Study on Generating Employment through Micro and Small Enterprise and Cooperative Development in Lao PDR
6. Conclusion and Recommendations : 6.1 Conclusions

CONCLUSIONS AND RECOMMENDATIONS

This section draws conclusions from the study and offers preliminary recommendations on how best to promote the development of micro/small enterprises and cooperatives in Laos. The recommendations also consider how to target rural micro/small enterprises, women, and persons with disabilities.

6.1 Conclusions

6.1.1 Micro/Small Enterprises and Cooperatives in Laos

1. Micro/small enterprises are contributing significantly to the economy at both household and national levels. They create considerable employment, accounting for approximately 259,000 full-time workers, or 10 times the employment created by large enterprises. Micro/small enterprises are important for generating the needed volume of local employment partly because larger enterprises in Laos are often unable to meet the standards required by international investors, for example in workforce skill. Micro/small enterprises can also help mobilize the country's resources with less external dependency.
    
2. In rural areas micro/small enterprises are often a necessary supplementary source of income. They are also a source of collective entrepreneurial activity, utilizing family cohesion and resources to operate single or multiple enterprises.
    
3. Evidence from the 1996 MIH-GTZ survey showed that women-owned and rural micro/small enterprises contribute significantly to employment. Women own 63 per cent of all micro/small enterprises, which in turn employ 57 per cent of the workforce while 88 per cent of micro/small enterprises are rural and these businesses employ 87 per cent of the workforce. Traditional social and cultural attitudes however still affect business practices through gender-based stereotyped division of economic roles.
    
4. Of micro/small enterprise owners, 43 per cent are former farmers and 30 per cent are former government employees. These are primarily first generation entrepreneurs engaged in the commerce and manufacturing sectors. Some 55 per cent of businesses terminate in the first four years and many entrepreneurs will start secondary micro-enterprises rather than expand their primary business. This may suggest that for small entrepreneurs the traditional approach of copying others is not a sufficient means of strengthening entrepreneurial competencies or choosing viable business opportunities.
    
5. An estimate of the proportion of the population that has disabilities varies between 0.2 per cent and 10 per cent depending on the data and definitions used. A recent study by the NCHP estimated 6.8 per cent or 362,420 were persons with disabilities. A higher number is found in provinces that have severe incidence of unexploded ordnance, including Xieng Khoung in the North and Savannakhet in the South. Persons with disabilities tend to belong to the poorest socio-economic level and face numerous physical, social, and cultural obstacles to their participation in society and in the economy. In particular they have limited access to transport and social services.
    
6. Assistance provided to disabled target groups by government agencies and international donors has focussed primarily on physical rehabilitation, and only more recently and to a very limited degree on income generation. Even though many persons with disabilities are talented and inherently capable, their talents are not being developed. Training courses tend to be technical in nature, usually in agriculture, carpentry and electronics and in traditional crafts such as weaving, crafting, and banana leaf paper-making. They have virtually no business training and few persons with disabilities own micro/small enterprises.
    
7. After the introduction of a market economy, older style state-dominated cooperatives were phased out. Contemporary cooperatives exist predominantly in the field of credit provision but there are other self-help groups with cooperative features working in the agricultural sector. The government supports a 'cooperative economy' but the legal status of cooperatives is unclear.

6.1.2 Opportunities and Constraints Faced by Micro/Small Enterprises

Education and Skills Training

1. Education and skills training are necessary for a successful micro/small enterprise sector, but in Laos, ordinary schooling is limited and technical and enterprise training is minimal. Successful entrepreneurs generally have had more school education than the national average but receive their business training informally through friends and family members. Access to all forms of formal training is severely restricted for many entrepreneurs, particularly those rurally-based and those women affected by traditional attitudes to women's education and economic roles.
    
2. People with disabilities are seriously affected by limited access to education and training. Some Inclusive Education Programmes exist which bring children with disabilities into a normal school environment, and there are a number of organizations that provide health care, rehabilitation services, and loans for income generation. Community-Based Rehabilitation (CBR) focuses on community involvement in providing these support services. It must be expected, as well, that a period of time will be needed for most persons with disabilities to become accustomed to the idea of engaging in income-generating activities
    
3. For all target groups in the micro/small enterprise sector existing technical skills training systems need to be examined for their quality, accessibility and appropriateness for market demand. Specialized business training is going to be needed for people with no prior business background.
   
   Access to Credit
    
4. Despite the fact that finance is widely recognized as critical at both business start-up and expansion stages, it is generally not accessible and this remains a serious problem for the development of micro/small enterprises. Borrowing from informal sources of loans, such as friends or informal savings and credit groups, continues to be the normal practice for business ventures but with interest rates much higher than loans through formal channels. Women prefer not to go to banks, as it is traditionally believed to be shameful to let others know that one has debts. Bank procedures are also more difficult for people with limited time and understanding, compared to the costly but familiar practices of the informal credit sources.
    
5. People with disabilities have an even harder time. It is difficult enough for them to achieve a level of technical skill but with a poor understanding of how credit works, access to start-up finance is complex and confusing.
    
