Laos-Vietnam to Boost Trade with Slew of New Agreements
Dubbed ‘The Year of Solidarity and Friendship’ between Vietnam and Laos, 2022 was a profitable year in terms of trade for both Vietnam and Laos. Here’s what trade between those two countries looked like at the end of last year.
The year 2022 marked the 60th anniversary of diplomatic relations between Vietnam and Laos and the 45th anniversary of the signing of the Vietnam-Laos Treaty of Friendship and Cooperation.
Dubbed the ‘Year of Solidarity and Friendship’, 2022 saw these two nations further strengthen their relationship, particularly in terms of trade. This further manifested earlier this year when Vietnam’s Prime Minister Pham Minh Chinh met with Prime Minister of the Lao People’s Democratic Republic, Sonexay Siphandone on January 11.
It was during this meeting that the two prime ministers signed a number of cooperation agreements in a broad range of fields, including trade. This is important, particularly for landlocked Laos, which is dependent on its neighbor to the east for access to ocean shipping.
Trade relations between Laos and Vietnam
Total trade turnover between Vietnam and Laos in 2022 was worth US$1.7 billion, increasing 24 percent compared to 2021. Vietnam’s exports to Laos witnessed sizable growth hitting US$656 million, up 10.4 percent. Imports were also boosted 34.6 percent, to US$1.047 billion.
Two-way trade 5-year overview (US$m)
|Vietnam imports from Laos
|Vietnam exports to Laos
This huge growth may be a reflection of the ongoing joint promotion of cross border trade between the two countries. Together, Vietnam and Laos have held a range of conferences connecting Vietnamese and Laos businesses in the fields of agricultural products, food, and consumer goods. There are also Vietnam-Laos trade fairs and a key Vietnam-Laos bilateral trade promotion forum.
Furthermore, the 12th Vietnam-Laos border trade cooperation conference was held along with a conference on the joint development of Laos and Vietnam’s energy and mining industries in 2022.
In order to support Laos’ long-term development, Vietnam is working with Laos to develop infrastructure necessary for exporters to access Vietnam’s port at Vung Ang. This will include a railway connecting Laos and the port (See: Proposed Vietnam-Laos Railway Project to Boost Trade, Connectivity).
Vietnam FDI projects in Laos and vice versa
Vietnamese foreign direct investment (FDI) in Laos is currently over US$5.34 billion spread across 239 projects. Laos consistently ranks first among 78 countries and territories where Vietnam invests.
In 2021, registered capital from Vietnam to Laos reached US$118.3 million, this was 33.3 percent higher than in 2020. In 2022, investment capital from Vietnam to Laos surged even further to US$180 million, a rise of 52.5 percent over 2021.
In the past five years, Vietnamese enterprises have contributed about US$200 million per year in tax and other fiscal obligations to the Laos state budget.
Laos also currently has 10 FDI projects in Vietnam with a total registered capital of over US$71 million. Vietnam is also frequently in the top three countries for outbound direct investment (ODI) from Laos.
Laos exports to Vietnam
Vietnam’s primary imports from Laos last year were diverse. Notably, imports of wood and wood products witnessed an increase of 29.4 percent. Fertilizer imports also saw a significant uptick of 50 percent; along with rubber imports, which increased by 30.4 percent; and corn imports, which saw an increase of 5.25 percent.
Top Laos exports to Vietnam 2022
|Wood and wooden products
|Ores and other minerals products
Laos is one of the largest exporters of natural rubber worldwide, accounting for some 1.5 percent of global sales.
Vietnam is a major importer and consumer of rubber. Vietnamese companies use imported rubber to produce a variety of goods, including tires, footwear, and industrial rubber products.
In recent years, the demand for rubber in Vietnam has increased, driven by the country’s growing automobile industry and expanding infrastructure projects. As a result, neighboring Laos, which has abundant rubber resources, has become an important supplier of Vietnam’s rubber needs.
Wood and wooden products
Laos has large forest cover, which is a rich source of raw materials like wood. The forests of Laos are known for their teak, rosewood, and other hardwoods.
The cost of production of wood and wooden products in Laos is relatively low compared to many other countries, which makes them more attractive to buyers in Vietnam.
Laos shares a long border with Vietnam, which makes transportation of goods between the two countries relatively easy and cost-effective.
Vietnam also has a growing construction industry and a high demand for wooden furniture and other wooden products.
Vietnam has a large agriculture industry, and fertilizers are essential for the growth and development of crops.
Laos is known for its abundant natural resources, including phosphate rock, which is a key component in the production of fertilizers.
Additionally, the cost of producing fertilizers in Laos may be lower than in Vietnam, making it a cost-effective option for Vietnamese companies to import fertilizers from Laos.
Vietnam’s exports to Laos
In 2022, Vietnam’s primary exports to Laos comprised various commodities. Notably, petrol exports rocketed by 439 percent. Fertilizer exports also saw an uptick of 31.2 percent. Conversely, iron and steel exports dropped by 15 percent. Meanwhile, exports of other machinery, equipment, and spare parts rose marginally by 1.4 percent.
Top Vietnamese exports to Laos 2022
|Fruits and vegetables
|Iron and steel
|Machine, equipment, tools and instruments
|Iron and steel products
Laos relies heavily on imported oil and petroleum products to meet its domestic energy demands. Vietnam, on the other hand, has a surplus of oil and petroleum products due to its oil production industry. Therefore, Vietnam can supply Laos with these essential energy products.
Additionally, Vietnam’s geographical proximity to Laos makes it a convenient and cost-effective source of petroleum products for Laos.
Fruits and vegetables
Vietnam and Laos share a long border, which makes it relatively easy and cost-effective for Vietnamese farmers and exporters to transport their fruits and vegetables to Laos.
Additionally, Vietnam and Laos share similar food preferences, which means that Vietnamese fruits and vegetables are in high demand in Laos. And as Laos continues to develop and urbanize, the demand for fresh produce is increasing, with Vietnam well-positioned to meet that demand.
Most importantly, Vietnamese fruits and vegetables are often priced competitively compared to those from other countries, making them an attractive option for importers in Laos.
Iron and steel
Laos has limited iron and steel resources and relies heavily on imports to meet its domestic demand. Vietnam, on the other hand, has a well-developed steel industry and can produce iron and steel products at competitive prices.
The future of trade between Vietnam and Laos
After observing the Year of Solidarity and Friendship in 2022, Vietnam and Lao announced they would continue to aim for stable trade growth of 10-15 percent a year. The two countries will additionally prioritize cooperation in the field of information and communication. The documents signed in January underscore these ambitions.
Two-way trade between Vietnam and Laos is expected to continue its upward trajectory in 2023. Despite the challenges posed by the COVID-19 pandemic and global geopolitical uncertainties, bilateral trade relations between the two countries remain strong.
As Vietnam and Laos continue to deepen their cooperation in various sectors, there is immense potential for the two-way trade to further flourish in the years ahead, providing a win-win situation for all involved, including foreign investors seeking to tap into cost-effective production centers and raw material suppliers in the region for their supply chains.
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