BizCLIR

Certain cross-cutting themes emerged with respect to CLIR and trade in Laos. These themes include the following: (1) Laos’ almost overwhelming needs in the area of human resources, beginning with primary and secondary education, but also including university education and continuing education for professionals; (2) opacity in law-making and under-accessibility of the law; (3) the ruling Party’s lack of appreciation for the role that the private sector – small and medium-sized enterprises in particular – can play in moving economic development forward in Laos; and (4) given Laos’ relative backwardness, the importance of staging concurrent inquiries and leveraging the best practices developing in the region to assist Laos in the near future.

Human resources in Laos: A development imperative against a non-conducive backdrop.
Throughout the Diagnostic, a variety of descriptive terms and metaphors arose with respect to the relative quiet, calm, and lack of self-promotion within Lao society. These were generally couched in terms that emphasized cultural reasons why many aspects of economic development may be inappropriate in the Lao context. Of course, what might be negatively perceived as “passivity” in one context can also represent a positive force in another – for example, Laos’ unhurried and friendly atmosphere can be counted as an asset where tourists are concerned or where certain businesses may hold interest in becoming established. Moreover, it is never the goal of international development to change the character of a people or the spirit of a nation. The notion that Laos is a “laid back” place can, in many respects, be viewed as a competitive advantage.

That said, the related perceptions that the Lao people are not particularly productive, lack market-oriented skills, and are not inclined toward entrepreneurialism – and therefore will always come up short with respect to economic development – may be less reflective of shared cultural traits than of a lack of opportunity that begins from childhood. Namely, vast deficiencies in education exist at the primary level and continue at all subsequent stages. In a country with a nominal private sector and little employment beyond agriculture or the Government, the personal trait of ambitiousness has very little chance to be nurtured or to flourish. Among the facts and observations pertaining to the general state of human resources that arose during this Diagnostic are the following:

• At the primary and secondary level, teachers in Laos are paid next to nothing. Children often are malnourished or required to work during school hours. School books are commonly unavailable to students in the provinces.
• At all educational levels, skills such as writing, research, and analysis are rarely encouraged or practiced.
• The common understanding that those individuals who criticize the Government or the Party will “vanish” discourages the development of critical thought and risk-taking behavior at all educational and professional levels.
• The main Law Faculty in Laos holds virtually no capacity whatsoever to train new lawyers to practice within and support a market-oriented commercial law system. Faculty has little awareness of fundamental commercial law concepts, including company law, contract law, or secured transactions, and virtually no understanding whatsoever of more sophisticated topics, including competition law, intellectual property, or international trade law.
• Because the State stands as the primary source of employment outside of subsistence farming or micro-enterprise, education is rarely correlated with greater opportunity or prosperity. For example, although the Law Faculty operates a night school that mainly serves State workers, attainment of a law degree is not generally seen as a way to improve one’s economic circumstances: “Everyone makes the same salary,” one local observer explained.
• In the words of one international accountant, “All the people in the country capable of conducting a complex audit or other high-end accounting function could be seated around a table.” Laos does not use international accounting standards (IAS).
• There are few people in Laos with the necessary commercial and administrative competencies to administer large or complex bankruptcies.
• Various students and professionals have access to such opportunities as scholarships, study tours, and short and long-term training programs, but the needs remain enormous.

Additional examples of the low capacity of human resources in Laos are highlighted throughout this Report, particularly in the discussions of implementing and supporting institutions. Even if significant political changes were to take place, or an influx of capital was obtained, the limitations in Laos’ educational system and the literacy and capacity of its population will take at least a generation to improve. Measures are being attempted by the donor community to assist at all levels, but observers report that the country’s rulers are not in any way committed to reforms that may result in more independent thinking or greater personal ambitiousness. Thus, all assistance directed at commercial legal and institutional and trade-related reforms must take place against a backdrop in which, in the words of one admittedly jaded foreigner, “The only priority of the people in power is staying in power. That is the beginning and end of their interest.”

The urgent need for clarity and reliable information in Laos’ CLIR and trade environment
As Laos takes very small and slow steps toward market-oriented reforms, even its own technocrats – conditioned, as they are, against risk-taking and criticizing the Government – observe that there is simply not enough clarity or access to information within their system. With respect to access to the type of very basic information that is required for domestic enterprises and foreign investors to understand the environment for doing businesses, the following points arose during the course of the Diagnostic:

