Laos Economy Overview

Laos 50,000 Kip note

Estimated GDP: US $ 18.4 billion (2018)

Per capita income (purchasing power parity): US $ 7,441 (2018)

Human Development Rank (HDI): Rank 140 of 189 (2019)

Proportion of poverty (national poverty line): 23.2% (2013)

Distribution of income (Gini coefficient): 37.9 (2012)

Economic Transformation Index (BTI): Rank 86 of 137 (2020)

Economy

From the mid-1980’s, the Laotian government switched to a course of market economy development and economic opening under the program of the New Economic Mechanism (NEM). The private sector took on an active role in society. A wealthy middle class is clearly emerging in the cities, but it is not always involved in political decisions. With the exception of a brief bend during the 1997 Asian crisis, the economy is growing by almost 7-8% annually.

Agriculture continues to shape Laos. Even if the share of GDP has been declining consistently for several years and has almost halved in the last ten years, just under two thirds of the population are still employed in agriculture. A large part of the farmers still produce under subsistence farming conditions.

The agricultural sector now only accounts for around 27% of GDP. The service sector has risen to just under 42%, the mining and industry sector to just under 31%. Ecotourism is becoming an important factor in the development of the Lao economy and the fight against poverty.

Economic reforms take place within the framework of the existing political conditions. Investors are welcome if they are within the political framework of the country.

Current economic information

Germany Trade & Invest (gtai), the company of the Federal Republic of Germany for foreign trade and location marketing, publishes compact economic data twice a year in May and November ; these offer a good compact overview of the current economic situation in Laos.

The Asian Development Bank (ADB) offers an overview of key figures for the current Laotian economy with its annual fact sheet.

The World Bank (WB) reports twice a year in the extensive Economic Monitor on the latest developments in the Laotian economy, also in a detailed report. In addition, the World Bank gives a detailed overview of the economic background in Laos, strategies and results of the cooperation and projects and programs of the World Bank in Laos on its website.

Laos 50,000 Kip note

Accession to the WTO

In February 2013, Laos became the last Southeast Asian country to be a member of the World Trade Organization (WTO). With accession, hopes were linked to independence from the neighboring countries China, Vietnam and Thailand, which dominate trade and economic relations with Laos.

With accession, Laos will get more favorable trading conditions and better access to the world market in exchange for the abolition of previous protective tariffs and the introduction of further market reforms. As a small country, Laos could also bring advantages to the extent that it symbolically becomes a negotiating partner on an equal footing.

However, there are still challenges:

The previous one-sided development of natural resources led to economic growth in the short term, but is associated with resettlement programs and problems with food security. A continuous development in the central areas of health and education has been prevented so far. According to extrareference, Laos is currently more interested in large and mega-projects, but carries them out as if they were small and medium-sized projects. Rising social inequality, high levels of corruption and a lack of the rule of law must also be mastered.

New railway lines

In April 2013, the governments of Laos and China negotiated the financing of the 421-kilometer high-speed line between Kunming in China’s southern Yunnan province and the Lao capital Vientiane. The construction costs of seven billion US dollars are to be financed by a loan from the EXIM Bank of China.

The Asian Development Bank (ADB) calls this loan unaffordable even at special conditions and warns Laos against such a step. The loan amount is over 80 percent of Lao’s gross domestic product.

The railway line enables both Laos and China to export Laotian raw materials more easily.

On the Lao side, the railway line stands for economic upswing and modernization. So far there has been a barely significant railway line of a few kilometers between the Thai border and a poorly connected station near the Laotian capital.

Critics warn of the credit-linked financial dependence on China and the threat of illegal land grabbing in connection with the construction.

The Laotian Transport Minister Sommath Pholsena sees no obstacles for the planned high-speed route. The official start of construction was in December 2015.

The landscape in northern and central Laos is characterized by mountains. 76 tunnels and around 150 bridges are required for the 421-kilometer route, two of which cross the Mekong.

Photo tour along the railway line.