Foreign Direct Investment Policy in the Lao PDR

Foreign Direct Investment Policy in the Lao PDR Presented by Houmpheng Souralay Director General, Department of Investment Promotion May 28, 2007 Bangkok, Thailand.

Themes of Presentation: General Information on FDI in Laos n Government Policies on FDI n Potential Sectors with focus on Hydropower, Mining, and Agriculture n

Country’s Profile n n n n Land Area Population Density Population Growth GDP Per capita GDP Labor Force Religion : : : : 236, 800 sq. km 5. 6 Millions (2005) 24 persons/sq km 2. 4 percent 2. 7 billion USD 491 USD 2. 9 Millions Buddhism

Some Macroeconomic Data n GDP (average 2001 -05)% 6. 2 ¨ Agriculture (3. 4%); Industry (11. 3%); Services (6. 7%) n GDP (Expected 2006 -07)% 7. 5

Changes in Economic Structure (2001 -2005) 2001 2005

Open Door Policy • New Economic Mechanism: 1986: Shifting from planned economy to a market oriented economy • Privatization of state enterprises • Open for FDI

Shares of Private Investment

Approved and Implemented FDI in Lao PDR

Approved Foreign Investment in Lao PDR by Sector from 2000 - March 2007 No Sectors Projects Value of Investment (US$) 1 Electricity Generation 37 2, 944, 252, 200 2 Agriculture 142 711, 359, 290 3 Mining 134 585, 089, 892 4 Industry & Handicraft 176 443, 153, 920 5 Trading 92 266, 071, 089 6 Construction 23 159, 686, 874 7 Services 154 184, 188, 467 8 Hotel & Restaurant 57 160, 409, 247 9 Telecom 3 39, 940, 000 10 Wood Industry 35 29, 307, 154 11 Banking 8 20, 096, 000 12 Garment 25 20, 285, 688 13 Consultant 29 7, 613, 252 Grand Total 919 5, 572, 232, 808

Approved Foreign Investment in Lao PDR by Country 2001 - March 2007 No Countries Projects 1 Thailand 157 1, 334, 100, 051 2 China 223 763, 642, 466 3 Vietnam 105 463, 612, 212 4 France 53 419, 081, 879 5 Japan 29 418, 390, 583 6 India 3 350, 200, 000 7 Australia 24 317, 677, 196 8 Korea 99 274, 185, 705 9 Singapore 19 96, 235, 000 10 Malaysia 30 82, 050, 392 11 Canada 9 48, 531, 750 12 Switzerland 5 31, 050, 000 13 Russia 10 15, 675, 310 14 Sweden 3 13, 090, 000 Total 797 Value of Investment ($US) 5, 490, 268, 785

LAO PDR IN THE GLOBAL ECONOMY ü Member of international organization ( MIGA, ASEAN-Japan Centre, WORLD BANK, ADB, IMF…) ü GSP Privileges : 42 countries ( EU, JAPAN, CANADA, CHINA, … ) ü NTR with USA (04/02/2005) ü Bilateral Investment Treaties with 23 countries (Investment Promotion and Protection) ü In process of joining WTO

From Land-Locked to Land-Linked Lao PDR is being transformed into LAND LINKED country and Transit country in the region

Kunming CHINA On-going project • Thai, ADB, China share 1/3 (soft loan) • Start 2004, complete 2007 1, 200 Km. Jinghong Luang Namtha LAOS Chiang Khong THAILAND Chiang Rai

On-going project Second Mekong Int’l Bridge Project HAI VAN PASS TUNNEL • Second Mekong Bridge (Mukdaharn – Savannaket) • Soft loan from Japan Seno Dansavan/ Lao Bound • Cost = 4, 753 Mil Yen. Dong Ha • Under construction Kaen A. Chumpae Kalasin Mukdaharn/ Maung Pin Danang Savannaket Lao PDR Vietnam Cambodia • Complete end 2006

(Road Project) On-going project III CL 14: Stung Treng – Champasak and Preah Vihear – Champasak Lashio Jinghong • No progress on Cambodia side Dien Bian Kentung Bagan LM 16 Meiktila MT 36 LT 34 Bo Ten Phu Muang Xai LT 28 Luang Prabang • Section in Lao PDR is completed. LT 29 Nan Payagg i MT 37 MT 38 Thanbuzayat Andaman Sea Nakhon Phanum. LT 30 Thaton Mae Sot Three Pagoda Pass MT 40 LT 32 Khon Mukdaharn Kaen Ubon Ratchathani Nakon Ratchasima CT 56 CM 12 Poipet Tavoy Kanchanaburi Trat Quang Ngai CT 25 b CL 14 Stung Treng Siem Reap Quy Nhon CT 25 a Kaw Thong Ranong Sihanouk Ville Ca Mau Showcase, Short-Term Mediumto to. Long-Term IV CM 12: Road linkage under Asian Highway project • Cambodia: Poipet –Sisophon (48 km) • Under ADB loan

Advantages: ¨ Comparative Advantages: Rich Natural Resources n Large Area of Fertile Agricultural Land n Varieties of Tourism Development Sites n Virtually no damaging natural disaster n ¨ Competitive Advantages: One of the most Politically Stable Country in the Region n Socio-Economic and Financial Stability n High Security (Low Crime Rate) n Low Labor Costs n GSP Privileges given from 42 countries n Liberal Laws and Regulations creating favorable business and investment environments n