• Although Laos’ commercial laws are generally straightforward, clear, and accessible, the status of implementing decrees, ordinances, and regulations is murky at best, with the universe of this framework undefined and inaccessible even to the country’s own Ministry of Justice. For example, the Office of the Prime Minister enacts as many as 10 decrees each year, many covering topics of interest to the commercial and trading community, such as distribution of goods, management of import and exports, pricing of goods, taxes, intellectual property, state investments, and so forth. No public hearing is required to enact an ordinance. The drafting of decrees is typically delegated to line ministries by the Prime Minister’s Office. Although the Ministry of Justice plays a role in reviewing draft decrees and other regulations, it often does not receive a final copy.
• Courts are rarely informed of decrees, ordinances, and regulations that may affect the outcome of a dispute. Similarly, judges rarely access the decisions made by other provincial courts or by the appellate courts and Supreme Court, even on matters entailing a similar set of facts.
• All court records are kept by hand in ledgers; court minutes are handwritten summaries taken by clerks; and case files are not centrally kept after the close of a case. Judgments, while technically “public,” are never published and are rarely available to anyone but the immediate parties to a dispute. Thus, even if the court does reach a satisfactory result, there is little way for businesses to learn or take comfort from the decision and thus, a negative image of the courts is perpetuated.
• The fact that companies are registered in a disjointed, multi-layered process involving State, provincial, district, and village bodies means that information pertaining to private companies is highly dispersed and difficult to access.
• Although Laos has a Secured Transactions Law, there is no central registry for secured transactions. Mortgages are registered at the land management office, while loans on vehicles are registered at the motor vehicle bureau. Although the Secured Transactions Law provides that “a Security Contract must be registered at the Registration Office of the Department of Finance,” there is no such office at this time.
• The media in Laos is not free. As summarized by one foreign observer, “You will never see anything remotely critical of the Government.” All reporters are employees of the Ministry of Information and Culture. Accordingly, critical analysis of the environment for commercial law or trade is generally not available, other than through the donor sector.

Not only are domestic enterprises and foreign investors essentially unable to access information about the ownership and viability of existing companies, or about whether movable property has been secured against a loan, but also they are fundamentally unable to understand what the law in Laos actually is. This dearth of information is a critical shortcoming, particularly as Laos endeavors to move toward WTO accession, at which point the country’s legal framework will be of enormous interest to insiders and outsiders alike.

The under-appreciation of SMEs in the Lao economy
Although certain acknowledgement has been granted by the Lao Government to small and medium-sized enterprises (SMEs) as a critical component of broad-based, sustainable economic development, numerous examples of official ambivalence or lack of understanding of the importance of SMEs prevail throughout the economy. For example, the dismal state of the business start-up process, as detailed in the Company Law chapter of this Report, illustrates the absence of appreciation for the needs of new businesses. Similarly, the fact that little effort has been made to create an implementing environment for the registration of secured transactions shows a lack of understanding of the relationship between the ability to secure property against loans and the ability for businesses to grow. In the trade sector, as just one example, the lack of harmonization of data and forms necessary for completing Customs and the other border agencies’ formalities means that the trade community must complete multiple forms with essentially the same information – a burden in particular for SMEs. Moreover, the fact that SMEs and the private sector generally are consulted only to a very limited degree over the formulation of new regulations and policies is further evidence of Government neglect of the SME community.

As discussed at various points in this report, the Lao Government has attached enormous value to large-scale projects, such as the Nam Theun 2 hydroelectric project, providing significant access to project managers and even revising the legal framework to accommodate the projects. Due to the individual importance of large investments (including their often huge taxpaying potential), these initiatives receive considerable attention and help from the Government in a way that SMEs and smaller foreign investors do not. The development and encouragement of SMEs is, in the long term, more important for the Lao business climate than individual “special” projects. Namely, SMEs can ultimately provide more jobs across a greater portion of the country than isolated electricity or mining concerns can. Several persons who were interviewed for this Diagnostic made this point and expressed the view that large projects are crowding out the Government’s attention.

Strengthening the weakest link: regional initiatives and best practices
If Laos happened to be a land-locked, determinedly one-Party state situated in another region in the world – such as in Central Asia or Sub-Saharan Africa or parts of the Middle East – it might languish in its relative poverty, isolation, and official oppression for at least another generation. But, in the words of Laos’ own promotional agencies, the country is a “land link” to some of the most dynamic and rapidly changing economies in the world. Despite its political tendencies against change, Laos is a full member of regional initiatives focused on trade, including the ASEAN Free Trade Agreement and the Greater Mekong Sub-region initiative. Laos is also part of the ASEAN-sponsored Vientiane Action Plan (2004-2010), a regional initiative geared “toward shared prosperity and destiny in an integrated, peaceful and caring ASEAN community.”

As more goods, services, people and money cross its borders, Laos will necessarily experience increased demand for private sector services, not the least from tourists who include Laos within their travels to the region. In addition, foreign investors seeking regional markets and suppliers may look for opportunities that will take root in more than one country, thus requiring greater harmonization of business-related practices and services, such as company registration, dispute resolution, and transport of goods. Moreover, initiatives in such areas as corruption, anti-money-laundering, protection of intellectual property, and other issues will only increase in regional importance.

As these changes occur, Laos will also confront along with its neighbors common questions of governance, freedom of expression, and rule of law. For example, along with Vietnam, Laos will necessarily face the question of whether and to what extent economic freedom is compatible with one-party governance. The democratic examples of Cambodia and Thailand, where public input into the law-making process is far more extensive than that found in Laos and Vietnam, will also be of interest and influence. As more money circulates through the Lao economy, the country will face the scourge of official corruption that currently plagues Cambodia and Vietnam, and regional attempts to discuss and address the issue will become of enormous interest. Finally, Laos must join its neighbors in considering the true meaning of judicial independence in a region where understanding and commitment to such a value is, in general, lacking.

Thus, a key part of development in Laos will be the observation, integration and harmonization of regional agreements and best practice in all areas of commercial legal and institutional reform, and trade. Successful assistance projects will be mindful of this imperative.