BUSINESS IN LAOS: BANKS, NEW STOCK MARKET, CUSTOMS AND TIPS ON DOING BUSINESS IN LAOS

BUSINESS IN LAOS

Martin Petty of Reuters wrote: “Urban Laos is modernizing fast, with 19 commercial banks and new special economic zones offering tax breaks. The mobile phone sector is thriving, with its five operators boasting a staggering 10 million users among the 6.4 million population, suggesting many customers use several numbers. A $7 billion Chinese-led high-speed railway linking China with Thailand is planned and national carrier Lao Airlines last month expanded its fleet of eight propeller planes with the $91 million purchase of two Airbus A320 airliners. [Source: Martin Petty, Reuters, December 18, 2011 <<>>]

“Perhaps its most significant leap was a stock exchange launched in January, a $20 million venture with Korea Exchange, Asia's fourth-largest bourse operator. Only its top lender, Banque Pour Le Commerce Exterieur Lao (BCEL), and Electricite du Laos Generation Company (EDL-Gen) have listed on the Lao Securities Exchange (LSX) and trade is too sparse to interest funds, although private equity funds are starting to take notice. <<>>

“Economists are bullish about Laos's potential but say much needs to be done. Corruption, rudimentary regulation and limited skilled labor have put the country second-bottom in East Asia and the Pacific, ahead of East Timor, in the World Bank's Doing Business survey. The IMF says Laos had made "impressive progress" but needed proper data, banking supervision and streamlining of procedures. <<>>

Bounthavy Sisouphanthong, vice minister for planning and investment, takes issue with the low ranking and says attention should be paid to political and economic stability, reforms initiated and incentives available for investors. "Growth is here, we've increased our FDI but we're still ranked low and we need to change that," Bounthavy told Reuters by telephone. "There may be a negative perception, of slow progress and difficulties in investment, but this is changing." <<>>

A) Stock of narrow money: $1.159 billion (31 December 2012 est.), country comparison to the world: 144; $967.6 million (31 December 2011 est.). B) Stock of broad money: $3.556 billion (31 December 2012 est.), country comparison to the world: 137; $3.155 billion (31 December 2011 est.). C) Stock of domestic credit: $2.916 billion (31 December 2012 est.), country comparison to the world: 131. $2.477 billion (31 December 2011 est.) [Source: CIA World Factbook]

Corporate tax rate: 22 percent, compared to 17 percent in Singapore and 35.6 percent in Japan. [Source: Yomiuri Shimbun]

Local Commerce in Laos

Trade on the town and local level is hampered by poor roads and limited infrastructure. Much of the economy revolves around local markets that attracts people from nearby villages and traveling merchants, who sell medicines and household products and help distribute farm produce and handcrafts. In the early years of Lao People’s Revolutionary Party government, the Communists discouraged traveling merchants from plying their trade but they reappeared after the economic reforms were launched in the late 1980s.

Rural families in Communist Laos have traditionally sold small agriculture surpluses and forest products at district market town. A state marketing network buys and sells produce and dry good at regular intervals.

Much of the trade and commerce has traditionally been carried out by the Chinese. See Chinese in Southeast Asia factsanddetails.com

Communist business in Laos in the 1980s: 1) A farm cooperative has two tractors and requests a third. To farm more land? No, it is needed to rent to a neighbor who still uses water buffalos. 2) An government agency told cloth merchants in Vientiane to form a trade cooperative. Each merchant must contribute some money, they are told, to purchase more cloth. A few months later there is no cloth but administrators at the agency have obtained a new car and air conditioner. They also ask for more money. [Source: Peter White, National Geographic, June 1987]

Women Traders in Laos

Most small time Lao traders are women. Much of the long distance trade in northwest Laos is conducted by women who cross the borders into China and Thailand and stock up on goods there and transport them on the Mekong River and by buses to trading centers like Luang Prabang and Udomxai. These women have earned relatively high incomes and have status at home and surprising sexual and social freedom when they are traveling.

The anthropologist Andrew Waker wrote these women entrepreneurs have a “distinctive appearance—make-up, nail polish, gold jewelry, fake leather handbags and baseball caps—gives the rustic and muddly Lao trading system an unmistakable feminine character.”

