Attracting and negotiating quality investment in Lao PDR

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  • This slide summarizes some of the key achievements of PEI Phase I from 2009 to 2012. These achievements are from across all 5 PEI components.
  • From the key achievements, we also manage to secure funding from a Local Donor such as the SDC. Funding for phase II is secured from 2012-2015 and the goal is to:
  • In the decade from 2001 to 2011, only about 16 percent of total investments came from public funds (Government- and ODA-funded investments). Private investments amounted to approximately USD 27.8 billion over the same period, of which 84 percent is FDI. The largest investment in-flows have been from neighboring countries of Vietnam, China and Thailand. GDP growth has been steadily increasing. Despite the global financial crisis in 2007-2009, Lao still managed about 6.5% GDP growth per annum over the past decade. 70% of all investments were in the natural resource sectors (electricity generation, agriculture, mining, wood). See Graph 1. Should explain the large surge of natural resource investments in 2009 (from statistics, the largest share is in mining and agriculture). The largest shares are in agriculture (40 percent), mining (19.5 percent), electricity generation, primarily hydropower (18.2 percent of total investments), and services (7.8 percent).
  • We know that investments will continue to drive economic growth of Lao PDR over the short- to medium-term, and natural resources will likely be the focus of these investments. A lesson from the past decade is that attracting FDI is not an end in itself, but a means to the end goal of improving livelihoods and sustaining the natural resource base for long-term development. As the government agency responsible for overall investment management, the Investment Promotion Department with support from PEI has taken the lead to develop a National Investment Strategy – this is a framework for IPD in how to strategically promote and select the right types of investments, to create an enabling and competitive business environment, and to best manage investments to maximize benefits to local economies, environments and societies.There are two objectives: 1) Directing FDI to meet the economic development goals of 7th NSEDP by identifying and implementing practical incentives (fiscal and non-fiscal), opportunities and strategic promotion activities to attract quality investments; 2)  Strengthening institutional capacity and effectiveness in the entire investment management process and implementing mechanisms for improved institutional coordination
  • NSEDP 7 acknowledges the continued high reliance on FDI. It now highlights greater attention on the need to mobilise quality FDI to meet the broad and sets forth the following criteria:Generates enough government revenues to help finance social and human developmentCreates new sustainable jobs and incomes to reduce poverty and increase prosperity -- commitment to local employment, skills developments, and placement of and/or advancement opportunities for local employees 3. Transfers valuable skills to Lao workers and transfers technology for development of the indigenous business sector -- FDI will often involve introduction of new technologies and the key question is to what extent that technology has impacts outside of the specific company and to what extent it is shared with local staff. In terms of development of domestic businesses, foreign investors can give priority to sourcing of raw materials, business services and inputs from domestic suppliers; and relationships with local firms in value-added processing and distribution servicesSafeguards the environmental assets -- commitment to use of clean technologies, and implementation of environment management plans to mitigate impacts on the surrounding environment. Practices industry standards and best practices, such as CSR, occupational health and safety measures, ISO 14000 standards
  • PEI supports IPD and MPI to strengthen institutional systems and capacity in all stages of investment management. These activities are designed to help identify and select quality investments into Lao PDR that will support achievement of the country’s poverty reduction and socio-economic development goals, and to safeguard environmental assets to ensure sustainable development for the long-term.In terms of appropriate incentives: better targeted incentives to help ensure that the wealth of natural resources in Lao PDR will be sufficiently managed can include:Tax deductions on investment in public services (such as roads) and capital assets (such as plants, buildings and technical laboratories) to offers a low-cost strategy for channeling investment towards improving infrastructure and public services.Tax options on accelerated depreciation to help free up capital for possible re-investment into the economy. As the momentum for construction and infrastructure expansion increases and Lao PDR embarks on establishing special economic or export zones, policy makers can consider tax credits, tax allowances or even financial assistance for green buildings and green infrastructure. GoL can partner with foreign investors in the development of Lao human capital, by potentially co-funding the training costs in the first years of establishment, or research and exchange programs at universities or technical education institutions. Other options include tax credits and investment allowances be linked to the training of specific numbers of high skilled professionals. It is also critical that investment incentives seek to reward sustainable enterprise, by linking incentives to environmental protection and rural development initiatives.On model concession contracts: Clauses in concession contracts are designed/written to:Ensure fair balance of risks between the Government, investor and local peopleStrengthen social and environmental obligationsMaximize local content in terms of employment, business linkages, infrastructure Enable incentives for local processing and inclusion of smallholder farmers in the value chain
