Despite high economic growth, job creation remains limited

Laos has recorded one of the highest rates of economic growth in Southeast Asia over the past two decades, but few jobs have been created.
 According to the World Bank’s latest economic update, Laos’ GDP growth averaged 7.5 percent a year between 2000 and 2018, with trade growing at an average rate of 17 percent annually.
But growth has been driven mostly by trade and investment in natural resources, notably mining and energy.

Laos needs to attract more large manufacturing and global value chain firms to create jobs for local people.

“The highly-capital resource-driven growth model had little success in translating high growth rates into employment,” the World Bank stated.
The “Lao Economic Monitor for October 2022: Tackling Macroeconomic Vulnerabilities” said employment in the non-farm formal private sector dropped from 2012 to 2018, with salaried jobs largely generated in the public sector.
“Off-farm jobs creation was not enough to absorb the surplus agricultural workforce. As a result, the unemployment rate increased from 4.1 percent in 2012 to 15.7 percent in 2018,” the World Bank stated.
“Poverty was reduced but more slowly than in comparator countries and was principally driven by rising farm incomes. In the coming decades, the Lao PDR will need to create nearly 60,000 jobs a year to absorb its increasing population.”
 Of particular interest was the average annual growth rate of 17.8 percent in the hydropower sector from 2012 to 2018, with the mining and hydropower sectors representing 20.7 percent of GDP in 2018. However, both sectors generated less than 1 percent of all jobs in 2018.
 The construction sector boomed in the decade beginning in 2010 but many of the jobs went to nationals of neighbouring countries.
The World Bank suggested that an estimated 100,000 skilled workers from Thailand, China and Vietnam were employed on large hydropower and transport infrastructure projects in 2012.
 Around 390,000 workers moved out of full-time farming work between 2012 and 2018, but the industry and services sectors could not absorb the surplus agricultural workforce.
 The World Bank recommended that Laos should attract more large manufacturing and global value chain firms to drive exports and create jobs.
 It is essential to improve the investment climate by improving the business registration process and the operating licence regime as well as simplifying entry conditions to attract foreign investment.
 Tax exemptions are extensively used in Laos to attract investment. However, international evidence shows that tax incentives do little to encourage foreign investment, although some sectors have benefitted from tax exemptions.
 It is also necessary to invest more in the development of skilled labour to prepare young people for the job market and in turn create more inclusive growth.

By Somsack Pongkhao
 (Latest Update January 5, 2023)