In traditional Lao society, certain tasks are associated with members of each sex but the division of labor is not rigid. Women and girls are usually responsible for cooking, carrying water, maintaining the household and taking care of small domestic animals. Men are in charge if caring for buffalo and oxen, hunting, plowing paddy fields and clearing slash and burn fields. Both men and women plant, harvest, thresh, carry rice and work in gardens. Most small time Lao traders are women.

Both sexes cut and carry firewood. Women and children traditionally carry water for household use and to cultivate kitchen gardens. Women do most of the cooking, household cleaning, and washing and serve as primary caretakers for small children. They are the main marketers of surplus household food and other petty production, and women are usually the commercial marketers for vegetables, fruit, fish, poultry, and basic household dry goods. Men typically market cattle, buffalo, or pigs and are responsible for the purchase of any mechanical items. Intrafamily decision making usually requires discussions between husband and wife, but the husband usually acts as the family representative in village meetings or other official functions. In farming work, men traditionally plow and harrow the rice fields, while women uproot the seedlings before transplanting them. Both sexes transplant, harvest, thresh, and carry rice. [Source: Library of Congress]

Local Consumer and Business Customs in Laos

The Laotians have a funny mellow attitude about things. Their poverty doesn't seem to bum them out all that much. They aren't exactly instilled with a strong work ethic either.

Carry lots of business cards. Have them translated into Lao and printed up locally. A common practice is to have English on one side and Lao on the other. The exchange of cards makes it easier for you and your host to remember and pronounce names. At meetings, Lao people may arrange their guests' business cards on the table in front of them. It is a sign of respect and helps them keep track of names. You can do the same. You should, in fact, examine each card carefully and respectfully, and keep it beside you. Do not play with your Lao colleague's business card since this is disrespectful. [Source: seasite.niu.edu |=| ]

See Land Distribution, Agriculture.

See Eating and Drinking Customs.

Doing Business in Laos

The banking system in Laos and its laws on property ownership are difficult to navigate. When you first arrive in the Lao PDR, as a foreign business person or technical advisor, be prepared for a certain amount of scepticism, and aloofness on the part of your new Lao colleagues. Although courteous, some will not offer their sincere friendship at the outset while others may over-extend themselves. Your management methods may be viewed as impractical. You should concentrate at the outset almost exclusively on becoming accepted, trusted and credible. Ask your partner to tell you about their family, traditions, culture and home province or village. This not only builds the relationship, it helps you be effective because you understand your partner better. You know where he or she is coming from. [Source: seasite.niu.edu |=| ]

Keep in mind that Lao people are proud of their long and well-established traditions. You will likely have to work hard to convince them that you have something to offer. Quite commonly, they will ask you for advice on how they can improve their management or organisation, for example. This may be a courtesy designed to bring you face as the foreign advisor. They may not expect you to take their request seriously. Indeed, they might be offended if you suggest improvements immediately. Keep in mind that they just might regard you as a threat or nuisance, in much the same way Western consultants are sometimes regarded when reviewing organisations in their own country. |=|

Although it is dangerous to stereotype people on the basis of perceived differences in personality traits, there are some commonly acknowledged ones. As foreigners, we tend to promote ourselves and consciously attempt to improve our public image both on and off the job. In contrast, Lao people downplay personal abilities,achievements and contributions, promoting, instead, the attributes of their group. Modesty is considered a virtue. When asked to perform a task they are well qualified for, Lao people may belittle their own abilities and profess inadequacy. They will greet compliments with diversionary comments such as, "It was my duty." In job interviews, Lao people traditionally respond only to the questions asked. Even their responses reflect modesty; when their eyes are cast down they appear humble. |=|

The Lao are the ultimate last minute artists. To the Westerner, it appears they are not planning events. And yet, suddenly, at the eleventh hour, things suddenly come together in a miraculous fashion. In any case, to keep your ulcer under control, it is sometimes useful to invent an early deadline. This gets things moving in a time frame more comfortable to our Western notions of planning. When new on the job, it is best to stay in the office. Absence may be seen as non-fulfilment of your responsibilities. Once your office colleagues have come to know and trust you, it is acceptable to leave the office for meetings and visits. |=|

