The Lao People's Democratic Republic provides numerous opportunities for investment because of its strategic location in South-East Asia and proximity to China, abundant and untapped natural resources, and vast tracts of available land. Other important factors to consider are the following:
• a stable political environment for the past 25 years
• extremely low labour costs
• simple and generous tax regimen
• 100 percent foreign ownership allowed
• opportunity to advantage of the various ASEAN economic cooperation schemes such as the ASEAN Free Trade Area (AFTA), ASEAN Investment Area (AIA), and the ASEAN Industrial Cooperation programme (AICO).
In terms of the main sectors for investment opportunity, six sectors are seen as the most enticing to investors: energy (namely hydropower), minerals and mining, agro-business, timber processing, light manufacturing, and eco-cultural tourism.
As noted earlier, the Lao People's Democratic Republic has some of the best and largest hydropower potential in the world. The Mekong River and its numerous tributaries in the country are only beginning to be tapped for energy generation. The Lao People's Democratic Republic possesses an estimated potential of over 18,000 MW installed capacity for hydropower, of which only about two percent has been developed to date.
The government promotes the development of hydropower projects through foreign Build- Operate-Own-Transfer and Build-Operate-Transfer projects in many locations throughout the country. Firms from Asia, Europe, and North America are involved in several dam and energy projects, but there is much more room for additional projects as the Lao People's Democratic Republic strives toward becoming the region's main energy supplier. The aim is to bring on line over 7,000 MW by 2009. The key export market at the moment is Thailand, but Vietnam will soon become a major importer of Lao electricity. The Lao People's Democratic Republic signed an agreement with Vietnam to supply 1,500-2,000 MW of power by 2010.
An additional attractive feature of the energy sector is that because of the Lao People's Democratic Republic's status as a least developed country, low interest rates often available for financing these major projects through international development finance institutions like the World Bank and the Asian Development Bank.
The Lao People's Democratic Republic has substantial potential for mineral ore production.
Numerous minerals have been identified in many parts of the country, including gold, tin, iron, lead, zinc, precious stones, coal, lignite, limestone and gypsum. The government has awarded concession areas to foreign investors to explore for oil and natural gas, and although it is not known whether these resources exist, there is a strong possibility that reserves may be found.
The 1997 Mining Law created a legal framework for new investors. Fiscal regulations, such as royalty rates, corporate income tax rates, and other financial incentives in the mining sector are widely recognized to be competitive by international standards.
The economic growth of the Lao People's Democratic Republic depends to a large extent on the performance of its agricultural sector as it contributes over half of the country's GDP. The Lao People's Democratic Republic has large tracts of unused fertile land and favorable climatic conditions, particularly on the Boloven Plateau. The combination of good soil, extensive areas of uncultivated land, and highly suitable climate conditions provide tremendous potential for land-intensive agriculture and agro-processing industries for export.
A wide variety of crops can be cultivated throughout the country as a result of the differences in climate between the plateaus and mountainous areas. Among the major crops are rice, palm oil, coffee, cotton, sugarcane, tobacco, fruits, vegetables, groundnuts, and flowers. The country's extensive river network also presents a great of potential for establishing irrigation networks.
Livestock rearing and processing is also a potentially lucrative investment sector because of the vast tracts of open land.
The Lao People's Democratic Republic is endowed with bountiful forest resources, giving it the highest ratio of forest area to total land area of any country in Asia. Forest covers between 40-50 percent of the entire country, including highly sought tropical hardwoods such as teak, mahogany, and rosewood. Wood products, including lumber, are therefore one of the country's main export earners.
In an effort to preserve the country's environment and slow deforestation, the government grants commercial forestry licenses through a system of provincial quotas. However, government regulations do not permit foreign wood processing firms, but foreign investment is permitted for the export of processed wood such as plywood, parquet flooring, and furniture. Firms seeking to engage in exporting wood products must receive a license.
Garments and Textiles
The Lao People's Democratic Republic is quickly becoming an important investment market for garment manufacturing and textiles in Asia. One of the main attractions is that the European Union reinstated Generalized System of Preferences (GSP) status to the Lao People's Democratic Republic from 1999 to the end of 2001. Several regional manufacturers have established plants in the Lao People's Democratic Republic to take advantage of the favorable export terms that the country receives for garments and textiles from the industrialized countries.
6. Other light industries
Light manufacturing industries other than garments and textiles include wood-based products, semi-finished and finished leather products, and agriculture-based and mineral- based products can be produced for export using the inexpensive electricity, low-cost labour force, and the abundant agricultural products and minerals available.
Although much progress has been made, the transportation infrastructure needs further development. The state of the road system continues to be a major impediment to trade, cooperation, the development of the rich natural resources and agricultural lands, and the many tourist sites. The government welcomes investment in infrastructure projects. Transportation infrastructure projects are often arranged with the assistance of multilateral and bilateral assistance organizations. This situation can give investors access to low-cost financing and thereby reduce capital costs for investors.
The Lao People's Democratic Republic has made great strides over the past several years in opening up towards the rest of the world, and nowhere is this more evident than in the tourism sector. National revenue from tourism reached almost US$80 million in 1998, bypassing garments for the first time. Gone are the days when budget travelers were frowned upon in favor of high-priced packaged tours, and thus numerous opportunities await investors in the tourism industry. Most of the country's historical, cultural, and natural attractions are underdeveloped despite the immense potential for tourism. A range of investment opportunities are available to foreign investors, including hotels and guesthouses, restaurants, air, ground, and water transportation, and other services.
As a result of the significant levels of multilateral and bilateral assistance, consulting services are potentially lucrative investment opportunity. Local consultants are needed for the numerous projects funded by the World Bank, Asian Development Bank, United Nations agencies, and bilateral donors in a number of fields covering agriculture, environmental issues, human resource development, and economic development. Between 1997 and 2000, the major multilateral agencies earmarked over US$675 million in grants and loans for the Lao People's Democratic Republic.