Laos - Market OverviewLaos - Market Overview
The Lao economy has grown at nearly 8 percent for the last decade and is entering a new phase of regional and global integration. The Lao government’s 2013 WTO accession and the creation of the ASEAN Economic Community (AEC) in 2015 led to major reforms of economic policies and regulations aimed at improving the business and investment environment. Additionally, rapid economic growth in neighboring countries such as China, Vietnam, and Thailand helped expand trade and investment in Laos. The Lao government is increasingly tying its economic fortune to the ASEAN economic integration, export-led development, and growing connectivity as Laos seeks to transform itself from “land-locked” to “land-linked.”
Laos is one of the world’s five remaining communist countries. The Lao economic model bears some resemblance to its Chinese and Vietnamese counterparts, in that it has implemented market-based economic practices while maintaining a high degree of state control and welcoming foreign direct investment (FDI). Laos is politically stable.
Under the terms of the United States-Laos Bilateral Trade Agreement (BTA), which entered into force on February 4, 2005, the United States granted Normal Trade Relations treatment to products of Laos, and Laos committed to provide U.S. exports to Laos with preferential tariff rates on a range of products and to apply most favored nation (MFN) treatment to the remainder of those goods. Since 2005, trade increased from USD 14 million to USD 157 million per year in 2018. China, Thailand, and Vietnam are still the dominant trade and investment actors in Laos, with Malaysia, the Republic of Korea, France, Hong Kong, and the Netherlands also increasingly active. In 2017, the most recent year in which trade data is available, Laos’ bilateral trade was approximately USD 6.26 billion with Thailand (USD 2.11 billion in exports, USD 4.15 billion in imports), USD 2.93 billion with China (USD 1.42 billion in exports, USD 1.51 billion in imports), and USD 1.20 billion with Vietnam (USD 516 million in exports, USD 687 million in imports). These figures have likely grown, especially Lao imports from China as a result of massive Chinese FDI and the China-Laos Railway project.
Laos’ GDP reached USD 17.9 billion in 2017, a 6.9 percent growth rate, though the economy is estimated to be in a downward trend at approximately 6.5 percent in 2019.
The Lao population remained steady at 6.9 million in 2018. More than two thirds of the workforce is employed in agriculture, mostly in small scale farming. The Lao population is young, half under 25 years of age and 60 percent under 35. The country has a small but growing middle class concentrated mostly in the capital and cities such as Savannakhet, Pakse, and Luang Prabang.
The Lao government weathered a fiscal and monetary crisis in 2013 and into 2014, brought about by poor budgetary processes, uncontrolled provincial spending, and a large raise for civil servants. The government continues to take steps to address some deficiencies and is making credible efforts to increase tax revenue, limit spending, and stop acquiring new debt. Overall, however, fiscal and budgetary policy formulation and implementation remain weak. The government’s attempt to control their fiscal condition resulted in slight improvement in 2018 as compared to 2017. The 2018 implementation assessment report of the Ministry of Finance mentions that the preliminary estimation of total revenue collection was 95.45 percent of the approved plan (LAK 25,452 billion or USD 2.9 billion); whereas domestic revenue collection was estimated to reach 100.34 percent of the approved plan (LAK 22,700 billion or USD 2.6 billion). This represents the first time that the domestic revenue collection exceeded the approved plan. Throughout 2018, total fiscal expenditure was estimated to reach 97.11 percent of the approved plan (LAK 32,809 billion or USD 3.7 billion). As a result, fiscal deficit accounted for 4.96 percent of GDP, slightly higher than the approved plan (4.92 percent). The chronic fiscal deficit caused the public debt accumulation to creep beyond 60 percent of GDP. Therefore, in the 2019, the government will concentrate on solving debt distress by continuing to limit capital expenditure on new government projects.
Major international companies have begun to invest in Lao Special Economic Zones (SEZs), particularly near Savannakhet and Vientiane. Investors include Toyota, Nikon, Essilor, and Celestica. Coca Cola opened a bottling plant in 2015, and GE opened a representative office in June 2017 to develop opportunities in the energy – specifically, hydropower – and medical equipment sectors.
Laos recorded a trade deficit of USD 1.172 billion in 2017, with merchandise imports of USD 4.779 billion, exports of USD 3.607 billion and net services of USD 311.8 million. Laos imported USD 15.1 million worth of goods from the United States and exported USD 141.9 million to the United States in 2018. Top U.S. exports to Laos include passenger cars, gems and diamonds, industrial machinery and equipment, and precious metals. Top U.S. imports from Laos include telecommunications equipment, cellphones and other household goods, gems and diamonds, nonferrous metal, green coffee, industrial supplies, footwear, and apparel household goods-cotton.
The Lao Trade Portal, established in 2012, has information for exporters and importers. The Lao Electronic Gazette is a repository for Lao legislation and offers the public the opportunity to comment on proposed legislation, though it is not completely comprehensive. Though most information is in Lao, many laws have been translated into English as well.