Investment Policy Effect On FDI In Hydropower Sector

In general, Foreign Direct Investment ( FDI ) has come into sight to be loosely recognized over the past decennary in many states as it contributes growing and the development. It can convey capital, engineering transferring, occupation creative activity and direction knows how to the host states. Thus it had been known as the indispensable tool for economic development peculiarly in developing states, where there are rich in natural resources and labour forces.

Normally speech production, hydropower has wild scope of economical, environmental and societal strategic advantages. “ Hydropower is a important beginning of electricity worldwide and will probably go on to turn particularly in the development states ” ( Kaygusuz, 2004 ) , therefore it can play an indispensable function in economical development particularly in many developing states where there are hydropower potencies

Like many states, the Lao People ‘s Democratic Republic ( Lao PDR ) as the least developed state is in manner of having Foreign Direct Investment ( FDI ) chiefly in hydropower sector which comparing by sector from the twelvemonth of 2000-2010, hydropower sector accounted more than 30 three per centums of entire FDI ( MPI, Laos ) . Due to Lao ‘ nature and clime provide great chances to develop hydropower workss to run into domestic electrification demands and the addition in demand for electric power in the part of South-East Asia. Today, more than 70 hydropower undertakings are under development[ 1 ], and the electricity sector makes up an of import portion of the export industry in Laos. Thus it has played an indispensable function in the rapid economic growing of Lao PDR.

As the authorities of Lao PDR set the economic mentality in the twelvemonth 2020, its vision to the twelvemonth 2020 is to graduate from the position of being a least developed state and go a sustainable development state. To accomplish such end of National Development Vision to the twelvemonth 2020, Lao PDR needs more capitals, engineering, and capable human resource, as the Government of Lao PDR deficiency of these things. Therefore, the FDI particularly in Mega undertakings such as hydropower sector and excavation sector are the important subscribers for increasing the authorities ‘s gross, making occupations, presenting new market and concern system.

In such circumstance, FDI particularly in the hydropower sector is playing the important function in the Lao ‘s economic and societal development, the Investment Law in 1994 provided by authorities of Lao PDR, which is the benchmark of the investing inducement policy in order to pull more foreign investings. Therefore in this thesis, there are inquiries need to be qualify, the inquiry is that are these investing policy effectivity and pull more foreign investing in hydropower sector into Lao PDR? Or how did the investing policy consequence to foreign investing in hydropower sector in Laos? Therefore, the thesis statement of this paper is to analyze on the effectivity of investing policy offered by Laos ‘s authorities in order to pulling FDI chiefly hydropower sector. The range of this thesis is started from the Investment Law in 1994 with some basic information about Laos, the state of affairs of FDI in this state and the investing policies provided by the authorities of Lao PDR. Thus the range of this thesis is non traveling cover up all facets of the economic development in the state ; it will concentrate merely on investing policy such as the Torahs and ordinances applied to FDI particularly in hydropower sector in Lao PDR.

Many bookmans explained that, market size and cost of production is the key in pulling investing. Krugman ( 1991a ) argues that the interaction of market, conveyance costs, and fixed investing costs as the major determination on the location of industry. In the article of Morisset ( 2003, p. 253 ) , the investing inducement policy such as revenue enhancement inducement impacts on foreign direct investing is non clear that it can assist out on pulling foreign investing. There are legion surveies of international investors have indicated that the inducement policies are non major factor in their investing location determination. More important factors such as substructure, political stableness, labour and the cost of production, nevertheless in this thesis is traveling to foreground and supply groundss that investing policy provided by authorities are the cardinal factor in pulling foreign investing in hydropower sector in the instance of Lao PDR.

