Lao People’s Democratic Republic is a small country with an area of 236,800 square kilometers. Laos is a socialist state and the only landlocked country in Southeast Asia, located at the heart of the Indochinese peninsula. After gaining its independence in 1975, Laos’ government initiated many economic reforms with the aim to shift from a centrally-planned economy towards a more market-oriented one.
In 1992, the country joined a sub-regional program for economic development and cooperation of Greater Mekong sub-region, supported by the Asian Development Bank. FIve years later, Laos joined the Association of Southeast Asian Nations (ASEAN). Moreover, after 15 years of negotiation and the initiation of several reforms, Lao PDR has become a member of the World Trade Organization (WTO).
Lao’s transformation to a market oriented economy was officially launched in 1986. From that year, the government has initiated reforms having four main headings, encouraging the growth of private production, trade liberalization, macroeconomic policies and legal and institutional measures.
After the opening of its economy, the country has witnessed an impressive economic growth, now being one of the fastest growing economies in Southeast Asia. Over the last decade, the country’s gross domestic product has grown at an average of 7.7%. In 2006, it moved up from a low income country to a lower-middle income one. GDP per capita has experienced a significant growth over the past years, from $300 in 2001 to an all-time high of $2,500 in 2018.
Lao’s economy largely depends on investment and trade with neighbouring countries like Thailand, Vietnam and especially China. In 2014, China accounted for 35% of its exports and a quarter of imports, while Thailand represented 55% of its imports and over a quarter of its exports. Electricity generation and mining represent half of the total FDI stock. While trade with other countries and FDI have been key drivers of the country’s economic growth, domestic investments have also largely increased over the same period.
Over the past 20 years, the country has made significant progress in halving poverty, reducing hunger and improving the health and education system. However, the government of Laos still faces many challenges, both in social and economic. Poverty has been remarkably reduced, but on the contrary, inequality has also risen. Human capital development is also a problem for Laos, as the rising inequality is restricting the access of the poor to efficient infrastructure services, sanitation and utilities.
Lao PDR has made impressive progress in social and economic development. It is one of the fastest growing economies among the ASEAN region. Opportunities are now open for multinational companies as well as local businesses to grow and expand in Laos, thus companies must be prepared to ride the economic growth of one of the most promising Asian Economies.
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