Management Styles in Laos

There is no one approach to being effective. Still, experience shows that people who are the most effective in the Lao PDR are flexible. They are willing to make compromises. This requires some thought about what things you might be prepared to sacrifice to gain acceptance for the most important parts of your programme. A good understanding of Lao culture and society sees the wisdom and value in the Lao way. |=|

Lao people do things "step-by-step" as they themselves say. Westerners may say the Lao are slow. But they are also steady. Westerners should keep in mind the famous children's story of the race between the tortoise and the hare. The slow and steady tortoise wins the race. Tasks should be delegated in some detail and overlapping responsibilities should be avoided because they could create difficulties for Lao colleagues. Check with them often to ferret out any problems. Lao staff are frequently reluctant to mention difficulties. For Westerners, this means managing with a more hands-on approach than usual. But that's in large part why you are here. |=|

Be positive, patient, persistent, and always show goodwill. Set reasonable tasks and go slowly. Celebrate accomplishments. Maintain your personal integrity. Be yourself but also show respect for and deference to the Lao way. When there is trust in the relationship most transgressions will be excused as, "Oh, that's just another Westerner doing it their way again." |=|

Resist the feeling you are being "taken" all of the time. You may be reading more into the situation than is actually there. Try to find out more about the Lao agenda through a third person you trust. It is important to "pick your spots." By suggesting too many changes you may unnecessarily burden Lao staff. Some changes may not be essential to what you want to achieve. You may burn up good will and be unable to influence things that really count later on.

If you are introducing changes based on your own country experience, explain clearly why your country values doing things in certain ways. Do this so that no one loses face. Some foreign advisors have used proverbs and stories from Lao history and culture to rationalise management changes or new practices and procedures. People may be more inclined to accept a foreign perspective or innovation when it is explained in images that fit the Lao social reality. |=|

The most successful projects are those that have a sound design and full participation on both sides from the beginning. It is crucial that everyone in the organisation is on-side and committed. A project that is poorly designed, or one the Lao never really wanted, will always be difficult to manage effectively. |=|

You may find your Lao colleagues willing to take initiative only if you accept full accountability for their actions, ensuring they will not be held responsible or blamed. Westerners, accustomed to strict invoice controls and audits, will discover that "bending the rules" or, in some cases, simply ignoring them is not necessarily wrong from the Lao point of view. Practices such as inventing receipts or invoices and offering "incentives" are often considered expedient in the Lao PDR if they resolve problems or benefit the project. (For example, project goods or equipment in the possession of individuals are made available for an inventory check or an inspection tour, and returned to the individuals afterwards.) As a foreign manager, you will have the difficult task of drawing the line on such practices in order to protect the integrity of your records. |=|

Business Field Work in Laos

Field trips are an important event for the foreign advisor who stays for any length of time. Many Westerners encounter difficulty with these interesting forays. Here are some common problems with field trips. For in-country travel, the daily allowance for Lao colleagues may be much lower than your own. Sometimes this means they are unable to check into the same hotel as you. If their accommodation situation is poor or inconvenient you may consider taking a double room and having them stay with you, assuming they are the same sex. You will be invited to lunches and dinners either in a restaurant or noodle shop. Don't ask to share the bill. Accept their invitation if they propose to pay for you and then host the next meal. It is best to get your oar in first by inviting the team to join you for a meal.[Source: seasite.niu.edu |=| ]

Foreigners often have difficulty with the policies and budgetary constraints of their employer when in the field. You should always be generous in festive occasions even if it means eating into your own pocket. To refuse to pay for something or to be perceived as being cheap is an enormous insult to the Lao and could do your relationship permanent damage. If a senior provincial official has invited you to a dinner it is important to return the favour. Informal occasions such as this are invaluable in terms of building the relationship and finding out more about the real concerns of your provincial officials. |=|

The moment of leave-taking is often problematic for foreigners. Be yourself. If you are enjoying the evening stay to the end with your colleagues. If you are tired, simply say so and excuse yourself while thanking them for a very enjoyable evening. |=|