Most of the information and information used in this thesis are largely from the Ministry of Planning and Investment ( MPI ) , Lao PDR as indispensable. Furthermore, the aim of the paper is to analyze and place the effectual of Lao ‘s investing policy in the issues of strategic policy to pulling more FDI in hydropower sector. In order to do this thesis organizes and comfy to read, therefore this paper is developed and divided into four chapters. The chapter one is the Introduction where the aim, thesis statement and range of this paper are offered. The 2nd chapter is literature reappraisals related to the FDI policies. The 3rd chapter will supply the overview of Lao ‘s economic system, tendency of FDI and Hydropower Sector. Showing how the investing policy offered by authorities of Lao PDR effected to FDI and hydropower sector by supplying the information, information and figures, plus in this chapter will analysing and comparing on the Investment Law in the twelvemonth of 1994, 2004 and 2009. The 4th chapter is decision and last portion of the paper is the mentions and recognition

Chapter II: Literature Reappraisal

2.1 Foreign Direct Investment Polices

Recently, many bookmans tried to explicate and indicate out the factors for foreign investing location determination in developing states. On the other manus there are many surveies and articles related the FDI and its policies in developing states. The development states try to develop their investing policies and strategic program in order to pull the foreign investing

In the article of Shaukat Ali and Wei Guo ( 2005 ) explained the behaviour of Multinational National Companies ( MNCs ) in China, with its immense possible market size as the most of import factor for pulling FDI to China, with its big population, steady economic growing, trade integratings are the perfect combination in pulling FDI. However apart from good environment of investing, the writers ‘ further point out that the Chinese Government investing policies are another of import factor

In the article of Ekrem Tatoglu ( 2002 ) , it is was found that market size, openness of the economic system, and substructure of the host state had positive consequence, but the deficiency of exchange rate and economic stableness had negative consequence but non important, nevertheless to some extent, it has slowed down its attempts to have much higher volume of foreign investing.

In the Morisset ‘s article ( 2003, pp. 253 ) point out that the relation between investing policy such as revenue enhancement inducements and FDI is non the most important whether it can assist the host state in deriving the foreign investing. Over the past few decennaries they are legion surveies from the international investors have indicated that investing policy such as revenue enhancement inducements are non the most of import factor for investing locations, more of import factors such as substructure, labour and political stableness. However it does n’t intend that the investing policy has no consequence on pulling foreign investing, one of the good illustrations is the Ireland ‘s revenue enhancement inducements which have been recognized as key in pulling foreign investors over the past two decennaries. Furthermore, there has been turning support grounds that investing policy influence the location determinations of companies within regional economic groupings, such as the European Union, North American Free Trade Area, and Association of Southeast Asiatic Nations.

No uncertainty that market size is of import to foreign investing in make up one’s minding location but other factors such as the investing policy and institutional model, are indispensable in influential a state ‘s attraction to FDI. However the investing policy can be favourable to foreign investing or unflavoured to foreign investing in order to protect local industries

The consequence of FDI will depend, in portion, on the signifier that FDI takes. FDI directed to to a great extent protected industries or attracted by really dearly-won inducements may hold a low, or even negative, consequence on growing and productiveness, Attitudinal and empirical research on the consequence of revenue enhancement inducements on FDI has been inconclusive.

In the article of Hearnest ( 2007, pp.25-30 ) dedicated that if the investing policy such as revenue enhancement inducements may be good for a state. This is so if some conditions are contents. First, the investing policy must take to an increased of influx in FDI into that state by pulling FDI that would non come without the presence of the inducements. Second, these FDI should lend to the state ‘s development by offering returns to the state that more than beginning ( the returns ) the foregone revenue enhancement gross in signifier of revenue enhancement inducements granted to the investors. When seeking to happen out who should measure up for the revenue enhancement inducements in Tanzania hence, the work will concentrate on some types of investings that would non come to Tanzania without the presence of the inducements, but have the potency of lending positively to the development of the state. As for who should non measure up, a focal point will be on those investings that would come in any circumstance ( in this instance the absence of revenue enhancement inducements ) .

FDI determiners that MNEs expression for are the presence of economic, political and societal stableness ; and regulations modulating entry and operations of concerns. Others are criterions of intervention of foreign affiliates ; concern facilitation ( including, inter-alia, investing inducements and thereby revenue enhancement inducements ; market size, growing, construction and handiness ; natural stuffs, low cost but efficient labour force and physical substructure in signifier of ports, roads, power and telecommunication. Since specific inducements may non be chief determiners of a state ‘s attraction to FDI. A state ‘s general economic and political conditions, domestic market, natural and other resources may be more of import than some specific inducements. However assorted inducements have been found to act upon investings.

