Foreign Direct Investment Foreign Direct Investment Policy in the Lao PDRPolicy in the Lao PDR

Presented by Houmpheng SouralayDirector General, Department of

Investment PromotionMay 28, 2007

Bangkok, Thailand.

Themes of Presentation:Themes of Presentation: General Information on FDI in Laos Government Policies on FDI Potential Sectors with focus on

Hydropower, Mining, and Agriculture

Country’s ProfileCountry’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

Some Macroeconomic Data 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

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

20012001 20052005

Open Door PolicyOpen Door Policy

• New Economic Mechanism: 1986: Shifting from planned economy to

a market oriented economy

• Privatization of state enterprises

• Open for FDI

Shares of Private Shares of Private InvestmentInvestment

63.8%35.7%

14.2%

4.4%

59.9%22.0%

2001 2005

Foreign

DomesticPrivatePublic

$54.1

$492.0 $465.0 $533.0

$1,249.0

$2,680.0

$75.0 $93.0 $155.0$299.0

$405.0

52

84

178

131 127

158

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

2001 2002 2003 2004 2005 2006 2007

Milli

ons

Dolla

rs

0

50

100

150

200

No. o

f Pro

ject

ApprovedImplementedNo. of ProjectsLine 159Line 505

Approved and Implemented FDI Approved and Implemented FDI in Lao PDRin Lao PDR

Approved Foreign Investment in Lao PDR by Approved Foreign Investment in Lao PDR by

Sector from 2000- March 2007Sector from 2000- March 2007 No  Sectors Projects

Value of Investment (US$)

1 Electricity Generation 37 2,944,252,2002 Agriculture 142 711,359,2903 Mining 134 585,089,8924 Industry & Handicraft 176 443,153,9205 Trading 92 266,071,0896 Construction 23 159,686,8747 Services 154 184,188,4678 Hotel & Restaurant 57 160,409,2479 Telecom 3 39,940,00010 Wood Industry 35 29,307,15411 Banking 8 20,096,00012 Garment 25 20,285,68813 Consultant 29 7,613,252  Grand Total 919 5,572,232,808

Approved Foreign Investment in Lao PDR by Country Approved Foreign Investment in Lao PDR by Country 2001- March 20072001- March 2007

No Countries Projects Value of Investment ($US)1 Thailand 157 1,334,100,0512 China 223 763,642,4663 Vietnam 105 463,612,2124 France 53 419,081,8795 Japan 29 418,390,5836 India 3 350,200,0007 Australia 24 317,677,1968 Korea 99 274,185,7059 Singapore 19 96,235,000

10 Malaysia 30 82,050,39211 Canada 9 48,531,75012 Switzerland 5 31,050,00013 Russia 10 15,675,31014 Sweden 3 13,090,000

  Total 797 5,490,268,785

LAO PDR IN THE GLOBAL ECONOMYLAO 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

From Land-Locked From Land-Locked to Land-Linkedto Land-Linked

Lao PDR is being transformed into LAND LINKED country and Transit country in the region

On-going projectOn-going project

• Thai, ADB, China share 1/3 Thai, ADB, China share 1/3

(soft loan)(soft loan)

• Start 2004, complete 2007Start 2004, complete 2007

Jinghong

1,200 Km.1,200 Km.

Chiang Rai

Luang Namtha

Kunming

THAILANDTHAILAND

LAOSLAOS

CHINACHINA

Chiang Khong

On-going projectOn-going project

• Second Mekong Bridge Second Mekong Bridge (Mukdaharn – Savannaket)(Mukdaharn – Savannaket)

•Soft loan from JapanSoft loan from Japan

•Cost = 4,753 Mil Yen.Cost = 4,753 Mil Yen.

