Laos Country Brief
Overview
Australia established formal diplomatic relations with Laos in 1952. The Australia-Laos relationship is diverse, encompassing development assistance, deepening economic ties—including through significant Australian investment in natural resource development—and people-to-people links.
The Lao community in Australia numbers around 10 000, many of whom came as students under the Colombo Plan in the 1960s and 1970s and were later granted permanent residency. After 1976, these were joined by refugees who fled Laos following the establishment of the Lao People’s Democratic Republic in 1975.
Australia and Laos have had a number of high level visits in both directions over recent years. Most recently, Dr Sinlavong Khoutphaytoune, Lao Minister of Planning and Investment, visited Australia from 26 May to 3 June 2009. The visit focused on foreign investment cooperation, particularly in the mining sector, and provided opportunities for Dr Sinlavong to meet relevant State and Federal Government agencies, and to visit an Australian mine. Dr Sinlavong met Simon Crean MP, Minister for Trade.
Mr Bob McMullan MP, Parliamentary Secretary for International Development Assistance, visited Laos from 29 April – 1 May 2009, where he met Lao Ministers and visited several projects showcasing the development cooperation program.
Dr Nam Viyaketh, Lao Minister of Industry and Commerce, visited Australia as a Guest of the Australian Government from 25-30 May 2008. During his visit, Dr Nam met Simon Crean MP, Minister for Trade, Stephen Smith MP, Minister for Foreign Affairs and Martin Ferguson MP, Minister for Resources and Energy, Minister for Tourism. The visit afforded the opportunity for Dr Nam to meet State Ministers in Victoria and New South Wales, to undertake site visits relating to timber production, mining, customs and quarantine and to make calls on relevant Government bodies. The Lao Minister of Public Security, Mr Thongbanh Sengaphone, visited Australia in August 2008, as a guest of the Australian Federal Police (AFP), to expand bilateral cooperation on transboundary threats and transnational crime.
Development Cooperation
Development cooperation has been a feature of the bilateral relationship for almost five decades. In 2009-10, Australian government overseas development assistance to Laos will be an estimated $36 million of which $28.1 million will be dispersed through the Laos country program which focuses on education, inclusive growth through trade and investment reform, and rural development. Australia is one of the seven largest bilateral aid donors to Laos.
The Australian Development Scholarships program currently offers up to 40 scholarships to Lao students to study in Australia each year. There are some 800 Lao alumni of the program, many of whom are now in positions where they can actively contribute to development. Australian Development Scholarships provide educational, research and professional development opportunities to support growth in the region and to build enduring links at the individual, institutional and country levels.
Human Rights
The Government actively pursues initiatives designed to promote human rights in Laos, including through a biannual Australia-Laos Human Rights Dialogue. The dialogue provides a forum for open and constructive discussion of human rights issues of interest to both countries. The second dialogue was held from 6 to 8 April 2009 in Vientiane, following the first dialogue which took place in October 2006.
Australia funds a range of projects aimed at the promotion of human rights in Laos under the Human Rights Small Grants Scheme (HRSGS). Most recently, the Lao Disabled People’s Association received funding for projects focused on raising awareness of disability rights and building human and disability rights institutional structures in Laos.
General Information
Laos is the only land-locked country in mainland South-East Asia and is bordered by China, Vietnam, Cambodia, Thailand and Burma. Its total land area, much of which is mountainous and densely forested, is approximately 237,000 square kilometres (roughly equivalent to the State of Victoria). The Mekong River, almost half the length of which flows through Laos, forms most of the border with Thailand. Large population centres (including Vientiane, Luang Prabang, Pakse and Savannakhet) lie on the Mekong.
The population of Laos is approximately 6.1 million people, with an estimated annual growth rate of 2.4 per cent, one of the highest in East Asia. Population density is 23 people per square kilometre, one of the lowest in East Asia.
The population of Laos is diverse, with 49 broad ethnic groups recognised by the Government of Laos, and four major linguistic groups. The largest language group, the Lao-Tai, consists of eight ethnic groups. Forming around 35 per cent of the total population (roughly encompassing what was previously referred to as the Lao Loum population), this group is politically and culturally dominant within Laos.
The official language is Lao, a tonal language structurally similar to Thai. Among younger Lao, English is now the most widely-spoken second language.
Theravada Buddhism, the dominant religion of Laos, is followed by approximately 60 per cent of the population, and a higher proportion of members of the Lao-Tai language ethnic groups. Animism is still widely practiced among a number of minority groups, especially in the more remote rural areas.