In decision, there are both positive and negative effected by supplying the inducements policy from the host states to the foreign investors. However, most of the articles presented above appear to prefer the inducements policy ( revenue enhancement inducements ) . Therefore no uncertainty that this signifier of investing policy is dominated in many developing states with plentifulness of undeveloped natural particularly the ASEAN states

Chapter III: OVERVIEW OF ECONOMY, TREND OF FDI AND HYDROPOWER SECTOR IN LAO PDR

3.1 Current Lao ‘s Economic Situation

As the Lao authorities set their development end which taking to liberate the state from being least developed state by the Year 2020, it ultimate end is to graduate from the position of being a least developed state and go sustainable development state. To accomplish the end, Laos needs the capital and human resource capacity, as Laos ‘s deficiency of these things. Therefore, the Foreign investing particularly in hydropower and excavation sector are playing an indispensable function in increasing the authorities ‘s gross ( capital coevals ) , occupation creative activities and so on.

Since the Lao ‘s authorities started their economic liberalisation, the “ new economic mechanism ” ( NEM ) in 1986, the Government of Laos has made the development of private sector and attractive force of the foreign investing as the strategic precedence, therefore the execution of investing policies are really of import to investing particularly in pulling FDI.

With the advantages such as political stableness, natural resources, low labour costs, strategic location and incentive investing policies, both domestic and foreign investing has notably evidenced its part to the Lao ‘s Social Economic Development. Generally the entire ( public and private ) investing mobilized rose significantly from 21.3 per centum of GDP in 2001 to about 29 per centum in 2005, and averaged at 27.8 per centum for the five-year period which chiefly from FDI[ 2 ]. The foreign investing has provided farther thrust to Lao ‘s economic growing. The authorities of Lao PDR provided good clime for investing, such as substructures, telecommunication, political stableness, stable macroeconomic status and jurisprudence and ordinance related to investing.

With the Lao ‘s National Social and Economic Development Plan ( NSEDP ) , Lao ‘s authorities had achieved to keep the economic chance with an mean Gross domestic product from twelvemonth 2000 to 2010 about about 7.73 per centum ( see figure 1 ) , chiefly profiting from spread outing natural resources within the state. By promoting Foreign Direct Investment, Lao ‘s economic system has been bit by bit increased in many sectors, particularly industry sector and services sector, which by 2009 had reached 70 per centum of GDP. ( See Figure 2 and 3 )

Industrial sector has grown in recent twelvemonth with rapid rate, accounted an mean rate about 11.3 per centum per twelvemonth. The excavation industry increased by 33.87 per centum ; tobacco 20.75 per centum ; nutrient processing 9.17 per centum ; textiles 20.11 per centum ; and garments 11.15 per centum. The services sector has been positively run into the demands of production and trading, from 2001to 2005, the growing rate in entire grosss from services sector accounted an averaged at 10 per centum per twelvemonth.[ 3 ]Harmonizing to National Social and Economic Development Plan, in general Government of Lao PDR has performed good with its ambitious economic mark and strong economic growing which anchoring to liberate the state from the position of least-development state by 2020.

Figure 1: Lao ‘s existent GDP growing in per centum

Beginning: International Monetary Fund ( IMF ) , World Economic Mentality 2010

Figure 2: Laos ‘ GDP – composing by sector

Beginning: CIA World Fact Book

Figure 3: Lao ‘s GDP per capita compared by continent

Beginning: International Monetary Fund ( IMF ) , World Economic Mentality 2010

In recent twelvemonth the Government of Lao PDR continue to work hard and seek to hike its foreign trade with the purpose to increase more in export, the construction of their economic changed with the portions of the private sector and foreign investing in the economic system have increased. In peculiar, FDI has facilitated the creative activity of new merchandises and increasing size of the markets including the entry of new markets. The figure of FDI and private domestic in the past five old ages stood at 9.7 billion USD, in which FDI accounted for 8 billion USD[ 4 ]. Therefore, the private sector has become more and more indispensable in the economic system of the Laos.

