Dr. Ramon Bruesseler European Chamber of Commerce and Industry in Lao PDR Banque Franco-Lao Building, 5th floor, Lane Xang Avenue P.O. Box 11781, Vientiane, Lao PDR Phone: (+856-20) 56858441 E-mail: contact@eccil.org www.eccil.org October 4, 2013
Laos land locked versus land linked
Lao PDR: Country Profile Land Area : 236,800 sq. km Population : 6.5 m (2012) Population Density: 25 people/sq km Population Growth: 2.2 % (2010) Labor Force : 2.9 Millions Religion: Buddhism Source: MPI, Own calculations. Bruesseler, R.> Laos. In> Wirtschaftshandbuch Ostasien. Ed. By OAV, 2012.
Laos is at the centre of the GMS, consisting of Cambodia, Myanmar, Thailand, Vietnam, and Yunnan province of China. It is the only country bordering all the other countries in the subregion. More than 70% of international trade in Laos - except air freight - is cross-border trade 50% of the Lao population lives in border districts. Laos strategic location
The Economy European Chamber of Commerce and Industry in Lao PDR Banque Franco-Lao Building, 5th floor, Lane Xang Avenue P.O. Box 11781, Vientiane, Lao PDR Phone: (+856-20) 56858441 E-mail: contact@eccil.org www.eccil.org October 4, 2013
10 9 8 7 6 5 4 3 2 1 0 % Real GDP Growth in Lao PDR Projection 2005 2006 2007 2008 2009 2010 2011 2012 2013-15 Source: The Economist Intelligence Unit (Ed.): Country Report Laos. London, Sept. 2009, p.6.; The Economist Intelligence Unit (Ed.): Country Report Laos. London, Sept. 2010, p.6., 14., World Bank (Ed.): Lao PDR Economic Monitor, May 2012 update. Vientiane 2012, p. 5.
Real GDP Growth in Lao PDR, Contribution of Resource Sectors % 10 Estimate Forecast 8 6 4 2 0-2 6.1 2.5 7.6-0.2 5.5 4.9 1.9 2.6 3.7 4.8 4.5 3.5 5.4 2.1 5.6 1.9 Resource Sector Non-resource Sector Source: The World Bank (Ed.): Managing Macroeconomic Balances to Sustain High Economic Growth. Lao PDR Economic Monitor, September Update, Issue 16, Vientiane, Sept. 2010, p.2.,; The World Bank (Ed.):Robust Growth Amidst Inflationary Concerns. Lao PDR Economic Monitor, May 2010 Update, Vientiane, May 2011, p. 6,., World Bank (Ed.): Lao PDR Economic Monitor, May 2012 update. Vientiane 2012, p. 5
Growth rate of value added in the different sectors of the economy 17.4 14.5 14.2 13.7 10.2 9.5 6.2 8 8.5 8 2.5 2.4 2 1.8 2.5 2008 2009 2010 2011 2012 Agriculture Manufacturing Services Source: Asian Development Bank (Ed.): Asian Development Outlook 2013. Manila 2013, p. 291-293 Updated 04/06/2013
Contribution of Sectors to GDP in Laos (Estimate 2012) % Services 33% Agriculture, Forestry 12% Mining and Quarrying 11% Electricity, gas, water 18% Construction 9% Manufacturing 17% Updated on March 25, 2013 Source: The World Bank (Ed.): Managing Macroeconomic Balances to Sustain High Economic Growth. Lao PDR Economic Monitor, September Update, Issue 16, Vientiane, Sept. 2010, p.2. World Bank (Ed.): Lao PDR Economic Monitor, May 2012 update. Vientiane 2012, p. 5. World Bank (Ed.): Lao PDR Economic Monitor, Dec. 2012 update. Vientiane 2012, p. 5
Estimation of employment per sector in 2015 in Lao PDR Industry 7% Services 23% Agriculture 70% It is expected that labour supply in 2015 will fall short of demand by about 50,000 workers even if labour has already migrated from the agriculture sector. Source: Presentation of Dr. Bbounthavy, Vice Minister for Planning and Investment, Lao PDR..
GDP per capita in current US $, 2011 6000 5000 4000 3000 2000 1000 0 1411 4972 2370 5445 900 1320 Source: The World Bank: http://data.worldbank.org/indicator/ny.gdp.pcap.cd/countries as of 28/10/2012 Updated 28/10/2012
Financing
Credit to the Economy (percent of GDP) 30 % 25 20 15 10 5 0 2006 2007 2008 2009 2010 Source: The World Bank (Ed.): Robust Growth Amidst Inflationary Concerns. Lao PDR Economic Monitor, May 2011 Update, Vientiane, May 2011, p. 13
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Credit by sector 2006 2007 2008 2009 2010 2010 2012 (H1) Other Materials and Technical Supply (assembly) Transportation Agriculture and Forestry Construction Services Commerce Industry and Handicraft Updated 14/12/2012 Source: The World Bank (Ed.): Tightening Demand to Maintain Macroeconomic Balance. Lao PDR Economic Monitor, November 2012. Vientiane, November 2012, p. 13.
