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Foreign Direct Investment

According to UNCTAD's World Investment Report 2021, FDI inflows into Laos increased to USD 968 million in 2020 from USD 557 million a year earlier, despite the global economic crisis triggered by the Covid-19 pandemic. The FDI stock stood at USD 10.9 billion in 2020. Projects in the areas of hydraulic energy production and the exploitation of mining resources represent around 80% of the foreign investment accumulated over the last ten years (according to Lao government statistics, mining and hydropower accounted for 95.7% of FDIs in 2019, latest data available). Transportation infrastructure, tourism and large agroforestry projects are also attracting new investors. Furthermore, the government is aiming at integrating Laos into regional supply chains by developing a light manufacturing industry in order to make the country a low-cost export base. According to data by the national Investment Promotion Department, the main investing countries in Laos are large neighbours such as China, Thailand and Vietnam, but also France and Japan.

The Government has been pursuing a policy of FDI promotion, with the investment law being amended at the end of 2016. Foreigners may invest in any sector or business, unless it would cause a threat to national security, health or national traditions, or if it may impact negatively the environment. Several incentives are available to foreign investors, as well as “special” and “specific” economic zones, such as the Vientiane Industry and Trade Area which was successful in attracting major manufacturers from Europe, North America, and Japan. However, barriers to FDI remain, especially the lengthy procedure to obtain the required investment authorisations, the overlapping of jurisdictions between the different ministries, inequalities in terms of tax benefits, high tariff costs, low-skilled labour and the poor-quality infrastructure (although they are improving). Furthermore, corruption is widespread (128th position in the 2021 Corruption Perception Index). Laos ranks 154th out of 190 countries in the latest Doing Business report published by the World Bank (stable compared to the previous year). For what concerns the procedures to start a business, Laos ranks among the worst countries in the world.

 
 
Foreign Direct Investment 201820192020
FDI Inward Flow (million USD) 1,320557968
FDI Stock (million USD) 9,3749,93110,899
Number of Greenfield Investments* 1862
Value of Greenfield Investments (million USD) 2,231533103

Source: UNCTAD - Latest available data.

Note: * Greenfield Investments are a form of Foreign Direct Investment where a parent company starts a new venture in a foreign country by constructing new operational facilities from the ground up.

Country Comparison For the Protection of Investors Laos East Asia & Pacific United States Germany
Index of Transaction Transparency* 6.0 5.9 7.0 5.0
Index of Manager’s Responsibility** 1.0 5.2 9.0 5.0
Index of Shareholders’ Power*** 3.0 6.7 9.0 5.0

Source: Doing Business - Latest available data.

Note: *The Greater the Index, the More Transparent the Conditions of Transactions. **The Greater the Index, the More the Manager is Personally Responsible. *** The Greater the Index, the Easier it Will Be For Shareholders to Take Legal Action.

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