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COUNTRY BRIEFS


OVERVIEW

Australia established formal diplomatic relations with Laos in 1952. The Australia-Laos relationship is diverse, encompassing development assistance, deepening economic ties—including through significant Australian investment in natural resource development—and people-to-people links.

The Lao community in Australia numbers around 10 000, many of whom came as students under the Colombo Plan in the 1960s and 1970s and were later granted permanent residency. After 1976, these were joined by refugees who fled Laos following the establishment of the Lao People's Democratic Republic in 1975.

Australia and Laos have had a number of high level visits in both directions over recent years. Most recently, Lao Vice Minister of Finance, Dr Viengthong Siphandone, visited Australia from 22-27 May 2011, to discuss natural resources revenue management.

In July 2010, Lao Vice Minister of Planning and Investment, Mr Bounthavy Sisouphanthong, visited Australia to discuss economic and development cooperation.

In April 2010, an Australian parliamentary delegation led by the Hon Mr Duncan Kerr MP, travelled to Laos. The delegation met with Deputy Prime Minister and Minister for Foreign Affairs, Dr Thongloun Sisoulith, and the National Assembly. Delegates also had the opportunity to explore environmental and economic issues relating to the Mekong River, as well as the ongoing impacts of cluster munitions and unexploded ordnance (UXO) in Laos.

Madame Khemmani Pholsena, Lao Vice Minister of Industry and Commerce, visited Australia from 14-19 March 2010. During her visit, which focused on agribusiness, Madame Khemmani met Mr Anthony Byrne MP, the then Parliamentary Secretary for Trade, as well as relevant Government bodies, academics, industry organisations, and agricultural producers.

Dr Sinlavong Khoutphaytoune, Lao Minister of Planning and Investment, visited Australia from 26 May to 3 June 2009. The visit focused on foreign investment cooperation, particularly in the mining sector, and provided opportunities for Dr Sinlavong to meet Mr Simon Crean, the then Minister for Trade, as well as officials from relevant State and Federal Government agencies.

Mr Bob McMullan MP, the then Parliamentary Secretary for International Development Assistance, visited Laos from 29 April – 1 May 2009, where he met Lao Ministers and visited several projects showcasing the development cooperation program.

Dr Nam Viyaketh, Lao Minister of Industry and Commerce, visited Australia as a Guest of the Australian Government from 25-30 May 2008. During his visit, Dr Nam met Mr Simon Crean, the then Minister for Trade, Mr Stephen Smith, the then Minister for Foreign Affairs and Mr Martin Ferguson, Minister for Resources and Energy, Minister for Tourism. The visit afforded the opportunity for Dr Nam to meet State Ministers in Victoria and New South Wales, to undertake site visits relating to timber production, mining, customs and quarantine and to make calls on relevant Government bodies.

The Lao Minister of Public Security, Mr Thongbanh Sengaphone, visited Australia in August 2008, as a guest of the Australian Federal Police (AFP), to expand bilateral cooperation on transboundary threats and transnational crime.

Development cooperation

Development cooperation has been a feature of the bilateral relationship for almost five decades. In 2011-12, Australian government overseas development assistance to Laos will be an estimated $42.1 million of which $32.1 million will be dispersed through the Laos country program which focuses on education, inclusive growth through trade and investment reform, and rural development. Australia is one of the six largest bilateral aid donors to Laos.

The Australian Development Scholarships program currently offers up to 40 scholarships to Lao students to study in Australia each year. There are some 800 Lao alumni of the program, many of whom are now in positions where they can actively contribute to development.  Australian Development Scholarships (http://www.ausaid.gov.au/scholar/studyin.cfm) provide educational, research and professional development opportunities to support growth in the region and to build enduring links at the individual, institutional and country levels.

Human rights

The Government actively pursues initiatives designed to promote human rights in Laos, including through a regular bilateral human rights dialogue. The dialogue provides a forum for open and constructive discussion of human rights issues of interest to both countries. The second dialogue was held from 6 to 8 April 2009 in Vientiane, following the first dialogue which took place in October 2006.

