Business Models for Foreign Investment in Agriculture in Laos

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Business Models for Foreign Investment in Agriculture in Laos

Year Published: 2012

Author/s: Roderick Campbell, Tristan Knowles, Amphaphone Sayasenh

Commissioned by: The International Institute for Sustainable Development

Suggested citation:
International Institute for Sustainable Development. 2012. Business Models for Foreign Investment in Agriculture in Laos. The Trade Knowledge Network. Winnipeg. Canada.

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This paper investigates foreign direct investment (FDI) into the agriculture sector of Laos in an attempt to understand the pros and cons of various business models, focusing on the model of land acquisition used by foreign investors and the extent to which various business models are contributing to economic development. The research has shown that Laos is meeting its stated macroeconomic growth targets for agriculture, although these can mask negative impacts on local populations. This highlights the important distinction between economic growth and economic development. The link between FDI and broader economic and agricultural development goals also remains unclear. To improve this, business models should be encouraged that more clearly align with both development and growth objectives. Laos is making steps to improve in all of these areas but will need to ensure that initiatives at a central level are carried through and enforced at a provincial and district level. A lack of clear land rights, frequently changing investment laws and poor transparency are potential barriers to some investors. Similarly, a lack of reliable socioeconomic data makes it difficult to assess the likely impacts of large-scale projects.

Laos is a country undergoing rapid development. With a high percentage of the rural population still dependent on agriculture for their livelihoods, the sector is an important part of Laos’ development strategy. With increasing inflows of foreign direct investment (FDI), it is important to assess whether or not the investment is meeting the stated development goals for the country and the sector and how different business models contribute to these goals. This paper investigates FDI into the agriculture sector in an attempt to understand the pros and cons of various business models, focusing on the model of land acquisition used by foreign investors and the extent to which various business models are contributing to economic development.

In addition to a comprehensive review of secondary sources, we conducted interviews with stakeholders from the private sector and international non-governmental organizations (NGOs). Our research has shown that Laos is meeting its stated macroeconomic growth targets for agriculture, although these can mask negative impacts on local populations. This highlights the important distinction between economic growth and economic development. The link between FDI and broader economic and agricultural development goals remains unclear. To improve this, business models should be encouraged that more clearly align with both development and growth objectives. However, business models alone will not be a panacea for development of the agriculture sector in Laos. Although our research is focused on FDI, the role of official development assistance (ODA) should not be overlooked. Greater collaboration and communication between FDI and ODA projects could result in better development outcomes.

Laos is making steps to improve in all of these areas but will need to ensure that initiatives at a central level are carried through and enforced at a provincial and district level. A lack of clear land rights, frequently changing investment laws and poor transparency are potential barriers to some investors. Similarly, a lack of reliable socioeconomic data makes it difficult to assess the likely impacts of large-scale projects. Having proven it can attract FDI, Laos now needs to ensure that FDI into agriculture is contributing to economic development as well as economic growth.