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Laos Business

Business

After the People's Republic was proclaimed in Laos, preparations for the transition to socialist economics began, which would be implemented during the first five-year plan 1981-85. However, stagnant production and a number of other difficulties caused the rate of transformation to slow down. During the second five-year plan, 1985-90, agriculture and infrastructure were mainly developed. Forestry and export-oriented, raw material processing industries also received support.

Business and Economy of Laos

Laos is one of the least developed countries in East and Southeast Asia. Human Development Index (HDI) calculations in 2017 placed the country in 139th place among 189 states. More than 70 percent of the population lives in rural areas, and three-quarters of these households live on agriculture as self-catering. These are therefore included in the informal sector of the business sector, as are many who are employed in the cities. This means that business statistics for Laos can be difficult to interpret.

From other countries listed on Digopaul.com, there is a great interest in the natural resources of Laos, mainly minerals, hydropower and forest, and the country is increasingly drawn into the global economy. Foreign companies are looking for valuable minerals and international forestry companies are establishing large tree plantations. Most of the raw materials are exported without being processed, and the benefits of the extraction will to a small extent benefit the country's residents. Industrialization is slowing down in Laos, as the country is very scarce for domestic capital and substandard infrastructure. In addition, the level of education is low. Laos does not receive foreign investment on such a scale as neighboring Vietnam does.

The country's GDP increased by about 7 percent per year during the period 2000-08. Mining in particular increased sharply during the 1990s. Furthermore, major road and power plant projects have been completed, financed by foreign aid. Further such projects are ongoing but have been delayed by the global economic crisis during the latter part of the 1990s. Poor transport conditions are still a serious obstacle to economic and social development. The Asian Development Bank (ADB) supports a comprehensive development program for better road networks and integration in the valleys of the Mekong and its tributaries. Since the 1970s, development assistance has played an extremely important role for Laos. Sweden has been one of the larger donors but is now phasing out its assistance.

For information on GDP and other business statistics, see Landsfakta.

Agriculture and fishing

Agricultural production increased by 2.5 percent per year in 2005-08, which was a slower growth than in industry and service. Less than 1/10 of the land is considered to be possible to cultivate and currently about 4 percent of all land is used for agriculture and livestock management. Cultivation and yield varies greatly between the different parts of the country due mainly to topography, transport conditions, proximity to the market and the extent of foreign aid to the farmers in each area. Undetected landmines from the wartime are a major obstacle to using the agricultural land.

Agriculture in the Mekong Valley is responsible for most of both rice and other forage production, and the farmers can afford to invest in better aids for cultivation, irrigation and fertilization. On the highland plateaus there is widening and slow modernization of agriculture, but there the development is strongly dependent on the destruction of land mines. Self-catering still exists in the inaccessible mountain regions, mainly in the north. Sweat farming has almost completely ceased.

Rice is the basic food and is grown on most of the agricultural land. Until the latter part of the 1990s, only one crop per year was harvested. Artificial irrigation was lacking and dry-time crops therefore yielded very small harvests. Food production then increased more slowly than the population and more and more rice had to be imported. To reverse that trend, the state made a big investment in the late 1990s by importing diesel-powered pumps and distributing them among farmers. As the rice fields could be watered during the dry season, the second crop of the year was also large and the entire agricultural production increased. Laos is now self-sufficient with rice during years of normal weather. A smaller part of rice production is made up of mountain rice that is not as water-intensive as wet rice.

Foreign aid has been used to broaden the production of dry land crops for sale, and the cultivation of maize, sweet potatoes, peanuts, soybeans, cotton, spices and tobacco has increased, as has the cultivation of coffee, which is exported. Cassava, vegetables and fruits are also important elements in the daily diet. On new plantations, rubber, tea or sugarcane is grown.

The northwestern part of Laos is part of the so-called Golden Triangle, where for many decades opium poppy and smuggled opium have been cultivated. In the 1990s, Laos was the third largest opium producer in the world. With great foreign aid and hard methods, the government subsequently managed to eradicate almost all such activities. The poppy area was estimated at 280 km 2 in 1998 but is estimated to cover only 1.5 km 2 in 2007. Smuggling of opium is likely to be insignificant and cultivation is now motivated by demand from local drug addicts.

Livestock management has received less support for development, but it is of importance to the peasant households. Water buffaloes are the most important migratory animals, and poultry, cows and pigs provide animal food and also income for those living near the market. Fish is another important source of protein in some areas. Of the catches in the late 00s, 3/4 came from fish farms. They are also fishing in the Mekong and its tributaries and in the new power plant ponds.

Forestry

Growing production of charcoal, illegal logging and sweat farming with ever-shorter turnaround times reduced the forest area at an ever faster rate during the late 1900s. According to the government's estimate, the proportion of forest land decreased from 47 per cent of the country's land in 1992 to 41.5 per cent in 2002. Deforestation has subsequently continued, also as a result of the construction of roads and large power plant dams. However, current information on the extent of the forest area varies greatly, since a large part of the forest can be described as economically unproductive and difficult to classify.

In 2005, most of the logging was used for fuel (wood, charcoal), and only 10 per cent went to sawmills. Since then, the timber industry has expanded and timber and timber products have become more important in exports. In 2007, the state established guidelines for the use of the forest. About 20 percent should be used for productive forestry, just over half will be saved as protection against erosion and close to 25 percent should be set aside as nature conservation areas.

