INDUSTRIES IN LAOS
A) Industries: mining (copper, tin, gold, and gypsum); timber, electric power, agricultural processing, rubber, construction, garments, cement, tourism. B) Industrial production growth rate: 17.7 percent (2010 est.), country comparison to the world: 3. C) GDP - composition by sector: agriculture: 26 percent; industry: 34 percent; services: 40 percent (2012 est.). [Source: CIA World Factbook]
The largest foreign income earners are tourism, sales of hydroelectric power, logging and textile exports. A lack of good transportation links and its distance from sea prevents Laos from exploiting its cheap labor to promote industry as countries like Cambodia, Myanmar and Bangladesh have. For a long time Laos had no major industries or manufacturing. Most industry is still done on the village level: weaving, blacksmithing, carpentry, boat making. Most have traditionally been set up on the basis of need rather to make money. Some villages specialize in activities such as pottery, charcoal or tobacco production.
There are textile and shoe factories (Nike has factories in Laos) and motorcycle assembly plants in Laos. Although Laos imports most of its consumer goods from China and Thailand, it produces it own bricks, cement, soft drinks, beer, cigarettes. The Laotian government has built a special economic zone in Savannakhet where a new bridge linking Laos and Thailand has recently opened. See Transportation.
Manufacturing and Industry in Laos in the 1980s and 90s
Estimates of the industrial sector's contribution (including construction) to GDP vary, but most sources find it to be slowly increasing, from about 10 percent in 1984 to about 17 percent in 1993. The World Bank estimated the sector's contribution at 14 percent in 1989. Most sources also indicated an increase in the percentage of the labor force employed in the sector, from about 5 percent in 1970 to about 7 percent in 1980. However, World Bank figures available in mid-1993 indicated that the sector employed only just over 2 percent of the labor force in 1986. All sources agree that the growth of the industrial sector had increased throughout the 1980s; the World Bank estimated an average annual growth rate of 3.4 percent between 1980 and 1989, despite negative growth in the drought years of 1987 and 1988 during which exports of hydroelectricity were substantially lowered. By 1990 the growth rate had leveled off, from a surge of nearly 32.0 percent in 1989 to about 12.7 percent in 1992. The virtual end of the command economy fueled the 1989 industrial boom and supported steady growth for at least the medium term. Principal activities in the industrial sector include manufacturing, construction, mining, processing agricultural and forestry goods, and producing hydroelectricity. [Source: Library of Congress, 1994 *]
There is a paucity of any real industry in Laos outside of timber harvesting and electricity generation. Nonetheless, "manufacturing" represents about half of all industrial activity. Other manufacturing activities include the production of agricultural tools, animal feed, bricks, cigarettes, detergents, handicrafts, insecticides, matches, oxygen, plastics, rubber footwear, salt, soft drinks and beer, textiles and clothing, and veterinary products. Manufacturing employed only approximately 2 percent of the labor force in 1991. A few factories in the Vientiane area have been rehabilitated since the mid-1980s. As of 1994, the garment industry was "booming" with investment from China, France, Taiwan, and Thailand; there were more than forty garment factories in the Vientiane area. *
The manufacturing subsector was composed of over 600 factories and plants, of which one-third were state-owned in 1991. Most manufacturing is for domestic consumption and is centered in the Vientiane area. As of mid-1994, there was little manufacturing in or near Laotian towns. In 1989 and 1990, there was a rapid increase in cottage industries such as cotton spinning and weaving, traditional village crafts, basket-weaving, and the production of alcoholic beverages. As part of the informal business sector, however, cottage industries are not covered by national statistics. *
Between 1980 and 1990, over 80 percent of manufacturing was in the production of clothing, food and beverages, metal products, tobacco products, and wood products. Industrial roundwood production increased 71 percent between 1975- 77 and 1985-87 to an annual average of 330,000 cubic meters and then declined to 309,400 cubic meters in 1990. Sources differ over the growth trend for lumber production; the UN reported a decrease in production of 61 percent between 1980 and 1988, and the Asian Development Bank showed an increase of nearly 400 percent in the same period. Cigarette production rose from 1.10 billion units per year from 1981-84; to 1.12 billion units in 1985 and an estimated 1.20 billion units per year for 1986-90. Statistics over a lengthy period of time for the production of other major goods are not readily available; however, the Asian Development Bank estimated that the value of metal products, food and beverages, and clothing (at 1991 prices) had increased greatly between 1980 and 1990, by 55 percent, 195 percent, and 196 percent, respectively. A general upward trend in the growth of production is borne out by official LPDR statistics from the first half of the decade. The World Bank reported that the manufacturing subsector grew by 35 percent in 1989, slowing to about 4 percent the following year. *