The Lao PDR has been headed for concern in regional and planetary economic integrating. It is critical to Lao ‘s economic with its possible in domestic and foreign investors to vouch the benefits from the liberalisation of trade. Bing the member of ASEAN, ATFA and WTO applicant supplying chance for the state in trade and pulling foreign direct investing increasing the market entry by reduced 98 per centum of its duties ( zero to five per centum in 2008 ) . However Laos faced the job of trade instability, in the twelvemonth of 2007 to 2008 the entire trade was 2630.9 million USD which figure of export merely 822.7 million USD ( see Table 1 )

Degree centigrades: UsersluanDesktopUntitled.jpg

3.2 Foreign Direct Investment and Hydropower Trends in Laos

FDI is playing important function in Lao ‘s economic system, with the execution of Investment Law in 2004, the authorities of Lao PDR had given immense investing inducement to foreign investors particularly revenue enhancement inducement, as the resulted in 2005 onward the FDI influx has been significantly increased particularly in mining sectors and hydropower sectors. In 2006 the FDI influx raised up to 2,699 million USD and in 2009 increased more than 4,312 million USD ( see figure 4 ) .

To some extent, the successfully execution of investing policy in 2004 by the authorities of Lao PDR, the informant of increased in FDI inflow both in figure of the undertakings and capital values in this period were chiefly from the betterment of investing ‘s clime such as liberalisation of investing, simplify Torahs and ordinances on investing, shorten the process for deriving investing licence, lower revenue enhancements and duties rate for investors, which straight benefited investors particularly in hydropower sector which compared by sectors account 33 per centums of entire investing from 2000-2009 ( see table 2 )

Figure 4: Foreign Direct Investment in Laos

Beginning: Raw informations from Ministry of Planning and Investment, Laos

Table 2: Foreign Direct Investment by Sector 2000-2009

Beginning: Raw Data from Ministry of Planning and Investment, Laos

Hydropower sector is playing major function as the important subscriber of Lao PDR ‘s economic growing and poorness decrease, the figure of exports in this sector accounted about 30 per centums of all of Lao PDR ‘s exports. Many hydropower undertakings are in operation and under building in several river basins which taking to export electricity to adjacent states and accounted 70 six in figure for the undertakings in operation from 2000 to 2009 ( see table 3 ) .

Most of the investings in this sector appeared in the type of public-private partnerships and long-run grants to foreign investors to finance and pull off hydropower workss.

Table 3: Hydropower Undertaking in Lao PDR – Operational

Beginning: Department of Energy Promotion and Development

3.3 Analyzing Incentives and Disincentives on FDI in Hydropower Sector

3.3.1 The Incentives of FDI

Land-linked state:

Lao PDR is considered as landlocked state which situated in Southeast Asia part and portions border with five states: Myanmar, Cambodia, China, Thailand and Viet Nam. However the authorities of Lao PDR is change overing the landlocked to land-linked by connected the chief roads to the every international boundary line pointed. Thus Lao PDR geographically is traveling to be trade hub in this part and immense market which supplying entree to ASEAN market plus linking to the southern portion of China which pulling FDI in legion sectors. Furthermore there is investing inducement in hydropower sector, due to the increasing demand on electricity from states such as Thailand, Vietnam and China, which supplying great chance to Lao PDR for exporting electricity to those neighbours

Abundant in mineral and H2O resources:

Government of Lao PDR is go oning in enjoyment to having the petition from foreign investors for the grant of the development in hydropower and excavation. With the abundant in mineral and H2O resources, therefore these two sectors are mostly pulling FDI into Lao PDR. The abundant in H2O resources lend a manus for Lao PDR to have more FDI in the hydropower undertaking, which lead Lao PDR to be major electricity export-oriented in Southeast Asia part. Furthermore, unexploited excavation countries, which have plentifulness of mines such as: gold, Cu, Zink, Sn and coal are pulling legion foreign investors around the universe.

