Exploring business opportunities in Laos:
The Land of a million elephants
GPC Business Advisory Team visited Laos for a country research visit for 3 days in June 2019. As Laos was only known to us as a country rich in hydroelectricity, little did we know of its potential growth in other diversified sectors. I learnt so much during the field trip and so I wanted to share my thoughts and information we had received from meeting with locals from both the government and private sectors there.
I hope the info will be somewhat useful to any companies that may be interested in venturing into Laos!
Overview
We visited the capital city of Laos – Vientiane, which I learnt, according to its Chinese characters [万象] meant ten thousand elephants. Laos is also known as the “battery of South-east Asia” for its immense export in hydropower. Being the only landlocked country in South-east Asia and with only around 6.6 million population, Laos is one of the smallest countries in the ASEAN region.
The country is bordered by China, Myanmar, Cambodia, Vietnam and Thailand. Alike with its neighboring countries, the religion in Laos is predominantly Buddhism (Theravada). Others include Animism, Christianity, Islam and Bahá’í faith.
“Laos is generally a peaceful and politically stable country.”
Economy
Laos has a steady GDP growth rate of around 7% in recent years. Laos’ GDP rose from USD 17 bn in 2017 to USD 18.3 bn in 2018. FDI inflows also increased from USD 660 mil in 2017 to USD 1.6 bn in 2018.
Much of Laos’s economic growth has come from land concessions for natural resources—including timber, agricultural products, minerals, and energy. Most Laotians live in rural areas, with around 77% work force engaged in Agriculture, growing mainly rice.
We learnt that Vientiane’s population only accounted for like approximately 10% of the whole country. The Central part of Laos is where most industrial zones are, and the southern part being the agricultural lands, where most of the population lies.
Growing Sectors
From talking with different locals, we found that there are three main growing sectors: 1) Agriculture with a focus on organic farming; 2) Renewable energy with a focus on hydropower & solar energy and; 3) Logistics and transportation sector growth, with China building the first railway in Laos that will connect to China and other SEA countries.
I thought this railway project is something I could expand on as it is the one famous project every person, we talked with has mentioned. This USD 7bn worth railway line is the largest and most controversial foreign investment project in Laos. The railway being built by China as part of its one belt one road initiative, is to create a direct route between China (Yunnan’s provincial capital of Kunming) and south-east Asia. The railway line is targeted to eventually connect to Bangkok and Malaysia through to Singapore. The 410-km railway line is said to require 75 tunnels and more than 160 bridges to be built in Laos.
Started in 2016, the railway aims to start operating by December 2021.
Related to Agriculture, people generally said that the country needs to create “value-added” products and ways (i.e., organic agriculture) and the need to develop advance technology for better agricultural methods, in order to competitively export agricultural goods to other countries. This is an area investors may potentially want to look into as it calls for tremendous growth.
The Construction industry was said to have not have much potential and was not advised for foreign investment, unless one has sufficient funds. According to one of the locals we spoke with, it is not advised to joint-partner with the Laos government in this sector, mainly because the government does not usually have enough funds to see through till the end of construction.
The Mining industry has now been more regulated. It was said that there are mainly Australian companies in this sector. We learnt that the three countries that are heavily investing in Laos are: 1) China 2) Thailand 3) Vietnam.
While Chinese companies are heavily involved in construction and hydropower sectors, most of the imported commodities and food products we observed, are from Thailand.
Challenges in Laos
While we noticed that Vientiane roads were smooth and its environment being tidy and clean, we only saw a few buses and tuk-tuks (as seen in the left photo below) on the streets. Everyone has to have a car to commute due to lack of public transportation.
We noticed that the cars were mainly Toyota, Hyundai and Honda. Buses are there but are never on time, so not reliable. When we asked the locals, they agreed that our observation was correct – the Japanese car market is strong in Laos, which seemed like “riding a Toyota shows that you’re well-off”.
Other aspects we learnt of Laos’ current challenges were low skilled force in the country. The locals said technical vocational education is needed, especially in the engineering space. Most foreign talent are being sourced from countries like China (for construction) and Vietnam (for nail/beauty salons). Those Laotians that are skilled in these areas, often go overseas like Thailand for work.
A surprising reveal was also that in Laos, there is a growing challenge of a lot of graduates but not enough jobs. We were told that around 20,000 graduates alone last year were not able to find jobs.
Observations in Laos
While Laos is mainly an agricultural country with over 70% of its population being farmers, its share in the country’s GDP is significantly low – with a contribution of only about 16%, compared to 31% in industry and 40% in services (Statista, 2019). It is the slowest growing sector of the economy, hobbled by low productivity and outdated farming methods. Hence, we see that foreign investment in this sector would be very fruitful.
Resource-related sector (mining, electricity generation, etc.) accounts for majority of investments (mainly from China, Vietnam & Thailand). However, the relative significance of the mining sector has declined in recent years due to suspension of new mining concession allocations since 2012 & more protected regulations.
Growth rate of the Service sector is high and its GDP share is over 40%. In particular the share of the commerce is high with finance sector share increasing. Services sector is expected to grow by 6.7% (ADO, 2019)
Registration of a foreign entity
Registering foreign companies in Laos is not too difficult, but need to submit the documents in person. For Foreign Banks, they can actually open a branch office very easily as a fully foreign owned. They’re also approved very easily in the country (no restrictions as such).
There are three types of Investment:
- General business (Ministry of Industry and Commerce will issue the business license);
- Concession business (Ministry of Planning and Investment will issue the concession license);
- Special or Specific Economic Zones (Secretariat to National Committee for Special Economic Zones at Government Office will issue the license);
Generally, foreign investors seeking to establish operations in Laos are required to obtain a foreign investment and business license, an enterprise registration certificate, and a tax registration certificate. It is generally also easy to get employment visas for foreigners (have each quota for the firm).
Promoted sectors in Laos are agriculture, industry, handicraft and services.
Although most of the Japanese companies are very cautious when investing in a new country, it was said that SMEs from Japan in the F&B (restaurant) business have mostly been entering into Laos. From our site visit, we saw at least four MiniSo branches there!
In conclusion, I would like to say that Laos is a peaceful country that I find has so much room for investment growth. For any interested investors who might need more information or require any advisory support, feel free to contact us. GPC is always ready to help expand your business further!
May Pyeetson Aung
