Laos - Towards Industrialization And Modernization

老挝 - 向工业化和现代化迈进                                 By Jee Say Hai  俞自海 - January 2005


Laos is located in the center of Indo-China.  It has a population of about 5.5 million (2002) with 633,100 people in Vientiane, the capital city of Laos. About 80% of the people are Buddhists.  The GDP per capita for Laos is US$315 (2002).  The 1997 financial crisis hit Laos badly.  The exchange rate for Kip (Lao currency) against the US$ depreciated 11 folds between 1996 and 2004.

In 1893 Laos became a French colony. Laos fell under the Japanese rule during the second World War.  It returned to French colonial rule in 1945 and gained independence from French in 1954.

Before the relocation of Vientiane as the capital city of Laos, Luang Prabang was the main political, cultural and economic centre for Laos.  This ancient capital city, located north of Vientiane is the seat of Lao history and culture and a world cultural heritage site.



Laos has a tropical climate with two distinct seasons: the rainy season from May to September and the dry season from October to April.  Temperature varies according to altitude.  In Vientiane the highest temperature may rise to 38 degree Celsius in April.  The lowest is in January dropping as low as 15 degree Celsius.


Mekong River 

The Mekong River, starting from Tibetan Plateau, China and ending in the South China Sea, is the longest and most important water route in Laos with 2030 km flowing within her territory.  60 percent of the Mekong River water originates in Laos.  The river passes through six countries, namely Cambodia, China, Laos, Myanmar, Thailand and Vietnam.

The Mekong River was one of the world's most untamed waterways.  Although the six countries share the river, war and mutual suspicion since early history have restricted development.  Before the completion of the Thai-Laos Friendship Bridge (see photo below) in 1994 not a single span crossed its entire length.  Except in Vietnam's Mekong Delta, there are no large cities or industrial zones anywhere along its banks.  Now that peace has come hydroelectric and navigation potential are being tapped.  The Mekong Committee, under the United Nations auspices,  is responsible to coordinate the development of irrigation, electricity, flood control and navigation.  During the high-water season (July to November) barges from China bring machinery downriver to Huay Xai (border town with Thailand near Golden Triangle) and carry timber back to China. 


A good transport system is always the pre-requisite of economic advancement.  Goods and passengers can now move freely between Laos and neighboring countries since the opening of the Friendship Bridge in 1994 (photo right). This indeed is a great break through. A plan is underway to construct a rail linking Vientiane city and Nong Khai alongside the Bridge. In fact Thailand has completed the railway track up to the middle span of the Bridge and we are awaiting Laos to complete the track in its territory. 


The widest of the Mekong River is at the stretch 50 km north of the border with Cambodia.  During the rainy season it reaches a width of 14 km.  When the river recedes during the dry season hundreds, if the sand banks are included, thousand of islands and islets appear.  The Phone Pha Pheng waterfall, dubbed as the Niagara Fall of the East, is known as the most beautiful waterfall in South-east Asia.  The river dolphins inhabits in this part of the river

Landing point at Savannakhet (Laos) - regular ferry services carry passengers and goods across the Mekong River from here to Mukdahan (Thailand) about 3 km on the opposite side.  The journey takes about 20 minutes and the fare is 13,000 Kips.  These two points are international crossing and exit passport fee on Laos side  is 5,000 Kips.
Ferry hours-from Laos : 0900, 1000, 1100, 1330, 1430, 1630 hours
Ferry hour-from Thai : 0915, 1015, 1115, 1330, 1430, 1600 hours
Saturday: 0930, 1100, 1430, 1600 hours
Sunday: 1030, 1500 hours



Faced with decades of isolation Laos is making a slow but sure recovery with the opening up of many border crossings. Laos is strategically located sharing common borders with five nations, namely Cambodia, China, Myanmar, Thailand and Vietnam.  It has six border crossings with Vietnam, another six with Thailand, two with China. Laos has one local border crossing with Cambodia and one with Myanmar.  One can also enter Laos by air at Vientiane and Luang Prabang. The third international airport at Pakse takes only passengers to and from  Cambodia.  A forth international airport, upgraded from the existing domestic one, is being considered at Savannakhet city.

