 2014 by 7.6%.

• and while Laos suffered from poverty for a long time and needed aid from many international institutions, it is GDP per capita has increased thus, increasing Laos's people standard of living.

• Laos imports was the highest in 2011 and the country was performing better at 2012 as they had less imports but still Laos Imports exceed its Exports causing a trade deficit, notice that GDP is 11.4 billion US dollar but the exports are worth only 565.54 million US dollar.

• Major trading partners of Laos are the neighboring countries, China, Thailand, Vietnam, note that until recently, Laos started to open up to the world and be less dependent on China. ( they joined WTO in 2013)

• In Laos, the unemployment rate measures the number of people actively looking for a job as a percentage of the labour force, 1.2% is very low and could indicate that there is no available labour or it will be costly to higher or since they always export raw martial and import finished goods it could indicate that they are unskilled labour

Actual Previous Highest Lowest Dates Frequency7866.30 7852.50 8596.20 7634.80 2009 - 2014 Daily

Laos Exchange Rate

Laos Foreign Direct Investment

Actual Previous Highest Lowest Dates Unit Frequency3.05 3.62 167 -2.26 2008 - 2014 percent Monthly

Actual Previous Highest Lowest Dates Unit Frequency5 5 12 4 2009-2014 percent Daily

Frequency Unit Dates Lowest Highest Previous ActualYearly percent 2009-

201424 24 35 24

• The USDLAK spot exchange rate specifies how much one currency is currently worth in terms of the other.. The Lao Kip averaged 8073.54 from 2009 until 2014, reaching an all time high of 8596.20 in December of 2009 and a record low of 7634.80 in April of 2013.

• the FDI inflows to Laos is dominated by hydropower and mining sectors, which accounted for 70% of total FDI during the period 2006-2011. While major sources of foreign investors are from China, Vietnam and Thailand, the three countries covered for 78.26% of the total FDI in during period 2001-2011.

• the inflation rate measures a broad rise or fall in prices that consumers pay for a standard basket of goods. Inflation Rate in Laos is reported by the Bank of the Lao PDR, The inflation rate in Laos was recorded at 3.62 percent in August of 2014.

• interest rates decisions are taken by the Bank of the Lao People’s Democratic Republic. The official interest rate is the short-term lending interest rate, The interest rate in Laos was last recorded at 5 percent.

• The Corporate Tax Rate in Laos stands at 24 percent. Corporate Tax Rate in Laos is reported by the Ministry of Finance.

Market Opportunities Return to top

• The power sector, especially hydropower and coal, is open to foreign investment, with many international firms represented.• Laos has abundant mineral wealth, much of which remains unexploited althoughmany foreign firms are active.• Agribusiness, including plantation agriculture (rubber/coffee/timber/corn), hasattracted foreign investment.• The Lao government has targeted tourism, especially ecotourism, as a majorarea of future growth. Laos was rated the #1 “Place to go” by the New YorkTimes in 2008.

Competitive Analysis

• There’s a lack of access to the sea, so almost all population is engaged in farming.

• Approximately 1,880,000 individuals are involved in agricultural work, which is 79.7% of the whole population.

• An impressive 97 percent of farmers own their own land.

Agri-cultural

80%

others20%

Others like tree farming

23%

17%17%

11%

11%MangoCoconutBananaJackfruitTamarind

0.93

0.07

Agricultural Production

Rice pro-duction

About 93 percent of the area devoted to rice production.

Lao People's Democratic Republic's Relations with the IMF

•Current IMF membership: 188 countries•Lao People's Democratic Republic joined the Fund in July 05, 1961•Quota: SDR 52.90 million•Outstanding Purchases and Loans: ECF Arrangements SDR 6.80 million•The last Article IV Executive Board Consultation was on November 15, 2013

Lao People’s Democratic Republic and the WTO

Lao People’s Democratic Republic has been a member of WTO since 2 February 2013.

Laos’s Membership of international Institutions

Lao People’s Democratic Republic and the World Bank • Lao PDR became the member of the World Bank over 50 years ago

and the member of IFC (International Finance Corporation)in 1998. • The World Bank inaugurated its first office in the current location near

Patou Xay in 1999. • the World Bank has provided financing of over $1.4 billion in grants

and interest-free credits, analytical work and policy advice on key development issues in Lao PDR, With the mission to reduce poverty and promote shared prosperity  

Lao People’s Democratic Republic and United Nations

Laos joined the United Nations in 1955.

Laos’s Membership of international Institutions

• communist Sate. The legal system of Laos has been a mixture of Lao tradition and custom, the French style, Chinese style, and the Soviet style Until 1975.

Laos’s Government Type

• Since 1986, Laos has gone through a period of changes in foreign investment law.• Joined WTO in 2013 • Some incentives for foreign investors.