Industrial Policy in Laos the 1980s and 90s
The organization of the industrial sector prior to 1986 was centered on the state. Between 1979 and 1984, most state-owned enterprises incurred huge losses, and industrial sector output decreased by 10 percent. At the same time, gross industrial production began to shift slightly, to the private sector: private industrial output as a percentage of gross industrial output doubled to 8 percent between 1980 and 1983, whereas state output decreased slightly from 93 percent to 89 percent. In the early 1980s, a slow increase in the number of private enterprises began, reflecting both the government's newly relaxed policy on the private sector and the private sector's greater efficiency and profitability compared to that of the state sector. [Source: Library of Congress, 1994 *]
Following the introduction of the New Economic Mechanism, the private sector's involvement in industry increased even more, as industrial management was decentralized and most prices--except prices of basic utilities, air transport, postal service, and telecommunications--were freed from price controls. In 1988 Decree 19 granted state-owned enterprises expanded financial and managerial responsibilities. *
As a result of these changes, some state-owned enterprises were forced to curtail production sharply or close down entirely, precipitating a short-run drop in manufacturing output. It was not until March 1990, however, that the government provided a legal basis for the actual privatization of state-owned enterprises, through the promulgation of Decree 17. Under this decree, most state-owned enterprises were transformed into enterprises under other forms of ownership, through leasing, sale, joint ownership, or contracting with workers' collectives. Exceptions included enterprises deemed necessary to the nation's security or economic and social health, such as utilities and educational facilities. The extension of credit to unprofitable state-owned enterprises was discontinued, and state-owned enterprises were required to set prices and salaries at free market levels. By the end of the year, the private sector's contribution to net material product had increased dramatically, to 65 percent. *
The government reported at the Fifth Party Congress in 1991 that its "disengagement" policy was succeeding; two-thirds of the approximately 600 state-owned enterprises have been either partially privatized or leased to domestic or foreign parties. The remaining state-owned enterprises were granted greater autonomy in making investment decisions and setting input and output targets, in hopes of improving their productivity. *
Labor in Laos
A) Labor force: 3.69 million (2010 est.), country comparison to the world: 95. B) Labor force - by occupation: agriculture: 75.1 percent; industry and services: NA (2010 est.). C) Unemployment rate: 2.5 percent (2009 est.), country comparison to the world: 18; 2.4 percent (2005 est.) [Source: CIA World Factbook]
By some estimates more than three quarters of the population is engaged in agriculture, fishing or forestry and 10 percent are employed by the civil service or are in armed forced and 10 percent are unemployed or underemployed. There is little manufacturing.
The government employs the majority of salaried workers. The government set wages and salaries for government employees; management set wages and salaries for private business employees. [Source: 2010 Human Rights Report: Laos, Bureau of Democracy, Human Rights, and Labor, U.S. State Department, April 8, 2011]
During French colonialism the French rulers knew the industry and work ethic of the various nationalities who they governed in Indo China. The Vietnamese were considered the most industrious and the region‘s best workers. Whereas the Laos nationals were known as the least industrious. Whenever the French required workers for major projects within the region they invariably imported Vietnamese to do the hard yakka.
Occupational specialization in the village is low; virtually everyone is a rice farmer first. Some villagers may have special skills in weaving, blacksmithing, or religious knowledge, but these skills are supplementary to the fundamental task of growing enough rice and vegetables for the family. Social and economic stratification tends to be low within any one village, although villages may differ substantially one from another. Status accrues to age, wealth, skill in specific tasks, and religious knowledge. Factions based on kinship or political alliance may exist in a village but usually do not obstruct overall village cooperation and governance. [Source: Library of Congress]
In traditional Lao society, certain tasks are associated with members of each sex but the division of labor is not rigid. Women and girls are usually responsible for cooking, carrying water, maintaining the household and taking care of small domestic animals. Men are in charge if caring for buffalo and oxen, hunting, plowing paddy fields and clearing slash and burn fields. Both men and women plant, harvest, thresh, carry rice and work in gardens. Most small time Lao traders are women.
