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Foreign Direct Investment Policy in the Lao PDR

This presentation provides an overview of the foreign direct investment (FDI) policy in Laos, with a focus on potential sectors such as hydropower, mining, and agriculture. It also highlights the country's profile, macroeconomic data, and advantages for investment. The government's investment policy, forms of investment, and investment incentives are discussed as well.

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Foreign Direct Investment Policy in the Lao PDR

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  1. Foreign Direct Investment Policy in the Lao PDR Presented by Houmpheng Souralay Director General, Department of Investment Promotion May 28, 2007 Bangkok, Thailand.

  2. Themes of Presentation: • General Information on FDI in Laos • Government Policies on FDI • Potential Sectors with focus on Hydropower, Mining, and Agriculture

  3. Country’s Profile • Land Area : 236,800 sq. km • Population : 5.6 Millions (2005) • Population Density : 24 persons/sq km • Population Growth : 2.4 percent • GDP : 2.7 billion USD • Per capita GDP : 491USD • Labor Force : 2.9 Millions • Religion : Buddhism

  4. Some Macroeconomic Data • GDP(average 2001-05)%6.2 • Agriculture (3.4%) ; Industry (11.3%); Services (6.7%) • GDP(Expected 2006-07)%7.5 • GDP per capita(average 2001-2005)491 • GDP per capita(Expected 2006-2007) 591

  5. Changes in Economic Structure (2001-2005) 2001 2005

  6. Open Door Policy • New Economic Mechanism: • 1986: Shifting from planned economy to a market oriented economy • Privatization of state enterprises • Open for FDI

  7. Shares of Private Investment

  8. Approved and Implemented FDI in Lao PDR

  9. Approved Foreign Investment in Lao PDR by Sector from 2000- March 2007

  10. Approved Foreign Investment in Lao PDR by Country 2001- March 2007

  11. LAO PDR IN THE GLOBAL ECONOMY • Member of international organization ( MIGA, ASEAN, ASEAN-Japan Centre, WORLD BANK, ADB, IMF…) • GSP Privileges : 42 countries ( EU, JAPAN, CANADA, CHINA, … ) • NTR with USA (04/02/2005) • Bilateral Investment Treaties with 23 countries (Investment Promotion and Protection) • In process of joining WTO

  12. From Land-Locked to Land-Linked Lao PDR is being transformed into LAND LINKED country and Transit country in the region

  13. Kunming CHINA 1,200 Km. Jinghong Luang Namtha LAOS Chiang Khong Chiang Rai THAILAND • On-going project • Thai, ADB, China share 1/3 • (soft loan) • Start 2004, complete 2007

  14. Second Mekong Int’l Bridge Project HAI VAN PASS TUNNEL Dansavan/ Lao Bound Dong Ha Seno Kon Kaen Maung Pin Danang A. Chumpae Mukdaharn/ Savannaket Kalasin Lao PDR Vietnam Cambodia • On-going project • Second Mekong Bridge (Mukdaharn – Savannaket) • Soft loan from Japan • Cost = 4,753 Mil Yen. • Under construction • Complete end 2006

  15. (Road Project) Lashio Jinghong Dien Bian Phu Kentung LM16 Bagan Bo Ten Meiktila Muang Xai LT28 MT36 Luang Prabang LT34 LT29 Nan Payaggi Nakhon Phanum Thaton LT30 MT37 LT32 Mae Sot Mukdaharn Khon Kaen MT38 Ubon Ratchathani Thanbuzayat Three Pagoda Pass Nakon Ratchasima Quang Ngai Andaman Sea MT40 CT25b CT56 Tavoy CM12 Poipet CL14 Quy Nhon Stung Treng Kanchanaburi Siem Reap Trat CT25a Kaw Thong Sihanouk Ville Ranong Ca Mau Showcase, Short-Term Medium to Long-Term Showcase, Short-Term Medium to Long-Term • On-going project • III CL14: Stung Treng – Champasak and Preah Vihear – Champasak • No progress on Cambodia side • Section in Lao PDR is completed. • IV CM12: Road linkage under Asian Highway project • Cambodia: Poipet –Sisophon (48 km) • Under ADB loan

  16. Advantages: • Comparative Advantages: • Rich Natural Resources • Large Area of Fertile Agricultural Land • Varieties of Tourism Development Sites • Virtually no damaging natural disaster • Competitive Advantages: • One of the most Politically Stable Country in the Region • Socio-Economic and Financial Stability • High Security (Low Crime Rate) • Low Labor Costs • GSP Privileges given from 42 countries • Liberal Laws and Regulations creating favorable business and investment environments

  17. Government’s Investment Policy • Law on the Promotion of Foreign Investment no.11/NA (2004) and its Implementing Decree no. 301/PM (2005) • Welcome every business sector and activity not detrimental to national security, environment, and public health and safety • All investment is guaranteed against expropriation and nationalisation without compensation • Remittance of dividends an profits back home or to third countries is allowed through banking system • Long Investment term and land lease (50-75 years)

  18. Government’s Investment Policy (con.) • Forms of Investment: 1) Business Cooperation by contract 2) Joint Venture 3) 100% foreign owned • Representative Office: to collect information, study investment opportunities. • Branches: Foreign Banks, Financial Institutions, Insurance Companies, Consulting firms, and Airlines.