6. The formal banking sector with its strict collateral requirements usually provides loans to selected clients and large industries rather than to micro/small enterprises. The Agriculture Promotion Bank, owned by the state, is the only bank with branches in all provinces that provides small-scale loans. But it has limited funds, relies mainly on foreign aid, and has relatively low internal savings.
    
7. In the informal finance sector, credits, savings, and revolving fund schemes are the most familiar forms that assist income generation activities. This is sometimes done in coordination with the APB, which targets the same beneficiaries. Through these efforts beneficiaries become more familiar with the formal banking system and begin to overcome their fear of debt. Many of these schemes operate successfully, generally achieving their social and economic objectives for the target areas. The primary concerns are to help both beneficiaries and providers better understand how these schemes work and manage them in more sustainable ways
   
   Infrastructure
    
8. Only 16per cent of the nation's roads are in good condition. This severely limits the movement of goods and also the development of networks between entrepreneurs. These problems are even more severe in remote provinces.
   
   Government Policy and Regulatory Framework
    
9. A legal framework to support micro/small enterprise and cooperative development is still at an embryonic stage, led by donors and a few concerned government bodies. Policy distortions favor large-scale enterprises and create unfair competition for micro/small enterprises in accessing financing, equipment, and raw materials. In the past, micro/small enterprises also faced complicated and lengthy administrative procedures and corrupt practices by officials. All these combined to make micro/small enterprise products less competitive in terms of price, quality, and distribution. Micro/small enterprise owners often have limited knowledge of business law and taxation. It is true that faster business registration procedures have been recently been introduced, but this is only a beginning. A supportive framework must be built including the removal of barriers to full participation by entrepreneurs who are rurally based, those held back by gender-based inequalities, and those with disabilities. Once in place such a framework must also include a mechanism for frequent assessment of its effectiveness.
    
10. The Lao Women's Union is the only mass organization that promotes 'women's participation in economic development.' It carries out a number of projects for rural and urban women. The National Committee for Handicapped Persons has put forward a similar strategy to help people with disabilities to become more self-reliant.

6.1.3 Development Programmes

Overall Government Strategic Direction, Priorities and Plans

1. The government's "strategic direction" for the economy has poverty alleviation as a key goal, in part through transforming the agricultural sector from maintaining subsistence livelihoods to producing marketable commodities. Family businesses with agriculture-related production are to be encouraged as a way of improving their living conditions. Responsibility for infrastructure and for poverty alleviation is to be transferred to regional and local levels and provinces, districts and villages will take charge of the planning, budgeting, and implementation of projects. This "strategic direction" is intended to maintain a leading role for the state economy, promote cooperatives and give greater employment to women.
    
2. The strategic direction also gives priority, in terms of education, vocational/technical training and health, to the poor, ethnic minorities, and women. However the improvement of living conditions through the promotion of micro/small enterprises still does not yet appear within national policies.
   
   Organizations Supporting Micro/Small Enterprises and Employment
    
3. A number of government agencies work in a very limited way to support private enterprise and employment. Some, such as the Lao Women's Union, work directly with women, others work with the rural population, or with persons with disabilities. So far there is no government organization working specifically to promote micro/small enterprises. Other organizations work indirectly on micro/small enterprise development but mainly by focussing on the interests of their own group. One such as the National Chambers of Commerce and Industry which consist of nine business groups, one association, and eleven sectors representing various enterprises and industries. The interests of people with disabilities are safeguarded by the Lao Handicapped Women and Children's Association, and the Lao Disabled People's Association.
    
4. All agency assistance to private enterprises is limited by severe budget and capacity constraints so that assistance from international donors and NGOs has been essential. Most efforts have been centered on promotion of micro/small enterprises through a supportive policy framework, business development services, and access to credit. So far there has been no practical initiative in the development of cooperatives.
   
   Policy and Regulatory Framework for Micro/Small Enterprises
    
5. Key international development agencies such as JICA, ADB, and UNIDO have worked with their Lao counterparts through a number of workshops to develop a market-oriented economy, national and provincial economic policies, and improved governance for state-owned commercial banks. Efforts are being made to improve the physical infrastructure needed for business development through rural access roads, power generation, and distribution. Such interests as the World Bank, European Union, United Nations Development Programme, Japan, Sweden, France, and Australia have been involved in this work. However it is difficult to identify any agency initiatives to mainstream micro/small enterprise development within government policy.
   
   Business Development Services
    
6. Some services related to business development are being delivered, mainly through formal and non-formal vocational skills training in urban and rural areas, and through exposure to workshops and trade fairs. These services have been limited to specific groups and often have insufficient market-orientation. Other services such as entrepreneurship training, advisory services on markets and technology, assistance in establishing business linkages, and developing business associations have all been extremely limited.
   
   Access to Credit
    
7. Improving the formal finance sector is an ongoing focus for a few international donors. Informal forms of financing through village revolving funds, rice banks, animal banks, credit and saving schemes have been on the increase through the work of international agencies and NGOs operating in rural and community development. Attention is now being given to the sustainability of these programmes.

6. Conclusion and Recommendations : 6.1 Conclusions
Study on Generating Employment through Micro and Small Enterprise and Cooperative Development in Lao PDR

top of the page