The Enterprises
Economic Units in Lao PDR, Dec. 2006, Regional Distribution in % % 25 22.7 20 15 10 11.4 10 9.1 7.6 6.9 5.6 5 5 3.6 3.5 3.2 3 2.4 1.9 1.7 1.4 1 0 Source: The Steering Committee on Economic Census (Ed.): Report of Economic Census, 2006 Volume 1, Vientiane 2007, p. 18
Economic Units in Lao PDR, Dec. 2006, ISIC classification Mining and quarrying Agriculture, forestry, fishing Water supply, sewerage Electricity, gas Construction Arts, entertainment and recreation Administrative and support service Professional, scientific and technical Information, Real estate activities communication Financial and insurance Other service activities Human health and social work Education Accomodation and food service Manufacturing Transportation, storage Wholesale and retail, repair Total number of economic units according to Census: 126,913. Source: The Steering Committee on Economic Census (Ed.): Report of Economic Census, 2006 Volume 1, Vientiane 2007, p. 11
Economic Units in Lao PDR, Dec. 2006, Average employment per unit 30 25 20 15 10 5 0 4.7 26 4.3 27.8 6.9 19.9 1.7 2.8 5.2 4.2 14.8 2.4 3.9 8.4 13.1 2.8 3.6 1.5 2.7 Source: The Steering Committee on Economic Census (Ed.): Report of Economic Census, 2006 Volume 1, Vientiane 2007, p. 19
Ownership structure of Lao companies 2012 State 0.4% Private foreign 7.8% Private domestic 91.8% Source: World Bank, IFC (Ed.): Lao PDR Country Profile 2012. Enterprise Surveys. Washington, March 2013, p. 5.
Trade
Lao Exports and Imports of Goods and Services in mln. USD Exports Imports 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 2007 2008 2009 2010 2011 2012* 2013* Source: The World Bank (Ed.): Sustaining Robust Growth Mitigating Risk and Deepening Reform. Lao PDR Economic Monitor, May 2012 Update, Vientiane, May 2012, p. 21. World Bank (Ed.): Lao PDR Economic Monitor, May 2012 update. Vientiane 2012, p. 21 *Forecast Updated 30/10/2012
Lao Merchandise Exports 2009/2010 in m. USD 0 200 400 600 800 1,000 1,200 Minerals Electricity Industrial and handicraft products Agricultural products and live animals Wood and wood products Gemstones Forestry products Source: MoIC
Top Destinations for Lao Exports (2005-2010) $0 $1,000,000,000 $2,000,000,000 $3,000,000,000 Thailand Viet Nam Australia China Germany United Kingdom United States South Korea Japan Swaziland Switzerland France Netherlands Hong Kong Poland Belgium Source: Stirbat, L., R. Record, K. Nghardsaysone: Exporting from a Small Land Locked Economy. Policy Research Working Paper 5695, ed. by World Bank, June 2011, p. 8.
Lao PDR: Ratified international trade agreements ASEAN AFTA AEC ASEAN-China AEAN-South Korea Japan Thailand USA Preferential Access to EU market WTO
Budgets, Investment and Five Year Socio-Economic Development Plan
Investments in Lao PDR 2005-2009 in USD* 65% 3% 18% 14% Public, government funded Public, ODA funded Approved private investment Approved FDI *Based on constant exchange rate of 9356 LAK for 1 USD, which is the average between the rate of 10,242 LAK per USD in 2005 and 8470 LAK per USD in 2009 Source: Own calculations, based on: The Seventh National Socio-Economic Development Plan (2011-2015). Draft. Executive Summary. Unofficioal [sic!] translation from original Lao version. Vientiane, without date, p. 2
Investment requirement during 7th NSEDP (2011-2015 in Lao PDR in USD if Lao GDP is to grow by at least 8% annually; approximate figures 11% 9% Public Investment 53% 27% Foreign aid and borrowing Private Investement (dometic and foreign) Bank credit Source: Ministry of Planning and Investment
FDI in Lao PDR 1989 2012 by country of origin 4913 4082 3952 Projects Million US $ 429 742 801 748 490 287 430 428 224 99 104 21 161 150 113 79 134 Source: http://www.investlaos.gov.la/show_encontent.php?contid=29 as of June 04, 2013 Updated 04/06/2013
Lao PDR: Law on Investment Promotion Representative Office, Joint Venture (JV) or Wholly Foreign Owned Investment (WFOI) possible No limits on repatriation of profits Capital of foreign investment in general business shall not be less than 1 bln. LAK (approx. 120.000 US $) Facilitation of investment procedures through introduction of one-stopservice Depending on sector and location of investment profit tax exemptions of up to 10 years possible as well as further incentives Favourable conditions in Special Economic Zones (SEZ) SEZ can be developed by foreign investors Foreign investors with registered investment capital of not less than 500,000 US $ are entitled to land use right
