Laos: Market Profile
Major Economic Indicators
- Laos is the only landlocked ASEAN country, bordering Myanmar, Thailand, Vietnam and Cambodia, as well as China. With GDP growth averaged about 7.7% over the past decade, Laos is one of the fastest growing economies in ASEAN. The economy of Laos is heavily reliant on the mining and hydropower sectors.
- Laos became independent in 1953, but adopted market reforms only in the late 1980s. It has attempted to promote trade within the Greater Mekong Sub-region (GMS) and to attract foreign direct investment (FDI) to support infrastructure development, especially hydropower projects.
- Thailand, China and Vietnam are the major trading partners of Laos. The country’s main exports are mineral products, metals, vegetable products and hydroelectricity. Major imports include machinery, transport equipment and mineral products.
- Laos is diversifying its economy to lower its reliance on resources and hydropower exports. Tourism is a new economic driver, with rapid growth in arrivals and receipts. However, the IMF cautioned that Laos’s external position remains vulnerable in light of rising foreign debt, due mainly to more borrowing from China and Thailand for investment in power generation projects.
- China pledges to strengthen ties and support to Laos under the Belt and Road Initiative through expansion of economic and trade cooperation, investment in infrastructure and people exchanges. Construction of the China-Laos railway, which links the Mohan-Boten border gate in northern Laos and Vientiane, commenced in late 2016 and is scheduled to complete by end-2021. The China-Laos railway will be extended to link up with a railway in Thailand.
- Laos gained full WTO membership in 2013. As an ASEAN member, Laos is also part of the ASEAN Economic Community (AEC), which was launched in 2015. On the other hand, Laos has entered free trade agreements with China, India, Japan, Korea, Australia and New Zealand under the ASEAN context. Laos has signed bilateral investment agreements with 25 countries, including China, Japan, Korea and UK. It has also concluded a bilateral trade agreement with the US, which contains some investment provisions.
- The Laotian Investment Promotion Department (IPD) promotes FDI and evaluates foreign investment proposals. Laos has set up various special economic zones (SEZs) in the country, offering benefits like profit tax and value added tax reductions. The Law on Investment Promotion stipulated uniform business registration requirements and tax incentives for foreign and domestic investors. Government also provides special incentives for the prioritised sectors, including tourism, telecommunication and education.
- Cumulative FDI in Laos was US$5.6 billion as at end-2016, up from US$4.7 billion as at end-2015. China’s cumulative FDI in Laos reached US$5.5 billion as at end-2016, as reported by China’s Ministry of Commerce.
- Hong Kong and Laos are currently negotiating an air services income agreement.