Lao Economy

Increased Private Investment Boosts Lao Economy

Source: Vientiane Times

The government has approved a total of US$1.11 billion in domestic and foreign private investments during the first quarter of this year.

Last year, the government approved 1,222 projects funded by domestic and foreign private investors worth US$3.13 billion, according to a National Assembly report.

However, financing required an increase of about US$2.9 billion which was 28.1 percent more than planned, Minister of Planning and Investment Dr Souphanh Keomixay said.

The total value of social investments including public, grant and assistance funds and the banking credit system reached 42.8 trillion kip, which was 24.2 percent more than planned and accounted for 33.1 percent of GDP.

The private sector plays an increasingly important role in Laos as a driver of change and engine of economic growth.

The sector now accounts for over 80 percent of the country’s GDP.

Although the government still controls the main industrial sectors through state-owned enterprises (SOEs), since 1985 it has placed an increasing emphasis on encouraging private enterprise to spur growth, employment, and poverty reduction, according to an Asian Development Bank report for 2012-2016.

Market forces are the main determinants of prices and the government has granted most SOEs increased decision-making authority while cutting subsidies to SOEs substantially.

Moreover, import barriers have been eased and replaced with tariffs, and private sector firms have been granted direct access to imports and credit.

Farmers are permitted to own land and market their crops and reforms have been implemented to make it easier to start a business and to encourage foreign investment.

However, foreign investment in hydropower, mining (gold and copper), and construction has been the main contributor to recent economic growth.

Foreign direct investment (FDI) has dominated private sector investments over the last decade, with mining and hydropower accounting for 80 percent of total FDI.

Foreign companies can also own 100 percent of a domestic company and no legal distinction is made between foreign and domestic companies.

Private sector investment in the non-resource sector (agriculture, light manufacturing, processing industries, and services) is small in value terms and private domestic investment has been stagnant at around 5 percent of GDP, three times less than FDI.

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