Laos in 2015: A Pivotal Year in Moving Towards the AEC

Summary

The year 2015 was an intriguing one for Laos. It was a year of taking stock of the country's socio-economic and political developments following Laos’ reform efforts and economic integration. Laos’ accession to the World Trade Organization (WTO) in 2013 was the latest in a series of steps towards such integration, and the next milestone is joining the ASEAN Economic Community (AEC) in January 2016. The AEC presents ample opportunities for Laos, yet the accompanying challenges are not to be underestimated. Laos will also assume ASEAN chairmanship in 2016, a role that is expected to be positive for the country's international reputation and its commitment to further assimilate into the region, although the real impact will only be evident in the medium to longer term.

The year 2015 was also a time for reflection as Laos observed its fortieth year of state building since its independence in 1975. Even though Laos has sustained relatively high economic growth, the country has faced challenges in managing its fiscal deficit amidst the slow recovery of the global economy. Its exports continue to be skewed towards resource-based products, and in the medium term exports and investment inflows to non-resource sectors are not expected to rise much due to supply-side constraints and a lack of private sector competitiveness. This is largely attributed to a shortage of skilled labour and the high costs of doing business. In terms of politics, Laos will see a power transition in 2016, but that is not expected to significantly change the governance landscape.

As Laos is a small, rural, landlocked country surrounded by much larger ones, economic and development challenges and ambitions are the most important domestic factors shaping Laos’ future.

Economy and Emerging Challenges

The economic growth of Laos was moderate in 2015, with the gross domestic product (GDP) estimated to expand by 6.4 per cent according to the World Bank, and predicted to pick up to 7 per cent in 2016. However, the figures estimated by the Asian Development Bank are somewhat higher, at 7 per cent for 2015 and 7.2 per cent for 2016. These estimates are based on strong investment in the energy sector, particularly the authorization of one segment of the Hongsa lignite power plant, and the higher production output of copper and gold.