Study on Generating Employment through Micro and Small Enterprise and Cooperative Development in Lao PDR
2.3 Rural Entrepreneurs

2.3 Rural Entrepreneurs

According to the National Demographic Census, almost 85 per cent of the country's population resides in rural areas where the main occupation is farming. The rural micro/small enterprise sector is therefore of great importance in employment creation.

2.3.1 Rural and Urban Micro/Small Enterprises

The 1996 MIH-GTZ survey divided micro/small enterprises into six categories:

1. Other Rural (located in mountainous and less accessible areas than those in the Rural Mekong category), the largest category with 47.75 per cent
    
2. Rural Mekong (located in rural districts bordering the Mekong River and integrated in the national economy as a result of river and road connections), the second largest with 27.68 per cent
    
3. Peri-urban, the third largest with 9.68 per cent
    
4. Urban
    
5. Urban Market
    
6. Urban Industrial.

The three groups of urban micro/small enterprises make up only 12.84 per cent of all micro/small enterprises. Urban Industrial accounts for the smallest proportion, 0.2 per cent.

The contribution of each category towards employment is as follows: among rural micro/small enterprises Other Rural accounts for 48.7 per cent of employment followed by Rural Mekong, 27.6 per cent, and Peri-urban, 9.87 per cent. Urban micro/small enterprises account for 14 per cent of the workforce and Urban Industrial is the smallest category, 0.3 per cent.

Figure 3. Rural versus urban micro/small enterprises and employment

(Source: The results of a National Survey, SMEs in Lao PDR, MIH-GTZ 1996)

Average income among micro/small enterprises-owning households in urban areas is twice the average income in rural areas: 1,790,000 Kip to 866,000 Kip ($1,885 to $912). Of the poorest third of micro/small enterprise-owning households, with annual incomes less than 520,000 Kip ($550), 95 per cent are in rural areas, and 54 per cent are one-person firms.

2.3.2 Composition of Rural Micro/Small Enterprise Sectors

Commerce and manufacturing account for 51.1 per cent and 36.5 per cent of rural micro/small enterprises. Retail, textiles, and food processing are the largest proportion within the two sectors: 46.7 per cent, 17.2 per cent, and 12.9 per cent respectively. Urban micro/small enterprises have more enterprises in commerce, 74.1 per cent, and less in manufacturing, 14.5 per cent.

Figure 4. Composition of the two main sectors in rural and urban micro/small enterprises

(Source: The results of a National Survey, SMEs in Lao PDR, MIH-GTZ, 1996)

For the four years for which records are available the start-up rate for rural micro/small enterprises was higher than that in urban areas. In 1991, it was 32 per cent to 23 per cent; in 1992, 27 per cent to 23 per cent; in 1994, 32 per cent to 15 per cent and in 1995, 29 per cent to 18 per cent. In 1993, the start up rate of rural micro/small enterprises was 20 per cent, which is only slightly lower than the 22 per cent for urban micro/small enterprises. Between 1991 and 1995 the start-up of micro/small enterprises in rural areas was higher than in urban areas, 28 per cent to 19 per cent.

Figure 5. Start-up rates of rural and urban micro/small enterprises

(Source: The results of a National Survey, SMEs in Lao PDR MIH-GTZ 1996)

2.3.3 Characteristics of Rural Micro/Small Entrepreneurs

Following market liberalization, 87 per cent of all enterprises in rural areas were non-agricultural. However, 42 per cent of the enterprise owners came from farming backgrounds. The majority of owners of rural micro/small enterprises are women (61.8 per cent).

The average age of rural micro/small entrepreneurs is 38.1 years, and their average number of years in business is 4.5. This is not significantly different in urban micro/small enterprises.

As expected, rural entrepreneurs are likely to have grown up in an agricultural household, (42.8 per cent), rather than in households where most persons have worked for government, (29.4 per cent).

An urban entrepreneur is much more likely to have grown up in a non-agricultural family. However a very small percentage of rural entrepreneurs have experience in trading, working for others, or running a business. This means that because most entrepreneurs are first generation entrepreneurs they probably had quite limited experience in doing business when they started.

Figure 6. Previous activities of rural and urban entrepreneurs

(Source: The results of a National Survey, SMEs in Lao PDR, MIH-GTZ, 1996)

With respect to the ethnic characteristics of micro/small entrepreneurs, Figure 7 shows that the Lao Lum ethnic group accounts for the largest percentage of micro/small enterprises in both rural and urban areas. However, in rural areas there are substantially more from the Lao Teung and Lao Sung ethnic groups than in urban areas: 6.5 per cent and 3.3 per cent compared with 0.5 per cent and 1.1 per cent respectively.

Vietnamese and Chinese entrepreneurs form a relatively large number of micro/small enterprises in urban areas, but less in rural areas when compared with Lao ethnic groups.

Figure 7. Characteristics of rural micro/small enterprises: ethnicity

(Source: The results of a National Survey, SMEs in Lao PDR, MIH-GTZ, 1996)

2.3 Rural Entrepreneurs
Study on Generating Employment through Micro and Small Enterprise and Cooperative Development in Lao PDR

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