Private Sector Development
The private sector exerts a significant influence on Lao PDR development. As such the Government has taken steps to simplify the enabling business environment, facilitate enterprise registration, repeal establishment licenses, annual import-export plan requirements, and import-export licensing requirements for goods outside the revised controlled list, and establish a one-stop service.
Additionally, the Government has approved the Decree on Import Export Licensing Procedures, providing traders with greater certainty and predictability over the Lao trade regime.
Efforts continue to improve the predictability of the regulatory environment for business creation and operations, including the adoption of the Law on Commercial Banks, the Customs Law, a new unified Investment Promotion Law and the Minerals Law.
Similarly the Government has made substantial progress with respect to meeting commitments under the ASEAN Free Trade Agreement and continues to work towards WTO accession.
Additionally, in October 2008 Lao PDR fully ratified the Cross Border Transport Agreement.
In the area of SME development, the Government has developed the SME Strategy, the EC-SME development programme is currently underway, the Human Resource Development for Market Economy Project is in its second phase and work continues on implementing a number bilateral trade agreements.
Future directions
Capital-intensive projects in sectors such as mining and hydro-power continue to attract FDI, however as these contribute less to job creation more emphasis is required on development of small- to medium-scale manufacturing, food and agricultural crop production, processing, trade and tourism that nurture both production, employment and income generation, and foster balanced investment.
Key challenges remain to provide incentives to promote investment and enhance government capacity to implement policies, rules and regulation within the new investment law, as well as speed up implementation of other private sector reforms.
Work continues to broaden the production and growth base, enhance labour force productivity and improve competitiveness.
To ensure growth of 8%, investment of around (USD 15 billion or about 32% of the GDP is required, comprising around 34-37% public investment, 50-55% private investment and 10-12% bank borrowings and loans.
Future targets
- increase deposits to approximately 20% per year or about 30% of GDP.
- increase commercial loans by 20% per year, (and reach 20-23% of GDP) .
- secure sufficient foreign reserves to cover imports for six months or more.
This will be undertaken by: improving private banking regulation and financial institution supervision; strengthening and ensuring stability in the banking system; and developing a capital market as a financial place to attract investment and direct resource mobilization.
Revenue measures include raising taxes on luxury products, a new VAT, mobilizing external funding in grants and concessional terms, cautious domestic funding, centralized management, tax law revision, as well as Decrees on minerals, royalties, and state properties as well as computerizing tax declaration at internationals checkpoints.
Expenditure measures include better prioritization of public expenditure, improving coordination mechanisms, enhancing budget procedures, developing a medium-term financial framework, and enforcing financial disciplines.