Laos is a small country tucked in Southeast Asia, which is recognized as an emerging economic zone of the world. Once known as a land of millions of elephants, Laos has transformed into a thriving economy in 2024. With a significant rise in the human population, the administration has opened up trade barriers to drive investment opportunities.
Laos is a member of ASEAN, which is a group of emerging economic powerhouses of Southeast Asia. Besides neighboring countries like China and India, many European and American countries have shown significant interest in streamlining trading operations with Southeast Asian countries. The strategic location of Laos makes it a crucial ASEAN member, featuring top-notch business potential.
After its freedom from French colonials in 1949, the country of Laos turned into a communist nation in 1975. In 1988, the country adopted a liberalization policy to open doors for foreign investments. In 1997, it joined ASEAN and became a key member of this community. Further in 2013, it joined WTO to strengthen its investment opportunities in the global business landscape.
Potential Business Opportunities in Laos
Laos is a perfect destination for investors from the Western world for a few crucial reasons. The following section of this article will explore those reasons at a glance for you.
- High-Growth Country: Laos has been counted among the fastest-growing countries in the world. The country is growing at the pace of 7-8% persistently in the last few years.
- Low Market Competition: The market is not saturated like other Asian countries. The presence of a vast unexplored market makes it a crucial business destination in ASEAN. Nevertheless, low competition gives ease in market entry for small and medium-scale investors.
- Renewable Energy in Laos: Laos has an excellent infrastructure and geographical advantage to produce renewable energy. With an aim to become the “battery of Southeast Asia”, the country has built around 100 dams. The country’s hydropower contributes to its industrial growth. More than 75% of the country’s electricity consumption comes from hydropower.
- Ongoing Infrastructure Development Projects: According to the data collected from government sources, the country invests more than 30% of its GDP into infrastructure development. The road and railway network in an “under-development” stage in this country will boost business activities in the next few years.
- Tax-Free Economic Zones: Following the examples of China, Vietnam, and other leading Asian countries, the administration of Laos has created multiple tax-free economic zones to boost economic activities. Foreign investors can enjoy tax exemptions for 50 years if they invest in these tax-free zones. Nevertheless, duties on export and import have also been exempted for the companies that are operating from the free economic zones in Laos.
Investment-Worthy Industries in Laos
Laos is poised with opportunities for various industries. While agriculture is the driving force behind the country’s economy, the administration is keen to diversify its portfolio by seeking investments in various other fields. Since the country is investing heavily in infrastructure, transportation and logistics could be the emerging sector in this country.
Apart from logistics, the service industry will soon become a key economic player in the country. The country has a small population, which can be skilled in the service industry due to a high literacy rate. Keeping the job aspect of the population in Laos in mind, the government is putting consistent effort to lure global IT companies to develop a sustainable service industry.
Potential Challenges for the Businesses in Laos
Businesses in Laos may be exposed to various challenges. Understanding these challenges is essential to create robust strategies to overcome those hurdles.
- Underdeveloped Infrastructure: Though Laos makes a significant investment in infrastructure, it still has vast underdeveloped regions. As a result, businesses may face challenges in logistics and transportation of goods.
- Small Population: The consumer market scope is not high in Laos due to a low population. Other Southeast Asian countries attract retailers and sellers or suppliers for consumer goods. But Laos is lagging in this regard.
- Dependency on Neighboring Countries: Laos, as a nation, is over-dependent on the neighboring countries for its commercial sector investments. Key investors for this country are China, Indonesia, and Vietnam. Therefore, investors from other countries may face stiff competition and challenges due to a low understanding of demography, geography, consumer behaviors, etc.
- Complex Tax Rules: The tax rules are required to be simplified in Laos to welcome more investments from the Western world. Moreover, the tax collection mechanism is also not robust.
Bottom Line
In conclusion, it needs to be added that Laos is a growing country with plenty of opportunities for investors. However, it has various challenges too. Therefore, investors should find partners for the Laos market entry. Choosing the right market entry partner will help your business identify opportunities and overcome the obstacles quickly and convincingly.
