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Ever since the economic reform in 1986, Laos has gradually integrated into the global economy and eventually joined World Trade Organization (WTO) in 2012. Foreign Direct Investment (FDI) in Laos are prominent to the economy in the country, that is because it covers the investments project like mining, hydropower, and forestry.

Mining and hydropower account for 95.7% of FDI, with the large sources of investment from Thailand, Vietnam, France, and Japan, China currently takes the most shares of FDI. Nowadays, Laos’s main export is mining products and electricity, which representing over half of the total FDI stock and contributing strongly to the rapid economic growth over the past decade. According to the latest report from the Bank of The Lao PDR, in the third quarter of 2020 the FDI in Laos increases by $181.12 Million. The investment law has been amended in 2016 to facilitate foreign investment, hence foreigners may invest in any sector or business that would not cause a threat to national security, health, traditions, or negatively impact the environment.

Laos has a strong trade relationship with Thailand, where it brings 55% of the import, followed by China and Vietnam. FDI creates direct jobs and helps a country expand its economy and participate in the global or regional markets, with several Special Economic Zones with tax incentives that the investors can invest in.

The upcoming 9th National Socio-Economic Development Plan (NSEDP) still focusing on sustainable and inclusive growth, build human capacity, developing infrastructure, and continue to graduate from the least developed country, after facing obstacles like natural disasters and COVID-19, which are what slowed down the plan.

Though Laos aims for environmentally-friendly investments, Laos’ economy is heavily dependent on natural resources exports, which are hydropower dams along the Mekong River, minerals, logging, and construction. Some project mentioned is heavily criticized due to its environmental impacts 

The main challenge on investing in Laos is Low productivity, which not only affects the quality of the workforce but also the investment climate as a whole. Most of the workers are uneducated, and that has become a constraint to the private sector.

Laos also lacks functional and affordable infrastructure, especially transportation, which is vital for Laos as it becoming a land-linked country. Even so, the China - Laos railroad and Vientiane - Boten highway are set to be crucial parts of FDI, attracting more investors into Laos as the country has more choices in transportation. 

Lack of transparency on the governance is also an issue in Laos, with policy uncertainty and inconsistent application of the law, this makes Laos untrustworthy when it comes to investing with such uncertainty. 

FDI Trends

As mentioned above, the foreign investments are mostly from the neighboring countries which are China, Thailand, and Vietnam. China currently dominates several investments in Laos, the notable one would be the belt and road initiative, with Vientiane - Boten expressway and China- Lao railroad. With this investment, Laos can achieve the goal of being a land-linked country and aim to attract more FDI when these infrastructures are done.

Written By: Vanida Souvannavong