Russia and Laos: The 2023/24 Trade and Investment Dynamics

By Emil Avdaliani

Laos and Russia have traditionally maintained close diplomatic relations and supported each other in various international forums. With Laos, like Russia having a traditional socialist view, they often share similar views on global issues especially regarding their relations with the West. Laotian politicians argue that they will not take sides in the existing conflict in Ukraine. For this reason, Laos has not joined the anti-Russian sanctions regime imposed by the collective West.

Though Russia does not see Laos as the most important country in the Southeast Asia, it nevertheless is a valuable member of ASEAN which represents an asset for Russia’s diplomacy in the region, and especially in terms of Moscow’s re-orientation of trade from the EU to Asia. This thinking was reflected in November 2022 when on the sidelines of the East Asian Summit, Russia and Laos signed an agreement on the development of interaction both in a bilateral format and on the basis of various ASEAN mechanisms. Laos and Russia have yet to resume meaningful talks on free trade agreement between the Southeast Asian country and the Moscow-led Eurasian Economic Union (EAEU), although Laos has been discussing the possibility of such a deal.

Trade

The Russia-Laos bilateral trade turnover is still small. In 2022 trade turnover between Russia and Laos amounted to just US$12.9 million, including Russian exports of US$8.3 million, and Russian imports from Laos at US$4.6 million. Overall, the recent trend has been negative. In 2021 the trade turnover stood at slightly more than US$20 million, including Russian exports – US$9.6 million and imports – US$10.6 million. In 2016, the volume had reached US$40.9 million.

This negative trajectory has persisted in the first few months of 2023. For example, in January this year, bilateral trade stood at US$312,000, which is 83.2% lower than recorded in January 2022. Russian exports decreased by 43.8%, reaching US$118,000, while imports fell by 88.2%, reaching US$194,000.

There are reasons for this, and related to the Ukraine situation. Laos is completely landlocked, with the disruption to shipping, and the relative size of the local market making the country less of a priority for Russia as it re-engineered supply chains to Asia. Larger markets such as China, India and even Vietnam took priority. For example, the population of Laos is just 7.5 million. It’s border China’s Yunnan Province to the north, with Yunnan alone having a population of about 47 million. Laos GDP is , US$20 billion, Yunnan’s is US$398 billion. Laos suffers somewhat as it is a minor market.

However, an upward trend is likely to resume. Russia’s exports to China have grown substantially over the past 18 months, and China is a major trade route into Laos. The opening of the China-Laos railway will have a positive effect on Russia-Laos trade.

Also, Russia’s trade with Vietnam is expanding. Its economy is also growing, as are Vietnamese production costs. Some businesses that supply the Russian market from Vietnam may soon be looking to neighbouring Laos for more cost-effective production.

Laos is also attractive because I is a member of ASEAN, which also includes neighbouring Cambodia, Thailand and Vietnam, and has Free Trade with all ASEAN members. Laos neighbour to the north, China, also has a Free Trade Agreement with ASEAN. Russian investors may take advantage of Laos improving transport infrastructure and Laos significantly lower manufacturing costs if they can manage the productivity gap – it may take longer to get things made, but this can be measured against a lower cost base. For example, the average annual wage of a factory worker in Vietnam is US$2,600, in Laos it is half the cost.

Russia’s exports to Laos generally consist of wood, pulp and paper products, machinery, equipment, vehicles, chemical industry products. Laos, on the other hand, exports to Russia mostly textiles, food, and agricultural raw materials.

Despite a quite limited scope of products, the parties’ interest in developing cooperation is significant; the issue of concluding a free trade agreement with the countries of the Eurasian Economic Union is being worked out. Laos is also particularly interested in trade with separate Russian regions. Tatarstan is one of them.

The two sides are also actively engaged in advancing national agenda at big forums. For instance, in January 2022, a business forum was held in St. Petersburg where the interaction in the field of the digital economy, smart cities, education, and tourism were discussed. In September 2022, at the Far Eastern Economic Forum, an agreement was reached on the introduction of the Russian Mir payment system in Laos. In 2023 Laos’ vice president, Pany Yathotou, attended Far Eastern Economic Forum in Vladivostok and Russia supported the idea of Laos hosting the next 2024 ASEAN-Russia summit.

Bilateral Investment

Russian investments in Laos are meagre but the existing ones have generally focused on energy, hydro resources, and hydrocarbon resources. This reflects a broader strategy by the Laotian government to attract foreign investment for socioeconomic development, including from Russia.

Several joint Russian-Laotian companies – Neyland Lao Mining, Lao Grandepot Soul, Polysan, “MK-CB” – operate in Laos in such areas as exploration and mining of mineral resources, pharmaceuticals, production of security printing products and coins, creation of a special government communications system. Before 2022 Russian companies were interested in hydropower projects, transmission lines, electricity distribution stations and related energy distribution projects.

There is also military-industrial cooperation between the two countries. Laotian military personnel are regularly trained at Russian military universities and also take part in joint exercises. Yak-130 combat training aircraft are being supplied to Laos, and there are agreements to repair the fleet of Mi-17 and Ka-32 helicopters. In 2019 the transfer of a battalion set of 30 T-34-85 tanks to Laos took place.

Constraints

Similar to other countries of the region, Laos and Russia have troubles in building greater trade and investment ties due to geographic constrains and regulatory difficulties. One of the ways to address this is to develop tourism especially given a visa-free regime signed in 2016. In the first half of 2023, Laos welcomed over 23,000 tourists from Russia. The two have sides agreed to renew weekly direct flights from late October 2023.

Overall, the two countries are less constrained by geopolitical considerations than physical disconnection. Due to being a landlocked country, Laos, needs infrastructure to link to the outer world and most obvious partner in achieving this goal is China and Laos’ neighbors. This limits Russia’s involvement, but there is a large potential for Russian companies to invest in the electricity and industries related to natural resources.

Emil Avdaliani is a professor of international relations at European University in Tbilisi, Georgia, and a scholar of silk roads.

About Us

Dezan Shira & Associates assist foreign investors into Asia and have numerous offices in ASEAN, in addition to a partner firm in Laos. For assistance please email asia@dezshira.com and refer to our 2023 ASEAN guide below.

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