Both sexes cut and carry firewood. Women and children traditionally carry water for household use and to cultivate kitchen gardens. Women do most of the cooking, household cleaning, and washing and serve as primary caretakers for small children. They are the main marketers of surplus household food and other petty production, and women are usually the commercial marketers for vegetables, fruit, fish, poultry, and basic household dry goods. Men typically market cattle, buffalo, or pigs and are responsible for the purchase of any mechanical items. Intrafamily decision making usually requires discussions between husband and wife, but the husband usually acts as the family representative in village meetings or other official functions. In farming work, men traditionally plow and harrow the rice fields, while women uproot the seedlings before transplanting them. Both sexes transplant, harvest, thresh, and carry rice. [Source: Library of Congress]
Laos Laws on Labor Issues
Laos law prohibits forced or compulsory labor except in time of war or national disaster. However, some NGOs reported that Lao girls were subjected to conditions of forced labor within the country. [Source: 2010 Human Rights Report: Laos, Bureau of Democracy, Human Rights, and Labor, U.S. State Department, April 8, 2011 ^^]
The Ministry of Labor and Social Welfare (MLSW) sets the minimum wage but has no regular schedule or transparent process for doing so. In 2009 the MLSW, in consultation with the FLTU and Lao Chamber of Commerce and Industry, set the daily minimum wage for the more than 120,000 private-sector workers at 13,385 kip (approximately $1.60); the monthly minimum wage was 348,000 kip ($41). Additionally, employers were required to pay a 8,500 kip ($1) meal allowance per day. These wages were insufficient to provide a decent standard of living for a worker and family. The NA, in consultation with the Ministry of Finance, increased the minimum wage for civil servants and state enterprise employees to 405,000 kip ($47.80) per month in 2008. In addition to their minimum wage, civil servants often received housing subsidies and other government benefits. Some piecework employees, especially on construction sites, earned less than the minimum wage.^^
The law provides for a workweek limited to 48 hours (36 hours for employment in dangerous activities) and at least one day of rest per week. Overtime may not exceed 30 hours per month, and each period of overtime may not exceed three hours. The overtime pay rate varies from 150 to 300 percent of normal pay. The overtime law was not effectively enforced.^^
The law provides for safe working conditions and higher compensation for dangerous work. In case of death or injury on the job, employers are responsible for compensating a worker or the worker's family. Employers generally fulfilled this requirement in the formal economic sector. The law also mandates extensive employer responsibility for those disabled at work, and this provision appeared effectively enforced. The MLSW is responsible for workplace inspections. Officials undertake unannounced inspections when notified of a violation of safe working standards. However, the MLSW lacked the personnel and budgetary resources to enforce the law effectively. The law has no specific provision allowing workers to remove themselves from a dangerous situation without jeopardizing their employment.^^
There were a number of illegal immigrants in the country, particularly from Vietnam, China, and Burma, and they were vulnerable to exploitation by employers. These immigrants primarily worked in construction, plantations, casinos, and service industries.^^
By law children under age 15 may not be recruited for employment except to work for their families, provided such work is not dangerous or difficult. The MoPS and the MoJ are responsible for enforcing these provisions, but enforcement was ineffective due to a lack of inspectors and other resources. Many children helped on family farms or in shops and other family businesses, but child labor was rare in industrial enterprises. Some garment factories reportedly employed a very small number of underage girls. [Source: 2010 Human Rights Report: Laos, Bureau of Democracy, Human Rights, and Labor, U.S. State Department, April 8, 2011]
Unions in Laos
Laos law does not allow workers to form and join independent unions of their choice; they may form unions without previous authorization only if they operate within the framework of the officially sanctioned Federation of Lao Trade Unions (FLTU), which in turn is controlled by the LPRP. In addition the law does not permit unions to conduct their activities without government interference and prohibits union membership for foreign workers. Strikes are not prohibited by law, but the government's ban on subversive activities or destabilizing demonstrations and its failure to provide means to call a strike made strikes extremely unlikely, and none were reported during the year. [Source: 2010 Human Rights Report: Laos, Bureau of Democracy, Human Rights, and Labor, U.S. State Department, April 8, 2011 ^^]
