Making land deals more sustainable: The example of Laos

By Gaby Allheilig

The year 2018 marked a turning point for Laos: the United Nations Economic and Social Council announced that the Southeast Asian country had fulfilled the eligibility criteria to graduate from Least Developed Country status in 2024. The decision followed more than a decade of massive promotion of investments: Since 2006, Laos has allocated over one million hectares of land for agricultural, forestry, mining, and hydroelectric projects – with further major projects in preparation. The country’s aim in attracting investors was to generate economic growth and improve the population’s quality of life.

Dam collapse shines light on investment policy

But 2018 also saw the collapse of a dam built by a South Korean–Thai–Lao consortium in the country’s south, causing fatalities and massive environmental damage. At least 34 people died, and flooding caused thousands to flee. The poor construction quality of the dam meant it was unable to withstand recent heavy rainfall.

The dam failure shines a light on the economic boom taking place in the socialist state – and on the boom’s flipside. Laos’s gross domestic product has risen by an impressive 7 to 8 per cent annually. But how sustainable is this growth? The opportunity to make quick money with land concessions has attracted many dubious investments. And figures like gross domestic product and per capita income are not the only indicators that count. The Human Development Index, which also considers life expectancy and education, currently ranks Laos 139^th out of 188 countries.

New, rich elite here – poor rural population there

Studies conducted by CDE show that social inequality in Laos is increasing – partly as a result of the land concessions. “Many entrepreneurs and well-connected businesspeople have been able to benefit from recent economic growth,” says Michael Epprecht, head of CDE’s programme in Laos. This has given rise to a small, very wealthy elite and a well-off middle class. “At the same time, many poor people have lost land and access to other important natural resources,” adds Epprecht.

Granting of land concessions is mostly uncoordinated

This rise in inequalities is helped along by a concession granting process that is largely uncoordinated, and by a lack of transparency on the investments – problems which have been recognized by the Lao government. As a result, CDE, together with several government agencies and authorities, was commissioned to collect important cross-sectoral data on land concessions, and to lay the foundation for a central information system. The project was funded by the Swiss Agency for Development and Cooperation.

Dependence on a few investors and products

Following an initial stocktaking in 2012, the project has now produced a second, nationwide inventory of land concessions for agriculture, tree plantations, and mining. Among other things, the inventory reveals which countries invest the most in cultivation and extraction of raw materials in Laos. It also shows how strongly the Lao economy relies on a few countries and products for the world market (see chart) – and how vulnerable this makes it.

Numerous jobs created, but for whom?

A systematic, in-depth analysis by CDE of the impacts and legal compliance of about 300 land concessions revealed both positive and negative effects. For example, it became clear that the land concessions created 40,000 urgently needed jobs. But 85% of these jobs were seasonal and often poorly paid. Only 5% of the new jobs were longer-term or offered a monthly salary – and mostly for better-qualified workers from abroad.

Many land concessions do not go as planned

There is another reason for the Lao government’s interest in having the quality of investments scrutinized and a quality index developed: Many investment projects do not work out as anticipated. Some never get off the ground at all; others are discontinued or never reach the planned size. Overall, 44% of the area of concessions granted has not been developed to date. And only a very small proportion of investors actually comply with Lao laws.

Land concessions made comparable for the first time

The index makes it possible – for the first time – to assess and compare the quality of land concessions based on four key aspects: legal compliance as well as economic, social, and environmental impacts. The results are sobering: On the 100-point scale, mining projects in Laos scored an average of 55 points, followed by agriculture (53 points) and tree plantations (48 points).

Moving towards more sustainable development

But there are also encouraging signs, according to CDE scientist Cornelia Hett, lead author of the publication: “Some projects achieved more than 70 index points, and others performed well in one particular field. One of our top recommendations to the Lao government is therefore to brief other investors on the ‘best’ projects, and to create leverage in this way.” Because one thing is clear: Laos will continue to grant large land concessions in the future. “This makes it all the more important to achieve improvements in cross-sectoral approval and implementation of projects. These must ensure that the projects benefit the local population and do not harm the environment,” explains Vong Nanhthavong, PhD student at CDE and a co-author of the study.

Further recommendations to improve the quality of land concessions range from better law enforcement and clarification of responsibilities to spatial planning and education. A promising aspect of the project is that more than 200 government representatives and political decision-makers were actively involved in data collection and assessment, and have thus been sensitized to the challenges ahead. Cornelia Hett concludes, “All in all, there is now a good foundation for Laos to start awarding land concessions that are more sustainable.”