Political and Social Overview
Laos became the Lao People's Democratic Republic (Lao PDR) on 2 December 1975 following the abdication of the King, after many years of civil war and political instability.
The Lao PDR is a nominally Marxist-Leninist state ruled by the Lao People's Revolutionary Party (LPRP). The eleven-member Politburo of the LPRP, drawn from its Central Committee, is the key decision-making body. A National Assembly, which is elected by the people from a list of candidates approved by the Party, meets twice a year and is responsible for scrutinising proposed legislation.
Since 1986 Laos, in line with its larger socialist neighbours, has promoted gradual economic liberalisation through the so-called New Economic Mechanism (NEM). In doing so, the government has moved cautiously from a hard-line regime with a centrally planned economy to a more market-oriented system.
In August 1991, the National Assembly adopted a new constitution which formalised the establishment of a market-oriented economy, guaranteed the right of every Lao citizen to own property, and provided protection for foreign and domestic investment. Indicators of the more open society that has emerged over the past decade include greater freedom to travel, choice of employment, and the development of a fledgling private sector.
Like China and Vietnam, however, political stability and one-party rule remain of paramount importance to the government. So while the Lao Constitution guarantees freedom of assembly, religion and speech, in practice dissent is dealt with harshly. The government severely constrains freedom of speech and the practice of religious faiths outside of Theravada Buddhism. And while the human rights situation has improved somewhat, the government maintains tight control over the population to minimise potential challenges to the ruling party.
At the Party Congress in March 2006, General Khamtay Siphandone stepped down as Party Secretary-General and was replaced by his Deputy, Lieutenant-General Choummaly Sayasone. Elections for the National Assembly were held the next month. The Assembly convened on 8 June 2006 and elected Party Secretary-General Lieutenant-General Sayasone as President and former Prime Minister Colonel Bounnhang Vorachit as Vice-President. Newly-elected Prime Minister Mr Bouasone Bouphavanh signed in an expanded cabinet of 13 ministries and three ministry-equivalent bodies. The ninth Party Congress is expected to take place in 2011.
Head of State and Government list
| President | H E Mr Choummaly Sayasone |
| Vice President | H E Mr Bounnhang Vorachit |
| Prime Minister | H E Dr Bouasone Bouphavanh |
| Deputy Prime Minister and President of State Control Authority | H E Major General Asang Laoly |
| Deputy Prime Minister and Minister of Foreign Affairs | H E Dr Thongloun Sisoulith |
| Deputy Prime Minister and Minister of National Defence | H E Major General Douangchay Phichith |
| Deputy Prime Minister and Standing Member of Government | H E Dr Somsavat Lengsavad |
| Minister of Public Security | H E Mr Thongbanh Sengaphone |
| Minister of Labour and Social Welfare | H E Mrs Onechanh Thammavong |
| Minister of Finance | H E Mr Somdy Douangdy |
| Minister of Information and Culture | H E Mr Mounkeo Olaboune |
| Minister of Justice | H E Dr Chaleun Yiapaoheu |
| Minister of Planning and Investment | H E Mr Sinlavong Khoutphaytoune |
| Minister to Presidential Office | H E Mr Soubanh Srithirath |
| Minister of Public Health | H E Dr Ponmek Dalaloy |
| Minister of Education | H E Prof. Dr Somkot Mangnormek |
| Minister of Industry and Commerce | H E Dr Nam Viyaketh |
| Minister to the Prime Minister’s Office and Chief of Government Secretariat | H E Mr Cheuang Sombounkhan |
| Minister of Energy and Mines | H E Mr Soulivong Daravong |
| Minister of Public Works and Transport | H E Mr Sommad Pholsena |
| Minister of Agriculture and Forestry | H E Mr Sitaheng Rasaphone |
| Governor of Bank of Lao PDR | H E Mr Phoupet Khamphounvong |
| National Assembly (Sixth Legislature) | |
| President | Mr Thongsing Thammavong |
| Vice-President | Mrs Pany Yathotou |
| Vice-President | Dr Xaysomphone Phomvihane |
| President of Supreme Court | Mr Khammy Sayavong |
| Supreme People’s Prosecutor | Mr Somphanh Phengkhammy |
Members of the Politburo of the Lao PDR (in order of precedence)
Lt General Choummaly Sayasone
Lt General Samane Viyaketh
Mr Thongsing Thammavong
Colonel Bounnhang Vorachit
General Sisavath Keobounphanh
Major General Asang Laoly
Mr Bouasone Bouphavanh
Dr Thongloun Sisoulith
Major General Douangchay Phichith
Mr Somsavat Lengsavad
Mrs Pany Yathotou
Foreign Policy
The most politically important of Laos' bilateral relationships is with Vietnam. The 1977 Treaty of Friendship and Cooperation between the two countries covers defence arrangements, delineation of the border and Vietnamese economic assistance to Laos.