According to the FLTU, there were 3,910 trade unions nationwide, including in most government offices. These included 16 provincial trade unions, one municipal trade union, 36 ministerial trade unions, and 2,772 permanent trade unions. Total FLTU membership was 155,000, approximately 5 percent of the total workforce. Most FLTU members worked in the public sector.^^
There is no right to organize and bargain collectively. The law stipulates that disputes be resolved through workplace committees composed of employers, representatives of the local labor union, and representatives of the FLTU, with final authority residing in the MLSW. The ministry generally did not enforce the law, especially in dealings with joint ventures in the private sector. Labor disputes reportedly were infrequent. According to labor activists, the FLTU needed government permission to enter factories and had to provide advance notice of such visits, rendering it powerless to protect workers who filed complaints.^^
The law stipulates that employers may not fire employees for conducting trade union activities, lodging complaints against employers about law implementation, or cooperating with officials on law implementation and labor disputes, and there were no reports of such cases. Workplace committees were used for resolving complaints, but there was no information on how effective these committees were in practice.^^
There are no special laws or exemptions from regular labor laws in the country's export processing zone.^^
Trade in Laos
Laos is dependent on imports for much of its necessities such as petroleum and various kinds of foodstuffs. The largest sources of hard currency are money paid for exported electricity from dam projects and money sent to Laos from overseas relatives.
Trade with China, Thailand and Vietnam is increasing significantly as new bridges over the Mekong River have opened and new roads between China, Vientiane, Luang Prabang, Bangkok and Vietnam have been built.
A) Exports: $2.28 billion (2012 est.), country comparison to the world: 140; $2.131 billion (2011 est.). B) Exports - commodities: wood products, coffee, electricity, tin, copper, gold, cassava. C) Exports - partners: Thailand 33 percent, China 23.4 percent, Vietnam 13.4 percent (2011)
A) Imports: $2.645 billion (2012 est.), country comparison to the world: 153; $2.336 billion (2011 est.). B) Imports - commodities: machinery and equipment, vehicles, fuel, consumer goods. C) Imports - partners: Thailand 65.2 percent, China 11.1 percent, Vietnam 6.5 percent (2011)
Imports from China rose 50.2 percent between 2001 and 2003. Exports to China rose 80.5 percent between 2001 and 2003.
The Laos economy has benefited from high-profile foreign direct investment in hydropower, copper and gold mining, logging, and construction though some projects in these industries have drawn criticism for their environmental impacts. Laos gained Normal Trade Relations status with the US in 2004. Simplified investment procedures and expanded bank credits for small farmers and small entrepreneurs will improve Laos' economic prospects. The government appears committed to raising the country's profile among investors, opening the country's first stock exchange in 2011 and participating in regional economic cooperation initiatives. Laos was admitted to the WTO in 2012. The World Bank has declared that Laos' goal of graduating from the UN Development Program's list of least-developed countries by 2020 is achievable. GDP (purchasing power parity). [Source: CIA World Factbook]
See Mekong River.
Laos Joins the World Trade Organization (WTO)
Laos was officially admitted to the World Trade Organisation (WTO) in February 2012 after it ratified an agreement to become the WTO's 158th member. AFP reported: “Laos worked on membership for 15 years before the WTO general council accepted its bid on October 2012. Entry into the WTO brings with it the promise of increased trade volume and new trade partners for Laos, as well as the prospect of fresh investment pouring into the country. The move is part of the country's stated ambition to graduate from least developed country status by 2020. [Source: AFP, January 10, 2013]
Amelie Bottollier-Depois of AFP wrote: Joining the World Trade Organization is a milestone that the small landlocked nation owes to a slew of reforms it must now enforce. The process "has been long and tedious", said Industry and Commerce Minister Nam Viyaketh. But it has also "provided us the necessary basis to achieve our goal" of graduating from least developed country status by 2020, the official said. [Source: Amelie Bottollier-Depois, AFP, October 3, 2012]
Laos was the only Southeast Asian nation that hadn’t joined the WTO. "The WTO has forced the country's leaders to remove an outdated and incomprehensible legislative framework" and offer more "guarantees" to investors, said one foreign expert who did not want to be named. Since negotiations got under way properly in 2004, Laos has adopted dozens of laws to bring it in line with WTO requirements in areas such as investment, food safety, animal health, import and export procedures and intellectual property rights -- a flurry of activity rarely seen in the communist state.
