ECONOMY
Prashanth Parameswaran
Reading time: 5 min
Laos aims to become a leading potash producer, driven by vast reserves and infrastructure, but faces significant economic and operational hurdles.
In a nutshell
- Laos sees potash as key to economic growth, capitalizing on its reserves
- Challenges include debt to China, inflation and mining inefficiencies
- Policy reforms aim to improve industry standards and attract investment
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In recent months, officials from Laos have highlighted the country’s prospects of becoming a powerhouse for potash – one of the main fertilizers used in global agriculture. While the possibility of realizing this ambition should not be discounted, significant challenges also lie ahead for the country amid this ongoing quest.
Laos, which shares a border with China, is Southeast Asia’s only landlocked country. It is also among the region’s poorest, with a gross domestic product (GDP) per capita still under $3,000. Past efforts by the communist government to drive growth have faced obstacles. The emphasis on hydropower to position Laos as the “battery” of Southeast Asia has raised growing concerns about the Mekong River, one of the world’s largest and longest river systems. Projects like the major China-Laos railway, launched in 2021, have deepened the country’s debt to Beijing and intensified regional apprehensions among its neighbors about growing Chinese influence, even though they have addressed long-standing infrastructure issues.
To boost the economy going forward, the government is trying to increase exports of potash, or potassium chloride. This builds on a previous notion of tapping the country’s resource wealth to drive economic growth, with minerals accounting for about a third of foreign direct investment, by one count. Officials in Vientiane have suggested that the country has an estimated 133.6 billion tons of potassium chloride reserves and that exploiting them could make it the world’s third-largest potash fertilizer producer after Russia and Canada. The government sees the potential for Laos to become a primary hub in Asia’s potash fertilizer market by transporting locally produced potash to the region’s markets, including via the China-Laos railway. This aligns with a long-held vision of transforming Laos from a landlocked country into a “land-linked” one.
Yet, this goal comes with significant difficulties. The government has previously noted that most mining operations suffer from systemic performance issues, limiting the potential benefits for the country. Problems persist in this area, even as the government has introduced new measures over the past year, including fines for companies violating standards and stricter guidance for the processing of resources in Laos before export.
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Macroeconomic management has also been under strain. A recent report by the International Monetary Fund noted that the exchange rate had depreciated by 140 percent in under three years and that inflation remained an ongoing issue at around 25 percent. Additionally, there are concerns about resource dependence. An estimate from the United Nations indicated that minerals and metals alone represent over a quarter of Laos’ exports, with just three countries accounting for around four-fifths of exports by destination: China, Thailand and Vietnam.
Scenarios
Most likely: Laos will make gradual progress in its potash ambitions
Looking ahead, the first and most likely scenario is an incremental one. This would see Laos making gradual progress in its potash powerhouse ambitions. Although potash is part of the country’s broader development vision extending to 2040, these goals are still at an early stage.
For instance, Lao officials said last year that apart from a few fertilizer production plants under construction, only nine out of 18 authorized companies had obtained mining and processing licenses for 11 projects. The remaining nine were either in the process of conducting feasibility studies or were in the exploration or survey phase. Overall, the government also stated that in 2024, total investments in mineral production had registered a steady increase of 1.77 percent over the previous year. However, advancing these prospects has proven challenging for various reasons, including bureaucratic red tape and inconsistent enforcement.
Less likely: Laos rapidly becomes top potash producers
In this scenario, Laos would significantly ramp up potash production and quickly catapult itself to the world’s top ranks. This is less likely due to major constraints previously acknowledged by the Lao government in the resource sector. These hurdles include the lack of experts and technicians and the failure of nearly half of the operating firms to meet industry standards, regulations and contractual obligations.
That said, Vientiane has continued its efforts to inject more energy into this sector. This includes the signing of agreements with several firms to cultivate a wider supporting ecosystem around its potash powerhouse ambitions, including through industrial parks and towns. There has also been non-Chinese investment into the potash space, even though these are still few and far between.
Moreover, the government has emphasized future connectivity prospects that could reinforce the country’s role as a hub, including more infrastructure links with neighboring Thailand and Vietnam. Some of the largest potash importers, such as Indonesia and Malaysia, are neighboring Southeast Asian countries.
Least likely: A full-scale reversal in Laos’s potash powerhouse ambitions
The third and final scenario, which is the least likely, is the possibility of a reversal, where we could see a full-scale rollback in the country’s ambitious plans. This drastic scenario seems unlikely for now. The government has already indicated its commitment to making potash a priority. However, a reversal should not be ruled out. An intensification of labor and environmental issues could easily lead the government to rethink its ambitions. As it stands, labor and environmental issues in potash facilities and mines have led to public backlash and even the occasional halting of operations.
If these potash powerhouse ambitions lead China to exert even more influence on Laos than the government can tolerate, we could begin to see some scaling back. Currently, the government’s own estimates put debt at over 100 percent of GDP, the majority of which is owed to China, with external payments nearly doubling in value compared to 2022.
Last year, when Laos held the annually rotating chairmanship of the Association of Southeast Asian Nations, Lao President Thongloun Sisoulith reiterated the country’s ambition to become a geoeconomic “hub of regional and international connectivity.” Uncertainty lingers as Laos continues to shape its future development and mining strategies for the coming years. Vientiane will also be juggling other transitions, including the country’s graduation from the least developed country status, which is expected by the end of 2026.
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