Laos – Good News and The Good News!

Firstly the good news…I contained myself from throttling a mindless bureaucrat at the Thai embassy in Vientiane…just!

7 hours of queues (yeah you read that right, 7 freaking hours)…with kids in tow! I relish this with the same enthusiasm I typically reserve for chronic constipation.

Combine the already tedious, non-sensical, paperwork laden visa procedures with a brainless bureaucrat and this is a powder keg waiting to explode.

One of these days I expect to hear about it on the news…much like a US postal worker, some frustrated backpacker or pensioner on a visa run from Phuket with a tad too much meds in his blood is going to go ape s&%t in one of these places.

Now for the “other” good news.

Some statistics…not because I love statistics, but partly because I found myself queuing for 3 hours next to a UN statistician, who was focused on South East Asia.

I’m always skeptical of stats. Spend half a day looking at how businesses and families operate in frontier markets and you quickly realize statistics are largely fictional.

The total statistical aggregate may be incorrect, and usually is, but the changes taking place tend to paint a trend picture, and this is what I’m interested in. Together with looking at the obvious signs such as newer vehicles on the streets, full restaurants, high-end boutique shops, etc. Mark and I like to focus on countries where the wind is at our backs. It pays…so we aren’t about to change our strategy.

OK, now onto the stats:

– Last year – Just over 8% a year annualized growth rate!
– GDP per capita about US$1200.
– Laos Economic growth rate was 7% from 1991-1996.

The Asian crisis in 97 took the sails out of the wind in most Asian countries and Laos was not spared. It however regained its upward trajectory growing 6.8% per year from 2001-2006.

Interestingly, through the period 2007-2010, which as we’re well aware was host to the GFC (Freat Farking Collapse), with the US housing market at the epicenter, Laos grew at 7.9% annually. Not too shabby.

We discussed why this happens previously when talking with my fried Doug Clayton in a post, entitled Cambodia the New Emerging Market. Doug mentioned some of his strategies in a follow on post, Cambodia, New Land of Opportunity.

Compared to its neighbours Laos is empty, with only roughly 6.5 million people. When you combine a relatively unpopulated country with decades of mis-management and abundant resources, when reforms hit you have a huge opportunity to really grow the country out of poverty. Starting from a stunningly low base, the reality is that you can and do get growth rates that are phenomenal.

37-years of communist rule and stringent regulations on economic freedom have held the country back, while its neighbours, China to the northwest, Thailand to the west, Cambodia to the South and Vietnam on its East have seen their large populations drag themselves out of poverty.

Those countries now host some of the most vibrant economies on the planet. A relative relaxation in economic freedom is doing wonderful things to Laos. Remember, one doesn’t need political freedom to prosper, but one does need economic freedom. I discussed this recently when talking about Why Some Places are Thriving While Others are Blowing Up!

Laos leadership would have to be blind to fail to see the wealth across their borders and the massive progress made through reforms.

I suspect that countries such as Myanmar and Laos have been influenced by China, as I see many of the reforms the Chinese government implemented being taken in these countries.

One need only look at the success of the Shenzen zone in Southern China to see what is possible. My new-found friend (the UN statistician) believes that the Chinese government has been putting pressure on both countries to open up economically.

Whether changes made have been self-driven or influenced I don’t pretend to know, but it is interesting to note that the Laos government has taken a page out of the Chinese cookbook and created 10 different SEZ’s (Specific economic zones). This has had the effect of attracting some much-needed Foreign Direct Investment (FDI).

With fully half of the GDP still coming from subsistence farming, this country has a long slog ahead of it…that is provided it heads in the right direction.

Tourism is noticeably growing rapidly. This was confirmed by those I spoke with, but easily the biggest potential boost to GDP to be aware of is mining. Copper, gold, coal, bauxite, tin…they’re all being extracted, and the money looks like it’s making its way into the hands of the locals.

What will help propel the largely illiterate populace out of poverty? Possibly microfinance, which has had a massive impact in other developing countries.

We’ll have more on microfinance later, as it’s a very interesting arena. Mark and I are keenly attuned to the philosophy, albeit normally on a larger scale, as we constantly look at private equity deals in these countries.

Some of the businesses we have reviewed have been involved with microfinance during their incubation, and microfinance has been the key ingredient to having families go from struggling to feed themselves to living middle-class lifestyles and sometimes better.

Meanwhile, for those interested in testing the waters in Laos, a good first step for an investment in the country might be to buy the local currency, the Kip. We think it’s a reasonable speculation.

From a long-term macro perspective we think buying the Kip (FX ticker LAK) makes sense. 12-month CD’s are going for about 10% and a 2-year for 12%. There are a number of banks to choose from, but I would feel most comfortable with Acleda bank, an extremely well-run, Cambodian-based bank that also operates in Laos.

More later.

– Chris

“Money is better than poverty, if only for financial reasons” – Woody Allen


This Post Has 3 Comments

  1. Francisco

    Hi Chris,
    As I was reading through your post, I was remembering my time in Laos almost 2 years ago now. I visited Vientiane and Luang Prabang and I got the feeling that the country had everything to grow massively in the future. However, I am wondering about the cost of doing business for foreigners (say; set up a company, need of local partner, repatriation of profits, etc…) in Laos. How does the picture look like in this sense?

    1. Chris MacIntosh

      Hi Francisco

      Same as most Frontier Markets we are involved in it always takes time DD and patience to really understand how and in what capacity to operate. I am told that the ease of doing business is greatly improved…this is for both foreigners as well as locals. There still exist the standard (foreigner can’t own anything) sort of regulations which are prevalent throughout Asia and dealt with in various ways.

      FDI laws have been substantially overhauled and are now down to just a one step process.

      Tax reductions have been made in several areas, as well as tax exemptions. A single rate of 20% annual profit tax is applicable for foreign investments. Import duty on machinery and equipment is only 1% and income tax for foreigners living in Laos is 10% of the total income earned.

      Income and profit from the investment of a foreign investor can be repatriated intereestingly back to his/her own country, or a third country, (which is unusual) through any bank located in Laos under the foreign exchange rate set by the Bank of the Lao PDR. This is also applicable for foreigners who work in Laos providing all payments required prior to repatriation have been completed.

      This is one interesting place.

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