In 1975 the communist government imposed command economic system focusing on state enterprises and cooperatives centralizing investment, production, trade and pricing and forming barriers to internal and foreign trade. However, the economic growth was slower than had been anticipated and so the government decided to yield bolder steps toward reform. In 1986 the government announced its New Economic Mechanism (NEM), an economic program intended to expose the economy to world market without sacrificing the nation’s goal for food self-sufficiency. Many reforms were carried out successfully under this program; the government set the exchange rate closer to the real market levels, replaced import barriers with tariffs and offered private firms direct access to import and credit.
Startling economic growth experienced by the country started in 1988 with an average of 6% growth during the period of 1988-2007. Despite the country’s impressive economic growth it remains saddled by its poor infrastructure, scarcity of internal and external telecommunications, and shortage of skilled labors.
Agriculture is the main source of country’s economy with the vast majority engaged in rice farming. About 80% of the country’s cultivated land is accounted for rice. Rice is by far the chief crop which production comes from upland raised by hill people who practice shifting-cultivation methods. In addition other crops such as corn, peanuts, sweet potatoes and vegetables are also grown. Commercial crops such as coffee, cotton, sugarcane, tea and tobacco are also produced. Opium production provides a lucrative cash to hill people therefore government’s effort to curb production have had limited success because of the profitability of opium production.
Livestock rising is being encouraged by the government and it has grown in importance since 1980. Fishing on the other hand is essential for lowland dwellers. Aquaculture had begun in the mid-1960s and carp production is increasing particularly along the south of Mekong districts.
The industrial sector contributes 33.1 % (2009 est.) of the country’s GDP. The focal actions of the country’s industrial sector are food processing, sawmilling, manufacturing of building materials, textiles and garments.
Despite of the country’s relative lack of development it has a significant hydroelectric potential. With estimated 30,000 megawatts of hydro-electric power available and about 600 megawatts have been develop so far. The importation of fuel, goods, machinery and equipment, and vehicles caused the continuing foreign trade deficit.
Tourism as a leading industry in service sector has become increasingly significant in the 21st century, providing service jobs for Laotians. In 2007, tourism industry brought $233 million in country’s economy. With rich array of historical, cultural and eco-tourism attractions the country’s tourism industry has a great potential to be a foreign exchange earner. Ecotourism plays a great role in Lao tourism development recognizing the country’s natural environment. Some of the ecotourism activities includes boat trips, canoeing, kayaking, trekking, home-stay in ethnic villages, bird watching safaris, mountain biking, elephant trekking, camping and sightseeing.