Depth report

　　

Still an agricultural country, electricity exports are an important source of foreign exchange

Laos is a traditional agricultural country with a relatively weak economic foundation. Consumption as a share of GDP is the largest in Laos, having stayed between 80% and 85% between 2005 and 2016 (no data are available for subsequent years); The contribution rate of net exports to GDP is negative, indicating that Laos is in a trade deficit position, which directly indicates that Laos' GDP is largely driven by domestic demand. According to the data comparison analysis, the proportion of GDP in the three major industries in Laos has not changed much in the past 10 years, of which the service industry accounts for the largest proportion of GDP in Laos, followed by industry, and agriculture accounts for the smallest proportion of GDP in the three major industries. However, the relevant data also show that although the proportion of industry and service industry is large, the development is not sufficient, and the added value of manufacturing industry accounts for a low percentage of GDP, Laos is still an agricultural country.

Specifically, the growth of the service industry in Laos is mainly contributed by the wholesale and retail and auto repair industry, public administration and national defense and compulsory social security undertakings, real estate industry and other industries. In recent years, the development of tourism service industry has also played a role in its economy and society, which is listed as one of the six priorities in the socio-economic development plan of Laos in 2021-2025. In contrast, Lao agriculture, although a pillar industry, has not fully realized its potential and contributes little to the country's poverty reduction goals, so the Lao government plans to increase the commercialization and industrialization of the agricultural sector, and to attract foreign investment as one of the main countermeasures.

In addition, the report found through research that although Laos is facing certain development difficulties, its hydropower, mineral and other resources are very rich, which has become a favorable condition for promoting development. Laos is one of the major exporters of electricity in Southeast Asia, known as the "battery of Southeast Asia", at present, about 70%-80% of the electricity produced in Laos is exported, and electricity exports have become an important source of foreign exchange. The main buyers are Thailand, Cambodia and Vietnam, especially with the development of processing manufacturing, Vietnam's purchase of electricity from Laos is increasing.

The role of "China-Laos railway" is obvious, and the three industries each have investment potential

The report also makes a detailed analysis of Laos' import and export situation, trading partners, trade commodity structure, foreign trade policy, and the specific situation of China-Laos trade. We find that, unlike other countries in the ASEAN region that mainly trade in transit, such as Singapore, or countries that mainly trade in processing, such as Vietnam, etc., Laos' dependence on import and export of foreign trade will be greater than its GDP, which is mainly due to its low domestic consumption capacity and heavy dependence on the import and export market.

In terms of Laos' trade development, Laos has trade relations with more than 50 countries and regions, among which it is more close to its trading partners in Asia. In 2022, Thailand, China, Vietnam and Japan will be the top four trading partners of Laos respectively. The data also show that China, as the largest source of foreign investment in Laos, now plays an important role in the national economy of Laos, and the opening of the "China-Laos railway" has played an obvious role in promoting the economic and trade cooperation between China and Laos, not only adding new import and export categories for the two countries, but also developing the construction of relevant agricultural cooperation parks between the two countries.

In the "Report", the Dongbo Think-tank also conducted a more detailed data analysis of the specific provinces that have trade exchanges between China and Laos in recent years. The analysis found that Laos has close cooperation with China's Yunnan Province, Beijing City and Guangdong Province in import and export trade. Yunnan is the largest province in Laos' import and export trade with China, mainly in mineral products, agricultural products and food. It is worth mentioning that with the opening and operation of the China-Laos railway, "railway non-motor passenger cars" appear in the categories of commodities imported from Yunnan by Laos.

In terms of foreign investment, the report points out that the top three industries attracting foreign investment in Laos are electricity, mining and agriculture, after analyzing the main sources of foreign investment in Laos and the main fields and regions of foreign investment inflow, the relevant investment policies of Laos such as supporting agriculture and special economic zones, as well as the investment factors such as human cost, land/plant cost and water electricity price. Manufacturing, service, industry and handicrafts have become more potential investment industries. Laos has investment advantages such as rich resources, stable political and social environment, and very young population structure. However, limited by its relatively low level of economic development, its backward infrastructure and low comprehensive quality of labor force are also obvious investment risks.