Foreign Direct Investment

According to UNCTAD's World Investment Report 2023, FDI inflows into Laos decreased to USD 528 million in 2022 from USD 1 billion a year earlier, and were much lower than the three-year average recorded before the pandemic (USD 1,267 million in 2017-19). At the end of the same period, the total stock of FDI stood at USD 12.7 billion, around 83.2% of the country’s GDP. 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 59.1% of FDIs between 1989-2021). 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 to make the country a low-cost export base. According to data from the national Investment Promotion Department, the main investing countries in Laos are large neighbors such as China, Thailand, and Vietnam, but also South Korea and France. In April 2023, Japan's Mitsubishi Corp declared that it and other shareholders raised USD 692 million in financing for the Monsoon wind power project in Laos, which is Southeast Asia’s biggest wind energy project, with an expected capacity of 600 megawatts from 2025.

The Government has been pursuing a policy of FDI promotion. 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 (including tax holidays, exemptions or reductions on import and export duties, and land leases at preferential rates), 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 authorizations, the overlapping of jurisdictions between the different ministries, inequalities in terms of tax benefits, high tariff costs, low-skilled labor, and poor-quality infrastructure (although they are improving). Furthermore, corruption is widespread (136th position out of 180 in the 2023 Corruption Perception Index). In 2022, the government approved the 9th Five-Year National Socio-Economic Development Plan (2021-2025), which aims at graduating Laos from Least Developed Country (LDC) status in 2026 to become an upper-middle-income country. Since 2024, the Bank of Laos (BOL) has introduced a new requirement stipulating that foreign investors must open a Foreign Direct Investment Bank account (FDI) with a commercial bank, either in Lao Kip or a convertible foreign currency, within 15 days of receiving a business license. After transferring funds into a commercial bank in Laos, foreign investors are required to apply for a Capital Importation Certificate (CIC) from the Foreign Exchange Management Department within 30 days. Only investors who have obtained the CIC from the central bank will be permitted to repatriate capital following business operations. Finally, Laos ranks 110th among the 132 economies on the Global Innovation Index 2023 and 142nd out of 184 countries on the latest Index of Economic Freedom.