Laos open up towards FDI

• the tax treaty provisions for relief tend to follow the approach taken by the other country that is a party to the tax treaty.

• For example, the Income Tax Treaties for the Avoidance of Double Taxation. • In Force Brunei, Korea, Myanmar, Vietnam, China, Malaysia, Thailand.

Tax Treaty Provisions

Laos’s Government Laws on International businesses

• Foreign investors are not permitted to own land. The government grants long-term leases.

Protection of Property Rights

• 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.

Foreign-Trade Zones/ Free Ports

• Reduced tax rates for a company that has an investment agreement with the Government of Laos• Certain investment incentives may be made available to investors where the relevant project relates to

encouraging specific sectors or is located in certain regions • Raw materials and intermediate components that are imported in order to achieve import substitution

are eligible for special duty reductions.

Investors incentives in Laos

• no intellectual property incentives available in Laos.

Intellectual property incentive

• under the Law on Investment Promotion may apply to scientific research and development expenditure

R&D incentives Tax incentives

Type of Government

• Laos, is a communist country ruled by one party only, the Lao People’s Revolutionary Party (LPRP).

• All government related policies are set by the party. • Its two most important neighboring countries China and Vietnam are also communist states and

fully support the Laotian regime.• Its civil law system is similar to the French system.•  Laos joined the World Trade Organization (WTO) in January 2013

• WTO currently has 160 member countries• 10 ASEAN countries that are members of the WTO (Brunei Darussalam, Cambodia,

Indonesia, Malaysia, Myanmar, Philippines, Singapore, Thailand, Vietnam and Laos). • WTO aims at helping countries that have trade barriers to open up to markets• The WTO can increase living standards, reduce living costs, decrease unemployment and

stimulate economic growth.

 

Main PowersMain Powers Election Process Election

Cycle

Executive Appoints prime minister and cabinet, and is in charge of

executory tasks of the government.

Elected by National Assembly.

5 years

Judicial In charge of interpreting the constitution and upholding

the law.

Appointed by National Assembly

Standing Committee.

Information not available

Legislative

Elects the president, approves appointments by

president and is in charge of creating legislature.

132 members elected by plurality

vote in multi-member

constituencies.

5 years

Source: ElectionGuide, http://www.electionguide.org/

• Head of State: President Choummaly Sayasone (also General Secretary of Lao people ‘s Revolutionary Party)

• Head of Government: Prime Minister Thongsing Thammavong (also senior member of the Politburo).

• There are 11 members politburo• 61 members central committee of PRP• They determine government policies• Judicial and legal systems were developed 15 years after proclamation

of the state

Lao’s political system

Laos’ Political Stability Index

• Rather politically stable country • It is politically more stable

than the average of low income countries and lower middle income countries

• Political stability index takes into consideration the absence of terrorism, violence, and the risk of the government being overthrown by violence.

Laos’ Government Effectiveness Index

• Government Effectiveness index displays:• quality of public services• quality of the civil service• degree of its independence from

political pressures• quality of policy formulation and

implementation• credibility of the government's

commitment to such policies

• Laos’s government effectiveness is weak• In some years, it is slightly better than

the average of low income countries.

Laos’ Voice & Accountability Index

• Voice & accountability index:• measures the

degree to which the nation participates in the government selection

• captures also the freedom of association and expression

• Laos is a communist country & therefore its voice and accountability index is weak

Laos’ Civil Liberties Index•Civil Liberties Index captures:• Individual, organizational

and associational rights• Personal autonomy• Freedom of belief and

expression.•Laos is not a free country and therefore its Civil Liberties index is very weak. • A country with an index

between 1 and 2.5 is considered as free, between 3 and 5 as partly free and between 5.5 and 7 as not free.

Laos’ Corruption Perception Index

•Corruption Perceptions Index values are based on:• political and administrative

corruption (public sector) assessments

•Laos is a highly corrupt country• As shown in the graph, Laos

turned out to be more corrupt than the average of the low income and lower middle income countries

•Transparency International also indicates that Laos is a highly corrupt country.

• CPI evaluates the level of corruption of a country’s public sector.

• Score of 0: Country is highly corrupt

• Score of 100: Country is very clean

•Laos is considered to be one of the most corrupt countries with scores of 21 in 2012 and 26 in 2013.• Its rank is of 140 out of 177• Singapore is considered as one

of the least corrupt countries.