“National Execution” in Laos

More and more donors are moving to what is called "National Execution". This means the Lao Government is given full authority for the execution of a project funded by the donor to whom you are the advisor - not an enviable position! Some donors are taking back some of the responsibility for execution due to unsatisfactory experience with implementation. In retrospect, the donor community moved to national execution without properly preparing the Lao Government and results have been mixed. There has been a tendency to delay implementation, to micro-manage and sometimes to engage in dysfunctional project management. [Source: seasite.niu.edu |=| ]

As an advisor, capitulation in every situation would not be right and would not be in the best interests of the country. But be careful when and how you challenge any national decision. A national decision which may at first appear questionable may have a worthy hidden purpose. For example, sending someone you consider inappropriate on an overseas mission may be a strategic measure to get the person out of country for important decisions in the ministry. If you challenge this selection, you are doing the ministry a disservice and damaging relations with your colleagues in the process. |=|

When you have strong reasons to challenge a national decision, think carefully about your options. It may be best broach the decision obliquely through another context. In all cases avoid open argument with your national project director. It will not achieve your purpose. Never go further than indicating that your donor agency may not be pleased with the decision. Never become too attached to your project. This is not the Lao way. The country has been around in various incarnations for over 2000 years and will continue long after you have returned home. Your contribution is a drop in the ocean at most. Be modest. Be quiet, patient, and cool. It just may be the Lao way is superior to yours. |=|

Business Meetings in Laos

In general, large gatherings in the Lao PDR are not an effective means to generate discussion and make decisions. Unfortunately, this is general Lao practice. People use meetings as opportunities to sleep and day-dream and generally tune-out. Those who attend are not expected to contribute or listen carefully. This is a well-honed technique developed over many years of having to sit and suffer through political meetings, where the speaker at the front of the room drones on, without pausing for discussion. Meetings like this could best be described as opportunities to demonstrate group harmony, take a group photo or have a social occasion afterwards. [Source: seasite.niu.edu |=| ]

Some of the greatest difficulties and misunderstandings between Lao and foreigners occur at meetings. The Lao find Westerners conduct themselves in an egocentric, undisciplined fashion at meetings, insisting on their point of view and standing out as individuals. This conduct is contrary to the deep Lao norms of modesty and group values. Lao people will voice opinions at meetings but only in the absence of their leaders. They may also speak up if they trust you to be discrete with their comments. |=|

Lao meetings are often held only to give official approval to or to announce what has been negotiated beforehand. There should be no surprises or new material introduced at such meetings. Partners attending the meeting may not have the authority to commit to binding decisions and will be embarrassed or lose face if they are pressed to do so. |=|

Do what can be done, informally, face-to-face preferably before an official meeting so that any problems or decisions are worked out beforehand. Meet in plenary only when necessary. Take written notes and confirm with your counterparts that what you thought happened at the meeting really did happen. The highest ranking person in your group should lead the way in, and be the spokesperson. Do not make themistake of shaking hands with the interpreter first. |=|

Meetings always begin with informal chit-chat over coffee and/or tea. The host will initiate serious talk, and then leave time for you to say a few words in response. Respect these exchanges of courtesy. Drink the tea that is served before launching into an explanation of why you have come. You might not even get to it at the first meeting. You may meet an important official only for a few minutes. Time is tight for senior people. Be alert for signals that the meeting should end. The signals include asking you if you would like more tea, beginning to sum things up, thanking you for coming, and leading you to the door. Don't be surprised if you meet for only a few minutes but are invited to dinner that evening. This is the beginning of your relationship. Business will come later. |=|

Business Negotiations in Laos

Negotiations in the Lao context can be a grinding, slow process. Bear in mind that it is no different for you than for the Lao among themselves. Lao negotiating style is highly unstructured and unpredictable. Negotiations may play on your impatience and your sense of shame. They may threaten to take their business elsewhere. Be wary of the responsibility entailed when you become a "trusted old friend." An obligation has been built up. Do not confuse real friendship with business friendship. [Source: seasite.niu.edu |=| ]

Lao people view negotiations as important social occasions, to foster relationships. They have to convince themselves about the suitability of the partner, and nurture the kind of interpersonal sensitivity, harmony, mutual obligation, and durability that ideally characterises all Lao relationships. They learn much about their prospective partners from casual situations, such as a tea/coffee break or a long ride in the car to some meeting, where their guests are more relaxed and likely to reveal themselves. |=|

