Laos Country Brief - January 2009
Overview
Australia-Lao diplomatic relations date back over 50 years. Australia has a positive reputation in Laos as a result of our 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. 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.
Development Cooperation
Development cooperation has been a feature of the bilateral relationship for almost five decades. It is estimated that in 2008-09, total Australian government overseas development assistance to Laos will be $27.8 million of which $17.3 million will be dispersed through the Lao country program which focuses on building Lao human resources, promoting growth of the market economy and reducing the vulnerability of the poor. Australia is one of the seven largest bilateral aid donors to Laos.
Australian 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. Australian Development Scholarships strengthen human resource capacity in Australia’s partner countries to contribute to long-term development needs and promote greater stability with the Asia-Pacific region.
Human Rights
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 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 Human Rights Small Grants Scheme (HRSGS) to learn about Australia’s human rights institutions and mechanisms. In 2007 the HRSG supported a project aimed at the building of human and disability rights institutional structures.
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
Members of the Politburo of the Lao PDR (in order of precedence)
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 Sinlavong Kouthphaitoun |
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 |
- 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'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. 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 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 also a member of the Mekong River Commission and hosts its headquarters. Laos has applied to join the World Trade Organization (WTO). The first meeting of the WTO Working Party on the Accession of Laos was held in October 2004, when examination of its trade regime commenced. The fourth meeting of the Working Party was held in July 2008, and good progress was made.
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
Performance and Outlook
Laos is classified as a Least Developed Country (LDC) and relies heavily on donor assistance. Estimated per capita gross domestic product in 2007 was US$656, with an increase to US$739.85 forecast for 2008. 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. The IMF, in reporting on 30 July 2008 consultations between its Executive Board and the Lao People’s Democratic Republic, assessed that Laos economy has performed well over recent years, due to stable macroeconomic conditions as well as the rapidly growing resource sector.
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) and is expected to remain around this figure for the rest of the year.
Real GDP growth has averaged more than 7 per cent since 2004 and is projected to reach 7.5 per cent in 2008, driven largely by resource investment, tourism and increased trading activity. The resource sector (mining and hydropower) now accounts for more than half of total investment and exports.
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 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. 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 Lao economy remains a limited trade for Australian companies. The total value of Australian exports to Laos in 2007-08 was just over $21 million. Non-monetary gold represented a significant part of this ($6 million), closely followed by alcoholic . beverages ($2.4 million). During 2007-08 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. Two Australian companies, OZ Minerals Limited and PanAust Limited, have made substantial investments and are extracting minerals 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. The bridge remains a focal point for trade and a symbol of Australian commitment to Laos and its integration with other economies.
Australia and Laos are parties to the recently concluded negotiations on the ASEAN-Australia-New Zealand Free Trade Agreement. The Agreement was signed on 27 February 2009.
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 January 2007 the Lao government introduced a moratorium on the issue of new mining exploration licences which remains in force. A Mining Law was passed by the Lao National Assembly on 8 December 2008: implementation documentation is currently being prepared.
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.
OZ Minerals Limited
OZ Minerals Limited’s principal assets are the Sepon gold and copper mines in Savannakhet, southern Laos. Sepon Copper Mine commenced production in 2002. Sepon Gold Mine commenced production in 2005. The company is the largest foreign direct investor in Laos, and with over 5,000 employees, OZ Minerals Limited is the single largest employer in Laos outside of government.
PanAust Limited
PanAust Limited’s Phu Kham Heap Leach Gold Operations entered production in 2005 Phu Kham Copper Gold Operation commenced operation in 2008. It is conducting a feasibility study at its Ban Houayxai Gold and Silver Deposit.
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 and the right to appoint key management positions. It has subsequently introduced ATMs into its operations in Laos.