Laos’ Corruption Perception Index (CPI)

• Euromoney Country Risk (ECR) evaluates countries’

investment risks• Based on 15 indicators including

political risk, credit ratings, structural assessments, economic performance and access to capital markets and bank finance

• Based on the judgments of more than 400 policy analysts and economists

• Currently cover 186 countries• Score of 0: country is very risky &

Score of 100: country is perceived as very safe (no risk)

•Laos has an ECR score of 6.02 which points out that it is a very risky country• Ranked as one of the riskiest

countries in the world (the riskiest among the Asean countries)

Laos’ Country Risk

Foreign Direct Investment: Forms

• Business cooperation by contract• Arrangement between foreign and domestic legal entities without forming a new legal entity in the

Laos

• Joint ventures between foreign and domestic investors• Jointly operated and owned by one or more domestic Lao investors and one or more foreign investors• Foreign investors must contribute at least 30% of the total capital investment• The license will not exceed 50 years (may be extended with approval)• Investment term: 75 years maximum

• 100% foreign-owned enterprises• One or more foreign investors, without the participation of domestic Lao investors. • May be a new company or a representative office of a foreign company• Minimum registration capital of US$ 500,000 (except for Representative offices).• The license will not exceed 50 years (may be extended with approval)• Investment term: 75 years maximum

Foreign Direct Investment: Tax Laws

• Foreign investments subject to the Foreign Investment Law pay an annual profit tax rate• 10%, 15%, and 20% according to the promotion zone (other investments are taxed at 35%) + exemption

for a certain number of years• 3 promotion zones based on socio-economic conditions and geographical location

• Exemption from taxes and import duties on capital equipment and raw materials that are used for production

• Exemption from export duty on exported materials • Tax holidays offered up to 10 years • Reduced tax rates and additional tax holidays for big projects are available upon

negotiation • Special treatment for education service and healthcare

• Access to Credits• Domestic and foreign investors can access to credits at commercial banks and financial

institutions in Laos • Real Estate

• Foreign investors can invest in the real estate sector through leasing land from the government or private sector and can purchase/sell that real estate.

• Investors will be granted rights on purchasing rights of land use for their residential purpose if conditions are met • Import of registered capital (in cash) at lease US$ 500,000. • Must be government owned Land and designated by the government. • Land use rights should not be more than 800 m2 to build facilities for residential or business purpose • Government will allocate land to investors for duration consistent with the investment duration

Foreign Direct Investment: Other Conditions

• Labor issues• Must give priority to Lao citizens when hiring employees• Obligation to upgrade the skills of their Lao employees• Right to recruit expert and skilled foreign personnel when necessary and with the approval of the

Committee for Promotion and Management of Investment (CPMI) but shall not exceed 10% of the company’s labor

• Repatriation of Profit• Foreign investors may repatriate earnings and capital to their home countries

• Application Procedures• Applications for foreign investment go through the CPMI, which offers a one-stop service for investors• Process should ideally take a maximum of 90 days, although in practice it almost always takes longer.

Foreign Direct Investment: Other Conditions

Current national issues

•  Since 1975, the government has been facing low-level revolts by Hmong groups (ethnic minorities) against the communist system• Public oppositions are dealt with severely by the authorities.

• In December 2012, a civil activist disappeared in Laos causing political issues and pressurizing the government.

• The country is in disagreement with Cambodia and Vietnam over its Mekong River hydropower plans.

• On a positive note, Laos is developing two railroad lines that are connecting it to its neighbors. It is therefore likely that its import / export volume capacities will rise. Still, the people who reside in the northern and central regions (mountains) will remain disconnected.

Advantages in Investing in Laos

• Economic growth in Laos has been increasing in the last years to reach its highest GDP in 2014 by 7.6%. and while Laos suffered from poverty for a long time and needed aid from many international institutions, it is GDP per capita has increased as well increasing Laos's people standard of living.

• As Masculinity/Femininity distribution of roles between gender says that the percentage between genders is almost equal but femininity is a bit larger.

• The majority of population are youth so investors must know that youth are more energetic and creative.

• Low risk from natural disasters.• Low labor cost.• Since Laos joined the WTO in 2013, its business climate could improve in the near

future.

Disadvantages in Investing in Laos

• Despite the fact that Laos is ruled by a single communist party that is maintaining political stability, the country is still facing strong governance issues.

• Laos turned out to be one of the worse countries in the world in terms of government effectiveness, voice and accountability and civil liberties.

• It still is a highly corrupt country and thus is perceived as a high risk country.• It also is facing tax evasion problems within State bodies. • As indicated in the 2014 World Press Freedom Index, Laos scored in

Southeast Asia the worse in terms of press freedom.

Recommendation• It depends on the type of the business and the sector the investors want to invest in.• They should be fully aware and prepaid for the risks in investing in Laos in order to

succeed.• Since Laos is very dependent on its neighbors (China, Thailand, Vietnam), if any

international business is established in of them, they have high chance in succeeding in Laos because of strong culture and trade correlations between those countries.

• They should keep in mind the abundant resources in Laos and a methods to be the first who enter and exploit them and create great competitive advantage.

• Any manager who wants to start a business in Laos must consider Hofsted’s theory.• The investors should be aware that their religion is Buddhism and the language

because misunderstanding can lead to a lot of problems.

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