Name of SEZ 1. Savan-Seno Economic zone (Lao government -Malaysian investor) 2. Boten Special Economic Zone (China) 3. Sarmliem Den Kham Speical Economic Zone (China) 4. Phou Kieu Nakhon Specific Economic Zone (Lao ) Location Savanakhet province Luangnamtha province Bokeo province Khammouan province 5. Non Thong Industrial park (Taiwan) Vientiane Capital Potential for new SEZs development 1. Friendship Bridge SEZ Khammouan 2. Num Heuang SEZ Xayaboury 3. Four thousand Islands Champasack 4. Plain of Jar Development Zone Xiengkhuang 5. Xam Neua District & Viangxal District Huaphan
Tourism
Lao PDR Tourist arrivals in million people: Regional International 2005-2012 2.0 1.94 1.6 1.2 0.8 0.4 0.0 2005 2006 2007 2008 2009 2010 2011 2012 International Thailand Vietnam China 0.71 0.47 0.20 Source: Lao National Tourism Authority / GIZ Laos
Lao PDR: Revenue from tourism in mln. US $ 514 382 424 233 276 268 114 104 113 87 119 147 173 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Source: Lao National Tourism Authority. Bank of Lao PDR (Ed.): Annual Report 2011. Vientiane 2012, p 66.
Taxes
Highest Rate of Personal Income Tax (2011-2012) 50 % 45 45 40 35 30 25 20 15 10 5 0 40 37 35 35 32 30 26 24 ** 20 20 * 15 Updated 30/10/2012 Source: KPMG (Ed.): KPMG s individual income tax and social security rate survey 2010. w/o loc., Sept. 2010, p. 6, 7. ; pers. Information from GTZ Laos; http://www.ocm.gov.kh/c_tax.htm as of Nov. 18th 2010. * 2010 **2012
Taxable Income Level in US $, Where Highest Rates of Personal Income Tax Take Effect (2012) 400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000 0 329,611 152,160 5,047 3,840 3,086 Source: KPMG (Ed.): KPMG s individual income tax and social security rate survey 2012, Lao Tax Law, OANDA * 2011
Doing Business in Laos
0 20 40 60 80 100 120 140 Singapore, 1 Ease of Doing Business Index 2013 (Ranking of 185 countries) Hong Kong, 2 Malaysia, 12 Taiwan, 16 Thailand, 18 Germany, 20 China, 91 Viet Nam, 99 Indonesia, 128 Cambodia, 133 Philippines, 138 160 180 Source: http://www.doingbusiness.org/rankings# as of Oct. 26 th, 2012 Central African Republic, 185 Laos, 163 Updated 28/10/2012
Corruption Perception Index (Rank in 2011)* 180 160 140 120 100 80 60 40 20 0 ource: Asian Development Bank (Ed.): Key Indicators for Asia and the Pacific, 2009. 40 th ed., Manila 2009, p. 265 * 1= least corrupt, 182=most corrupt Updated 28/10/2012
SWOT Analysis of the Lao Economy
SWOT analysis of Lao PDR as a place to do business: 1: Strengths Political stability High economic growth rates Business friendly laws and continuation of economic reforms Good business climate and business confidence Reliable energy supply Low wages Decent living conditions for foreign experts and managers (exception: health care)
SWOT analysis of Lao PDR as a place to do business: 2: Weaknesses Small domestic market with limited mass purchasing power Moderate level of vocational skills Land locked (land linked?) country with sometimes poor infrastructure beyond the main roads resulting in high transportation cost Topography detrimental to traffic and low population density Banking system and financial system are still developing No easy place to do business
SWOT analysis of Lao PDR as a place to do business: 3: Opportunities Rich in natural resources Privileged access to the EU market Infrastructure projects Growing tourism Little competition in many industries Good opportunities for machine building and civil engineering companies (among other equipment for hydro power plants, textile industry etc.)
SWOT analysis of Lao PDR as a place to do business: 4: Threats Sometimes weak and inconsistent implementation and application of laws and regulations Jurisdiction is not always independent or neutral High level of bureaucracy and not always transparent administrative decision making Corruption
Lao PDR: Business Opportunities Tourism Construction and civil engineering incl. infrastructure Power generation and sales of equipment Mining, sales of mining equipment Environmental Technologies Communication sector Agro processing Logistics Etc.