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Preliminary Country Paper on Competition Scenario in the Lao PDR By Dr. Leeber Leebouapao NERI, Lao PDR Table of Content I. General Background II. Social and Economic Policy Affecting Competition III. Nature of Market/Competition IV. Sectoral Policy V. Anti-Competitive Pratices VI. Consumer Movement VII. Conclusion/Recommendation I. GENERAL BACKGROUND Characteristics of the Country: Landlocked and mountainous country Economic System: 1986: Shifting from a centrally planed economy to a market oriented economy ( NEM ) Economic Integration: 1997: Member of ASEAN Currently: Preparation for Joining WTO GDP Growth Rate 1992-2003 in % % 8 6.9 5.9 7.3 6.9 5.8 5.7 5.7 2002 7 7.5 2001 7.7 2000 6 4 6 4 Year 2003 1999 1998 1997 1996 1995 1994 1993 0 1992 2 US$ 400 GDP per capita 1996-2003 in US$ 394.58 360.35 361.34 332.21 328.33 328.81 350 284.55 300 258.59 250 200 150 100 2003 2002 2001 2000 1999 1998 1997 0 1996 50 Share in GDP by Sectors in 2003 27% 49% 24% Agriculture Industry Services Inflation Rate 1995-2003 % 160 140 120 100 80 60 40 20 0 134 61.38 16 2003 2002 7.84 10.6 2001 2000 1999 1998 1997 1996 1995 14.35 18.8 14.2 26.98 Exchange Rate Kip/US$ 1995-2003 12000 10,060 10,000 10000 8,871 8000 7,103 6000 4000 3,296 2003 2002 2001 2000 1999 1,260 1998 926 1996 1995 819 1997 2000 0 7,864 Export and Import Value between 1992-2003 in million US$ 800 600 500 Export Import 400 300 200 100 2002 2000 1998 1996 1994 0 1992 million USS$ 700 1500 20.4 42 2000 2001 550 116.8 1999 2003 122.3 1998 493.8 138.78 1997 2002 129.65 1996 804.9 2500 2,598.30 3000 1995 1994 347.8 0 1993 500 335.1 1000 1992 Registered FDI Capital 1992-2003 in million US$ 2000 Registered FDI Capital by Sectors 2002 2.8% 2.8% 2.6% 3.0% 3.3% 12.2% 73.3% Electricity Industry/Handicraft Services Agriculture-Forestry Construction Telecommunication and Transportation Others II. Social and Economic Policy Affecting Competition The New Economic Mechanism ( NEM ) Shifting from a centrally planed economy to a market oriented economy in 1986 Industry Policy Industry Development Plan(1996-2005): Processing industry, Cottage and handicraft industries, Power generation, Mining, Agro-forestry industry, Textiles and construction materials industry Industry Policy(Cont.) Priority of Industrialisation and Modernisation Strategy: Electricity, Agro-processing industry, Tourism, Mining, Construction material industry Trade Policy • Six Tax Rates: 5%, 10%, 15%, 20%, 30% and 40%. • Import tax exemptions: Raw materials for the manufacture of exports and import substitutes, production materials and spare parts for FDI and for the imports by Government and donor funded activities. • Excise tax rates: Range from 25-104% for automobiles, 024% for petroleum products, 50% for motorcycles, beer and cigarettes, 10% for electronic equipment, and 50-60% for alcoholic beverages. •Turnover tax rate: 5% for essential goods, agriculture inputs machinery and equipment, fabric and cotton thread. 10% for other products (e.g. motor vehicles and electronic equipment). Turnover tax exemption for rice fertilizer, breeding animals, forest inputs, livestock medicines etc… Trade Policy(Cont.) • Export taxes: electricity (20%), coffee and livestock (5%), semi-finished wood products (30%), and finished wood products such as plywood (3%). Royalties are charged on timber and other natural resources. • Export Incentives: Temporary importation, or duty exemption: no duty is paid on raw materials that are to be incorporated into exports, but the exporter must provide evidence to the customs department that the products are eventually exported. Duty drawbacks: duty is initially paid, but the exporters can apply for a refund of duty by demonstrating that the products have been exported. Trade Policy(Cont.) • Export Incentive(Cont.) Free trade zones: firms located in the zones can engage in both import and export trade with foreign countries free of duty. Their sales to the domestic market are subject to customs duty, although concessional treatment is common. • Liberalization of Export License and Simplifying of the System of Import Licensing in 2001 • AFTA Commitment by 2008: CEPT rates on IL items to 0-5 % Foreign Direct Investment •No limitation on the percentage of foreign ownership • Incentives: Exemption from import duties on raw materials and equipment for export oriented production. Exemption from export duties for export finish products. Freedom to employ necessary foreign expatriates. Freedom to repatriate profit and capital and individual income to their home countries or to third country after income tax has been paid. III. The Nature of Market/Competition Nature of Market/Competition Market Based Economy: Price liberalization, privatization, private sector development support including private land ownership and open door policy Level of Competitiveness of the Local Firm: Comparative advantages: - - Low wages - Low cost of domestic based raw material - - Investment incentive in local areas, tax exemption