Social and political stableness:

Social and political stableness is another major ground that encourages the foreign investors for trusty invest or making concern in Lao PDR. With a really near to the land of offense rate, no noticeable cultural struggles, no political issues and really peaceable state Thus it comes into position to be really low hazard for short term and long term investing

The inducements of investing jurisprudence:

The investing inducements which provided by the authorities of Lao PDR under the Investment Promotion Law in the twelvemonth of 2009, by offering net income revenue enhancement and other inducements to foreign investing endeavors. Normally the freedoms on net income revenue enhancement and concessional revenue enhancement rates are dependent to the type of investing and the geographical location of investing. Furthermore the process for the constitution and blessing procedure of foreign investing endeavors had been shortening by the Investment Promotion Law.

Cheap labour and land:

By comparing with the adjacent states of Lao PDR, the cost of labour and land are much cheaper, which regard as one of the attraction for investing in Lao PDR. Particularly the land leasing policy which offered low rate in rental fee and longer investing term which up to 75 old ages. On the other manus the weak point of Lao PDR is the quality of labour which largely inexpert labour, even though the cost of labour in Lao PDR is cheaper comparing to its adjacent states.

3.3.2 The Disincentives of FDI

Geographic status and hapless substructure:

Lao PDR has no sea path and most of the countries are cragged plus the substructure is rather hapless particularly the status of the roads in many rural countries. Therefore Lao PDR has trouble in the transit, has rather expensive conveyance cost or perchance will take longer clip for the goods in presenting to finish and in conclusion the cragged land in Lao PDR makes it hard and dearly-won to spread out the electricity web to more rural countries. In return these outgos are cut down the net income of investing

Small size of market and multiplicity of regulative procedures:

The domestic markets in Lao PDR are excessively little in both size and figure of consumers. Furthermore long clip devouring to officially set up a concern in Laos, investors are required to obtain legion licences and excessively many documental demands, which including the entry of a feasibleness survey or concern program for all concerns.

3.4 Legal Framework and Investment Policy related to FDI in Hydropower Sector

Harmonizing to National Development Goal to liberate the state from the statue of Least Developing states ( LCDs ) by the twelvemonth of 2020, therefore the Seventh National Socio-Economic Development Plan ( 2011-2015 ) with the chief waies and marks related to the development of energy sector as below:

Direction:

Develop hydropower beginnings and renewable energy in order to provide energy to the production sectors and the society, and go the battery of ASEAN. Extractive industries should take into consideration the preservation of the resource and protection of the environment ( including H2O ) . It is besides the purpose to develop systems for conveying electricity to aim countries ( to raise production ) , and to cut down poorness, particularly in distant countries, and spread out power in other countries that have the possible to bring forth exportable goods.

Target:

Construct 10 more big dikes, to bring forth 5,015 Mega W power

Ensure that the figure of families who entree electricity increases to 80 % by 2015

Complete transmittal lines ( 115 KV lines ) in the North, cardinal and south parts, to run into the power demand.

Mobilize and efficaciously utilize resources including grants and concessional loans for effectual development of power substructure ; and put in developing the excavation sector particularly in those countries holding high return and economic potency.

Beginning: The Seventh National Socio-Economic Development Plan ( 2011-2015 )

On the relating with the FDI in hydropower sector, there are two chief sets of jurisprudence as: foreign investing jurisprudence and environment jurisprudence. In order to advance FDI in Lao PDR, therefore in the twelvemonth of 1988 the foreign investing jurisprudence was implemented and it had been revised in many occasions as in the twelvemonth of 1994, 2004 and in conclusion in the twelvemonth of 2009. Therefore in this chapter is traveling to preview the process of deriving hydropower undertaking, comparing the investing jurisprudence in 1994 and 2004, plus reexamining the recent investing jurisprudence 2009

3.4.1 The Procedure of Approval in Hydropower Project

Harmonizing to the investing jurisprudence in the twelvemonth of 2004, the lineations an application and blessing procedure for FDI in hydropower sector. This procedure is the duty of the Ministry of Planning and Investment ( MPI ) , and the decisive determination on undertaking blessing is the Prime Minister ‘s Office ( PMO ) . The Environment Impact Assessment ( EIA ) and Strategic Impact Assessment ( SIA ) are to be carried out as one of the last stairss in the blessings procedure. Implementing EIA and SIA are the duty of the investor, and are reviewed by the relevant Lao proficient ministries such as: Ministry of Energy and Mines ( MEM ) , Water Resource and Environment Agency ( WREA, PMO ) , and Ministry of Agriculture and Forestry ( MAF ) .

