Formerly known as “Laos” during French occupation from the late 19th to the mid-20th century, it gained independence in 1953 and the Lao People’s Democratic Republic (“Lao PDR”) was eventually formed on 2 December 1975, when Laos officially changed its name to Lao PDR.
The World Bank describes Lao as a small, mountainous country along the Mekong, and the only landlocked country in SE Asia, being surrounded by China, Vietnam, Cambodia, Thailand, and Myanmar. In contrast to other land-locked countries, Lao PDR’s natural assets and location offer significant potential for a more sustainable and inclusive growth model.
With a population of 7.34m in 2021, it has the lowest population density of any country in SE Asia. It is a low-middle income country with a socialist state and a fast-growing economy. Lao PDR has the youngest population of any Asian country with a median age of only 24 years, but the lowest life expectancy of only 68.
Whilst education levels have improved significantly in recent decades, it still has a far lower literacy rate than most surrounding countries at only 85%; secondary school enrolment is only around 50%. Lao also has a much higher poverty headcount ratio than most of its neighbours. In 2020, over 18% of the Lao population was still living below the National Poverty Line.
About 65% of the population of Lao PDR live in rural areas and employment remains heavily concentrated in agriculture. Use and coverage of telecommunication networks is still low in these remote regions – according to the UNCDF, in 2018 only around 25% of the adult population in Lao PDR even had access to the internet.
Medical care in general is inadequate and unevenly distributed in Lao, with most of the health care facilities located in urban areas. Lao’s mountainous terrain makes access to rural areas difficult, particularly during wet season when many places become unreachable altogether.
Culturally, Lao is an ethnically and linguistically diverse country, predominantly due to the historical migration patterns of the region and given its unique location between powerful neighbours China and Thailand.
According to the World Bank, Lao PDR’s geographic location, with some of the world’s fastest growing economies as neighbours, is a significant asset.
Economy of Lao PDR
“In Lao PDR, COVID-19 has exacerbated the challenges of external debt, compressed social spending and jobless growth. The country is therefore looking to reform to restore development momentum.”
Lao PDR has an extremely high-growth economy, with a track record of dramatically reducing poverty, and is scheduled to graduate from the UN’s “Least Developed Country” category in 2026.
The World Bank’s Country Economic Memorandum on Lao PDR states that since 2000, the country has been among the fastest growing economies in the world, recording average annual growth of around 7%, mostly driven by the capital-intensive resource sector (mining and hydropower), and supported by infrastructure development.
However, as the economy of Lao is primarily agricultural, it remains heavily dependent on foreign aid and investment and in particular, export trade with China and Thailand.
Following robust economic growth prior to the coronavirus pandemic, Lao economic growth has slowed and is now facing some challenges considering post-pandemic recovery in Lao.
Lao PDR is one of the poorest Asian countries and among the least developed countries on the planet. Most of its inhabitants work in rural areas, mainly in subsistence agriculture. So, the economy of Lao is largely supported by these agriculture-based activities, with around 70% of its workforce still involved in farming or cultivation of some kind, generating more than 30% of the total GDP in Lao PDR.
For most rural households, the primary income source is from self-employment (including farming their own land) or owning a micro business. Very few rural households have salaried work or even labour wages.
During the Asian economic crisis of the late 20th century, the value of the kip declined by more than half in 1998 alone. This, among other factors, led much of the population to remain cautious about depositing money in savings accounts. People have since tended to store their savings in gold, foreign currencies, and, in rural areas, farm animals. (Source)
Regional disparity and inequality between classes are widening rapidly, driven by an increasing concentration of consumption at the top end of the spectrum. However, Lao is potentially poised to benefit from China’s “Belt and Road Initiative”, with hopes that the recently opened railway linking Lao PDR and China will expand international trade significantly.
But Lao will still need to invest in complementary infrastructure (dry ports, access roads) and regulatory reform to ensure this potential can be fully realised. (Source)
For more information on the economy of Lao PDR:
- The World Bank’s Lao PDR Country Economic Memorandum offers a set of policy directions that can help leverage Lao PDR’s strategic location and natural wealth to achieve more inclusive and sustainable growth.
- This article provides further insights into a general Lao market overview from the US investment perspective, and this Lao investment climate report by the US Department of State is also helpful. The Australian and UK Government also publish similar information.
- Lao Statistics Bureau provides this National Summary Data Page.
- Asian Development Bank publishes Key Indicator data here.
