Developing a holistic investment strategy along with continued regulatory reforms will help the Lao PDR attract more diverse and higher-quality foreign direct investment (FDI), according to a new report released by IFC, a member of the World Bank Group.
The approach will allow the country to expand its economy, generate more jobs, and achieve shared prosperity.
Conducted in partnership with the government of Japan, the report —Investment Reform Map for Lao PDR-A Foundation for a New Investment Policy and Promotion Strategy–lays out a proposed action plan for targeted reforms to realize the positive impact of FDI on the local economy.
Over the past 15 years, FDI has been a major contributor to the Lao PDR’s strong economic growth. However, the report reveals that most of the investments have been in natural resources generating limited job opportunities and failing to unlock the full potential of FDI. It says the volume of investments has been low in non-resource sectors, which have a high potential for job creation.
“We welcome this new IFC report, which provides a timely and in-depth analysis of the private investment context in the Lao PDR. This will help policymakers determine the current and potential positioning of the domestic economy in light of regional and international linkages.
The report’s proposed reform action plan will also help advise the government on priority reforms to capitalize on FDI opportunities, enabling economic diversification and promoting productivity and efficiency,” said Mr. Sonexay Siphandone, Deputy Prime Minister and Minister of Planning and Investment.
The report recommends a strategic FDI shift to help the economy venture into knowledge-intensive industries, as well as removing unnecessary restrictions on FDI entry and establishment, providing enhanced incentives, and introducing an investor grievance mechanism.
“This IFC report clearly shows how targeted reforms can help spur a favorable investment climate and enhance the Lao PDR’s competitiveness in attracting higher-quality FDI. This will help create jobs, transfer knowledge to domestic firms, and foster their integration into global value chains, diversifying the economy for sustainable and inclusive growth,” said Kyle Kelhofer, IFC Senior Country Manager for Vietnam, Cambodia, and the Lao PDR.
The report shows FDl in the non-resource sectors made up less than 40 percent of total approved FDI stock during 2005-2017. This can be primarily attributed to the high cost of doing business in the Lao PDR, triggered by a range of complex and time-consuming investment entry procedures. In laying out its recommendations, the report also provides a comprehensive analysis of the current investment climate in the Lao PDR.