There are four phases for continuing hydropower undertakings in Lao PDR with briefly describe as below:

Plan Phase:

The Independent Power Producer ( IPP ) has to subject Application of Study Plan ( AOSP ) to MEM after the program review successfully base on balls, the IPP should subscribe the Minutes of Understanding ( MOU ) with the authorities of Lao PDR.

Submit application of Feasibility of Study ( AOFS ) and IEA to MPI and MEM. The Feasibility Study will be study and scrutiny by MEM and WREA

Discussion on Covering duty

Design Phase:

Undertaking Development Agreement ( PDA )

Duty Agreement ( TA )

Submit Notification of Chief Engineer ( NOCE ) and Application Detail Design ( AODD ) to MEM

Agreement of IPP Stakeholder ( AIOS )

Constitution of IPP Company ( EOIC )

Concession Agreement ( CA )

Power Purchase Agreement ( PPA )

Construction Phase:

NOCE and Commencement of Construction ( COC ) by MEM

Construction Inspection and Examination

NOCE by MEM

Operating Phase:

Commission Operating Date ( COD )

Operating and Reporting ( O & A ; R ) by MEM

Figure 5: Institutional Structure of Lao PDR ‘s Power Sector

Institutional_2009

Beginning: www.poweringprogress.org

3.4.2 The Investing Law in 1994

The foreign investing jurisprudence implemented in the period of twelvemonth 1994 to 2003, it chiefly offered two signifiers of FDI which are: a joint venture with one or more house servants Lao investors and 100 % foreign-owned endeavors. There was non much clear in what male monarch of inducements supplying to pull FDI, merely the inducement for investing was the term of investing which gave the foreign investor up to thirty old ages of investing. Thus the FDI sum in figure of undertakings and capitals in this period were non much extremely concerned comparison to the period of old ages 2004 to 2009. However the mega undertakings blessing in this period such as hydropower and excavation were given grant with negotiable revenue enhancement inducements.

In decision the investing jurisprudence in 1994 was non much pulling FDI into Lao PDR ; nevertheless in the hydropower sector chiefly large investing undertakings was paying attending by foreign investors, as the effect of revenue enhancement inducements.

3.4.3 The Investing Law in 2004

In order to pull more foreign and domestic investors, the authorities of Lao PDR decided to revise the investing jurisprudence in 2004, which had given immense investing inducement to foreign investors particularly revenue enhancement inducement, as the result in the twelvemonth of 2005 onward the FDI influx has been well greater than before which in the twelvemonth of 2006 the FDI influx rose up to 2,699 million USD and in the twelvemonth of 2009 increased more than 4,312 million USD ( see figure 4 ) .

The investing jurisprudence in 2004 besides decentralized power to the provincial degree in FDI blessing which undertaking values up to 1 million USD ( under the promoted list ) , except four states such as: Luangprabang, Vientiane, Savanakhet and Champasack which can O.K. the FDI undertaking up to 5 million USD[ 5 ].

The chief activity for inducements ( The investing jurisprudence in 2004 ) was divided into seven sectors as below:

1. Production for export

2. Agro-processing and forestry

3. Industrial processing

4. Human resource development and public wellness

5. Infrastructure Construction

6. Natural stuffs, Component and equipment Fabrication

7. Development of the touristry industry and theodolite services

Table 4: Comparing investing jurisprudence in 1994 and 2004

Law on the Promotion and Management of foreign Investment in the Lao PDR ( 1994 )

A

Law on the Promotion of Foreign Investment In the Lao PDR ( 2004 )

A

Form

A

A of FDI

A

aˆ?A 2 signifiers of FDI:

a ) A joint Venture with one or more domestic Lao Investors

B ) A A 100 % foreign- owned endeavors

Exemption from import responsibilities for intermediate constituents and natural stuffs imported for processing and re-export ;

Uniform level rate of 1 % of import value of equipment, means of production, trim parts and other stuffs used in operation of investing undertakings ;

