A slowly improving business environment
In a report published in late October, the World Bank ranked Laos at 134th out of 189 economies for ease of doing business.
The World Bank’s Doing Business 2016 report shows that Laos has climbed by five places compared with its position in the rankings last year. This is the fifth consecutive year that Laos has shown a slight improvement. The report states that the main reason for the rise is a substantial improvement in the ability of firms to access credit. Laos has also made progress in establishing accurate credit information and strengthening legal rights.
Although access to credit has improved in recent years, there is still much room for improvement. Banks are reluctant to lend to firms that cannot provide good collateral, mainly because the legal system is often not strong enough to allow collection from defaulters. An illustration of problems in obtaining access to credit was given when, in August 2015, following the bankruptcy of some of its members, the Lao Agro Processing Association (part of the National Chamber of Commerce and Industry) called on the government to prioritise access to finance, stating that difficulties in obtaining capital were crippling the sector.
The authorities have repeatedly tried to implement improvements. In 2010 the government set up a small and medium-sized enterprise promotion fund to offer low-interest-rate loans. The number of companies able to take advantage of this has, however, been limited, and in late September the minister of planning and investment, Somdy Douangdy, stated that new efforts were required, including encouraging commercial banks to join the fund.
At the launch of the Doing Business report in Laos, World Bank officials also indicated that the processes involved in establishing a new company need simplifying. Laos falls by eight places to 153rd for ease of starting a business. The procedures involved take an average of 73 days, including an average of 45 days to obtain a traditional carved company seal.
Impact on the forecast
Despite a small improvement, we continue to believe that significant bureaucratic hurdles will remain to doing business in Laos. Only gradual improvement in this area is likely.
Source: The Economist. Date: November 5th 2015