"The Laos government has taken many steps towards liberalising its economy," said Carr Slayton of the US-ASEAN Business Council, which represents American firms in Southeast Asia. "WTO membership is an important step in Laos's efforts to become a more investment-friendly country," he said. Yet it remains to be seen how well these new regulations will be implemented in a country that has been ruled by the same communist party since 1975.
The impact of the WTO entry talks on the economy "has been limited, mainly as the government is reluctant to trim the cumbersome and extensive bureaucracy," argued Arvind Ramakrishnan, principal Asia analyst at risk analysis firm Maplecroft. It is a view not shared by Nicolas Imboden, executive director at Ideas Centre, a Swiss non-profit group that has been advising the Laos government during its accession talks. "If they apply and implement seriously the new policies and laws -- and I don't doubt one minute that they will -- it is a market economy," Imboden said.
It is little surprise then that Laos is hoping WTO membership will attract foreign capital to new sectors. Geographic diversification is also seen as important as the country seeks to reduce its heavy economic dependence on its powerful neighbours China, Thailand and Vietnam, while WTO procedures will enable Laos to defend itself in the event of trade disputes. "Laos is essentially trying to contain the flood of Chinese investors and workers that have come into its territory, because... the country fears its sovereignty is under threat," the foreign expert said.
Another benefit of joining the WTO is that the outside world could start to see Laos in a different light. "There are a lot of areas where Laos is moving pretty fast," said Steve Parker, who runs a USAID-funded project to support Laos in implementing the new rules. "I'm not one of these who think that Laos is just this sleepy little place. There is a lot of energy and a lot of people working very hard here," he said.
Foreign Investment in Laos
Foreign investment in the nation jumped from $300 million in 2005 to $1.5 billion in 2011, according to the World Bank -- but 80 percent of the money went into hydropower and mining projects. Investment (gross fixed): 28.6 percent of GDP (2012 est.), country comparison to the world: 26.
There are not that many foreign businessmen in Laos. Efforts to attract foreign investors have not born much fruit. Laos has low taxes and liberal investment laws (foreign companies can own 100 percent of an enterprise in Laos as long as they work through a Laotian broker) yet it doesn’t attract many foreign investors. Liquidity problems and Laos’s small population and lack of infrastructure have made firms think twice about investing. Total foreign investment in 2000 was only $72 million.
Asian Development Bank Country Director Chong Chi Nai told Reuters: "The challenge for Laos is not the amount of funds coming into the country, but whether these funds are invested in a responsible and environmentally sustainable manner," he said. "But there's no doubt Laos is on the right track." [Source: Martin Petty, Reuters, December 18, 2011]
Martin Petty of Reuters wrote: “But it's still off the radar to Western companies concerned about regulation, labor capacity, a lack of transparency and Laos's very cozy political and business ties to its neighbors. "Laos is still seen as a frontier market by most foreign investors, but there's strong potential," said a Western diplomat in Vientiane. "Trends in the investment environment are generally in the right direction." [Source: Martin Petty, Reuters, December 18, 2011 <<>>]
“Critics say that's because too many projects are agreed opaquely and informally, through incentives and lobbying of the political elite -- arrangements that frustrate Western firms. "Where does this leave Western companies? Well, at a certain disadvantage, not only from the business cultural angle but also from the business ethics point of view. This environment may suit regional companies as it scares off competition," said a Western diplomat. <<>>
Wayne Arnold wrote in the New York Times, “Beyond hydroelectric power and other natural resources, Laos lacks just about everything. Its domestic market is small, and paved roads and electricity are rare. Worse for many investors, few officials speak English or understand business. Red tape, though, is in ready supply. The government only recently lifted a rule requiring every foreign investment, no matter how small, to be approved by the prime minister. Still, government approvals typically take more than a year. The authorities are candid about these problems and say they are trying to overcome them, whether by educating officials or issuing decrees eliminating bureaucratic obstacles.” [Source: Wayne Arnold, New York Times, March 5, 2002 ~~]