Lao contracts are short, written in simple language, and focus on principles. For the Lao, Western business language is obtuse and legalistic. The two conflicting perspectives are major obstacles when conducting business. Lao people believe Westerners spend too much time negotiating details which, in the end, may prove irrelevant. They view the contract as the starting point and have no inhibitions about putting demands on the "relationship" or suggesting changes later. The terms and conditions of a specific contract are not necessarily binding because the contract applies more to the relationship. If circumstances change, even long after the contract is signed and work has begun, the agreement may become meaningless. |=|

Expect lots of delays. If you encounter no immediate response, it is wise not to push it. Lao negotiators have little room to manoeuvre. Delays are often caused by the need for approvals at various steps along the way. Be patient. The Lao have a saying: "With one monkey in the way, not even 10,000 men can pass."

Positions may change during negotiations. If you see a complete turnaround from one day to the next, you can be sure you are negotiating with people who do not have the power to make decisions. If you have a good relationship with your partners, they will help you navigate through the red tape to the best of their ability. If you must break off negotiations, do so carefully. Do not close the door on future cooperation. Seeking legal counsel is public admission that the relationship has failed. You both lose face as a consequence. |=|

Interpreters in Laos

Whether you speak Lao or not, you will find good interpreters a treasure. They are extremely scarce. They can communicate in a style that is acceptable to Lao people and can help you understand Lao responses, no matter how subtle. The interpreter may also help you determine the power structure or decision-making process in a group. In order for your interpreter to be an asset, however, you must first develop a close and trusting relationship. You must impress upon your interpreter that his role is to translate faithfully, not to filter or tosubstitute his or her own interpretation. This may take considerable time and effort on your part. [Source: seasite.niu.edu |=| ]

Here are some tips in dealing with interpreters: 1) Rehearse interpretation sessions and make sure the interpreter grasps your meaning and that any ambiguities are dealt with. Put your interpreters at ease and express confidence in them. Explain that you don't mind their requesting clarification during interpretation. If you have a speech or presentation material, give a copy to the interpreter well in advance and go over the document privately beforehand. If possible, have an independent Lao person review any Lao text to ensure the correct meaning has been conveyed.

2) Hand out a Lao version of your text in advance or at the time of the encounter if at all possible. 3) Avoid colloquialisms, slang, jargon, culture-bound humour, and cultural references. 4) Break frequently to ensure the interpreter has not lost their train of thought. 5) Engage more than one interpreter for long sessions. 6) Speak slowly, especially when referring to numbers and where possible write the number on the board or flip chart to avoid misunderstanding. 7) Always address your remarks to the person you are talking to, not the interpreter. It shows your respect for the other party. 8) Listen attentively to the response in Lao, even if you don't understand a word. 9) For a variety of reasons, your interpreter may not be accurate. If there is evidence you are being misunderstood, express your message a different way. 10) If you are negotiating a contract or covering technical ground, try to find a trained technical interpreter. |=|

11) If you have colleagues in the audience, check with them during a break to see if the interpretation is accurate. Ask questions that would reveal whether your message was understood. One Western technical advisor spent half a day talking to 30 people who did not understand a word he was saying. The interpreter was not technically competent, but the audience did not want him to lose face by pointing it out. At lunch, the Westerner found out what was going on, thanks to a colleague. The interpreter was told that he must have been very tired after the morning session, and that someone else was willing to help out. The colleague took over for the afternoon. |=|

12) Always have a de-briefing with your interpreter after a discussion to clarify responses you did not understand or agree with to ensure you understood what was said. 13) Interpreters can also assist in sensitive matters. They can act as intermediaries, and may even help everyone save face (you can always blame inaccurate interpretation for the misunderstanding). You may not notice a good interpreter, but you will notice a bad one. |=|

Banking System in Laos

In Vientiane of Laos there are three banks with international ATM's accepting PLUS and CIRRUS cards for VISA, MasterCard, Maestro, Cashpoint, JCB and Diners Club. They are ANZV, (60 percent-owned by the ANZ Banking Group), Joint Development Bank JDB and BCEL, Banque pour le Commerce Exterieur Lao. There are several new local banks with Koreans and Vietnam partners; these have domestic ATMs and debit cards. BCEL has international ATMs at the airport and BCEL and JDB have ATMs at border control at the Friendship Bridge. JDB has lower withdrawal fees and ANZV has higher transaction limits. BCEL is third choice. [Source: Web of Laos /*/]