Australia funds a range of projects aimed at the promotion of human rights in Laos under the Human Rights Grants Scheme (HRSGS). Most recently, the Lao Disabled People's Association received funding for projects focused on raising awareness of disability rights and building human and disability rights institutional structures in Laos.

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GENERAL INFORMATION

Laos is the only land-locked country in mainland South-East Asia and is bordered by China, Vietnam, Cambodia, Thailand and Burma. Its total land area, much of which is mountainous and densely forested, is approximately 237,000 square kilometres (roughly equivalent to the State of Victoria). The Mekong River, almost half the length of which flows through Laos, forms most of the border with Thailand. Large population centres (including Vientiane, Luang Prabang, Pakse and Savannakhet) lie on the Mekong.

The population of Laos is approximately 6.4 million people, and is diverse, with 49 broad ethnic groups recognised by the Government of Laos, and four major linguistic groups. The largest language group, the Lao-Tai, consists of eight ethnic groups. Forming around 35 per cent of the total population (roughly encompassing what was previously referred to as the Lao Loum population), this group is politically and culturally dominant within Laos.

The official language is Lao ,  a tonal language structurally similar to Thai. Among younger Lao, English is now the most widely-spoken second language.

Theravada Buddhism, the dominant religion of Laos, is followed by approximately 60 per cent of the population, and a higher proportion of members of the Lao-Tai language ethnic groups. Animism is still widely practiced among a number of minority groups, especially in the more remote rural areas.

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POLITICAL AND SOCIAL OVERVIEW

Laos became the Lao People's Democratic Republic (Lao PDR) on 2 December 1975 following the abdication of the King, after many years of civil war and political instability.

The Lao PDR is a nominally Marxist-Leninist state ruled by the Lao People's Revolutionary Party (LPRP). The eleven-member Politburo of the LPRP, drawn from its Central Committee, is the key decision-making body. A National Assembly, which is elected by the people from a list of candidates approved by the Party, meets twice a year and is responsible for scrutinising proposed legislation.

Since 1986 Laos, in line with its larger socialist neighbours, has promoted gradual economic liberalisation through the so-called New Economic Mechanism (NEM). In doing so, the government has moved cautiously from a centrally planned economy to a more market-oriented system.

In August 1991, the National Assembly adopted a new constitution which formalised the establishment of a market-oriented economy, guaranteed the right of every Lao citizen to own property, and provided protection for foreign and domestic investment. Indicators of the more open society that has emerged over the past decade include greater freedom to travel, choice of employment, and the development of a fledgling private sector.

The ninth Party Congress took place in March 2011, with National Assembly elections held in April 2011.  The National Assembly convened on 15 June and re-elected Mr Choummaly Sayasone for a second term as President, with Mr Bounnhang Vorachit returned as Vice President and Mr Thongsing Thammavong as Prime Minister.  The four Deputy Prime Ministers, including Minister of Foreign Affairs, Dr Thongloun Sisoulith, were all reappointed.  Mrs Pany Yathortou was re-elected as President of the National Assembly.  Changes to the cabinet included the appointment of Mr Kampane Philavong as Minister for the Interior (a new portfolio) and the appointment of a new Minister for Planning and Investment, Mr Somdy Douangdy (former Minister of Finance).

Members of the Politburo of the Lao PDR (in order of precedence)

-- Mr Choummaly Sayasone

-- Mr Thongsing Thammavong

-- Mr Bounnhang Vorachit

-- Dr Thongloun Sisoulith

-- Mrs Pany Yathotou

-- Mr Asang Laoly

-- Lieutenant General Douangchay Phichith

-- Mr Somsavat Lengsavad

-- Dr Bounthong Chitmany

-- Dr Bounpone Bouttanavong

-- Dr Phankham Viphavanh

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FOREIGN POLICY

The most politically important of Laos' bilateral relationships is with Vietnam. The 1977 Treaty of Friendship and Cooperation between the two countries covers defence arrangements, delineation of the border and Vietnamese economic assistance to Laos.

