The small nation of Laos in Southeast Asia was once called the land of a million elephants. Unfortunately, nowadays the elephants are almost gone, however, the country has opened its barriers to trade, and due to its growth potential, it is worth talking about Laos as a business opportunity.
Lao was part of French Indochina and became independent in 1949, even if it was recognized only 1953.
It became communist in 1975 after the Vietnam War, and started liberalizing its internal market only in 1988. In 1997 it joined the ASEAN community and in 2013 the WTO.
BUSINESS OPPORTUNITIES
First opportunity: high-growth country
The first opportunity in Laos is the pace at which this country is growing. Lao has been growing between 7% and 8% since the Asian financial crisis so this is really an impressive record.
Source: Bank of the Lao PDR
Second opportunity: low competition from multinationals
A big advantage of doing business in Laos is that this is a relatively unexplored market by multinationals. The first large investment that we saw in this country occurred in 2014 for example by Toyota, Essilor and Coca-Cola, and in 2017 by General Electric; overall, we might say that this is a country where you will not find much competition by major multinationals.
Third opportunity: renewable energy
The third opportunity in Laos is in renewable energy. this country wants to become the battery of Southeast Asia. In fact, a combination of mountainous territory and abundance of rivers make Laos a great place where to produce electricity from hydropower. The country is building around 100 dams mostly along the Mekong River and it plans to become an exporter of electricity to its big neighbors like Vietnam, Thailand, Malaysia and Myanmar. The country already produces 74% of its electricity from hydro power and has an estimated potential of 26 megawatts.
Source: CIA World Factbook
Fourth opportunity: infrastructure investments
The fourth opportunity Laos is in infrastructures. The Country invests more than 30% of its GDP in infrastructures every year, apart from energy, mostly in transportation, i.e. roads and railways. It is worth mentioning here a mega project that will connect the southern part of China to Bangkok by train passing through Laos.
Source: UNESCAP
This will enable the country of Laos to make a better use of its mines and will give the country direct access to the sea.
Fifth opportunity: tax-free zones
The fifth opportunity in Laos is that the Country, following the examples of China, Vietnam and even Thailand, has established tax-free zones: these are investment zones where foreign companies are given tax holidays for as long as 50 years from corporation tax and they do not have to pay tariffs and duties on the goods they import, if these are used in the production process in Laos.
BUSINESS RISKS
First risk: poor infrastructure
Coming to the risks the first one is that the level of infrastructure in Lao is extremely poor.
There is basically no railway in Laos so far, there is just a tiny piece of rail which connects the capital Vientiane to the border with Thailand. But that is all. And with regards to roads, they are in dismal conditions: just to give an idea, it takes twelve hours to go from Luang Prabang, Laos’ touristic jewel in the middle of the mountaines, and the capital Vientiane.
Second risk: small market
The second risk in Laos is the fact that the market is small. We are talking about a country of a little bit more than seven million inhabitants with a GDP per capita of 7,400 US dollars, basically the same level as India.
The population is young but the fact that it is so small and so poor makes the attractiveness of the internal market not so great.
Source: World Bank
Third risk: dependency on neighboring countries
In fact, the third risk is a direct consequence of this and it is the fact that Laos is dependent on neighboring countries.
Almost 50% of the trade occurs with Thailand, which is a country that has had its ups and downs, and 25% of the trade occurs with China and 10% with Vietnam. Most of the economy of Laos is dependent on these three nations.
Fourth risk: corruption
The fourth risk in Laos is the high level of corruption: it ranks 132/180 countries according to Transparency International. This level has improved a lot since the past ten years, when it used to be as high as Cambodia at 160, now it is much better than Cambodia, it is basically the same level as Myanmar, however it is high in absolute terms and it is above the average in Southeast Asia.
Source: Transparency International
Fifth risk: inefficient tax administration
The fifth risk is the fact that Laos is still a communist country with a tax administration that is not used to capitalism and foreign investments, so the tax administration is very inefficient and it is one of the main impediments of doing business in this country.
CONCLUSIONS
This was our general analysis of Laos, of course if you had the opportunity of carry on business there and you saw opportunities or risks that we have forgotten to mention please write them in the comments below.
Overall, we think that Laos has great opportunities in energy and it’s very attractive because it is still a relatively unexplored market. There are risks of course given by the poor state of infrastructures, the high corruption and the inefficiency of the tax administration, which are the main impediments of doing business in this country.
Other info about Laos in Country Data page: Laos
We wrote a post with all the useful links for doing business in Laos (chambers of commerce, government agencies, etc).
Globartis Research
If you are looking for a B2B trade platform where to find businesses from Laos, visit our website Globartis.com.