Basically, you can open an account in Lao kip (LAK), Thai baht (THB), or US dollars (USD). Some banks have ATMs but these only despense kip. I believe you technically need a work visa to open a savings account, but most places don't care. Only businesses can open check accounts--the people working at the bank are unable to comprehend why an individual would want a checking account, so don't even waste your time. /*/

The main problem with banking is the lack of many things we take for granted. There is no internet banking. Only one bank (ANZ) offer debit cards. Only three banks I know ofhave ATMs away from their main branches. There are no EFTs, so no Paypal or anything similar will work. The other problem is that the Lao banking system isn't connected to the rest of the world. If you have an account with ANZ for example, you can't access it at the ANZ branch in Laos, or vice-versa. In order to wire money, you have to first wire it to a third bank and pay 1 percent of the total plus normal wire fees. I've been told by my bank that an international check would take a month to clear, but I wouldn't be surprised if it took significantly longer. /*/

Many banks will have interest rates of up to 14 percent for kip accounts. While this seems like a good investment, you have to realize that the money isn't insured. You have no protection if the bank goes under or runs low on funds. /*/

A) Central bank discount rate: 4.3 percent (31 December 2010), country comparison to the world: 92; 4 percent (31 December 2009). B) Commercial bank prime lending rate: 22.3 percent (31 December 2012 est.), country comparison to the world: 14; 21.9 percent (31 December 2011 est.).

Banking System in Laos in the 1980s and 90s

In March 1988, Decree 11 on the reform of the banking system was passed, separating commercial bank functions from central bank functions. The Vientiane branch of the old State Bank, the Banque d'État de la République Démocratique Populaire du Laos (RDPL), became the central monetary agency. In June 1990, the Central Banking Law was passed, establishing the Bank of the Lao People's Democratic Republic, or Central Bank, to replace the State Bank. Under this law, the Central Bank assumes responsibility for regulation and supervision of commercial and regional banks; maintenance of foreign exchange reserves; issuance and supervision of money for circulation; licensing, supervision, and regulation of financial services; and management of the monetary and credit system. The Central Bank has about ninety regional branches; as of 1991, the government was considering separating these branches into three regional banks, serving the southern, northern, and central regions. [Source: Library of Congress *]

Other branches of the former State Bank were transformed into autonomous commercial banks to promote private investment. These banks are responsible for accepting savings deposits from enterprises, government departments, and individuals, and for granting credit to state entities, joint ventures, and individuals for capital investment and business start-ups or expansion. Commercial banks are restricted from granting credit to economic units experiencing deficits and losses. These banks do not receive subsidies, although they do render 60 percent of their profits to the government. *

By 1991 Laos had seven commercial banks, including the Joint Development Bank--a Lao-Thai joint venture--and six wholly stateowned banks. Government policy encourages privatization of these six banks. However, in part because of the absence of laws governing banking activities and in part because of the relatively small size of the economy, foreign bankers do not express much interest in these ventures. *

The Foreign Trade Bank (Banque pour le Commerce Extérieur Lao-- BCEL), a subsidiary of the Central Bank, is the country's foreign exchange and foreign trade bank. By Decree 48 of July 1989, the Central Bank is assigned sole responsibility for setting and managing the exchange rate. BCEL was granted autonomy in November 1989 and was charged with handling foreign exchange transactions relating to trade; as of 1991, BCEL had arrangements with sixtyfour banks internationally. However, a Foreign Exchange Decree was scheduled to go into effect soon after 1991, allowing all commercial banks already authorized to deal in foreign exchange to carry out foreign exchange transactions themselves, thus removing BCEL's monopoly on such activities. Information on the status of this decree was unavailable as of mid-1994. *

Responsibility for state-owned enterprise debts was transferred to the commercial banks, giving them enormous liquidity problems. To alleviate the precarious situation, in 1989 the government allowed foreign banks to begin operations in Laos. That October the Joint Development Bank became the first private commercial bank permitted to operate since 1975, followed soon thereafter by the Thai Military Bank. In addition, new reform measures stipulate that enterprises will have to clear all debts owed to the banks before being considered for new loans. In 1990 the Asian Development Bank granted Laos a soft loan of US$25 million to recapitalize the banking system. *

