Situation and cooperation

Workers unloading a truck in Vientiane province

Laos is one of the world’s least developed countries. Almost one quarter of the country’s 6.8 million inhabitants live below the national poverty line. Laos is ranked 139th out of 189 countries in the most recent Human Development Index (HDI). Major insufficiencies persist in transport and communications, and in the education and health sectors. Development is constrained by inefficient administration, a lack of legal certainty and widespread corruption.

Around 61 per cent of the Lao people live in rural areas. Agriculture generates roughly 30 per cent of gross domestic product (GDP). In recent years smallholder subsistence farming has increasingly been displaced by industrialised agriculture. The services sector, as well as industry, mining and hydropower are also gaining in economic importance.

Opening the economy

A market stall in Vientiane, Laos, selling electronic devices

Since the mid-1980s the Lao government has been endeavouring to transform the country’s centrally planned economy into a market economy under its New Economic Mechanism. For example, price fixing and subsidies have been abolished, and a banking system based on western models has been introduced. Private enterprise is being promoted by the state. Since 1997 Laos has been a member of the Association of Southeast Asian Nations (ASEAN), and a member of the ASEAN Economic Community, a free trade zone, since 2015. Laos has been a member of the World Trade Organization (WTO) since 2013.

In 2004 Laos adopted a National Growth and Poverty Eradication Strategy. The Strategy complements the five-year National Social and Economic Development Plan (NSEDP). An eighth version of the NSEDP, for the period from 2016 to 2020, was presented in May 2015. It is guided to a large degree by the Sustainable Development Goals (SDGs) adopted by the international community in 2015.

With the help of this plan, the government aims to lead Laos out of the ranks of the least developed countries by 2020. Over the last two decades, considerable progress has already been made in reducing poverty, creating access to safe drinking water and reducing child mortality. Further action is required particularly with regard to reducing malnutrition in children and maternal mortality, protecting the environment and empowering women.

A continuing problem is the threat posed by the unexploded ordnance dating back to air raids during the Viet Nam war. To this day, it has not been possible to fully clear large areas of the country of mines and unexploded munitions, which every year cause further casualties.

Development potential

Schoolgirl in Laos

Laos is rich in natural resources. It has mineral resources such as gold, copper, bauxite and tin. Industry and the mining sector account for 23 per cent of the country's gross domestic product, services make up 43 per cent. Some 40 per cent of the country’s territory is covered by forest. In recent years many forests have been cleared, for instance to make way for plantations and major infrastructure projects such as dams. The government is planning extensive reforestation in order to expand the country’s forest cover once again.

Also important for the future of Laos are its vast hydropower resources, as they will enable the country to export electricity. And, given the biodiversity of Laos' flora and fauna, ecotourism is another area with potential that could be harnessed more effectively.

Sustainable management of environmental resources

A group of people discussing development goals in Laos

The rapid modernisation of the economy, with the expansion of plantation agriculture, large-scale mining projects and a massive push to build dams, has impacted negatively on the environment in recent years. The construction of the Xayaburi Dam and the planned construction of the Don-Sahong hydropower plant on the Mekong have led to some disagreements with the neighbouring countries Viet Nam, Cambodia and Thailand. The countries located downriver fear drawbacks for their fisheries and agriculture. Environmentalists are warning of incalculable risks for the ecological balance in the region.

Progress in developing the country and fighting poverty will essentially depend on how well Laos succeeds in balancing economic growth with the sustainable use of environmental resources and in ensuring that it benefits poor people.

Priority areas of German cooperation with Laos

Germany is the second largest bilateral donor to Laos. At governmental negotiations, a total of 45.8 million euros was pledged to Laos for 2016 and 2017.

The priority areas of cooperation are:

  • rural development
  • sustainable economic development

Rural development

Rice paddies in Laos

In the rural areas of Laos – where around 61 per cent of the population live – infrastructure in the roads, water, electricity and telecommunications sectors remains much too underdeveloped. Many mountain villages are inaccessible during the rainy season, which lasts for months. Some have no transport links at all, even in the dry season. As a result, economic potential in these regions cannot be utilised, and people remain poor. The main focus of German-Lao development cooperation is on improving living conditions, particularly in the difficult-to-access highland regions. To achieve this, German experts work with all tiers of government – from village, district and provincial administrations to the central government level. One approach is to improve the rural road network, which gives people access to markets, schools and health facilities.

Germany is working to ensure better and sustainable land management and stronger legal certainty, in particular for people in rural areas. The local population is actively involved in drawing up village development and land use plans. Through this approach, German-Lao cooperation can help to advance land registration, decentralised planning and sustainable, high-quality investment.

Since 2008, a programme to protect the climate by avoiding deforestation has been an important component of bilateral cooperation activities. The programme has two objectives: one is to step up the conservation of Laos' abundant forest resources and biodiversity – as the country's contribution to global climate protection efforts; the other is to improve the economic and social conditions under which the rural population live by managing natural resources sustainably. With an eye to achieving lasting improvement and protecting Lao forests and biodiversity, Germany is increasingly engaging in environmental education activities.

Sustainable economic development

A street in Vientiane, Laos

Laos is undergoing an extensive process of reform to convert its centrally planned economy to a market economy. However, a weak financial sector, poor vocational training opportunities, institutional weaknesses and a lack of legal certainty are constraining the country’s economic development.

The establishment of the economic community of the Association of Southeast Asian Nations (AEC) in 2015 created a major new single market in Asia. However, for Laos to benefit from this market, a number of regulatory and administrative provisions still need to be adapted and implemented. Germany is assisting Laos in managing, coordinating and monitoring this process of economic integration.

Two trainees at the Lao-German Technical School in Vientiane working on an engine

In order to open up new employment opportunities specifically for the young generation, Germany is helping Laos to improve its vocational training system in terms of both quality and quantity. This includes building vocational training schools and providing technical equipment for them, developing a national strategy for dual vocational education, and providing systematic pre- and in-service training for vocational school teachers. Half of Laos' vocational schools are currently being modernised, expanded and technically equipped with German support. Many new training places will thus be created, in close cooperation with local businesses.

To improve the business and investment climate, cooperation between government agencies and the private sector has been facilitated, and the role of business associations and chambers of industry and commerce has been strengthened. At the moment, the focus of bilateral cooperation is on helping Laos integrate into the Association of Southeast Asian Nations (ASEAN) and its common market, the ASEAN Economic Community (AEC).

Until now, only few financial services have been available to the private sector in Laos. Germany is therefore supporting the Lao central bank in developing microfinance for small and medium-sized companies.

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