Agriculture is the mainstay of the economy of Laos. In the early 21st century the sector generated nearly half the country’s gross domestic product (GDP) and employed some three-fourths of the population. The expansion of land under cultivation has been impeded, however, largely by the vast quantities of unexploded bombs—dropped mostly by the U.S. military during the Vietnam War—that litter potential farmlands. Consequently, only a small portion of the country’s total arable land area is cultivated. The great majority of Laos’s farmers are engaged in rice agriculture. Lowland farmers generally plant irrigated paddy fields, while upland dwellers cultivate rain-fed swiddens. Frequent floods and droughts cause significant year-to-year fluctuation in agricultural yields. Although such weather calamities affect the lowlands more severely, those regions have been more productive than the uplands, owing largely to accessibility of new technologies, pesticides, fertilizers, more solid infrastructure, and market networks. Many farmers in the uplands practice subsistence agriculture; however, a shift toward market-based production has been gaining momentum, propelled primarily by government modernization initiatives. In years with “normal” harvests, Laos is self-sufficient in rice production.

Principal crops other than rice include sweet potatoes, sugarcane, corn (maize), assorted vegetables and fruits in smaller quantities, and tobacco. Coffee is cultivated mainly on the Bolovens Plateau and is the only crop produced for export in substantial volume. Opium production began decreasing dramatically in the late 20th century as a result of aggressive eradication programs implemented by the government. Although opium poppies are still grown in some hill areas, poppy cultivation for export is illegal.

Roughly two-fifths of Laos is forested, and the country’s forest resources have provided for several important wood-processing industries. Timber extraction, however, has been banned periodically by the government for environmental reasons. Rapid deforestation has been attributed primarily to logging operations and to the cutting of wood for fuel—activities that have been further blamed for the erosion of hillsides, the silting of rivers, and, ultimately, the increased severity of droughts and floods. The government has also viewed swidden farming in the uplands as a major contributor to deforestation and has adopted measures to encourage conversion to sedentary agricultural practices.

Fishing is particularly important for lowland dwellers, and aquaculture has been increasing in the early 21st century. Principal pond-raised fish include tilapia and various types of carp. Raising of livestock—especially pigs, cattle, water buffalo, and chickens—has also been growing in significance.

Resources and power

Laos has considerable mineral reserves. Tin has been mined commercially since colonial times and has remained a major resource; gypsum has become important since the last decades of the 20th century. Gold mining expanded significantly in the early 21st century, with substantial foreign investment. Foreign companies have also worked the country’s granite and limestone deposits. Other minerals mined in notable quantities include copper and precious stones. Laos is also rich in iron and lead, but these and many other mineral deposits have yet to be exploited systematically. The remote locations of deposits, the lack of a trained labour force, and the vast quantities of unexploded ordnance contaminating the countryside are among the factors that have discouraged foreign investment and hindered exploration.

Although much coal is mined in Laos, the country draws almost all its energy from hydroelectric sources. Dams on the Ngum River north of Vientiane supply the bulk of domestic energy needs. Electricity is also one of Laos’s most valuable exports. A number of other dams, such as those on the Theun River in central Laos, produce electricity primarily for export to neighbouring countries, especially Thailand. Additional hydroelectric projects have been under way, although concern about their environmental impact has slowed the planning process.

Manufacturing

Although manufacturing has been growing faster than any other sector since the economic reforms of the late 20th century, it still has provided less than one-fourth of Laos’s GDP. Aside from energy production and mining, the country’s main manufacturing activities are food processing (rice milling and beverage production—mostly beer and soft drinks), sawmilling, the production of building materials (e.g., nails and brick), and the manufacture of a variety of light consumer goods (primarily plastic products, tobacco and cigarettes, and detergents). Garment production, largely for export, has been expanding rapidly. Handicrafts are also an important component of Laos’s manufacturing sector.

Finance

Until the late 1980s the government controlled all banking activities. Since then it has fostered the development of a private banking sector. Foreign investment and joint ventures with foreign companies have been officially encouraged. The central bank, Banque de la RDP Lao, issues the national currency, the kip; regulates and supervises commercial and regional banks; maintains foreign exchange reserves; licenses financial services; and manages the monetary and credit system. A number of commercial banks promote private investment.

During the Asian economic crisis of the late 20th century, the value of the kip declined by more than half in 1998 alone. This, among other factors, led much of the population to remain cautious about depositing money in savings accounts. People have since tended to store their savings in gold, foreign currencies, and, in rural areas, farm animals. Regional disparity in per capita income has been widening.

Trade

Laos has been a member of the Association of Southeast Asian Nations (ASEAN) trade organization since 1997 and has enjoyed normal trading relations (formerly known as most-favoured-nation) status with the United States since 2004. Laos’s chief exports are garments, electric power, timber and other forest products, coffee, and various metals and minerals. Major imports include foodstuffs, construction and electrical equipment, materials for the garment industry, machinery, and mineral fuels. The country’s main trading partners are Thailand, China, and Vietnam. To a lesser extent, Laos engages in trade with Japan, South Korea, and Germany. Imports have consistently exceeded exports in value, leaving a significant trade deficit; the gap typically has been filled by foreign aid.