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Laos
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Situation and cooperation
The population distribution across the territory of Laos is very uneven. The population density is highest on the Mekong plains, particularly in the region surrounding the capital city Vientiane. The mountainous regions in the east and north are relatively inaccessible and only sparsely populated.
The inaccessibility of the mountain regions is one of the main causes of the country's great poverty. Laos is one of the world's least developed countries. About one quarter of Laos' nearly seven million people live below the national poverty line. Laos is ranked 138th out of 187 countries in the Human Development Index (HDI 2011). Major insufficiencies persist in transport and communications, and in the education and health sectors. Development is constrained by inefficient administration, a lack of legal security and widespread corruption.
Almost 70 per cent of the Lao people live in rural areas. Agriculture generates more than 30 per cent of gross domestic product (GDP), though in recent years the sector has declined in importance, while services (42 per cent of GDP), and industry and mining (25 per cent of GDP) have increased in importance.
For many years, farming of opium poppies and the production of raw opium provided a principal source of income, especially for many ethnic minorities. Production of the drug has now been drastically curtailed. The Lao government and its international partners are jointly pushing ahead with the creation of alternative forms of employment in agriculture, tourism, industry and the services sector.
Building an open economy
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 (NEM). For example, price fixing and subsidies were abolished, a banking system based on western models was introduced and private enterprise fostered. Since 1997 Laos has been a member of the Association of Southeast Asian Nations (ASEAN).
In 2004 Laos adopted a National Growth and Poverty Eradication Strategy (NGPES). It complements the five-year National Social and Economic Development Plan (NSEDP). The seventh NSEDP for the period 2011 to 2015 was launched in October 2010. It is strongly oriented towards the Millennium Development Goals (MDGs) and specifically includes cross-cutting issues like gender, environment and good governance. On this basis, the government aims to achieve the most important MDGs by 2015 and lift Laos out of the ranks of the least developed countries by 2020.
Development potential
The country's major potential lies in its young population. Investment in education and training is therefore of special significance. Foreign investors are also increasingly locating in Laos, for example in the textile and service industries. Laos is also rich in natural resources. It has mineral resources such as gold, copper, bauxite and tin and is still densely forested, despite major clearance of forests in recent years. The government is planning extensive reforestation in order to substantially rebuild the country's forest cover, which has dwindled to just 40 per cent of the surface area. The country's vast hydropower resources will play an important role in future, and ecotourism is another area with development potential.
A critical factor for successful development and poverty reduction will be the extent to which Laos succeeds in reconciling economic growth with sustainable use of environmental resources. The legal foundations for this endeavour have been established in recent years, but it is put at risk by the lack of monitoring and implementation of legislation, especially in rural regions. The relentless drive to build dams for power generation, large mining projects, and the clearance of forests for, inter alia, plantations also pose a threat to sustainable social and ecological development.
Laos is working hard to increase the participation of women in public life. Twenty-five per cent of parliamentarians are women, the highest percentage in the whole of south-east Asia. The government's current five year plan explicitly states that the promotion of women is a cross-cutting issue. Implementation remains fraught with difficulty, however, because Lao society is very largely patriarchal.
Priority areas of German cooperation with Laos
Germany is one of Laos' largest bilateral donors. It also supports specific programmes run by the World Food Programme (WFP) and other international organisations in the country. At government negotiations in May 2010, funds amounting to 31.3 million euros were pledged to Laos for 2010 and 2011 – made up of 11 million euros for Financial Cooperation and 20.3 million euros for Technical Cooperation. In addition, in 2009 the Federal Ministry for Economic Cooperation and Development (BMZ) provided 10.5 million euros in funding for a climate-relevant environmental and resource management programme. The overarching goal of development cooperation is poverty reduction. To this end, the following priority areas have been agreed:
- Rural development
- Sustainable economic development.
In early 2011, Laos and Germany published a joint strategy paper for each of the two areas, setting out the main objectives and actions of their cooperation.
Rural development
The majority of the population of Laos is reliant on subsistence farming. Infrastructure in the roads, water, electricity and telecommunications sectors is severely underdeveloped, especially in rural areas, where 70 per cent of the population live. Due to the mountainous terrain and the long rainy season, many villages in the north-western provinces are completely inaccessible for five to six months of the year. The lack of roads means that some have no transport links even in the dry season. As a result, economic potential in agriculture and small enterprise cannot be utilised and poverty remains widespread. In some mountain regions, around half the children are thought to be malnourished or undernourished.
Lao-German development cooperation concentrates on improving living conditions, particularly in the largely inaccessible highland regions. The improvement of the rural road network gives people access to markets, schools and health facilities. In this context, German development cooperation works with all tiers of government – from village, district and provincial administrations to the central government level. The Lao-German strategy paper on rural development (2011) emphasises the importance of popular participation, especially by women and young people, in local decision-making processes.
In addition, Germany is working to improve legal certainty in the allocation of land-use rights. This is the fundamental precondition for the expansion and diversification of rural production, and thus for moving away from a purely subsistence-based economy.
In 2008 a programme to protect the climate through avoided deforestation marked a new departure. It addresses two objectives: one is to step up conservation measures in order to maintain the great potential of this country, half of which is covered in forest, and thus protect the global climate and biodiversity; the other is to enable the rural population in particular to benefit from the programme by developing measures which improve people's economic and social conditions through the sustainable management of natural resources.
Sustainable economic development
Laos is undergoing an extensive reform process to convert its centrally planned economy to a market economy. However, a weak financial sector, poor vocational training options, institutional weaknesses and a lack of legal foundations are severely inhibiting the country's economic development.
In order to open up new employment opportunities for the young generation in particular – some 60 per cent of the population are under the age of 25 – Germany is providing the country with extensive support. This includes building vocational training schools, developing a national strategy for dual vocational education, and providing in-service training for vocational school teachers. The Federal Republic of Germany is a lead donor in the field of vocational training and works closely with the Lao government on thematic and financial issues.
In addition, support is being provided for public and private sector actors, among other things with a view to improving conditions for market economic reforms, investment and business start-ups. The goal is to facilitate cooperation between state bodies and the private sector and hence to improve the business climate. One starting point is to remove bureaucratic barriers to investment and company start-ups. Efforts are also under way to foster the development of small and medium-sized enterprises, including moves to strengthen the functions of business associations and chambers of industry and commerce.
Financial services for the private sector are underdeveloped in Laos. Against this background, a new Lao-German programme which focuses on microcredit and strengthening the role of the country's central bank in the field of microfinance began work in 2009. By establishing microfinance institutions, the aim is to improve access to financial services for the population and for small and micro-businesses in the rural regions. This will create an opportunity, for the first time in many cases, for many of the families living there to take out loans for small and micro-investments. The loans are also used to tide people over in the short term when they incur income losses and costs as a result of sickness. Without this option, important factors of production or possessions, such as livestock, would have to be sold.