•Under constructionUnder construction

•Complete end 2006Complete end 2006A. Chumpae

Kon Kaen

KalasinMukdaharn/

Savannaket

Seno

Maung Pin

Dansavan/Lao Bound Dong Ha

Danang

HAI VAN PASS TUNNELSecond Mekong Int’l Bridge Project

Cambodia

Lao PDR

Vietnam

Showcase, Short-TermShowcase, Short-Term

Medium to Long-TermMedium to Long-Term

Andaman Sea Tavoy

Khon Kaen

Nakon Ratchasima

Mukdaharn

Ubon Ratchathani

Siem Reap

Stung Treng

Quy Nhon

Quang Ngai

Ca Mau

Trat

Luang Prabang

Muang Xai

Dien Bian Phu

Kanchanaburi

Three Pagoda Pass

Thaton

Payaggi

Mae Sot

Thanbuzayat

MeiktilaBagan

Lashio

Kentung

Jinghong

Bo Ten

Nan

Poipet

Ranong

Kaw Thong

Sihanouk Ville

(Road Project)

Nakhon Phanum

CT25aCT25a

CM12CM12CT56CT56

CT25bCT25b

CL14CL14

LT30LT30LT32LT32

LT29LT29

MT36MT36

LT34LT34

LM16LM16

LT28LT28

MT40MT40

MT38MT38

MT37MT37

Showcase, Short-TermShowcase, Short-Term

Medium to Long-TermMedium to Long-Term

On-going projectOn-going project

III III CL14: Stung Treng – Champasak and CL14: Stung Treng – Champasak and Preah Vihear – ChampasakPreah Vihear – Champasak

•No progress on Cambodia sideNo progress on Cambodia side

•Section in Lao PDR is completed.Section in Lao PDR is completed.

IV IV CM12: Road linkage under Asian CM12: Road linkage under Asian Highway projectHighway project

•Cambodia: Poipet –Sisophon (48 km)Cambodia: Poipet –Sisophon (48 km)

•Under ADB loanUnder ADB loan

Advantages: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

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)

Government’s Investment PolicyGovernment’s Investment Policy

Government’s Investment Policy (con.)Government’s Investment Policy (con.)

Forms of Investment:1) Business Cooperation by contract2) Joint Venture3) 100% foreign owned

Representative Office:to collect information, study investment opportunities.

Branches:Foreign Banks, Financial Institutions, Insurance Companies, Consulting firms, and Airlines.

Promoted Activities eligible for incentives:

1. Production for export; 2. Agro-processing and forestry; 3. Industrial processing; 4. Human resource development and public

health; 5. Construction of infrastructure; 6. Production of raw materials and

equipment to be supplied to key industrial activities; and

7. Development of the tourism industry and transit services.

Government’s Investment Policy (con.)

Government’s Investment Policy (con.)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 and3 years half reduction

Zone 3: 20% profit tax 2 years exemption and

2 years half reduction

Government’s Investment Policy (con.)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

Special Economic Zone (con.)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 yearsProfit Tax: 8% and 10%Personal Income Tax: 5%Loss Carried Forward: 5 years

Special Economic ZoneSpecial Economic Zone Savannakhet-Seno SEZ

(S-S SEZ) established in 2003 by S-S SEZ Decree of the PM no. 148/PM datedSept. 29 2003.

Site A: 305 ha Site B: 20 ha

Layout of Site A

Layout of Site B

POTENTIAL SECTORSPOTENTIAL SECTORS Energy Mining Agribusiness Tourism Construction Material Light industry Service

INVESTMENT SECTORSINVESTMENT SECTORSELECTRICITY GENERATION:ELECTRICITY GENERATION:

Abundant water resources produced by tributaries of Mekong river

Estimated electricitygeneration potential: over 18,000 MW

BOT Investment in hydro-electric facilities will be substantial

Investment in ancillary support services will increase

Hydropower Development of Lao PDR

•Today total installed capacity of 700 MW•Electricity export representing 30% of total 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

Electrified Area

Long Term Development of Sub-Regional Interconnection

19Sub-Regional Interconnection Plan

500kv Transmission Line Facilities

(Jinghong) China-(Luang Namtha) Laos-Thailand

(Hating) Vietnam-Nam Theun 2 (Laos)-Thailand

(Pleiku) Vietnam-Ban Sok /Sananakhet (Laos)-Thailand

Long Term Development of Regional 500-kv Interconnection

MINING SECTOR: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

AGRICULTURE-FORESTRYAGRICULTURE-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)

Main Issues in Agro-ForestMain 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

Some Major Agro-Forest Projects Some Major Agro-Forest Projects in Lao PDRin 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

Culture-tourismCulture-tourism• Rich in well-preserved

culture and traditions• World heritage sites

Thank you for your attention