Every region in the world has countries that are overlooked by pundits, politicians, and public policy makers. These countries tend to be small, limited impact on trade and often geographically isolated.
Today in Southeast Asia, Laos plays this role of forgotten country.
The country of Laos, officially named the Lao People’s Democratic Republic (Lao PDR) traces its history back to the state of Lan Xang or the “Kingdom of the Million Elephants” which was founded in the mid 1300’s. From this time until its eventual breakup in 1707, Lan Xan was one of the largest kingdoms in Southeast Asia. After its dissolution in to three separate kingdoms, numerous invasions, colonization, and its eventual declaration of independence in 1977, Laos has survived to this day though mainly forgotten by most outsiders.
Its geographic position in Southeast Asia means that it is at the crossroads between other countries and has often been viewed as a buffer state that needs to be controlled by outside forces such as the Thais, Vietnamese, Burmese, the French, or the Americans. Today, China plays an increasingly significant role in Laos affairs as it looks to secure its own borders and gain access to new markets.
When trying to understand a country like Laos, I always start with its geography.
Laos is a small, landlocked state in the middle of the Southeast Asia peninsula. The Mekong river traverses the entire country helping to function as its western border with Thailand. The country is mountainous in the north and along its eastern border with Vietnam while there is a plain in the central part of the country that it better suited for agriculture.
Due to its central location on the Southeast Asian peninsula, Laos shares borders with five other countries: Myanmar, Thailand, Cambodia, Vietnam, and China. Myanmar, Thailand, and Vietnam all have a history of fighting and invasions (successful or not) of Laos predecessor states.
Its mountainous geography has provided protection, but the very same geography also limited internal and external trade. The lack of ocean access is another factor in limiting Laos ability to conduct international trade.
As of 2020, Laos had 7.26 million people with a median age of 21.6 years making it the country with the youngest population in Asia. Over half of its population is ethnically Lao with different ethnic groups making up the remainder of the population. The country is primarily divided into separate groups based on what altitudes they live at with the Laotians found in the plains, the Mon-Khmer in the Midlands while the population of the highlands is referred to as the “Lao Soong” or highland Laotians who consist of various tribes of cultural and linguistic heritages such as the Hmong, Dao, Shan, Lua, and Khmu.
The official language in the country is Lao but the overall mix of languages spoken in Lao is like its ethnic mix. The largest religion in Laos is Buddhism which 66% of Laotian practice while 30% practice Tai folk religion and that balance of individuals follow other religions such as Christianity.
Laos has been governed by the Lao People’s Revolutionary Party (LPRP). The LPRP was founded in 1955 by members of the Indochinese Communist Party and led the insurgency against the Kingdom of Laos and the Royal Lao Government, a constitutional monarchy that was formed in 1953.
In 1975, the LPRP assumed power after the Kingdom of Laos “voluntarily” abdicated and was dissolved. The LPRP is the only official party allowed in Laos with the General Secretary holding power over the Party, the State, and the government. The current leader Laos is General Secretary and President Thongloun Sisoulith who assumed the role in January 2021.
Due to its history with the Vietnam Communist Party because of its time fighting the Vietnam Wars together, the LPRP has strong personal and political connections to Vietnam which most senior leaders of the Party receiving part of their education in Hanoi. Vietnam is also a key security and trade ally as well. While historically, Thailand has been a security threat to Laos (and vice versa), the relationship between the two countries in focused on economic ties.
China has played in increasing role in Laos economy and political environments over the past 30 years as it has become Laos largest investor and lender in the country. Laos understands the importance of China to its economy but also the risks that it could pose on a security and political front. Laos also recognizes that it is too small to take on China by itself and thus attempts to balance China’s influence by engaging with its neighbors and other regional powers. One oft cited example of Laos diplomatic ability to balance various countries is its “infrastructure in downtown Vientiane, which boasts an airport built by Japan, a riverbank redevelopment project undertaken by South Korea and its international conference halls erected by China”.
Vietnam, which is determined to maintain its influence in the country and with its leadership, announced in 2021 that it had gifted a new parliament building worth US$111 million to Laos.
As a one-party state, the issue of democratic rights and engagement is almost unheard of in Laos. In fact, the country places 161st on the Democracy Index by the Economist Intelligence Unit – or the seventh worst in the world. It scores similarly low scores on indexes measuring press freedoms and human rights.
With the average Laotian earning about US$2,150 per year, Laos is still one of Asia’s poorest countries. The country had seen GDP growth averaging more than 6% per year since 2000, the COVID outbreak in 2020 brought its economy to a standstill. Growth is expected to return with the World Bank predicted economic growth of 4.5% in 2022 and 4.8% in 2023. Much of Laos projected GDP growth will be reliant on the growth of Thailand (41%), China(29%) and Vietnam(18%) which consume 88% of Laos exports. A slowdown in one or more of these countries’ economies will have a substantial impact on Laos.