Government’s Investment Policy n Law on the Promotion of Foreign Investment no. 11/NA (2004) and its Implementing Decree no. 301/PM (2005) Ø Welcome every business sector and activity not detrimental to national security, environment, and public health and safety Ø All investment is guaranteed against expropriation and nationalisation without compensation Ø Remittance of dividends an profits back home or to third countries is allowed through banking system Ø Long Investment term and lease (50 -75 years)

Government’s Investment Policy (con. ) Ø Forms of Investment: 1) Business Cooperation by contract 2) Joint Venture 3) 100% foreign owned Ø Representative Office: to collect information, study investment opportunities. Ø Branches: Foreign Banks, Financial Institutions, Insurance Companies, Consulting firms, and Airlines.

Government’s Investment Policy (con. ) n Promoted Activities eligible for incentives: 1. Production for export; Agro-processing and forestry; Industrial processing; Human resource development and public health; Construction of infrastructure; Production of raw materials and equipment to be supplied to key industrial activities; and Development of the tourism industry and transit services. 2. 3. 4. 5. 6. 7.

Government’s Investment Policy (con. ) n Investment Incentives: ¨ Profit Tax: v Zone 1: 10% profit tax 7 years exemption v Zone 2: 15% profit tax 5 years exemption and 3 years half reduction v Zone 3: 20% profit tax 2 years exemption and 2 years half reduction

Government’s Investment Policy (con. ) ¨ Other incentives: v Exemption of import duties and taxes on raw materials and capital equipment; v Exemption of export duty on export products; v 10% personal income tax on expatriate employees; v Additional tax holidays, reduced tax rates for large projects with special concession are available upon negotiation

Special Economic Zone (con. ) S-S SEZ located in the middle of EWEC n Savannakhet is the most populated province with potential workforce n Road no. 9 and 2 nd Mekong Friendship Bridge provides access to seaports in Vietnam (500 km) and Thailand (600 km) n Tax Incentives: n ¨ Tax Holidays: 2 -10 years ¨ Profit Tax: 8% and 10% ¨ Personal Income Tax: 5% ¨ Loss Carried Forward: 5 years

Special Economic Zone n Savannakhet-Seno SEZ (S-S SEZ) established in 2003 by S-S SEZ Decree of the PM no. 148/PM dated Sept. 29 2003. Site A: 305 ha n Site B: 20 ha n

Layout of Site A

Layout of Site B

POTENTIAL SECTORS Ø Energy Ø Mining Ø Agribusiness Ø Tourism Ø Construction Material Ø Light industry Ø Service

INVESTMENT SECTORS ELECTRICITY GENERATION: n n Abundant water resources produced by tributaries of Mekong river Estimated electricity generation potential: over 18, 000 MW BOT Investment in hydroelectric facilities will be substantial Investment in ancillary support services will increase

Hydropower Development of Lao PDR Electrified Area • Today total installed capacity of 700 MW • Electricity export representing 30% of total country’s export revenues • Population electrified app. 46% and the rest under electrification • Industry growth of about 7% per annum • Neighboring countries: • electricity demand growth in neighboring countries notable • price of fueled energy subject to fluctuation of fuel price in the world market • Need of diversification of energy sources

Long Term Development of Sub. Regional Interconnection 500 kv Transmission Line Facilities ~(Jinghong) China-(Luang Namtha) Laos-Thailand ~(Hating) Vietnam-Nam Theun 2 (Laos)-Thailand ~(Pleiku) Vietnam-Ban Sok /Sananakhet (Laos)-Thailand

Long Term Development of Regional 500 -kv Interconnection

MINING SECTOR: n Mining industry is under developed n Mining sector presents numerous potential opportunities for investment and development n Mineral deposits : tin, lead, zinc, iron ore, cooper, gold, gypsum, lignite, sapphires, … n Concessions granted to foreign investors

AGRICULTURE-FORESTRY: Highest ratio of forest area n Large stands of tropical hardwoods including teak and rosewood n Suitable land for various tree Plantation n Plenty of productive land n Long term land lease (50 -75 years) n

Main Issues in Agro-Forest n Land approved level: n <10. 000 ha by MAF with approval from GOL; n >10. 000 ha by GOL with adoption from NA; n Fees rate between 6 -9 US$/ha/year. n Profit tax exemption period starts from the date of making profit

Some Major Agro-Forest Projects in Lao PDR ¨ ¨ ¨ ¨ Oji Lao Plantation (Japan): 50. 000 ha = 49 m USD Daklak Rubber (Vietnam): 10. 000 ha = 30 m USD Viet-Lao Joint Stock Rubber(Vietnam): 10. 000 ha=22 m USD Paksong Highland (Thailand): 26. 000 ha = 8 m USD Agarwood Lao Group (Thai/Lao): = 10 m USD Mitr Lao Sugar Co. Ltd. (Thailand) = 22. 5 m USD Savannakhet Sugar Corp. (Thailand) = 10 m USD Birla Lao Pulp & Plantations Co. Ltd. (India): 50, 000 ha= 350 m USD

Culture-tourism • Rich in well-preserved culture and traditions • World heritage sites

Thank you for your attention