Regions and Countries

	Table of Contents
p. 14 of 20 BACK | NEXT I. Country Performance Assessment II. Country Operational Strategy III. Sector Strategies A. Agriculture B. Infrastructure C. Social Infrastructure and Environment D. Governance Dimensions of ADB Operations E. Gender Dimensions of ADB Operations F. Private Sector Development IV. Regional Cooperation V. Donor Activities and Aid Coordination VI. Cofinancing and Catalyzing External Resources VII. ADB’s Operational Program VIII. Economic and Sector Work Program IX. Local Cost Financing

Country Assistance Plans - Lao People's Democratic Republic : III. Sector Strategies

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F. Private Sector Development

78. The Government recognizes that the private sector plays a crucial role in the country’s development. The state sector, however, still remains determined to regulate private investment and business growth rather than to provide a consistent framework for the expansion of private sector activities. There is a concern that the economy of Lao PDR will not be able to appropriately benefit from the process of subregional economic integration despite significant comparative advantage in resource based industries, light manufacturing, and diversified agriculture if it does not improve the current system of economic management. It is critical to provide the enabling environment for private sector development, particularly small and medium enterprises in labor intensive and land intensive activities. This should underpin a more sustainable development process that uses factor endowments of Lao PDR efficiently and places greater reliance on domestic resource mobilization by increasing contribution to savings and investment.

79. In the absence of a strong domestic investment base, foreign direct investment can play a major role in the development of Lao PDR. Foreign private investors have shown interest in a number of sectors including: hydropower, agriculture, transport, finance, light manufacturing and service industries. Regional cooperation projects in infrastructure identified under the Program of Economic Cooperation in the Greater Mekong Subregion (the GMS Program) are also attracting interest from the private sector. However, foreign direct investment fell sharply since 1997, reflecting the impact of the Asian financial crisis and macroeconomic instability in Lao PDR. The restoration of macroeconomic stability and recovery from the crisis should help reinvigorate investor interest. The Government will invite business representatives to the RTM in November 2000 to attract private investment.

80. At this moment, investors are still cautious about making investments due to less than satisfactory enabling environment for the private sector in Lao PDR. In addition to commercial risks, foreign investors are also concerned about sovereign and legal risks. Although the Foreign Investment Law was promulgated, the regulation for its implementation has not yet been approved. Investors indicated, among other constraints, the uncertainty and lengthy process in obtaining necessary approvals and licenses, lack of credit, high transportation cost, poor infrastructure, low economies of scale, few domestic suppliers and general difficulties with importing materials, and macroeconomic instability. There is an urgent need to enhance the climate for foreign investment and increase investors’ confidence.

81. ADB has supported private sector development through financial sector reform and legal and regulatory reform. Several initiatives under the GMS Program are also addressing issues related to private sector development through the Subregional Working Groups on tourism, trade facilitation, and investment. A GMS RETA for pre-investment study on the East-West Economic Corridor (1999) is under implementation. A RETA for Small and Medium Enterprises Growth and Development will be processed in 2000.

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