Laos Country Brief – April 2008

Overview

In 2002, Australia and Laos celebrated the 50th anniversary of the establishment of diplomatic relations. Australia has a positive reputation in Laos as a result of our long, unbroken relations, high-profile development assistance, and business ties, including high quality inward investment.

The Lao community in Australia numbers around 15,000, many of whom came as refugees after the Lao regime changed in 1975.

Australia and Laos have had a number of high level visits in both directions over recent years, including in the context of APEC which Australia hosted in 2007 and other regional meetings such as the ASEAN Australia and New Zealand Commemorative Summit which Laos hosted in 2004.

Development Cooperation

Development cooperation has been a feature of the bilateral relationship for almost five decades. It is estimated that in 2007-08, total Australian government overseas development assistance to Laos will be $27.2 million of which $15 million will be dispersed through the Lao country program which focuses on improving access to education, supporting the growth of a market economy, and reducing the vulnerability of communities to disasters and unexploded ordnance.. Australia is one of the five largest bilateral aid donors to Laos.

AusAID's contribution to education-related activities is expected to be $8.26 million in 2007-08. This includes funding up to 40 new students per year to study in Australia, and 64 new students per year to study at the National University of Laos.

HumanRights

The Government monitors the human rights situation in Laos, promotes initiatives designed to encourage its improvement and makes representations to the Lao Government as appropriate.

In October 2006, senior government representatives from both countries attended the inaugural Australia-Laos Human Rights Dialogue in Vientiane. They discussed a range of issues, including the role of the legal sector in protecting human rights, women’s and children’s rights, and ethnic and religious diversity.

Australia has funded the translation into the Lao language of key international human rights texts, and sponsored visits to Australia by high-level Lao delegations to attend training courses run by the Centre for Democratic Institutions. In 2001, under its Human Rights Small Grants Scheme (HRSGS), Australia funded the translation and printing of a human rights handbook for Lao law enforcement officials. In June 2003, Australia held a workshop for Lao officials on international law and human rights in conjunction with Forum-Asia, a Thailand-based NGO. In 2005, Australia helped develop materials for high school and university curricula dealing with human rights issues. A group of Lao officials undertook a study tour to Australia in June 2006 under the HRSGS to learn about Australia’s human rights institutions and mechanisms.

General Information

Laos is a land-locked country in mainland South East Asia, 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. Most main towns (including Vientiane, Luang Prabang, Pakse and Savannakhet) are on the Mekong.

The population of Laos is approximately 6 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. Around one in ten Lao people, including many of the country's elite, left the country in the 1970s following the change in regime.

The Lao comprise approximately 131 ethnic groups. Demographers group roughly two thirds of the population as ‘lowland Lao’, according to linguistic and ethnic as well as geographic criteria.

The official language is Lao, a tonal language structurally similar to Thai. Between 1975 and 1989, many Lao studied Russian or other Soviet bloc languages. 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 lowland Lao. Animism is still widely practiced among a number of minority groups, especially in the more remote rural areas.

Laos has a tropical monsoon climate, with a wet season from May to September/October. Temperatures are coolest during December and January and highest in April and May.

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.

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 Seng-Aphone
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 Soulivong Daravong
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 Dr Bosaikham Vongdara
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

Foreign Policy

The most politically important of Laos's 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 also an important bilateral partner, due to proximity and cultural and linguistic affinity, as well as strong trade and investment links. However, historical issues persist. 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 immigrant labour 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 2004-05, Laos hosted 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. The annual AEM-CER consultation brings together ministers from the 10 ASEAN countries with the Trade Ministers of Australia and New Zealand (the parties to the CER agreement).

Laos is also a member of the Mekong River Commission. In 2004 the Commission’s Secretariat was relocated to Vientiane. Laos has applied to join the World Trade Organization (WTO). In December 2006, Laos submitted its first offer on market access for goods. Negotiations are continuing.

The World Bank and Asian Development Bank (ADB), together with numerous UN and international non-government organisations, have resident missions in Laos that manage wide-ranging development programs.

