Laos: New Rules, Same Game: Government and Foreign Investment in Lao PDR

2002

Holly Dunstan

The Lao government is currently actively pursuing foreign investment through a relaxation of the restrictions on certain investments and a simplification of the bureaucratic procedures involved. Does this high-level policy push auger well for a new period of the governance of foreign investment in Lao PDR?

Investing in Lao PDR conjures up two distinct but related clichéd images. The first is of dusty government offices, confusing procedures and officious or corrupt civil servants. Nepotism, excessive paperwork, red tape and hyper-regulation are considered the norm by Lao ‘old-hands’. The second cliché is found in the jingoistic statements of politicians and journalists – that of a newly awakening Lao, freshly emerging from the isolation of hard-line socialism; bursting with business opportunities; and, integrating with the region through lessened government regulations and controls. The latest moves toward encouraging investment are seen as part of the movement from the first cliché to the second, and the movement appears as from hyper-regulation toward deregulation.

It is certainly true that the very high levels of the Lao government are intent on encouraging foreign investment. The new Deputy Prime Minister, Mr Thonglunh Sisoulith, is said to be actively seeking means to make Lao PDR more competitive for foreign investment.

However, while the Lao are allowing and even encouraging more foreign investment, and in more sectors, this does not mean that foreign investment is ‘deregulated’ in any sense. Numerous regulations exist about what sort of investments are ‘open’, ‘closed’ or ‘open with some restrictions’ (the ‘restrictions’ here are not openly defined and are subject to a case by case assessment). In addition, these regulations appear to be undergoing a ‘boom’: the latest decree concerning foreign investment was released in March 2001, a subsequent decision was made in February 2002 and another decree is set to take effect in the next couple of months. Clearly, the promotion of foreign investment and the regulation of it are not opposed: they are proceeding hand in hand.

It is telling that administrative zones of facilitation and regulation are often one and the same. For instance, the Foreign Investment Management Committee is designed to both facilitate and manage foreign investments. That is, the body which is set up to assist and promote foreign investment is also the body which is set up to regulate and manage it. The encouragement of investment, and the regulation of it, are never separate. Through regulations and bureaucratic organisation, the Lao government declares that foreign investment is welcome, but it is to be on their terms.

While the government currently aims to encourage more investment by creating greater transparency in bureaucratic processes, this is yet to be widely realised in the civil service. The persistence of problems such as underpay, understaffing and a lack of human resource development mean that in practical terms, doing business in Lao is still fraught with bureaucratic mazes, the rules of which are often opaque and confusing.

Evidently there is a high-level push to encourage more foreign investment, which is creating change in both investment policy and bureaucratic practice. Change is occurring, but it is not change of the sort indicated by the cliché of an isolated Laos becoming open and deregulated. Change is occurring on the terms set by the Lao government, and within the limitations of a poorly resourced bureaucracy. As such, strategies for dealing with government, bureaucracy and regulation remain a key consideration when doing business in Lao PDR.

WATCHPOINT: The latest policies aimed at encouraging foreign investment do not suggest the advent of a new era of deregulation, but rather are a further development in the ongoing intimate relationship between investment and its regulation.

 

About our company:

AFG Venture Group is an Asia and Australia based corporate advisory and consulting firm with over 20 years experience in creating alliances, relationships and transactions in Australia, South East Asia and India; including a 15 year history of corporate and equities advisory in Australia, undertaking merger, acquisition, divestment, fund raising and consulting for private and public companies.

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