Interest rates on commercial bank deposits with the Central Bank are uniform across the country and are generally higher than rates for enterprises depositing at the commercial banks. After August 1989, only minimum interest rates are set by authorities; banks are allowed to set specific rates on their own. Interest rates on deposits vary from bank to bank, depending on the type and currency of deposits. The annual rate on kip deposits at the end of 1991 was between zero and 1.2 percent for most banks; fixed deposits in kip earned between 16 and 24 percent annually, and deposits in United States dollars at some banks, including BCEL, earned 7 percent annually. Rates for loans depend on the term and currency of the loan and on the sector for which the investment is intended. Loans for the agriculture and forestry sectors carry rates ranging from 7 to 12 percent, for example, and loans for the services sector carry rates between 12 and 30 percent. *

Laos Open First Stock Exchange

Laos is home of one of the world's newest—and possibly smallest—stock markets, the Laos Securities Exchange. The Laos Composite Index contains only two stocks.

One the eve of its opening, James Hookway wrote in the Wall Street Journal, Laos “is shaking off some of its socialist constraints and opening its first stock exchange—a move its leaders hope will eventually reel in foreign and local capital and help transform the fortunes of one of Asia's poorest and least industrialized nations. Despite what locals say is an auspicious launch date—11/1/11—this isn't a "big bang" type of event, or at least not just yet. Just two stocks are listing: a bank, Banque Pour Le Commerce Exterieur Lao, or BCEL, and, significantly, power company EDL-Generation Co., which many investors see as a way of getting some exposure to Laos's burgeoning hydropower industry and its fast-growing electricity exports to other, larger Southeast Asian economies. Even then, state-run parent company Électricité du Laos will retain 75 percent of the power company, and some investors still say they worry about speculation among local investors destabilizing the entire market. [Source: James Hookway, Wall Street Journal, January 11, 2011 <+>]

“The real benefit for Laos launching its equity market, analysts say, might be in highlighting the potential for the country's isolated economy and encouraging its Marxist rulers to spin off other state-controlled businesses and take them to the securities exchange. The Laos bourse is 49 percent-owned by the South Korean stock exchange and is housed in a glass-fronted, $10 million building. "I think we need to be modest in our expectations, but this is the beginning of a process that could end up with 10 or 15 companies listed on the market in the next few years," says Douglas Clayton, chief executive of fund manager Leopard Capital LP, which invested 21.5 billion kip, or about $2.6 million, to buy 2.32 percent of EDL-Generation's initial public offering. Both IPOs were oversubscribed, and part of the enthusiasm for Laos's stock-market launch lies in the continuing appeal of up-and-coming emerging markets among global investors seeking higher returns than might be available in Europe or the U.S. <+>

“Laos is seeking to capitalize on the heightened interest in what are known as frontier markets, those markets too small to even fit into the emerging-market category. In fact, Laos, with just two listed companies, will probably be too small to even be considered frontier. But Laos's power sector and its large export market are a potent lure for investors, and some analysts say this distinguishes the country from some of the world's other fledgling frontier markets in that there is something specific for investors to get their teeth into. Robert Fernstrom, head of investment banking at Thailand's KT-Zmico Securities PCL, which underwrote the EDL-Generation IPO in conjunction with Laos's BCEL, says the potential for the industry stirred "a huge response" among international investors. <+>

LSX CEO Dethphouvang Moularat told Reuters the priority was to educate skeptical firms about regulation to make them more competitive and boost investor confidence. Internet and cellphone provider Enterprise of Telecommunications Lao (ETL) and cassava and tapioca firm Lao-Indochina Group are expected to list in early 2012. Lao Airlines, Lao Brewery Company -- a 50-50 joint-venture between a state firm and Danish brewery Carlsberg -- and diversified Lao World Group would also join. "These enterprises are becoming aware that the benefits of listing on the LSX are greater than the risk they may take," Dethphouvang told Reuters in an e-mail. [Source: Martin Petty, Reuters, December 18, 2011]

