The year 2011 was a highly eventful and successful one for Laos' economy, politics, and foreign relations. Nonetheless, some significant challenges remained, including continued poverty, the negative impact of foreign investments, and the rise of transnational crime. In order to analyse these events, inter alia, this chapter contains three sections. The first section examines the state of the economy and the country's road map towards development. In the process, the section also outlines the major events concerning trade, investment, and aid. The second section examines developments concerning the evolution of politics in Laos together with the associated challenges of weak state capacity — particularly in the security sectors. Therefore, the section also includes an analysis of the country's desire to consolidate the rule of law, challenges to the rule of law, and various aspects of human security. The final section studies the foreign affairs of Laos — both bilateral and multilateral. While Laos has a long way to go in terms of its political institutions, the level of development, and the provision of human security, it is important to acknowledge that is has already made significant progress in rising above the ashes of its tumultuous past. In the process, the Lao Government has secured political stability (where there is no credible challenge to its continued governance) and it has firmly integrated itself as an active and responsible member of international society.

The Economy: Natural Resources and the Challenge of Equitable Development

Laos is a mid-sized landlocked country with a population of just 6.48 million and an economy of US$7.9 billion (2011 real GDP). While economic growth reached an impressive 8.3 per cent during 2011 (real GDP), inflation remained relatively high at 8.7 per cent. Much of the growth in the economy during the past six years (averaging 8 per cent) has been spurred by mining and hydropower exports. These two industries have also attracted significant increases in the level of foreign direct investment (FDI) from countries such as China, Thailand, Australia, and Vietnam. For example, by mid-2011 Vietnam had overtaken China as the country's biggest investor through a total of US$3.3 billion via 200 projects.