- BTI offers this useful Country Report.
IFC published this Investment Reform Map for Lao PDR.
Financial Inclusion in Lao PDR
Prior to the pandemic in 2018, the UNCDF prepared this useful infographic which provides information on financial inclusion and the real + digital economy context of Lao PDR. In summary:
The general population remains relatively financially excluded, with over half of adults still saving informally and roughly 80% being excluded from access to credit.
- Only around 50% of adults in Lao PDR have an account with a formal financial institution.
- Around 75% of the population in Lao PDR do not have any insurance.
- Over 80% of businesses in Lao PDR do not have a line of credit/loan.
- Around 20% of enterprises in Lao PDR do not have a savings/checking account.
Roughly 75% of businesses in Lao PDR view access to finance as an obstacle.
Understanding Poverty in Lao PDR
Approximately 30% of the Lao population lives under the poverty line, with 90% of the poor living in rural areas. We believe that accessing new economic opportunities in rural areas could have a significant impact on poverty alleviation.
Poor households are concentrated more in the northeast and the south of Lao, and these poorer areas tend to have lower school enrolment rates – recreating poverty across generations.
Lao has made significant progress in poverty reduction over the last few decades; the poverty rate more than halved between 1993 and 2019, falling from 46% to 18% – mirroring the rapid GDP growth during that time. (Source)
But the poverty rate is almost three times higher in rural than in urban areas and among ethnic minorities – especially in the “upland” or mountainous areas – so the overwhelming majority of Lao’s poor are rural residents, unlikely to have access to financial services available in urban areas, and with little chance at poverty alleviation.
Rising farm incomes have driven poverty reduction, especially since 2013, as agricultural households have moved from subsistence rice cultivation toward the commercial production of cash crops and a more market-oriented mindset, encouraged by an increasing availability of microfinance in Lao PDR.
However, the COVID-19 pandemic is expected to partially reverse the poverty reduction in Lao during 2013–19. The challenges ahead include tackling rural poverty and containing the rise in inequality.
Some rather challenging statistics from Asian Development Bank’s “Basic Statistics 2022” publication highlight just how much work remains in eradicating poverty in Lao:
- Proportion of Population Using Safely Managed Drinking Water Services –18% (2020)
- Proportion of Population Using Safely Managed Sanitation Services – 61% (2020).
- Prevalence of Stunting among Children under 5 Years of Age – 33% (2019).
To learn more about poverty in Lao PDR, this poverty profile report by the World Bank and Lao Statistics Bureau is helpful
Gender Landscape in Lao PDR
Compared to its neighbouring countries, ADB data shows that Lao PDR has the lowest Gender Inequality Index score (indicating highest inequality between genders) and the highest Maternal Mortality Ratio, along with a very high Adolescent Birth Rate and high Infant Mortality rate.
The UNDP states that only around one third of women have any secondary education, versus around half of men. Women have a slightly higher life expectancy than men, but lower level of expected schooling and far lower GNI per capita.
The disparity in gender equality is obvious for female wage workers, who earn on average 33% less than men. However, in business there is more potential – 45% of top managers for formal SMEs in Lao PDR are female, working mostly in accommodation and food service activities, and transportation and storage; 43% of businesses have women as dominant owners. (Source)
Lao is now finally on track towards gender parity in primary education, but more could be done to support gender equality in general. For example, as at 2022, only 22% of seats are held by women in Lao PDR National Parliament.
pandemic has magnified, and in some cases intensified, the issues.
For example, stay at home orders have increased the unpaid house-workload for women, who prior to the pandemic were already doing as many as 4-6 hours a day, while men did only 30-60 minutes. This is largely due to cultural norms, which dictate that women should do the unpaid housework and take on caregiving roles and responsibilities.
These measures have also increased gender-based violence. This increase in gender-based violence is being seen around the world and is being called by the UN a “shadow pandemic”.
Furthermore, healthcare services may have been diverted from other concerns during the pandemic, potentially reducing other healthcare services in a context where there were still significant unmet healthcare needs prior to the pandemic, especially for young women. (Source)
The reality is that while there are efforts to improve collection of relevant data, the realities of women in Lao PDR remain underrepresented.
We aim to support female entrepreneurs and women’s empowerment by providing gender equality opportunities and offering women’s financial inclusion in Lao PDR.
We also encourage workforce equality and diversity – 74% of our staff are female, and 59% of our Management Team are female.
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