Foreign Investors in Laos
Official data since 2000 shows Vietnam has invested $2.77 billion, China $2.71 billion and Thailand $2.68 billion, and they have little competition. According to a report from the Laos Ministry of Planning and Investment, from 1989 to 2012 Vietnam invested in 429 projects in Laos with a combined value of about US$4.9 billion, making it largest foreign investor in Laos. The second largest foreign investor in Laos is Thailand. From 1989 to 2012, Thailand invested in 742 projects with a combined value of about US$4 billion. The third largest foreign investor is China with 801 projects and a combined investment value of about US$3.9 billion. [Source: Vientiane Time, May 17, 2013 ////]
Thailand is the largest investor in Laos. Thailand banks have branches in Vientiane. Between 1988 and 1996, foreign investors pledged $5 billion, three quarters of which went to hydroelectric projects to supply Thailand with energy. Some labor-based Thai industries such as agriculture and textiles have moved their operations to Laos. Thai traders provide Laos with much of its processed foods and consumer goods.
Martin Petty of Reuters wrote: Laos “is courting neighboring China, Vietnam and Thailand to develop resources and infrastructure, and they are piling in, indifferent to the risk aversion that keeps Western firms on the sidelines. Thai-built hydropower projects are underway across Laos's network of waterways. Vietnamese agribusinesses are proliferating and Chinese firms are pouring into the mining and transport sectors. [Source: Martin Petty, Reuters, December 18, 2011]
Chinese Investment in Laos
Thomas Fuller wrote in the New York Times: “Cash-strapped Laos is encouraging Chinese investment by handing out what it has plenty of: land. Deputy Prime Minister Somsavat Lengsavad has said the government will trade “land for capital.” The government recently gave a Chinese company a 50-year renewable lease for a large swath of prime land outside the capital, Vientiane, in exchange for the building of a sports stadium. Here in Luang Namtha, a Chinese company has been given 30-year rights to build and operate what is being called, perhaps euphemistically, the Bo Ten Economic Development Zone. [Source: Thomas Fuller, New York Times, March 31, 2008]
Martin Petty of Reuters wrote: “Vietnam has a foot-in because of its close political relationship, but China appears to be using its wealth to muscle in on Hanoi's turf. China sees Laos as its gateway to Southeast Asia's 600 million people and $2 trillion GDP, and bilateral trade with Laos has grown 40 percent to $1.1 billion annually since 2009. Chinese banks have offered loans to Laos to hire Chinese firms to build infrastructure, including $3 billion from the China Development Bank alone. [Source: Martin Petty, Reuters, December 18, 2011 <<>>]
“China is bargaining hard, not just for influence but for long-term land and agricultural concessions in return for help, sometimes causing friction, with land promised in return for a national stadium not forthcoming and the rail plan put on ice over a concession dispute. China's growing presence is also contentious, with concern about gang crime linked to Chinese casinos and an influx of migrant workers settling after work is finished. <<>>
With Western companies sitting out the boom, Laos seems happy to rely on its neighbors and gain from their competition. "The politics of Laos is the politics of patronage. They like to play China and Vietnam off each other," said Ian Storey, a Laos expert at Singapore's Institute of Southeast Asian Studies. "Vietnam still has the inside track politically. What Laos does is try to balance its relations with Vietnam and China, not favoring one over the other, and get benefits from both." <<>>
Text Sources: New York Times, Washington Post, Los Angeles Times, Times of London, Lonely Planet Guides, Library of Congress, Laos-Guide-999.com, Compton’s Encyclopedia, The Guardian, National Geographic, Smithsonian magazine, The New Yorker, Time, Newsweek, Reuters, AP, AFP, Wall Street Journal, The Atlantic Monthly, The Economist, Global Viewpoint (Christian Science Monitor), Foreign Policy, Wikipedia, BBC, CNN, NBC News, Fox News and various books and other publications.
© 2008 Jeffrey Hays
Last updated May 2014