China’s profile and influence in Laos is rising. As with Vietnam, close relations with China reflect ties between the countries’ Communist Parties. The size and regional weight of China are also according the Chinese greater strategic influence vis-à-vis Laos' other neighbours.
Thailand is another important bilateral partner, due to proximity and cultural and linguistic affinity, as well as strong trade and investment links. Parts of the border with Thailand are still undergoing formal demarcation. Some areas are subject to insurgent activity. Political differences, illegal trade in narcotics and cross-border movement of people also continue to complicate relations.
The collapse of the former Soviet Union and its fraternal communist regimes in Eastern Europe was unsettling for the Lao leadership, which since 1975 had enjoyed close relations with and economic assistance from those states. Laos has subsequently sought to broaden relations with a range of countries, as well as with the international donor community.
Laos was admitted to ASEAN (the Association of South-East Asian Nations) in July 1997. As Chair in 2004-05, Laos hosted the ASEAN-Australia and New Zealand Commemorative Summit (attended by relevant heads of government/state, including former Prime Minister John Howard) on 30 November 2004, the annual ASEAN Post-Ministerial and Regional Forum meetings (attended by Foreign Ministers of nations around the Asia-Pacific, including Australia) in July 2005, and the ASEAN Economic Ministers-Closer Economic Relations (AEM-CER) meetings in September 2005. Laos is a member of the Mekong River Commission and hosts its headquarters.
Laos applied to join the World Trade Organization (WTO) in 1997. The first meeting of the WTO Working Party on the Accession of Laos was held in October 2004, when examination of its foreign trade regime commenced. The fifth meeting of the Working Party was held in July 2009. Assessments of its conformity with WTO obligations and some bilateral market access negotiations continue.
Economic Overview
Performance and Outlook
Laos is classified as a Least Developed Country (LDC) and relies heavily on donor assistance. It has a target date of 2020 to achieve the Millennium Development Goals and graduate from LDC status.
Real GDP growth has averaged more than 7 per cent since 2004 but as a result of the deteriorating global economy, Lao economic growth is forecast to hit 5 per cent in 2009 (World Bank estimate), the lowest rate of growth in Laos since the early 1990s. The resource sector (mining and hydropower) and related services now account for more than half of total investment and exports.
Estimated per capita gross domestic product in 2008 was US$841, with an increase to US$876 forecast for 2009. Social indicators are among the poorest in the region and in 2008 average life expectancy was estimated to be 63.2 years.
The economy is dominated by subsistence agriculture (on which 80 per cent of the population relies), and the cash economy has made little inroad into remote areas. Notwithstanding significant improvements in recent years, infrastructure constraints limit the efficiency of agriculture.
Lao taxation revenues had until 2007 been absorbed mainly by provincial governments. Compared with other developing countries, the national government has a low ratio of revenue to GDP.
Against these constraints, since the Lao Government adopted a policy of economic liberalisation it has made progress towards a more market-based economy. Market prices are in place for most products, the currency has been floated and a fledgling private sector is growing. A Budget Law passed in February 2007 was designed to centralise and rationalise taxation. Public debt has fallen steadily from 89 per cent of GDP in 2003 to a projected 49.3 per cent in 2008. Fiscal deficit is posed to increase sharply in 2009-2010, as expenditure pressures from the South East Asian Games to be hosted by Laos in December 2009 and other infrastructure projects mount against revenue shortfalls.
The high inflation and currency devaluation from which Laos suffered in the late 1990s had eased by 2006. From January to July 2007, inflation remained less than five per cent, anchored by a stable currency. However in June 2008 inflation was 10.25 per cent (y/y), though it has since plummeted to just above zero in August 2009 as a result of the global financial crisis.
