The economic environment in Lao PDR is improving. Since starting the economic reform process in 1986 under the New Economic Mechanism “NEM” the Lao economy has shifted from a centralized, planned economy towards an open, liberalized market-oriented system. “Open-door” policies toward global market have been implemented to promote and attract Foreign Direct Investment. The changes have made favorable conditions for economic development.
Despite the global financial crisis, the Lao economy has performed relatively well. The GDP has reported stable growth at above 7 percent in 2009 and it is projected to continue growing steadily in the coming years. A large part of this growth comes from increased foreign investment flows in industrial and agricultural sectors including hydropower and mining as well as industrial forestry and agricultural crop plantation and tourism.
The agriculture and forestry sector saw average growth of 4.1 percent annually over the period 2005 to 2010, accounting for 30.4 percent of total GDP, while industry sector (mining and hydropower) grew by 12.5 percent annually over the same period, accounting for 26 percent of total GDP. The service sector also grew by 8.4 percent per year over the same period, accounting for 37.2 percent of GDP.
The Lao economy will continue to benefit from international aid and from foreign investment in hydropower and mining. Construction will be another strong economic driver, especially as hydroelectric dam and road projects gain steam. In late 2004, Laos gained Normal Trade Relations status with the United State, allowing Laos-based producers to benefit from lower tariffs on exports. Laos is taking steps to join the World Trade Organization in the next few years; the resulting trade policy reforms will improve the business environment. On the fiscal side, a value-added tax (VAT) regime, slated to begin in 2008, should help streamline the government’s inefficient tax system.
In addition, the first Lao stock market, a joint venture between the Lao government and Korean Stock Exchange is expected to officially open on 10 October 2010. The stock market would be a source of long-term funding for investment and business.