The government and also regional and local authorities are increasingly granting concessions to foreign forest companies wishing to plant forest plantations for future export of pulpwood. This means first harvesting on a large scale and then monoculture with fast-growing trees such as eucalyptus. As a result, natural forest disappears with its diversity of plants and animals. Concessions have also been provided for rubber plantations, to Vietnamese in the south and Chinese in the north. An increasing number of tree plantations and unclear ownership conditions mean that the forest areas are shrinking for the farmers, who are sourcing fuel as well as food and medicine from the forests. Critics believe that some of the companies are rogue and only devastate forests, not replanting for sustainable forestry. Laos lacks resources to monitor what is happening to the forest in remote areas.

Mineral

Laos is rich in numerous minerals and the mining industry accounted for a growing share of the country's exports in 2007-10. Until 2003, only limestone, tin and plaster were recovered on a significant scale, the latter two in the Savannakhet area in central Laos. Over the past decade, foreign companies, mainly Australian ones, have conducted extensive exploration in Laos and found breakable deposits of a number of minerals in various parts of the country. In an open-pit mine in Sepon east of Savannakhet, an Australian company started extracting gold in 2003 and copper in 2005, and above all gold mining has become of great financial importance. The mine was purchased in 2009 by a Chinese company that will also produce copper on a large scale. Another Australian company started mining copper, gold and silver north of Vientiane in 2008. On a small scale, zinc and lead and precious stones have long been extracted, mainly sapphires. Together, a Chinese and an Australian company are preparing for the start of bauxite mining in southern Laos. The mining industry is dependent on foreign investment, and these were delayed by the global economic crisis of 2008-09. Much money is also needed to make road transport and energy supply work in mineral rich but remote and roadless areas.

Energy

The mountainous Laos has very great water energy potential and in the cities most of the energy needs are covered by water electricity. Electricity production more than tripled between 1995 and 2007 and increased even more strongly in the next few years when several large power plants were put into operation. But the country lacks a nationwide wiring network and only just over 20 percent of the population has access to electricity. Wood and charcoal are used in the countryside. In the mid-1990s, about 60 percent of the electricity was exported to Thailand, but that proportion has subsequently declined. There are plans for a further number of power plants in the Mekong tributaries, but in most cases money for construction is lacking.

The state, together with foreign oil companies, has searched for oil in the area of Savannakhet in central Laos. This work is made more difficult by the fact that landmines still remain there since the war years. In southern Laos there are deposits of coal, and coal from two small mines provides energy to the country's cement industry.

Industry

The manufacturing industry accounts for just over 5 percent of GDP. The vast majority of this is light industry that manufactures simple consumer goods. Most important for employment is the food industry, while the economically most important industry is the manufacture of fabrics, clothing and shoes, as it accounts for a significant portion of export earnings. Such crafts are also important. Furthermore, there are breweries and sawmills as well as the manufacture of simpler furniture, plastic products, detergents and cigarettes. The only activity that refines the country's mineral resources and also the only heavy industry is the production of cement and concrete products. It expanded significantly during the 1990s, stimulated by increased construction of roads, bridges and power plant dams.

In 1989, the communist regime began a comprehensive restructuring and privatization of state-owned enterprises. Various forms of ownership are now found in Laos, ranging from local collective and private small companies to larger companies that are wholly or partly foreign-owned. A number of so-called strategic activities, such as electricity and water supply, still belong to the state but now levy user fees. Foreign investment in the manufacturing industry is not as common here as it is in neighboring countries, mainly as a result of a low level of education, infrastructure deficiencies and bureaucratic difficulties. The manufacturing industry is mainly located in the largest cities, for example most of the clothing industry is located in the Vientiane area.

Foreign trade

Absolutely reliable information on the scope and direction of foreign trade cannot be obtained. Particularly in the north, the border regions are very difficult to reach and cannot be controlled against smuggling, for example by gemstones. Illegal trade should occur with all five neighboring countries.

Until the mid-00s, the export of electricity to Thailand was the most important entry in Lao's foreign trade. But in 2006, production at the gold and copper mine in Sepon had started at full scale and since then these minerals are the leading commodity group in exports. Exports of timber declined in the 1990s, but during the latter part of the 1990s, exports of timber, sawn timber and furniture increased sharply and this is now one of the largest product groups. In the late 1980s, Laos began to export mainly cotton and silk clothing, and such exports grew during the 1990s, including to countries in the EU. In the textile industry's global market, Laos faces strong competition from neighboring countries such as China and Vietnam and is therefore seeking to find niches for its special products. Craft products in textiles and wood are also included in exports as well as agricultural products such as coffee and tea. The export of raw rubber is increasing as the new plantations become productive.

Foreign trade has increased very sharply during the latter part of the 1990s, when Laos has been heavily dependent on imports of capital goods for the major construction projects, such as machinery and equipment, building materials, fuels, and vehicles. In addition, consumer goods and raw materials are added to the clothing industry. Every year, the current account has a sharp deficit. For many years, Thailand has been by far the most important trading partner. Since the end of the 1990s, trade with China and Vietnam has increased significantly and China is now in second place, followed by Vietnam.

In 2017, Laos was visited by 3.2 million tourists, almost half of whom were from Thailand. Tourism was the second most important source of foreign currency in the late 00s after mineral exports.

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