THE LEGATUM PROSPERITY INDEX™ 2016

Bringing Prosperity to Life

Laos

Ranked 102nd of 149

At a glance

Ranks

102 nd on the Legatum
Prosperity Index™

60th
105th
122nd
107th
97th
92nd
103rd
60th
120th

SUB-INDEX RANKINGS

In the Prosperity Sub-Index rankings, Laos performs best on Economic Quality and Social Capital and scores lowest on the Governance sub-index.

Visit our Rankings table to see how Laos compares to other countries.

Prosperity Gap

The ‘Prosperity Gap’ takes a country's GDP and uses it as the yardstick to measure a nation's expected Prosperity Index ranking.

Despite being the least prosperous nation in the region, Laos only slightly under-delivers prosperity compared to its wealth. This result is below that of its regional peers’, bar Thailand, but remains an achievement considering that it is one of the poorest and most autocratic countries in South East Asia.

Note:
In the chart above, each dot represents a country. The curve shows the general tendency with which prosperity increases as GDP per capita increases. If a country falls below the curve, then we can say that compared to all other countries, it is under-delivering prosperity for its citizens. Likewise, if a country rises above the curve, then we can say that it is over-delivering prosperity for its citizens. Learn more about the Prosperity Gap here.

Alternatively, have a look at the Prosperity Gap view on our Rankings table for a full list of countries and to see how each of them are performing on the various sub-indices.

Commentary

Although one of the poorest and least developed countries in South East Asia, Laos has been enjoying the highest growth rate in the region with growth over the last five years averaging 5.5% compared to the regional average of 3.9%. Furthermore, the country’s economic outlook has seemed increasingly favourable since it joined the World Trade Organisation (WTO) in 2013 and the ASEAN Economic community was established in 2015. These events promise further integration into the regional and global economy as well as greater liberalisation of the movement of goods, capital, and high skilled labour in the regional bloc.

However, despite these encouraging factors, Laos has dropped 11 ranks in the Economic Quality sub-index since 2007 to 60th, with a simultaneous decrease in Business Environment to 105th. This goes against the current trend in South East Asia, where most countries have enjoyed booming Economic Quality and Business Environment scores. This suggests that aggregate growth in Laos has not been sufficiently inclusive, but instead accompanied by worsening inequality and persisting poverty, especially in the mountainous regions where ethnic minorities live. This is illustrated by the fact that Laos has the highest rate of absolute poverty in South East Asia and the lowest satisfaction with living standards and household income. Although the labour force participation in Laos reaches 80% overall as well as for women, 75% of the population is employed in subsistence farming, and with the country lacking the knowledge and technologies to improve yields, incomes look unlikely to rise significantly in the short to medium term.

Absolute poverty in ASEAN member states and the world (% living on less than $1.90 a day).
Absolute poverty in Laos remains a reality with a rate that is much higher than that of its regional peers and the world average by at least 15 percentage points.

Furthermore, growth in Laos has been very capital intensive. It relies on resource based industries such as hydropower and mining which have not been able to absorb excess labour from the agricultural sector. Little effort has been made to improve human capital and Laos continues to have one of the least educated workforce in the region, with the average worker having completed as little as 1.5 years of secondary school. Pro-poor growth policies should strive to educate the workforce and improve access to rural areas so that more people have access to public and financial services.

Laos’ Business Environment is particularly affected by the high cost of finance combined with the difficulty of obtaining credit and very poor access to broadband. These variables pose another critical constraint on inclusive growth as the majority of the population is excluded from the benefits of a market-oriented economy. Furthermore, a poor environment for business is keeping much needed foreign and private investment away, which instead is directed at other South East Asian countries with more favourable conditions.

Another key factor affecting Laos’ capacity to compete with its regional peers is Governance. This is Laos’ weakest sub-index, ranking 122nd in 2016. This is particularly due to the fact that, along with Vietnam, Laos has the lowest political rights and democracy level in the regional bloc. Additionally, Laos has a weak regulatory environment, judicial system, and poor government transparency. Unsurprisingly, it is crippled by corruption. Nevertheless, although still low, government effectiveness and rule of law have been improving slowly but steadily since 2007.

Progress has been made elsewhere. In the Health sub-index, Laos has risen 15 ranks since 2007. It has also made improvements in the Personal Freedom sub-index, rising 14 places since 2010 to find itself above Vietnam, Thailand, Malaysia, and Indonesia. This improvement came predominantly from relaxed government restrictions on religion, and growing tolerance among the population for LGBT groups and ethnic minorities. However, freedom of the press and civil liberties continue to be seriously constrained and far behind the regional average. For example, since the enactment of the prime ministerial decree on management of information through the internet in 2014, at least two were arrested in relation to information posted online.


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Data

How to read this graph:
When comparing multiple countries on a spider chart, data points that appear
further away from the center represent a better performance to the points that are closer to the center.