Introduction

Laos is a landlocked and largely mountainous country in Southeast Asia bordering Vietnam, China, Myanmar, Thailand and Cambodia. About the size of Victoria, Laos has a low population density, a total population of 6.3 million and considerable ethnic and linguistic diversity, comprising 49 ethnic groups.

As one of the world's fastest-growing economies, with consistent growth of around 8 per cent in recent years, Laos is on track to graduate from least-developed country status by 2020. A key priority of the Lao Government is ensuring that economic growth benefits the more remote and vulnerable parts of the Lao population. Although poverty levels have almost halved in the past 20 years (to around 19 per cent in 2012), Laos still has some of the lowest human development indicators in the region, including for maternal and child mortality, malnutrition and basic education.

Laos has traditionally been seen through the prism of its challenges, but those challenges are increasingly bringing opportunities. Its mountainous terrain supports numerous hydroelectricity projects. Its landlocked status is increasingly rebranded as 'land-linked' in recognition of its strategic location between the large markets of China, Thailand and Vietnam. Foreign investment from each of the neighbouring countries is growing strongly. As the private sector has matured, the mining sector – in which Australian firms are key players – is contributing more significant returns to the country's economy.

Government, business and people-to-people links

Australian engagement with Laos has been traditionally and primarily as an aid donor for more than fifty years. Total Australian aid to Laos was an estimated $49.3 million in 2011–12. In 2012–13, the Australian Government will provide an estimated $55 million.

The Australian Government's development assistance program to Laos currently focuses on improving access to basic education for all Lao children. Rural development, including clearance of unexploded ordnance (UXO) which continues to contaminate large parts of the country, is another major area of ongoing Australian support. In conjunction with the Australian aid program, numerous Australians have worked or continue to work in Laos, including in remote communities, for example to deliver essential health services or to undertake research to improve agricultural outcomes. Over the past 25 years, 400 Australian volunteers have worked in Laos.

Australia will continue to support Lao efforts to educate and sustain a professional workforce including building on the already strong people to people links. Australian scholarships programs over many years have produced a cohort of more than 1,000 Lao alumni, many of whom are playing important roles in government, business and non-government organisations in Laos.

Australia is the sixth-largest source of foreign direct investment in Laos; 50 investment projects launched since 1990 are valued at around US$363 million. An agreement on the promotion and protection of investment between Australia and Laos has been in place since 1995. There is scope to grow two-way trade, which is small. In 2011Australian exports to Laos stood at $24 million while imports from Laos were $6 million. An Australia New Zealand Business Association with around 100 members supports Australian businesses in Laos. The ANZ Bank is present in Laos, and opportunities for additional Australian investment in financial, tourism and education services are growing.

There are two major international copper and gold mining operations in Laos: Phu Bia Mining is owned by PanAust Limited, and Minmetals Resources' Lao mine is managed by Australian interests. Other Australian companies have active mining exploration concessions or are providing support to the mining sector through drilling, laboratory services, surveying and the clearance of unexploded ordnance. While Laos remains attractive to potential new entrants in the mining sector, the Lao Government is seeking to diversify its economy.

Laos has a relatively liberal trade and investment regime that has been strengthened through the country's preparations to join the World Trade Organization. Constraints on further private sector growth relate to infrastructure, productivity and human capacity.

Some 12,000 Australians are of Lao descent, and many of these are rebuilding their linkages with Laos through private sector activity or community development projects. Around 32,000 Australians visited Laos in 2011 and recent growth in tourism will continue as the Lao economy expands, along with awareness of Laos in Australia. Australia is the foreign destination of choice for the small but growing number of fee-paying Lao students.

A range of activities are taking place to celebrate the 60th anniversary of diplomatic relations between Australia and Laos in 2012. Lao newspapers carry regular items covering Australian engagement in Laos. Yet there is scope to further increase awareness and understanding of Australia in Laos, and to foster a greater knowledge of Lao society and culture in Australia.

Laos's hosting of the Asia–Europe Meeting in 2012 is indicative of its aspirations to play a greater role in world affairs and to raise awareness of Laos internationally. Laos has strong relationships with its immediate neighbours and attaches primacy to ASEAN. It supports the United Nations and the Millennium Development Goals, although it will struggle to achieve the goals relating to maternal mortality, malnutrition and basic education by 2015. Australia and Laos also have shared interests in combating transnational crime, including human trafficking and narcotics.

Australia and Laos are working together to enhance Laos's regional economic integration, including through capacity building. Laos is also a member of the Mekong River Commission (MRC) and co-hosts the MRC headquarters. In addition, Laos is one of six countries that form the Greater Mekong Subregion (GMS). Priority infrastructure projects for the GMS include the East-West Economic Corridor, which will eventually extend from the Andaman Sea to Da Nang in Vietnam.

Towards 2025

The strong, longstanding and cooperative relationship between Australia and Laos will continue to mature and evolve.

By 2025, Laos is expected to have transformed into a middle-income country. Foreign and domestic investment will be a greater driver of economic activity, while donor assistance may by then be declining. Laos will be more integrated into its dynamic immediate region as a result of improved business procedures, a stronger domestic private sector and better infrastructure.

Laos' economic growth over the coming decade or so will require a strategic shift in bilateral engagement.As a result Australia and Laos should be even stronger partners by 2025. There is scope for greater and more diverse two-way trade and investment (including in services, agribusiness, infrastructure, mining and, potentially, innovation), enhanced dialogue and cooperation on regional (including security) issues and better understanding of each other's countries. Laos's continued economic growth will require an ongoing focus on human resource development, to which Australia is well placed to contribute, building on the quality of our education services, our experience and existing bilateral education links.