China's profile and influence in Laos is rising. As with Vietnam, close relations with China reflect ties between the countries' Communist Parties. The size and regional weight of China are also according the Chinese greater strategic influence vis-à-vis Laos' other neighbours.

Thailand is another important bilateral partner, due to proximity and cultural and linguistic affinity, as well as strong trade and investment links. Parts of the border with Thailand are still undergoing formal demarcation. Some areas are subject to insurgent activity. Political differences, illegal trade in narcotics and cross-border movement of people also continue to complicate relations.

The collapse of the former Soviet Union and its fraternal communist regimes in Eastern Europe was unsettling for the Lao leadership, which since 1975 had enjoyed close relations with and economic assistance from those states. Laos has subsequently sought to broaden relations with a range of countries, as well as with the international donor community. In July 2010, Lao Deputy Prime Minister and Minister of Foreign Affairs, Dr Thongloun, visited the United States – the most senior official visit to Washington by Laos since 1975.

Laos was admitted to ASEAN (the Association of South-East Asian Nations) in July 1997, and was Chair in 2004-05. Laos is a member of the Mekong River Commission and hosts its headquarters.

Laos applied to join the World Trade Organization (WTO) in 1997. The first meeting of the WTO Working Party on the Accession of Laos was held in October 2004, when examination of its foreign trade regime commenced. The seventh Working Party meeting took place in June 2011,in the margins of which Australia signed an agreement concluding bilateral market access negotiations related to Laos’ accession. Assessments of its conformity with WTO obligations and some bilateral market access negotiations continue.

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ECONOMIC OVERVIEW

Performance and outlook

Laos is classified as a Least Developed Country (LDC) and relies heavily on donor assistance. It has a target date of 2020 to achieve the Millennium Development Goals and graduate from LDC status. The World Bank has recently upgraded the status of Laos from a low income to a lower middle-income country.

Real GDP growth has averaged more than 7.5 per cent since 2004. Strong growth was maintained throughout 2010, at around 8.4 per cent (World Bank forecast), driven largely by the resources sector. Per capita gross domestic product was around USD$1,160 in 2010. The resource sector (mining and hydropower) and related services now account for more than half of total investment and exports.

The economy is dominated by subsistence agriculture (on which 80 per cent of the population relies), and the cash economy has made little inroad into remote areas. Notwithstanding significant improvements in recent years, infrastructure constraints limit the efficiency of agriculture.

Lao taxation revenues had until 2007 been absorbed mainly by provincial governments. Compared with other developing countries, the national government has a low ratio of revenue to GDP.

Against these constraints, since the Lao Government adopted a policy of economic liberalisation it has made progress towards a more market-based economy. Market prices are in place for most products, the currency has been floated and a fledgling private sector is growing.

The high inflation and currency devaluation from which Laos suffered in the late 1990s had eased by 2006. After dropping in 2009 to record lows as a result of the global financial crisis, inflation is again becoming a problem after reaching rates above 9 per cent (y/y) in mid-2011.

Laos is increasingly open to international trade. The country is on track to reduce its tariffs on imports from other ASEAN nations to less than five per cent, as required under the ASEAN Free Trade Agreement, and tariffs on most product groups for trade with non-ASEAN countries are less than 20 per cent. However, the regime lacks transparency, and in practice trade and investment are more heavily regulated – including through import and export licensing. A Law on the Promotion of Investment approved in 2009 is delivering some benefits to foreign investors by facilitating, standardising and streamlining application processes, although its implementation is not always comprehensive.

Laos has a number of economic advantages. It is situated in an economic growth area, sharing borders and common interests with Thailand, Vietnam, Cambodia and China. While the domestic market is very small, millions of people within 100 kilometres of Lao borders should generate new market opportunities as transit routes are further developed. Laos is increasingly utilising its abundant natural resources.  On 8 December 2008 the Lao National Assembly passed a Mining Law, however implementation documents are yet to be completed.