Investors Line up for First Laos IPOS

In December 2010, AFP reported: “Eager novice investors in communist Laos signed up for shares as the country's first-ever initial public offerings came to a close. EDL-Generation Public Company has offered 217 million common shares this month at a fixed price of 4,300 kip (53 cents), with investors showing the most interest on the final day on Monday, said Khouanetyphong Bouanevanh, who is in charge of the offer for underwriters BCEL-KT Securities Co, Ltd. "Now is the last day to subscribe," he said from Laos. "They are lining up." A notice in the Vientiane Times newspaper said the deadline had been extended to Monday "by public demand". [Source: AFP, December 27, 2010]

One other initial public offering, by the Banque Pour Le Commerce Exterieur Lao (BCEL), a state-owned commercial bank. The official Vietnam News Agency reported that about 20.5 million BCEL shares were offered on auction at an average bid price of 5,910 kip. The offer was oversubscribed.EDL-Generation was spun off in early December from state-owned Electricite du Laos (EDL) to handle power generation.

Khouanetyphong said EDL would remain as majority owner of the new firm but foreign investors would be allowed to own 10 percent of shares while employees and other local residents are eligible for the remaining 15 percent. He expects both EDL-Generation and BCEL to be the only two firms trading on Laos's new stock exchange when it opens for the first time on January 11. "I think others are coming," said Khouanetyphong, who studied in Japan and expressed pride at being part of the process. "It's my great honour... I can tell my grandkids," he said.

Private Firms Driving Lao Economy

In May 2013, the Vientiane Times reported: “Private firms have become a major driving force of Lao economic growth, according to a government magazine. The Manager, published by the Government Public Relations Department, reported in its April issue that in 2011 domestic and foreign private firms contributed 16 percent of total Gross Domestic Product (GDP), becoming the largest contributor to economic growth. [Source: Vientiane Time, May 17, 2013 ////]

“The second largest contributors to GDP growth in 2011 were the 100 percent state-owned enterprises, which contributed 8.2 percent of GDP. In 2011, there were 139 state-owned enterprises with total assets of 19,430 billion kip or 33 percent of total GDP. The third largest contributors to economic growth were state-private joint ventures. These contributed 7.3 percent of GDP in 2011. At that time there were 48 state-private joint ventures in the country with a total asset value of about 4,292 billion kip. ////

It is not surprising to learn that domestic and foreign private companies are playing a significant role in driving the economy. The government adopted a market oriented policy in 1986, allowing the private sector to take part in economic development after a decade of running a centrally planned economy. ////

In 1989 the government passed the Foreign Investment Promotion Law, to encourage other countries to share in Laos’ economic development.According to the latest report from the Ministry of Planning and Investment, from 1989 to 2012 Vietnam invested in 429 projects in Laos with a combined value of about US$4.9 billion, becoming the largest foreign investor in the country. The second largest foreign investor in Laos is Thailand. From 1989 to 2012, Thailand invested in 742 projects with a combined value of about US$4 billion. The third largest foreign investor is China with 801 projects and a combined investment value of about US$3.9 billion.

In 2009, the government revised the Investment Promotion Law, to create equal opportunities for domestic and foreign investors to compete. The change in the investment promotion policy is also in line with World Trade Organisation requirements. The government has also made a strong commitment to improve the business climate, to encourage the private sector to invest and do business in Laos. One of the government’s major achievements has been the easing of restrictions on exports and imports by business operators. The government has also simplified tax payments and the obtaining of an investment licence by establishing a so-called ‘one stop’ investment service. There are a number of investment and business opportunities in Laos including agricultural product processing, mining, and hydropower. The government has also set up special economic zones to attract foreign investment.

Image Sources:

Text Sources: New York Times, Washington Post, Los Angeles Times, Times of London, Lonely Planet Guides, Library of Congress, Laos-Guide-999.com, Compton’s Encyclopedia, The Guardian, National Geographic, Smithsonian magazine, The New Yorker, Time, Newsweek, Reuters, AP, AFP, Wall Street Journal, The Atlantic Monthly, The Economist, Global Viewpoint (Christian Science Monitor), Foreign Policy, Wikipedia, BBC, CNN, NBC News, Fox News and various books and other publications.

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© 2008 Jeffrey Hays

Last updated May 2014

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