No export responsibilities on finished merchandises ;

Annual net income revenue enhancement at a unvarying level rate of 20 %

Particular privileges, including decrease or freedom from theprofit-tax rate, are given based on the size of investings and the important positive impacts that such investings have on the socio- economic development of Lao PDR ;

A

aˆ?A 3 signifiers of FDI:

a ) A Business Cooperation by contract ;

B ) A joint venture with one or more domestic Lao investors ( Foreign equity should non be less than 30 % of entire investing capital ) ; or

degree Celsius ) A 100 % foreign- owned endeavor

0 % of import responsibilities on production vehicles, machinery, equipment and natural stuffs

No export responsibilities on finished merchandises ; A

Net income revenue enhancement is classified into 3 groups: 20 % , 15 % and 10 % and net income revenue enhancement freedom is offered for a certain period depending on activities, investing countries and size of investing

1 ) Zone One ( country with no economic information substructure )

7 old ages net income revenue enhancement freedom

thenceforth a net income revenue enhancement of 10 %

2 ) Zone Two: ( countries with certain degree of economic substructures )

5 old ages net income revenue enhancement freedom

3 old ages profit revenue enhancement of 7.5 %

thenceforth a net income revenue enhancement of 15 %

3 ) Zone Three ( countries with good substructure )

2 old ages net income revenue enhancement freedom

2 old ages profit revenue enhancement of 10 %

thenceforth a net income revenue enhancement of 20 %

Other

A Incentives

A

Investing term is up to 30 old ages

Freedom to deport their net incomes back place or to 3rd states

Right to use foreign exiles

Personal income revenue enhancement at a level rate of10 %

A

Investing term is up to 75 old ages

Freedom to deport their net incomes back place or to 3rd states

Right to use foreign exiles ( non transcend 10 % of the endeavor ‘s labour )

Personal income revenue enhancement at a level rate of 10 %

Beginning: Ministry of Planning and Investment, Lao PDR

The Lao authorities has divided investing publicities zones into specific activities and zones. Harmonizing to the jurisprudence on the Promotion of Foreign investing, the three promoted zones based on social-economic conditions and geographical locations in the zones are as follows:

Zone 1: Cragged, field and tableland zones with no economic substructure to ease investing

Tax freedom for seven old ages and thenceforth will be capable to gain revenue enhancement at the rate of 10 per centum ( 10 % ) .

Zone 2: Cragged, field and tableland zones with a moderate degree of economic substructure suited to suit investing to some extent

Tax freedom for five old ages, and thenceforth will be capable to a decreased net income revenue enhancement rate to 7.5 per centum for 3 old ages and thenceforth a net income revenue enhancement rate of 15 per centum ( 15 % ) .

Zone 3: Cragged, field and tableland zones with good substructure to back up investing

Tax freedom for 2 old ages and thenceforth will be capable to a decreased net income revenue enhancement rate to ten per centum for 2 old ages and thenceforth a net income revenue enhancement rate of 20 per centum ( 20 % ) .

In add-on to the above inducements, foreign investors are entitled to the undermentioned inducements:

1. During the revenue enhancement freedom period and during the revenue enhancement decrease period, the endeavor is entitled to an freedom of minimal revenue enhancement.

2. The net income used for the enlargement of accredited concern activities will be exempted from net income revenue enhancement during the accounting twelvemonth.

3. Exemption of import responsibilities and revenue enhancements on equipment, natural stuffs and others.

4. Exemption of export responsibility on export merchandises.

Another attractive characteristic of this jurisprudence is that natural stuffs and semi-finished merchandises imported for fabrication or assembly for import permutation will be exempted from import responsibilities and revenue enhancements or will be capable to cut down rates of import responsibilities and revenue enhancements.

Particular Economic Zones ( SEZs ) :

On April 13, 2003, the authorities of Laos brought in responsibility inducements to help investors under the state ‘s first constitution of Particular Economic Zones ( SEZs ) aimed at pulling FDI. It situates in South of Lao PDR and portions border China, Vietnam, Cambodia, Myanmar and Thailand. It located in the state of Savannakhet along the East-West Economic Corridor ( EWEC ) associating Myanmar, Thailand, Laos and Vietnam ( Route No.9 ) .