But further reforms will be necessary if Laos is to achieve its goal of graduating from LDC status by 2020. Many state-owned banks have difficulty managing their debt and will need to be radically reformed. Foreign exchange transactions could be better managed. Stronger private sector growth should follow if land titling – and the rule of law more generally – improves, and more transparent economic information becomes available. Broadening the country’s economic base, through accelerated private sector growth in the non-resources sector,  remains a central mid-term policy challenge.

Bilateral economic and trade relationship

The total value of Australian merchandise exports to Laos in 2010 was $24.7 million. Civil engineering equipment and parts represented a significant part of this ($2.2 million), followed by  pumps for liquids and parts ($2.2 million). During 2010 merchandise imports from Laos, dominated by clothing and wood products, totalled $1.5 million.

The dynamo in the economic relationship is investment in mining. An agreement on the promotion and protection of investment between Australia and Laos has been in place since 1995 and a number of Australian companies have mining investment and exploration interests in Laos.

Australia's trade and investment strategies

Australia has encouraged economic reform in Laos, arguing that a stable and transparent trade and investment regime will help generate economic development.

As part of its efforts to assist growth in the Lao economy Australia has, since July 2003, provided duty-free and quota-free access for Lao goods exported to Australia. Australia has also supported Laos' accession to the WTO, including through training Lao officials for WTO accession. In June 2011, Australia and Laos concluded bilateral negotiations on market access, in support of Laos’ WTO accession bid. (http://www.trademinister.gov.au/releases/2011/ce_mr_110624a.html)   The agreement will take effect when Laos joins the WTO. Laos is still negotiating the overall terms of its WTO membership.

2009 marked the 15th anniversary of the Australian-built and funded 'Friendship Bridge' linking Laos and Thailand, which opened in 1994. The bridge remains a focal point for trade and a symbol of Australian commitment to Laos and its integration with other economies. On 5 March 2009 a Lao-Thai railway link was opened on the bridge, further enhancing accessibility to and from Laos.

Australia and Laos are parties to the  ASEAN-Australia-New Zealand Free Trade Agreement (AANZFTA) (http://www.dfat.gov.au/trade/fta/asean/index.html) which entered into force on 1 January 2010 in Australia and 1 January 2011 in Laos.

Export opportunities

Foreign investment in extractive industries in Laos has been impeded by the Lao Government's imposition in 2007, and reimposition in December 2009, of a moratorium on the issue of mineral exploration licences.

Donor-funded projects offer significant commercial opportunities. Multilateral agencies such as the World Bank and ADB are active in education, health, energy, agriculture and other infrastructure development. Opportunities include advisory consultancies, tenders and the supply of equipment.

The private education market in Laos is very small but growing, and Australia is a favoured destination for the few Lao students who can afford to study abroad.

PanAust Limited

PanAust Limited's Phu Kham Heap Leach Gold Operations commenced production in 2005 and its Phu Kham Copper Gold Operation commenced operation in 2008. Production for 2010 at PanAust's Phu Kham Copper-Gold Operation is expected to be between 60,000 and 63,000 tonnes of copper, 40,000 ounces of gold and 300,000 ounces of silver.. In March 2010, PanAust announced that the Board of Directors had approved the development of Ban Houayxai Gold-Silver deposit, following earlier completion of a Feasibility Study based on an open pit mining operation. PanAust has other prospective exploration targets within its 2 636 square kilometre contract area in Laos.

ANZ

ANZ Vientiane Commercial Bank (ANZV) commenced operations on 24 September 2007 after ANZ acquired a 60 per cent stake in the Vientiane Commercial Bank and majority representation on the board of the joint venture. ANZ has since expanded its operations to a second branch in Vientiane and a third in Pakse, and is also expanding its network of ATMs throughout Laos. ANZ moved to 100 per cent ownership in August 2010.

Other

Australia’s investment interests in Laos continue to diversify, including into areas such as legal services (Adelaide based firm McDonald Steed McGrath opened an office in Vientiane in 2009) and wine export (Australian wine supplier Gecko Wines opened its flagship outlet in Vientiane in December 2010).

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Last Updated: August 2011

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