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Laos economy

Laos is an example of the East Asian development model, which means the functioning of a market economy with strong – often informal – state interventionism. The centrally planned economy model (introduced from 1975) was abandoned already in the second half of the 1980s – with the start of the New Economic Mechanism. Since then, Laos has undergone economic system transformation and has been recording high development dynamics.

Laos is currently one of the fastest growing economies in the world, reaching a stable level of 7-8% rise over the last 10 years. Currently, the government of Laos pays special attention to creating the best climate for foreign investors. Both the changes in the law and the creation of special economic zones show how important it is for the authorities to collect foreign capital and investments in Laos.

As a result of transformation and dynamic development, GDP per capita is gradually increasing. In 1995, it was less than USD 200, in 2016 it was already USD 1,925. The International Monetary Fund estimates that in 2017 GDP per capita will amount to USD 2,051. Nevertheless, the economy is not very competitive, due to the still low level of development, limited human capital resources and low diversification of production and trade. In 2013, Laos was included for the first time in the Global Competitiveness Report. In the 2015-2016 report, he took 83 place (for 140 countries). Among the countries of the Association of Southeast Asian Nations (ASEAN), further destinations were taken by Cambodia (90) and Myanmar (131). During the economic transformation, Laos had chronic inflation problems. In the period 1995-2013, only twice it went below 4.5%. Nevertheless, in 2015 it amounted to only 1.8%. Additionally, for years Laos has been recording a high budget deficit – in the period 1995-2012, an average of 4% of GDP. Although it should be added that there has been a significant reduction in the last 6 years.

The stock exchange – Lao Securities Exchange operates in Laos since 2011.

In 2013, Laos became a member of the World Trade Organization (WTO) as the last state of ASEAN. Membership is expected to bring significant economic benefits. In an economic context, Laos has gained easier access for its products to the markets of the WTO member states, and while belonging to the LDC group, it may still apply restrictions on access to its own market. WTO membership has credited Laos as a place of foreign investment and has created a political mechanism for the government to defend its economic interests in an additional international forum.

Despite the rapid economic growth today, Laos remains one of the poorest countries in Southeast Asia, with insufficient infrastructure and a largely unskilled labor force. 80% of the population remains from agriculture, which provides about 50% of GDP. In the woods, felling of teakwood, ebony, rosewood is carried out. The industry is underdeveloped, but the services sector and small trade are developing. Tourism has been developing rapidly since the beginning of the 21st century.

Thanks to foreign investments, one of the most developing sectors of the economy are mining and energy. The development of these branches of economy results from the very large and relatively easily available natural resources of Laos and from the minimal scale of this type of investment in the past. The development of mining and energy industry entails additional beneficial changes. First of all, it is the construction of road infrastructure, mobile phone networks, urban settlements and, above all, employment growth and, consequently, consumption, improvement of health care and development of education.

The current socio-economic development has led – over the last 20 years – to significant changes in the structure of Laos GDP. While in 1995 more than 55% of GDP was generated by agriculture, by 2014 this share had more than doubled to 24.8%. In the meantime, the share of industry and services grew. In 1995, services generated 26% of GDP, while in 2014, 40.5%. A dynamic increase in the percentage share took place in 1995-2004 (in 2004 it was 41.0%). Since then, there has been stabilisation with slight fluctuations. Until 2004, the change in the share of industry in GDP (as compared to 1995) was almost imperceptible (in 1995 it was 19% and in 2004 it was 20.5%). The dynamics have been increasing in the last 10 years. This is the result of increased foreign direct investment in the mining and energy sectors. In 2014, the industry’s share in GDP was 37.4%. In the last decade, the mining and energy (hydropower) sector was responsible for over 70% of the value of foreign capital investments. The energy sector itself has attracted over 50% of foreign investments. Since the beginning of the systemic transformation, 80% of the accumulated direct foreign investment falls on mining and energy.

Location and natural advantages of Laos and its integration within the ASEAN regional community gives great chances for further rapid development in particular as a regional supplier of electricity and natural resources as well as a transit country for the whole region, in particular for China under the “One Belt, one road” project.

Participation in multilateral organisations and agreements of an economic nature:

  • Association of Southeast Asian Nations (ASEAN),
  • Economic Community of ASEAN (AEC),
  • International Bank for Reconstruction and Development (IBRD) – World Bank,
  • The International Monetary Fund (IMF),
  • Asian Development Bank (ADB),
  • World Trade Organization (WTO)
  • World Intellectual Property Organization (WIPO),
  • Interregional Asia-Europe Dialogue (ASEM),
  • nternational Finance Corporation (IFC),
  • Agreement on Collaboration of the Greater Mekong Subregion (GMS)
  • The Ayeyawada – Chao Phraya – Mekong Economic Cooperation Strategy (ACMECS)