Poverty Persisting In Laos Despite Economic Growth

Source: phnom penh post

The economic growth rate of Laos is high compared to neighbouring countries and some regional peers, however, this has not seen poverty reduction in the country.

The economic growth rate of Laos from 2005 to last year averaged around 7.66 per cent a year, while it was 3.27 per cent in Thailand, 6.11 per cent in Vietnam and 6.60 per cent in Cambodia, concludes a report from the Centre for Macro-Economic Policy Research and Economic Restructuring under the National Institute for Economic Research.

However, each year only a 1.04 per cent poverty reduction was witnessed in Laos, while in Cambodia poverty reduction was recorded at 3.25 per cent, 2.57 per cent in Vietnam and 1.60 per cent in Myanmar, the report stated.

Laos’ rapid economic growth also caused disparity in incomes – the income disparity indicator (Gini index) increased from 36.6 points in 2003 to 35.4 points of 2008 and 36.4 points in 2013, according to the latest study.

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The first reason of the problem is that the rapid growth is still leaning on the natural resources sector, especially energy and mines, a sector that employs less labour, covering only 1.2 per cent of total employment.

At the same time, investments in the processing sectors employ skilled labour, especially the special economic zones (SEZs). Lao labour accounts for only 16 per cent of the total labour in these zones, the remaining are hired from foreign countries.

The rapid growth of Laos’ economy in the past was a result of direct investment from foreign companies in the concession projects and SEZs with zero per cent value-added tax and import customs duty rate.

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The government’s revenue increased following increase of investment and economic growth.

A more important issue is investment by major foreign companies as high value projects do not support domestic business in a big way. As a result almost all raw material for hydropower development projects and the Laos-China Railway Project construction is imported from foreign countries.

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