Laos main exports are natural resources such as timber, copper, and hydroelectricity while its largest imports are machines, vehicles, and telecoms equipment. While Laos is a member of both ASEAN and the RCEP trade agreement, it is Thailand, China and Vietnam that are the source of most Laos imports and its foreign direct investment. Other countries such as Japan, Korea and Australian also have foreign direct investment in Laos but these investments are focused on pulp, food production and mining.
Despite the strong economic growth over the past twenty years, Laos is still a low-income country, and it faces multiple economic challenges from a lack of skilled workers, a weak education system and underinvestment in trade infrastructure with the recent high-speed train to China being the exception to this. In addition, government and legal institutions in Laos are weak. Corruption is widespread in Laos which is reflect in is low ranking in Transparency International Corruption Index (130 out 180). The World Bank ranking Laos as the 154th out of 180 for countries for ease to do business in gives an idea of the challenges that companies face.
Laos geographic position in the Southeast Asian peninsula means that it is a playing a role in two geopolitical issues: the Mekong River and the Pan-Asian Railway.
Damming the Mekong
As was noted above, the Mekong River traverse the entirety of Laos as it winds its way from the Himalayas in China to the Mekong delta in Vietnam. The Mekong River is important to Laos socially, culturally, and economically but it is the Laotian government goal of becoming the “Battery of Southeast Asia” with the development of hydropower using dams that is causing consternation with its neighbours who fear the ecological impacts that these dams will have on the Mekong River.
Over the past 15 years, Laos has constructed 50 dams on the Mekong River or its tributaries while another 50 dams are planned. In total, Laos has 78 operational dams with an additional 246 more that are in the planning stage. The purpose of all these dams is to provide Laos with hydroelectricity for their internal market and to export the excessive energy to neighbouring countries such as Thailand, China, and Vietnam.
However, despite the increase in available hydroelectricity power and the continued construction of dams, the expand demand for power from its potential customers has not materialized due for reasons as wide ranging as the dropping costs of alternative energy sources, local opposition to the environmental costs of the dams, to lower than expected energy demands as its neighbours’ economies have grown slower than expected both pre- and during the COVID19 pandemic.
The question of how Laos is paying for all the construction of these dams is an important one. To date is has partnered with various companies from Thailand, Malaysia, and China to develop, construct and operate the dams but the country has also borrowed funds to pay for its portion of these infrastructure projects. Without customers who are willing to sign long-term energy contracts, Laos will not be able to service debts and could find itself in a “debt-trap” position to a regional neighbour. An example of this can be found in 2020, when a Chinese state-owned enterprise, the China Southern Power Grid, to over Laos’s electricity grid by assuming control of Electricite du Laos after the Laos government had difficulty with its debt obligations.
First proposed by the English and French in 1900, the idea of a Pan-Asian railway was revived in 2000 by ASEAN which proposed a railway running from Singapore to Kunming, China. While the entire Pan-Asian railway has not yet come to fruition, in early December 2021 as high-speed rail line was opened connecting Bohen, China with Vientiane, Laos as part of China’s Belt and Road Initiative, the 422km long rail-line, with seventy-five tunnels and 167 bridges, is projected to cost over US$6.0 billion. The economic impact of the railway on Laos is unclear. While Lao policy makes promote the potential for a drop in transport costs, the drop-in travel time from the Chinese border to Vientiane from 15 hours to 4 hours, and the increase in foreign investment in the country, the line itself was built by Chinese companies using imported Chinese labour and Chinese materials limiting the direct economic benefit to Laos.
To fund its portion of the railway, the Lao government has borrowed $US1.54 billion from the Export-Import Bank of China. With elevated level of debt for a single project and the fact that the rail line does not yet connect to Thailand, Laos largest export market, there is significant concern about the economic viability of this project and of the Lao government ability to pay for it. Foreigners are watching to see if this project will be another case of “debt-trap” diplomacy.
Overlooked by most, Laos’ young and growing population provide the country with potential opportunities yet its lack of skilled workers, weak education system, underinvestment in key infrastructure and elevated levels of corruption mean that without changes to its internal policies the Lao government may miss its window of opportunity.
Laos’ geographical location on the Southeast Asia peninsula means that it will always be impacted by its neighbors’ interests and decisions. While none of Laos neighbors represent a clear security threat to the country, Laos position as a buffer state means that other countries will continue to vie for influence in and over Laos – not always to the benefit of the Lao people.
Issues such as dams on the Mekong River and the Pan-Asia railway will play an important role in the future of Laos and the ASEAN region, but it is not yet clear if the benefits that Laos is expecting from each project will materialize or if the country will face significant debt problems in the medium and long-term.