To further intensify the economic development program a new Bridge spanning across Mekong River at Savannakhet (in Laos) and Mukdahan (in Thailand) is under construction. It is scheduled to complete in December 2006.  The total cost of construction is about US$31 million and is funded by a Japanese consortium. The Bridge when completed will enhance the road linkage system between Bangkok (about 600 km away) and Danang (500 km away). The Bridge will further bring about more traffic flow into the Special Economic Zone township of Savannakhet and Seno.  The SEZ was first conceived in September 2003 and is now becoming a reality



AFTA (ASEAN Free Trade Area) is committed to reduce the tariff among member countries to 0-5%.  By 2010 the 6 older ASEAN nations will further reduce the tariff to zero percent.  Laos will join the other three new ASEAN members (Cambodia, Myanmar and Vietnam) to reduce the tariff to zero percent by 2015.  This means that ASEAN is an economy zone in which goods can flow freely with no internal import tariffs.  This will bring about a lower production cost as raw materials, components and accessories can be easily and efficiently sourced within the AFTA region.  Besides it offers a significantly larger market with 500 million people. The days are numbered for those production activities where identical products are carried out in different ASEAN countries.  In place thereof investors have to consolidate their operation in those areas to service the regional market efficiently and competitively.

The harmonization of incentives, organization of investment seminars, signing of investment agreements and the establishment of ASEAN Investment Area are significant achievement by Laos to enhance her economic activities.

First Special Economic Zone

The EWEC and Road No. 13 meet at Savannakhet city. In order to gain the greatest advantage and benefit from this strategic position, the Lao government has decided to establish its first Special Economic Zone (SEZ) in this part of the country.  The SEZ, known as Savan-Seno Special Economic Zone is the most ideal choice.  This junction of the Corridor and Road No. 13 links a population of more than 1.5 billion people. The SEZ comprises two separate sites.  Site A (about 300 ha) is located near to the new Bridge and Site B (about 20 ha) is located in Seno, about 30 km east of Site A.  This SEZ is expect to become a hub for trade, services and manufacturing activities for the six Mekong riparian countries in particular and other ASEAN members in general.

The Natural Linkage 

The six Mekong River riparian countries, namely Cambodia, China, Laos, Myanmar, Thailand and Vietnam are putting joint effort to exploit the Mekong River social and economic potential.  Called the Great Mekong Sub-region (GMS), it aims to develop this region through the establishment of the East West Economic Corridor (EWEC).  The Corridor links Danang seaport (South China Sea), Savannakhet, Mukdahan and Mawlamyine (Andaman Sea) from east to west. Laos National Road No. 13, which has been upgraded, connects Kunming (China), Vientiane, Savannakhet, Phom Penh (Cambodian) and Ho Chih Minh City (Vietnam) from north to south.    

The main objectives of the Special Economic Zone:

  • To make use of the strategic location to attract and promote investment
  • To create jobs for and upgrade know-how and skill of the people of Laos
  • To develop bases for the industrialization and modernization of Laos
  • To develop the SEZ as a trade and service hub of the EWEC

Savan-Seno Special Economic Zone

Distance from major cities/facilities:
  • about 460 km south from Vientiane capital city / international airport
  • about 240 km north from Pakse city / international airport
  • about 500 km from Danang port (Vietnam)
  • about 600 km from Bangkok sea port / international airport
( Source - Savan-Seno Special Economic Zone Authority )



Investment incentives for this SEZ include exemption of turnover tax, consumption tax and minimum tax.  Other incentives include tax holiday (ranging from 2 years to 10 years) and reduced profit tax after the tax holiday period (ranging from 8% to 10%) and reduced Dividend Tax and Personal Income Tax rate at 5 % for both, loss carried forward for 5 years and import tariffs exemption for all raw materials, construction materials, production machineries, and vehicles.