Economic sector zones promoted in the Zone are as follows:

( 1 ) Export ( oriented ) treating zone ;

( 2 ) Free trade Zone ; and

( 3 ) Free Service and logistics Centre.

Many inducements are available to investors who wish to put in the SEZs. The chief inducements are the freedom of revenue enhancements such as:

Tax Vacation: two to ten old ages, get downing from net income devising twelvemonth

Corporate Net income Tax: eight to ten per centum

Personal Income Tax: 5 per centum for local and alien

Dividend: Tax five per centum ( at least two portions holders and use after Tax Holiday ended )

Import responsibility freedom for natural stuff, building stuff and equipment

One per centum for import vehicles

Land Renting Policy up to seventy five old ages and can be extended

The Investment Law in 2009

The new investing jurisprudence was introduced by the authorities of Lao PDR in the twelvemonth of 2009 ; with add more policies on income revenue enhancement to investors who puting in three zones and the zones were divided each zone into three different beds, which was foregrounding some new characteristics as below:

Harmonized the domestic investing jurisprudence and foreign investing jurisprudence ; Shorten procedures to open a new concern

No footings of investing ;

Foreign investors have rights to exert the lands and belongingss ;

Investing inducements: Education and Health attention sectors are top precedences ;

Pro-active Investment publicity bureau ( IPA ) : investing naming lists ;

Supplying better facilitation from IPA: One Stop Shop services

In decision, the investing inducements which provided by the authorities of Lao PDR under the Investment Promotion Law in the twelvemonth of 2009, by offering net income revenue enhancement and other inducements to foreign investing endeavors. Normally the freedoms on net income revenue enhancement and concessional revenue enhancement rates are dependent to the type of investing and the geographical location of investing. Furthermore the process for the constitution and blessing procedure of foreign investing endeavors had been shortening by the Investment Promotion Law.

Chapter IV: Decision

As the authorities of Lao PDR set the economic mentality in the twelvemonth 2020, its vision to the twelvemonth 2020 is to graduate from the position of being a least developed state and go a sustainable development state. To accomplish such end of National Development Vision to the twelvemonth 2020, Lao PDR needs more capitals, engineering, and capable human resource, as the Government of Lao PDR deficiency of these things. Therefore, the FDI particularly in Mega undertakings such as hydropower sector and excavation sector are the important subscribers for increasing the authorities ‘s gross, making occupations, presenting new market and concern system.

The abundant in H2O resources lend a manus for Lao PDR to have more FDI in the hydropower undertaking, which in the close hereafter could take Lao PDR to be major electricity export in Southeast Asia part. In add-on by comparing with the adjacent states of Lao PDR, the cost of labour and land are much cheaper, which regard as one of the attraction for investing in Lao PDR. Particularly the land leasing policy which offered low rate in rental fee and longer investing term which up to 75 old ages. Thus it set frontward to the investing ‘s clime in Lao PDR as the choiceness circumstance..

The authorities of Lao PDR had given immense investing inducement to foreign investors chiefly revenue enhancement inducement, as the resulted in 2005 onward the FDI influx has been appreciably increased and in the twelvemonth of 2006, the FDI influx was boosted up more than five creases compared to the twelvemonth of 2004 ( see figure 4 ) . Predominantly the FDI in hydropower undertakings since the twelvemonth of 2004 to 2010 40 one undertakings had been approved by the MPI[ 6 ].

In decision of this paper as the fact determination, Since the twelvemonth of 2004 to 2009, bystander of increased in FDI influx in all sectors peculiarly the hydropower sector were chiefly from the decrease on import revenue enhancements, corporate net income revenue enhancements, lower duties rate, constitution of SEZs, and simplify Torahs and ordinances on investing. The investing policy from the twelvemonth of 2004 onward which progressively offered inducements chiefly revenue enhancement inducements to foreign investors were simply tool for Lao PDR in attracted FDI in many sectors including hydropower sectors. The investing policy has been revised late to make more favourable investing ‘s environment.