Although the Constitution envisages an economic system for Lao PDR based on market mechanisms, a review of the government's overall approach to industrial planning concludes that it still contains most features of a typically centrally planned economy. The current focus on import substitution needs to be shifted towards export orientation to address persistent trade deficits. This paper identifies the most important aspects of the business environment as the legal framework and judiciary system; business registration and licensing; trade policies; investment policies; the banking sector; taxation; vocational training; information dissemination; infrastructure; and, institutional support. The report concludes that there are weaknesses in all of these areas, but that it is within the government's power to remedy them by decisive and concerted cross-ministerial action. The Medium-term Strategy and Action Plan for Industrial Development consists of 99 recommendations for specific action. The strategy has five main thrusts: (i) good governance; (ii) creation of an enabling business environment, in particular for SMEs; (iii) support for productivity and competitiveness improvements; (iv) improving access to finance; and, (v) increased international trade integration. The present report concludes that, although nominal wage costs in Lao PDR are amongst the lowest in the world, labour productivity must be improved to transform this comparative advantage into a competitive advantage on domestic and export markets.