  19. Government’s Investment Policy (con.) • Promoted Activities eligible for incentives: • Production for export; • Agro-processing and forestry; • Industrial processing; • Human resource development and public health; • Construction of infrastructure; • Production ofraw materials and equipment to be supplied to key industrial activities; and • Development of the tourism industry and transit services.

  20. Government’s Investment Policy (con.) • Investment Incentives: • Profit Tax: • Zone 1:10% profit tax 7 years exemption • Zone 2:15% profit tax 5 years exemption and 3 years half reduction • Zone 3:20% profit tax 2 years exemption and 2 years half reduction

  21. Government’s Investment Policy (con.) • Other incentives: • Exemption of import duties and taxes on raw materials and capital equipment; • Exemption of export duty on export products; • 10% personal income tax on expatriate employees; • Additional tax holidays, reduced tax rates for large projects with special concession are available upon negotiation

  22. Special Economic Zone (con.) • S-S SEZ located in the middle of EWEC • Savannakhet is the most populated province with potential workforce • Road no. 9 and 2nd Mekong Friendship Bridge provides access to seaports in Vietnam (500km) and Thailand (600km) • Tax Incentives: • Tax Holidays: 2-10 years • Profit Tax: 8% and 10% • Personal Income Tax: 5% • Loss Carried Forward: 5 years

  23. Special Economic Zone • Savannakhet-Seno SEZ (S-S SEZ) established in 2003 by S-S SEZ Decree of the PM no. 148/PM dated Sept. 29 2003. • Site A: 305 ha • Site B: 20 ha

  24. Layout of Site A

  25. Layout of Site B

  26. POTENTIAL SECTORS • Energy • Mining • Agribusiness • Tourism • Construction Material • Light industry • Service

  27. INVESTMENT SECTORSELECTRICITY GENERATION: • Abundant water resources produced by tributaries of Mekong river • Estimated electricity generation potential: over 18,000 MW • BOT Investment in hydro-electric facilities will be substantial • Investment in ancillary support services will increase

  28. Hydropower Development of Lao PDR Electrified Area • Today total installed capacity of 700 MW • Electricity export representing 30% oftotal country’s export revenues • Population electrified app. 46% and the rest under electrification • Industry growth of about 7% per annum • Neighboring countries: • electricity demand growth in neighboring countries notable • price of fueled energy subject to fluctuation of fuel price in the world market • Need of diversification of energy sources

  29. Long Term Development of Sub-Regional Interconnection 500kv Transmission Line Facilities • (Jinghong) China-(Luang Namtha) Laos-Thailand • (Hating) Vietnam-Nam Theun 2 (Laos)-Thailand • (Pleiku) Vietnam-Ban Sok /Sananakhet (Laos)-Thailand

  30. Long Term Development of Regional 500-kv Interconnection

  31. MINING SECTOR: • Mining industry is under developed • Mining sector presents numerous potential opportunities for investment and development • Mineral deposits : tin, lead, zinc, iron ore, cooper, gold, gypsum, lignite, sapphires, … • Concessions granted to foreign investors

  32. AGRICULTURE-FORESTRY: • Highest ratio of forest area • Large stands of tropical hardwoods including teak and rosewood • Suitable land for various tree Plantation • Plenty of productive land • Long term land lease (50-75 years)

  33. Main Issues in Agro-Forest • Land approved level: • <10.000 ha by MAF with approval from GOL; • >10.000 ha by GOL with adoption from NA; • Fees rate between 6 -9 US$/ha/year. • Profit tax exemption period starts from the date of making profit

  34. Some Major Agro-Forest Projects in Lao PDR • Oji Lao Plantation (Japan): 50.000 ha = 49 m USD • Daklak Rubber (Vietnam): 10.000 ha = 30 m USD • Viet-Lao Joint Stock Rubber(Vietnam):10.000 ha=22 m USD • Paksong Highland (Thailand): 26.000 ha = 8 m USD • Agarwood Lao Group (Thai/Lao): = 10 m USD • Mitr Lao Sugar Co. Ltd. (Thailand) = 22.5 m USD • Savannakhet Sugar Corp. (Thailand) = 10 m USD • Birla Lao Pulp & Plantations Co. Ltd. (India):50,000 ha= 350 m USD

  35. Culture-tourism • Rich in well-preserved culture and traditions • World heritage sites

  36. Thank you for your attention

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