  • PEI supports IPD and MPI to strengthen institutional systems and capacity in all stages of investment management. These activities are designed to help identify and select quality investments into Lao PDR that will support achievement of the country’s poverty reduction and socio-economic development goals, and to safeguard environmental assets to ensure sustainable development for the long-term.In terms of appropriate incentives: better targeted incentives to help ensure that the wealth of natural resources in Lao PDR will be sufficiently managed can include:Tax deductions on investment in public services (such as roads) and capital assets (such as plants, buildings and technical laboratories) to offers a low-cost strategy for channeling investment towards improving infrastructure and public services.Tax options on accelerated depreciation to help free up capital for possible re-investment into the economy. As the momentum for construction and infrastructure expansion increases and Lao PDR embarks on establishing special economic or export zones, policy makers can consider tax credits, tax allowances or even financial assistance for green buildings and green infrastructure. GoL can partner with foreign investors in the development of Lao human capital, by potentially co-funding the training costs in the first years of establishment, or research and exchange programs at universities or technical education institutions. Other options include tax credits and investment allowances be linked to the training of specific numbers of high skilled professionals. It is also critical that investment incentives seek to reward sustainable enterprise, by linking incentives to environmental protection and rural development initiatives.On model concession contracts: Clauses in concession contracts are designed/written to:Ensure fair balance of risks between the Government, investor and local peopleStrengthen social and environmental obligationsMaximize local content in terms of employment, business linkages, infrastructure Enable incentives for local processing and inclusion of smallholder farmers in the value chain
  • PEI supports IPD and MPI to strengthen institutional systems and capacity in all stages of investment management. These activities are designed to help identify and select quality investments into Lao PDR that will support achievement of the country’s poverty reduction and socio-economic development goals, and to safeguard environmental assets to ensure sustainable development for the long-term.In terms of appropriate incentives: better targeted incentives to help ensure that the wealth of natural resources in Lao PDR will be sufficiently managed can include:Tax deductions on investment in public services (such as roads) and capital assets (such as plants, buildings and technical laboratories) to offers a low-cost strategy for channeling investment towards improving infrastructure and public services.Tax options on accelerated depreciation to help free up capital for possible re-investment into the economy. As the momentum for construction and infrastructure expansion increases and Lao PDR embarks on establishing special economic or export zones, policy makers can consider tax credits, tax allowances or even financial assistance for green buildings and green infrastructure. GoL can partner with foreign investors in the development of Lao human capital, by potentially co-funding the training costs in the first years of establishment, or research and exchange programs at universities or technical education institutions. Other options include tax credits and investment allowances be linked to the training of specific numbers of high skilled professionals. It is also critical that investment incentives seek to reward sustainable enterprise, by linking incentives to environmental protection and rural development initiatives.On model concession contracts: Clauses in concession contracts are designed/written to:Ensure fair balance of risks between the Government, investor and local peopleStrengthen social and environmental obligationsMaximize local content in terms of employment, business linkages, infrastructure Enable incentives for local processing and inclusion of smallholder farmers in the value chain
  • Stora Enso considers economic, social and environmental factors in sustainable management of forests and plantations. They do not convert natural forests into plantations. They respect biodiversity. They respect the rights of people in and around forests and plantations.
  • These are the key authorities involved in PEI. Thank you for your attention.
  • Attracting and negotiating quality investment in Lao PDR

    1. 1. Attracting and Negotiating for QualityInvestments in Lao PDR MANOTHONG VONGSAY INVESTMENT PROMOTION DEPARTMENT, MPI, LAO PDR PEI REGIONAL MEETING BHUTAN, AUGUST, 2012
    2. 2. Lao PEI Phase I (2009-2012) Some Key Achievements Poverty-Environment issues are included in the 7th National Socio-Economic Development Plan Local level green growth planning is initiated for two pilot districts in Saravan and Houaphan Draft National and Provincial Investment Strategies Field monitoring of all investments in the 4 PEI provinces. New investment database is used at central and provincial level. Technical guidelines for EIA report writing, for EIA/IEE review and for monitoring procedures Increased Capacity of ESIA staff at central and provincial levels to review EIA and IEE reports Inform NA Members on How to ensure that investments can benefit the poor and maintain natural capital study on economic valuation for different land use options .
