VIENTIANE (Reuters) -- With 750 employees and lucrative orders from across the globe, Venture International might seem to embody the foreign investment success story that is helping pull Laos out of poverty.

But the difficulties Venture has faced in eight years in Laos encapsulate the obstacles facing the, communist-run, Asian country in its attempts to drag itself into the modern world.

Western officials worry that the garment manufacturer and other smaller investors that have helped the economy's emergence are suffering as the government concentrates on big-ticket hydropower and mining projects.

Smaller entrepreneurs have to cope with an uncertain legal structure, opaque tax system and undeveloped infrastructure.

"There is a lack of transparency. The laws that are promulgated are not disseminated to the public. Without this, life can be pretty tough for the foreign investor," said Dutch-born managing director J.F. Somers as his workers stitched overalls for the likes of Halliburton and Schlumberger.

The landlocked country nestled between Vietnam, China, Myanmar, Thailand and Cambodia appears to hold ample promise for foreign investors. Although it is among the poorest countries in the region, with 71 percent of its 5.8 million people surviving on less than $2 a day, the economy is growing quickly, with real growth of 7 percent in 2005 and 7.1 percent expected this year by the World Bank.

Inflation recedes

Inflation has receded from the 110 percent seen during the crisis years of 1998 and 1999 to 7.2 percent in 2005, while the kip currency has appreciated around 7 percent this year.

Laos now wants to expand its exports -- which grew 29 percent in 2004 -- to wean itself off foreign aid, equivalent to 5 percent of GDP in the fiscal year to October 2004.

To that end, it is seeking membership of the World Trade Organization and chasing free trade deals with India and Japan.

For the moment, economic growth is due largely to the money that has poured into the hydropower and mining projects in recent years after the government began opening up in 1986.

"We have the pretension, the ambition, of making our country the battery of the region," government spokesman Yong Chanhthalansy told Reuters, adding that the mining of gold, copper and zinc would also be a big money-spinner.

Government statistics list 23 electricity generation projects accounting for some $1.5 billion of the country's $4.3 billion total foreign investment since 2001. More than 91 mining projects over the same period have brought in investment of $436 million.

That dwarfs the $14.7 million pumped into 20 garment projects -- a fact that worries Western officials, who think Laos may be overly focused on dams and mines. "Laos would be dependent on energy exports and mining. That's risky," said a foreign diplomat who declined to be identified.

"In my view, they're pushing that so hard because it's the easiest thing to do."

Blessed with abundant forests, minerals and hydroelectric power, Laos is unrepentant.

"Since this is a really important sector for our development, we are going to try to develop this strongly in the next five years," Siaosavath Savengsuksa, vice-minister of the Ministry of Commerce, told Reuters.

With booming demand from neighboring Thailand, Siaosavath estimates hydropower exports will rise 34 percent in the next five years, far outpacing expectations of 12 percent growth in mining and garments and driving predicted GDP growth of 7-7.5 percent from 2006-2010.

A lot of the profits will go to outsiders. At least 10 dams built by Russian and Chinese companies have recently won approval to export electricity.

Dam controversy

Among the more controversial developments is the Nam Theun 2 hydropower project, costing around $1.4 billion -- half of annual GDP. The dam, opposed by environmental groups citing threats to endangered species and villagers' livelihoods, is due to be finished by 2009.

Foreign diplomats say it will benefit only a few, including foreigners. While its construction may employ up to 4,000 people, it will only provide work for around 100 once finished.

"It's something that brings a lot of money, but not something that brings a lot of development," said the diplomat.

Small investors with more labor-intensive ventures have an uphill struggle, even in comparison with other emerging markets.

Somers says the Lao unit of Venture International is four times smaller than its Vietnamese counterpart and far less profitable.

"It's not good enough to say we are moving forward. We're not moving forward as fast as the other countries," he said.

The Commerce Ministry's Siaosavath says Laos simply needs time as it gradually improves its infrastructure to make it "land-linked" rather than landlocked and sets about eliminating the red tape that infuriates people like Somers.

"This is a change as well as a challenge to our country," he said.

"Knowledge and business skills are still very limited. Infrastructure is not very good. We have to work hard in order to compete with other big countries. GlobaliZation is to fight."