Laos is increasingly open to international trade. The country is on track to reduce its tariffs on imports from other ASEAN nations to less than five per cent, as required under the ASEAN Free Trade Agreement, and tariffs on most product groups for trade with non-ASEAN countries are less than 20 per cent. However, the regime lacks transparency, and in practice trade and investment are more heavily regulated – including through import and export licensing. A recently approved Law on the Promotion of Investment is expected to deliver benefits to foreign investors as it intends to facilitate, standardise and streamline application processes and combine foreign and domestic investment regulation in the one legislation. Further details are expected to be revealed in its implementing decree.
A range of other constraints on Laos’ international trade are being addressed. In February 2007, the Lao cabinet decided to rationalise border checkpoint operations (government agencies active on borders will decrease from ten to three). In the north, trade and investment relations with China’s Yunnan province are significant.
Laos has a number of economic advantages. It is situated in an economic growth area, sharing borders and common interests with Thailand, Vietnam, Cambodia and China. While the domestic market is very small, millions of people within 100 kilometres of Lao borders should generate new market opportunities as transit routes are further developed. Laos is increasingly utilising its abundant natural resources. On 8 December 2008 the Lao National Assembly passed a Mining Law for which implementation documents are being drafted.
But further reforms will be necessary if Laos is to achieve its goal of graduating from LDC status by 2020. Many state-owned banks have difficulty managing their debt and will need to be radically reformed. Foreign exchange transactions could be better managed. Stronger private sector growth should follow if land titling – and the rule of law more generally – improves, and more transparent economic information becomes available.
Bilateral Economic and Trade Relationship
The total value of Australian exports to Laos in 2008 was $17 million. Specialised machinery and parts represented a significant part of this ($6.4 million), closely followed by alcoholic beverages ($1.6 million). During 2008 imports from Laos, dominated by wood products and clothing, totalled $1 million.
The dynamo in the economic relationship is investment in mining. An agreement on the promotion and protection of investment between Australia and Laos has been in place since 1995 and a number of Australian companies have mining investment and exploration interests in Laos.
Australia's Trade and Investment Strategies
Australia has encouraged economic reform in Laos, arguing that a stable and transparent trade and investment regime will help generate economic development.
As part of its efforts to assist growth in the Lao economy Australia has, since July 2003, provided duty-free and quota-free access for Lao goods exported to Australia. Australia has also supported Laos' accession to the WTO, including through training Lao officials for WTO accession.
The Australian-built and funded 'Friendship Bridge' linking Laos and Thailand opened in 1994 and this year marks its 15th anniversary. The bridge remains a focal point for trade and a symbol of Australian commitment to Laos and its integration with other economies. On 5 March 2009 a Lao-Thai railway link was opened on the bridge, further enhancing accessibility to and from Laos.
Australia and Laos are parties to the ASEAN-Australia-New Zealand Free Trade Agreement signed on 27 February 2009.
Export Opportunities
Foreign investment in extractive industries in Laos was impeded by the Lao Government’s imposition in 2007 of a moratorium on the issue of mineral exploration licences. A new Minerals Law was passed by the Lao National Assembly on 8 December 2008 and the moratorium has been unofficially lifted. The Ministry of Energy and Mines is now reconsidering and reprocessing applications.
Donor-funded projects offer significant commercial opportunities. Multilateral agencies such as the World Bank and ADB are active in education, health, energy, agriculture and other infrastructure development. Opportunities include advisory consultancies, tenders and the supply of equipment.
The private education market in Laos is very small but growing, and Australia is a favoured destination for the few Lao students who can afford to study abroad.
PanAust Limited
PanAust Limited’s Phu Kham Heap Leach Gold Operations commenced production in 2005 and its Phu Kham Copper Gold Operation commenced operation in 2008. PanAust is conducting a feasibility study at its Ban Houayxai Gold and Silver Deposit for expected completion in late 2009. Production at PanAust's Phu Kham mine for 2009 is expected to be around 60,000 tonnes of copper, 50,000 oz to 60,000 oz of gold and 300,000 oz to 400,000 oz of silver. PanAust has other prospective exploration targets within its 2 637 square kilometre contract area in Laos.
ANZ
ANZ Vientiane Commercial Bank (ANZV) commenced operations on 24 September 2007 after ANZ acquired a 60 per cent stake in the Vientiane Commercial Bank and majority representation on the board of the joint venture. ANZ has since expanded its operations to a second branch in Vientiane and a third in Pakse, and is also expanding its network of ATMs throughout Laos.
Updated September 2009