Economic Overview

Key Indicators

Population (2006)	6.0 million
Exchange rate (Jul 2007)	8,301.24 Lao Kip = A$1
GDP (2007) IMF forecast	US$ 4.0 billion
GDP per capita (2007) IMF forecast	US$ 653
Real GDP growth in 2007 (% change YOY) IMF forecast	7.1%
Current account balance (2007)	US$ -918 million / -22.9 per cent of GDP

Sources: World Bank, DFAT (MIA) Fact Sheet

Performance and Outlook

Laos is classified as a Least Developed Country (LDC) and relies heavily on donor assistance. Per capita gross domestic product for 2006-07 was estimated at US$649. Social indicators are among the poorest in the region and in 2006 average life expectancy was estimated to be 56 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 since 2006, infrastructure constraints limit the efficiency of agriculture.

Lao taxation revenues have 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 liberationalisation 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 fell from 89 per cent of GDP in 2003 to 70 per cent in 2006. However, high debts in the financial sector continue to hamper macro-economic stability, and moves to privatise inefficient state enterprises have lost momentum.

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.

GDP grew by 7.6 per cent in 2006, driven largely by mining and hydropower. Outside the resources sector, the economy grew 4.8 per cent that year, mostly in tourism and agriculture.

Also in 2006, a 50 per cent increase in exports, mainly from the resources sector, saw the current account deficit decrease from 20 to 14 per cent of GDP. Minerals accounted for more than half of all exports in 2006. Tourism has been another source of foreign exchange, with more than 800,000 visitors in 2004.

In 2004-2005, liberalisation saw foreign investment increase by over 50 per cent from US$285 million to US$450 million. This increase was driven by large investments in industry, especially the Nam Theun 2 hydropower project which accounted for 83 per cent of FDI in 2005. The mining sector also continues to attract international interest.

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. But the regime lacks transparency, and in practice trade and investment are more heavily regulated – including through import and export licensing – than these figures suggest.

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). New highways and a bridge completed with the help of overseas development assistance since 2006, have improved access to ports for Lao exporters. 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.

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 Lao economy remains a limited trade and investment destination for Australian companies. The total value of Australian exports to Laos in 2006-07 was just over $25 million, over half of which was non-monetary gold. Most goods exported to Laos equipped the mining sector. Australian companies also exported to Laos over $1 million worth of alcoholic beverages. Goods imported into Australia from Laos in 2006-07 were valued at $10.9 million, dominated by non-monetary gold ($9.7m).

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. Two medium-sized gold/copper mining projects alone have made Australia one of the largest sources of foreign direct investment in Laos. Oxiana Resources and Pan Australian Resources’ gold and copper projects together will probably contribute about 10 per cent of Lao GDP by 2008.

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' attempts to accede 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. The bridge remains a focal point for trade and a symbol of Australian commitment to Laos and its integration with other economies.

On 21 February 2005, Australia, New Zealand and ASEAN launched formal negotiations on a free trade agreement (FTA) between ASEAN and Australia‑New Zealand. Closer integration with Laos' small but growing economy through an FTA has begun to provide opportunities for Australian exporters of infrastructure-related goods and services to meet the needs of emerging industries, especially mining and telecommunications.

Export Opportunities

The Lao Government is endeavouring to stimulate growth in mining and domestic manufacturing capabilities and actively encourages foreign investment in these areas. However, strong overseas interest in the mining sector outstripped Lao regulatory capacity. In December 2006, Laos ‘slowed down’ its granting of mining concessions.

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.

Recent trade successes in Laos

Oxiana Ltd.

Oxiana Ltd’s principal asset is the Sepon gold and copper mine in Savannakhet, southern Laos. Oxiana poured its first gold in March 2003 and started copper production in March 2005. Total reserves are estimated at $6 billion. The company is the largest foreign direct investor in Laos, and with around 2,000 permanent employees, Oxiana is the single largest employer outside of government.

Pan Australian Resources

Pan Australian poured the first gold at its gold and copper mine in Xaisomboun Special Region on 1 November 2005. Copper production began in 2007. Pan Australian has a 2,637 square kilometre mining lease and plans to invest $230 million.

ANZ

ANZ Vientiane Commercial Bank (ANZ VCB) commenced operations on 24 September 2006 after ANZ acquired a 60 per cent stake in the Vientiane Commercial Bank and, majority representation on the board of the joint venture and the right to appoint key management positions.

TradeWatch Contacts

If you would like more information on trade and economic conditions in Laos, please e-mail the Department of Foreign Affairs and Trade at tradewatch@dfat.gov.au.