Home > South-East Asia >> Laos

Regional race for Laos' riches

Asia Times - August 30, 2007

Andrew Symon, Vientiane The old-fashioned trappings and rhetoric of shared ideology, common struggle and political solidarity were on full display when Vietnam and Laos recently celebrated the 30th anniversary of their Friendship and Cooperation Treaty.

Yet throughout the flurry of reciprocal visits, exhibitions and cultural performances, the diplomatic undercurrent was clear: economics and business, rather than the old fraternal bonds among aging Communist Party cadres, will be the ties that bind future bilateral relations.

The close relations first forged during the resistance to French colonialism, the great-power proxy conflicts of the Cold War, and the US war in Indochina are fading in significance, yielding to market-driven economic integration. With global commodity prices soaring and improved regional road infrastructure, landlocked Laos has more trade and investment options today than at any time in its modern history.

Market forces have gradually diminished the country's past dependence on Vietnam for its economic survival. A new generation of Laotian leaders have slowly but surely moved to diversify the country's commercial diplomacy and Vietnam increasingly finds itself competing head-to-head with Thai, Chinese and Western investors for access to Laos' rich bounty of natural resources.

Vietnam now ranks third among 37 different countries that have invested in Laos, lagging behind regional neighbors Thailand and China, who have contributed US$1.4 billion and $770 million respectively. Official statistics show total Vietnamese investment in 106 different projects reached $517 million through this May. Those outlays were heaviest in mining, agriculture, timber, pharmaceuticals and hydroelectricity.

In return, Laotian companies have invested a paltry $23 million in Vietnam, entailing eight different projects in trade, tourism and services. Trade between Vietnam and Laos was $240 million in 2006 and the two sides have optimistically targeted trade flows to reach $1 billion by 2010 and $2 billion in 2015.

Targets for Vietnamese investment include mining and export-oriented agriculture and processing. The state-owned Vietnam Rubber group plans to invest $30 million to develop a 10,000-hectare rubber plantation in Laos' Champasak province. That's on top of an earlier $18 million rubber project in Laos' south-central province of Savanakhet. Railway and road projects aimed at better linking the two countries are also on policymakers' drawing boards.

Laos' hydropower potential is especially attractive to Vietnam, Thailand and China. Hanoi faces declining domestic oil production and desperately needs new energy sources to power its rapid economic growth. Its state-run oil-and-gas group, PetroVietnam, and the public utility, Electricity Vietnam, are together planning new energy projects in both Laos and Cambodia. Vietnam already takes a small amount of Laotian power, and Vietnamese policymakers plan more system integration.

China and Thailand have similar designs. Beijing has in recent years made significant investment inroads into Laos, including big outlays in agriculture, mining and likewise hydropower. To cement those commercial ties, China has also made several symbolic gestures toward Vientiane, including generous dollops of development assistance. Bilateral trade is growing as China takes increasing amounts of Laos-cultivated agricultural staples and sends back manufactured goods in exchange.

Thailand has its eye on Laos' huge hydropower potential, including the $1.4 billion Nam Theun 2 dam project, which is scheduled to start delivering power to Thailand by 2009. Major Thai players, including power company EGCO and construction company Ital-Thai Development, have joined hands with Electricite de France and the Laotian government in developing the megaproject. Bangkok has also invested heavily in the budding Laotian service industry, including hotels and tourism.

Old ties, new era

The growing regional competition for Laotian resources is raising old questions about Hanoi's political influence over Vientiane. Ever since the Pathet Lao communist government seized power in 1975, Laos has been widely seen as a Vietnamese client state. Close administrative and political ties were established between the two countries during the time of the French colonial empire.

By the 1930s, the early communist movements in both countries had found common ideological cause in opposing colonialism, and the alliance strengthened in the years leading up to the defeat of the Americans in Vietnam and their respective seizures of power in 1975. Many of the leaders of the rebel Pathet Lao, which became today's Lao People's Revolutionary Party, were educated and trained in Hanoi.

The Vietnamese communists maintained large numbers of combat troops in Laos during the Vietnam War, and the eastern region of Laos was part of the famous Ho Chi Minh Trail supply route, which allowed the communist forces to make inroads into US-backed South Vietnam. After 1975, the two new regimes consolidated their alliance and formalized it in a treaty of friendship and cooperation signed in 1977.

For the first 10 years of its existence, the newly formed Laotian republic was highly dependent on Vietnam for its economic sustenance, and in exchange Hanoi maintained 40,000-50,000 foot soldiers in the country through the mid-1980s. Although both countries are still nominally communist, they have also embraced market economics and recently liberalized their foreign-investment regimes.

With a population of just 6 million, Laos is one of the most sparsely populated countries in Asia. Its economy is the smallest in Southeast Asia and its per capita income of $500 per year is one of the lowest in the world. The majority of the population is still engaged in semi-subsistence agriculture and fishing and fares poorly in various health and education indicators.

Those demographics make the country one of Southeast Asia's most important remaining areas of natural landscape and biodiversity. In Asia's growing race for cheap and proximal commodities, it also exposes Laos to the new regional competition of economics-fueled power politics.

During the Cold War, Laos unswervingly sided with Vietnam in its tense relationship with China. But according to Martin Stuart Fox, a Laos expert at the University of Queensland in Australia, Vientiane now tries to balance relations more equitably among regional players.

It's not yet apparent that Laos' increasingly diversified trade and investment flows have completely undermined its old special relationship with Hanoi. Some analysts contend that the passing of both countries' revolutionary leaderships and the emergence of a new generation of market-minded communist cadres is putting those old bonds to a new test.

That's being driven by Laos' greater integration into the region, including through its 1997 accession to the Association of Southeast Asian Nations. More recently, the Laotian government has announced its ambition to join the World Trade Organization by 2010. Laos is still heavily reliant on multilateral and bilateral development assistance, with major foreign donors including Japan, Sweden, Germany and Australia.

But it is becoming clearer that trade and investment with its three larger neighbors Vietnam, China and Thailand will more profoundly drive the country's economic development. How Laos strikes the balance between old loyalties and new opportunities, it seems, is increasingly being decided by market forces rather than central-committee directives. [Andrew Symon is a Singapore-based journalist, researcher and analyst.]

See also:

Home | Site Map | Calendar & Events | News Services | Links & Resources | Contact Us