Laos: Southeast Asia’s New Emerging Economy

Via The Guardian, a report on Laos:

laos emerging economy

Building momentum … a monk walks past a poster featuring a Vietnamese-financed real estate project in Vientiane, Laos.

Laos has long been seen as a poor, landlocked, sparsely populated country. But it is at last emerging from its isolation. Once a part of French Indochina, ranking as the poor relation among its neighbours, it is now shaping up as a new contender in south-east Asia, with growth slated to exceed 8% this year, the highest in the region. This week the capital, Vientiane, hosted the Asia-Europe Meeting (Asem), attracting sudden international attention to this small nation of 6.5 million.

So what is driving the Lao economy? A one-party socialist republic since the revolution in 1975, it has taken the same course as its two much larger neighbours, China and Vietnam, opening its market to the outside world but under strict government control.

At the ninth congress of the Lao People’s Revolutionary party (LPRP) in March 2011, the president, Choummaly Sayasone, spelled out the country’s priorities: sustained growth of 8%, poverty reduction and improved education. These promises accompany the determination for economic reform, including floating publicly owned companies on the stock market.

Given its initial handicap, the figures have been fairly encouraging. Per capita GDP in the Lao People’s Democratic Republic has risen from $300 in 2001 to $1,200 in 2011. The government aims to achieve average annual income of $1,700 over the next three years. The World Bank now ranks Laos among “low middle-income” countries, and it might achieve “upper middle-income” status by 2020. It is due to join the World Trade Organisation at the end of the year.

The reasons behind this turnaround are clear. In addition to the travel trade, Laos has capitalised on its substantial mining, forestry and hydro resources. The Nam Theun 2 dam, built by France’s EDF, may account for as much as 8% of state revenue next year.

However, last year another hydroelectric scheme, on the Mekong, had to be shelved due to the hostility of countries downstream, concerned about the environmental impact.

On the political front, Laos has been run by the LPRP ever since the Pathet Lao took control in 1975. Power is concentrated in the central committee, itself capped by the 11-member politburo. The government and the prime minister, Thongsing Thammavong, are tasked with implementing the decisions of the party. The main role of parliament, with its 132 deputies, is to rubber-stamp decisions taken upstream, but recently there have been signs of greater freedom of expression and more open criticism, particularly regarding corruption and poor management of public funds.

Laos started experimenting with free-market economics in 1986, at the same time as the “renewal” policies decided by its “big brother” in neighbouring Vietnam. The system has evolved along similar lines to China, with no freedom of speech, zero tolerance for dissidents, and growing wealth among the party elite and military. The inherent shortcomings of such a system encourage clientelism and corruption, both of which hold back sustainable, more egalitarian development. The inadequate schools and health service exacerbate skills shortages in a country where more than a quarter of the population is illiterate.

Why are China and Vietnam so interested in Laos? It seems that China has been its top foreign investor since 2010. Large areas of state-owned land have been allocated to Chinese firms, which have invested in rubber plantations and other forestry schemes, particularly in the north, now very much under Chinese influence. But with most senior party cadres still being trained in Hanoi, the regime seems anxious to balance its foreign policy to make room for Vietnam too.

The Chinese, who have always competed with the Vietnamese, are now trying to use Laos as a forward base and transit route for a major communications link between south-west China and south-east Asia. But things do not always go as smoothly as it might like: in 2011 a high-speed rail link partly funded by the China Development Bank and intended to connect Yunnan to Thailand, Malaysia and Singapore, via Laos, was shelved indefinitely.


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