The following are some of the promoted products and services which qualify for the various incentives:

Industrial sector:

  1. Wood processing (assembled or makeup furniture, wooden semi-products, parquet, flooring, wooden parts)
  2. Agro processing (coffee, pickles, cooking oil, rice noodles)
  3. Garments and related accessories, footwear, electronic components, computer and electrical products assembly, construction materials, herbs
  4. Handicraft (Lao cotton and silk products), bamboo and rattan products, paper production

Service sector:

  1. Warehouses including low-temperature warehouses, cargo terminal, standard processing factories, transportation, forwarder
  2. Vehicles garages
  3. Tourism related operation (hotels, convention halls, travel agency, tour operation, car rental)
  4. Sporting facilities and amusement related industries
  5. Office buildings, living quarters and apartment
  6. Banks, insurance companies, vocational schools, hospital

Trade sector:

  1. Whole sales of imported goods for re-export
  2. Whole sales of Lao made goods (handicraft, incense woods, gemstones)
  3. Trade agents for export and re-export promotion
  4. Duty free shops


Labour cost is comparative low. The minimum monthly wage for a labourer is US$25.00 (250,000 Kip in Lao currency) The monthly salary range for other positions is as follow:

Senior Manager400.00 – 700.00
Junior Manager300.00 – 500.00
Accountant100.00 – 300.00
Messenger100.00 – 350.00
Secretary/Clerk40.00 – 200.00
Worker35.00 – 40.00


Courtesy call on Dr BouaKham Thiphavong (seated centre), Deputy Director, Department of Planning and Investment - the approval authority for investment within Vientiane Capital.  The top three investors approved in 1988 -2004 are Thailand, Malaysia and China in that order.  The highest capital inflow was in 2001 with US$408 million.  The DPI is empowered to approve investment of US$5 million and below and approval status will be known within 15 days. DPI also offers one stop service on all matters incidental to the investment.

Photo from left : Jee Say Hai,  Hoo Cheng Hong, Dr Thiphavong, Mrs Limmany and Saysomphone Limmany



(Left) : Don Chan Place hotel built along side the Mekong River, a project by Malaysian investors, the first five-star international hotel in Laos and one of the venues chosen for the 10th ASEAN Summit held on 29-30 November 2004.

(Centre) : A delegate led by Mr Jee Say Hai called on Mr Latsanivong Amarathithada (centre), Director, Department of Agriculture and Forestry, Vientiane City to exchange view on agro-based project. The delegate also put on a video presentation on fruit farming in Malaysia.

(Right) : Dear farming is not about rearing of dears for their meat but has turned into a promising industry, an agro-tourism resort-cum-farm which can boast one of the most interesting collections of fruits, vegetables and animals.

Basic data profile of Laos (2002):
  • Area: 236,800 square km
  • Population: 5.5 million (female: 50.6%; male: 49.4%)
  • Population density: 23.3 persons per square km
  • Capital city: Vientiane (633,100 people)
  • GDP per Capita: US$315
  • GDP growth rate: 5.7%
  • Major industries: garment, electricity generation, woodbased industries and other light industries
  • Major exports: coffee, electricity, clothing, wood and forest products, gypsum, lignite and tin
  • Major imports: industrial machineries, electrical machineries and parts, chemicals, iron and steel
  •  Major trading partners: European Union, Thailand, USA, China, Japan, Vietnam and other Asean countries
  • Top 4 investors in all business sectors:  China, South Korea, Malaysia, Thailand
  • Top 4 investors in manufacturing sectors: China, Thailand, France, Malaysia

Flooring brick manufacturing

Wood based furniture manufacturing



Laos being a land-locked country with major part being mountainous and forest was isolated, neglected and almost forgotten for decades.  With the free flow of people, products, knowledge and information Laos is not isolated now.  It is seeing the lights at the end of the tunnel since the government open it market to the outside world in 1987. The setting up of the SEZ is a bold step destined to enhance and speed up the process to bring about a brighter and more prosperous future with improved standard of living for her people.