    3. 3. PEI Phase II (2012-2015) Lao PDR Goal: to strengthen capacity of targeted central and provincial authorities to integrate poverty-environment concerns in development planning for sustainable and inclusive growth Focus is to:  Test, improve and implement developed tools and capacities  Increase collaboration and synergies across PEI Outputs  Carry out targeted demand-driven research for decision-making  Build the evidence base on poverty, environment and climate implications  Create opportunities for local involvement in investment decisions  Coordinate PEI –wide communications  Ensure financial sustainability and government ownership Expand from 4 to 7 pilot provinces
    4. 4. Strong investment and growth trends Investments have been driving economic growth, average 7% GDP annual growth rate between 2001 and 2010  68% are in the natural resource sectors, over 70% are FDI Millions USD 5000 Other Services 4000 Industry Natural resource 3000 2000 1000 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
    5. 5. A Strategic Approach to Quality Investments PEI supports MPI to develop a National Strategy for Private Investment Promotion Management in Lao PDR till 2020. Goal: To increase the proportion of quality investments into Lao PDR that can reduce poverty, enhance development of human capital, have least impact on the environment and support a diversified economy. PEI’s support is towards institutional capacity to plan and manage private investments to maximize pro-poor and pro-environmental outcomes.
    6. 6. Criteria for Quality Investments Quality investments are defined as those that:  Generate enough government revenues to help finance social and human development  Create new sustainable jobs and fair incomes to reduce poverty and increase prosperity  Transfer skills to Lao workers and technology for development of the domestic business sector  Safeguard the environmental assets  Practice industry standards and best practices
    7. 7. Strengthening management for quality investmentsStage of investment Activitiesprocess1. Investment Promotion • Improve transparency and efficiency of OSSAttracting the right • Generate timely informationinvestors • Identify targeted incentives for quality investors • Prioritize sustainable investments for Calling List
    8. 8. Strengthening management for quality investmentsStage of investment Activitiesprocess1. Investment Promotion • Improve transparency and efficiency of OSSAttracting the right • Generate timely informationinvestors • Identify targeted incentives for quality investors • Prioritize sustainable investments for Calling List2. Review, Screening and • Integrate criteria for quality investments intoApproval screening and approval processChoosing the right • Develop model contract and negotiation skills • Strengthen ESIA processprojects • Assess social, economic and environmental trade- offs to inform investment decisions • Strengthen inter-sectoral coordination
    9. 9. Strengthening management for quality investmentsStage of investment Activitiesprocess1. Investment Promotion • Improve transparency and efficiency of OSSAttracting the right • Generate timely informationinvestors • Identify targeted incentives for quality investors • Prioritize sustainable investments for Calling List2. Review, Screening and • Integrate criteria for quality investments intoApproval screening and approval processChoosing the right • Develop model contract and negotiation skills • Strengthen ESIA processprojects • Assess social, economic and environmental trade- offs to inform investment decisions • Strengthen inter-sectoral coordination3. Monitoring • Expand investment monitoring nation-wideDoing the projects right • Ensure financial sustainability for long-term • Data analyses and compliance management
    10. 10. Example of quality investment:Stora Enso: Large-scale plantation with environmental &social responsibility in Southern Lao PDR Local economic benefits:  Jobs created in an intentionally labor-intensive (as opposed to machine use) production process  Training program for local farmers for permanent employment Social benefits:  Clearance of UXOs allow for expansion of local farming systems  Design of agro-forestry plantation to allow for local food and cash crops between plantation trees  Compensation to Village Development Funds based on hectares Environmental responsibility:  Created a mosaic of natural forests, local land use, and plantation plots to support regeneration and maintain local access to NTFPs
    11. 11. The Poverty-Environment Initiative (PEI) in Lao PDR isimplemented with: Ministry of Planning & Investment  Investment Promotion Department  Department of Planning  National Economic Research Institute Ministry of Natural Resources & Environment Department of Environmental & Social Impact Assessment National AssemblyPEI pilot provinces:Oudomxay, Phongsaly, Saravan, Savannakhet, Vientianeprovince & Houaphan

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