ADB: Laos Has Reformed Business Development, But More Needs To Be Done

Laos’ regulatory environment for business development has improved, but more must be done to speed up the country’s economic recovery.

A new joint report by the Asian Development Bank (ADB) and the Lao National Chamber of Commerce and Industry (LNCCI), the second edition of the Provincial Facilitation for Investment and Trade (ProFIT) Index, recommends that the government take steps to reduce regulatory requirements to encourage companies to register formally, improve transparency, and remove informal charges levied on enterprises.

The index analyzes the experiences and perceptions of the business community in complying with regulations at the local government level, based on a 2019 survey of 1,357 enterprises in 17 provinces.

“Reforms since 2018 have helped local governments remove hurdles to business development and encourage economic diversification,” said ADB Country Director for Laos, Sonomi Tanaka.

“Further reforms, implemented with efficiency and integrity, are needed to spur new business opportunities and create jobs to help the Lao PDR build a more competitive, productive economy after the COVID-19 crisis.”

The joint report focuses on six key areas: the ease of starting a business, transparency, and access to information, regulatory burden, informal charges, consistency in policy implementation, and the business friendliness of the provincial administration.

“Overcoming the unprecedented challenges posed by the pandemic will require the central and local governments to work closely with the private sector to attract new domestic and international investments,” said LNCCI President Oudet Souvannavong.

“The ProFIT report offers detailed analysis on the strengths and weaknesses of the business environment procedures and practices at the local government level.”

Laos’ economy and business community were hit hard by the COVID-19 pandemic. The country’s economic growth is expected to be below 4.5% in 2022 and 2023, compared with an annual average expansion of 7% in the 2 decades prior, says the report.

The government’s 2018 reforms reduced the cost and the processing time of business registration by one-third, the report says. But the survey found a high prevalence of irregular practices, including informal payments to officials, underreporting of enterprise income, and difficulty in accessing official information.

The cumbersome and complex regulatory framework means the government is missing out on substantial tax revenue collections needed to fund spending on critical public services.

The government has acknowledged the importance of making business registration and tax payments easier in its Ninth National Socio-Economic Development Plan, 2021–2025.

second ADB–LNCCI report, also released recently, finds that women-led enterprises have lower levels of compliance and tend to be smaller in size than men-led businesses. Female entrepreneurs reported that their business registration takes longer and costs more. The report urges the government to train staff to overcome hidden gender biases and make it easier for women to create and run businesses.

ADB is committed to achieving a prosperous, inclusive, resilient, and sustainable Asia and the Pacific, while sustaining its efforts to eradicate extreme poverty. Established in 1966, it is owned by 68 members—49 from the region.