for export and imported investment capital Nature of Market/Competition(Cont.) Barriers to competition: Low education and skill levels of the labor force High transport costs Small-scale of private enterprise Marketing problems Low level of urbanization Low labor productivity Poor financial services Lack of a formal property system IV. SECTORAL POLICIES SECTORAL POLICIES Electric Power: Increase power supply for domestic industries and consumption Promote power generation for export to meet Government’s revenue objectives In 2000: 3,313 million KW In 2006: 24,468 million KW SECTORAL POLICIES(Cont.) Telecommunication Services: 1997: 29,626 telephone lines 1998: 35,303 telephone lines 4 Mobile operators: Lao telecom, ETL, Lao Asia Telcom (LAT, owned by the army), and Tango The Telecom plan 2000: Expansion of network, Separation between the international and long distance exchanges, development of CSC optic fiber project, Introduction of a service system for subscribers, improvement of training SECTORAL POLICIES(Cont.) Telecommunication Services(Cont.): Internet Services: Services Companies: - Globe Communications Electronic - Lao Telecom Internet users have increased rapidly since 1998 Internet cafes are available in many cities SECTORAL POLICIES(Cont.) Transportation: • Transport sector: road, river, and air transportation, no rail way • Road transportation: more than 90% of freight traffic and 85 % of passenger traffic and 75 percent of freight traffic (2001) •Domestic air transport: most remaining passenger traffic. •Only about 18 % of the total lengths of the road system are paved. SECTORAL POLICIES(Cont.) Transportation(Cont.): Investment: Largest share of public investment and ODA to the transport sector Public Investment by Sectors 2003-2004 Infrastructure Agriculture 4% 1% 3% 3% 7% 8% Education 45% Health Labor and Social Welfaire Information and Culture 14% 15% Industry Trade Other Administration Agencies SECTORAL POLICIES(Cont.) Financial Services: • Insurance and insurance-related services – The insurance sector is governed by Law No. 11/90/PSA of 18 December 1990 and a related Decree No 01/PMO of 23 January 1992). – The market is open to foreign investment and competition. – Insurance company: the Assurance Generale de Laos (AGL), a joint venture between the Government of the Lao PDR and the AGF of France. • Banking and Other Financial Services – Central Bank: Monetary Policy and Supervision of Commercial Banks – Commercial Banks SECTORAL POLICIES(Cont.) •Banking and Other Financial Services(Cont.) - Commercial banks are authorized to mobilize deposits of different types such as demand deposits, savings deposits, and other types of deposits, including sales of Treasury Bills and Central Bank Bills to the public. - They include acceptance of deposits in kip, US dollars and in Thai baht. - Commercial banks may determine their own interest rates on deposits within the general guidelines issued periodically by the central bank. SECTORAL POLICIES(Cont.) Health Related And Social Services: Public system of hospitals: a central university hospital and five regional hospitals, 13 provincial and 150 small district hospitals and health posts. Private investment, including foreign, is not restricted in the area of hospital services since 1998, but still no hospitals have been opened to date. V. Anti-Competitive Practices Anti-Competitive Practices Monopoly in some business activities - By law and regulation(copy right, patens, concessions, economic strategy(SOE) ) Limited service suppliers by nature Policy implementation by some officials is sometimes inconsistent Approval procedure takes times VI. Consumer Movement Consumer Movement No formal consumer movement against anticompetitive practices, but complaining and asking for opening up more competitive practices VII. Conclusion and Recommendation CONCLUSION Lao PDR is moving forwards to a market based economy by promoting private sector development, however, it is still facing numerous internal challenges to market mechanism in particular to business competition in the country particularly lack of a comprehensive regulatory framework including competition law or anti-monopoly law etc. In addition, there are numerous constraints to competition namely lack of skilled human resources, poor infrastructure system, limited financial services, low purchasing power in the country due to high poverty incidences, weakness in macroeconomic management leading to relatively macroeconomic instability etc. RECOMMENDATION Strengthen market mechanism Simplify and clarify the policy and regulatory framework for private sector enterprise and investment Improve Productivity Strengthen competitiveness through human resource development Clarify the supportive role of government Promote and facilitate substantive dialogue with the business community Strengthen infrastructure development Strengthen macroeconomic stability Strengthen trade access to neighboring country markets Mobilize financial resources and facilitate access to credit