Laos Country profile
Laos lags behind most of developing and emerging Asia on per capita income, creditworthiness and business climate. The landlocked country has significant natural resources, which have supported robust growth over much of the last decade—a period in which the commodity cycle was in a strong upswing. But softer commodity prices and excessive credit growth pose risks to the outlook.
Growth has averaged 7½% over the last decade. Elevated global commodity prices have been one tailwind; another has been hydro power exports to Thailand, Vietnam and Cambodia. But excessive credit growth during the boom years is compromising financial stability, while softening commodity prices are weighing on export earnings.
Growth is projected to reach 7-8% p.a. to 2018. But tight government budgetary policy threatens public infrastructure spending and growth. Large external imbalances and an undercapitalised banking sector also pose significant risks.
ASEAN integration will give Laos access to some 600m consumers. But the regulatory and procedural changes needed to conform with the ASEAN agreements will require structural adjustments, which could have significant costs in the near term—especially as infant industries in Laos start to compete across ASEAN. Favourable demographics will support growth over the long run; but infrastructure shortfalls and regulatory deficiencies could stymie this.
Per capita income has risen strongly over much of the last 15 years driven by the commodity boom. Laos recently gained lower-middle-income status but remains classified as a least developed country by the UN. The UN looks at more than just per capita incomes as it includes quality of life and the structure of the economy when assigning LDC status. An IMF study shows that the poverty rate has halved from 46% in the early 1990s to 23% in 2013. But 70% of the population remains engaged in subsistence agriculture, and a big shift into manufacturing and services is needed to lift standards of living decisively.
Laos has an OECD country credit grade of 7 underlining its vulnerability to business, financial and economic setbacks. It isn’t rated by any of the three major ratings agencies.
Laos scores poorly, 139 out of 190, on the World Bank’s ease of doing business gauge— which measures regulation and red tape relevant to a domestic small to mid-sized firm. Complicated and cumbersome regulatory barriers, weak infrastructure and an inadequate judicial system often pose problems for investors.
Laos scores poorly across the various aspects of governance and is in the bottom quartile in most areas except for political stability and absence of violence, where it performs marginally better.
Laos is Australia’s 103rd largest trading partner and joined the World trade organisation in February 2013. Australia and Laos are parties to the ASEAN-Australia-New Zealand Free Trade Agreement. Australia sent US$53m of goods and service exports to Laos in 2015-2016 made up mostly of machinery, parts and beef. Imports from Laos were worth US$33m.
Service exports to Laos are negligible. Student enrolments abroad and in Australia are minuscule although Australia is the favoured destination for those Laotians who do study abroad. The Australian government awards scholarships to Laotians for study in areas of developmental importance including education, trade and rural development.
Multilaterals such as the World Bank and ADB are active in education, health, energy, agriculture and other infrastructure development. This provides export opportunities for Australian firms specialising in advisory consultancies, tenders and the supply of equipment.
Data on Australian investment in Laos aren’t readily available. But PanAust Limited, through its Laotian subsidiary, invests heavily in natural resources. ANZ is a significant player in the banking industry after acquiring a majority stake in Vientiane Commercial Bank.
Department of Foreign Affairs