Study on Generating Employment through Micro and Small Enterprise and Cooperative Development in Lao PDR
Executive Summary

THIS STUDY

Since the introduction of a market-oriented economy in the Lao People's Democratic Republic in 1986, the private sector in Laos has made significant strides in the generation of employment and increase in household income.

In the near and medium future it is through the micro/small enterprise sector that poverty alleviation and employment generation will be possible for the bulk of the Lao population.

Despite the limited research data available, it is now thought timely to learn from the work already done by the Lao Government and by local and international agencies, and to plan the interventions needed to strengthen the micro/small enterprise sector.

CHARACTERISTICS OF LAO MICRO/SMALL ENTERPRISES

The 1996 national survey showed that there were 146,000 micro/small enterprises employing the equivalent of 259,000 full time workers and accounting for 6per cent to 9 per cent of GDP. This is over ten times the 22,000 that were employed by larger enterprises. The micro/small enterprise sector accounted for 86 per cent of rural and 13per cent of urban employment.

From 1991 to 1995 new micro/small enterprises were born at an annual rate of 25 per cent. A "death rate" of 15 per cent meant average annual growth rate was 10 per cent and that 26,000 new jobs were created each year. At the same time existing businesses expanded at an annual rate of 5 per cent, accounting for 13,000 new jobs a year.

90 per cent of these are family businesses which tend to be multiple businesses. However they mainly provide supplementary rather than principal household income.

63 per cent are female-owned and account for 56 per cent of total employment in this sector. These however tended to be smaller and less mobile businesses than those that are male-owned.

As a result of recent economic changes there are now large numbers of first generation entrepreneurs. Many of today's entrepreneurs worked formerly for the government or for agriculture related enterprises owned by their families.

Specific ethnic groups have tended to dominate the micro/small enterprise sector. The Lao Sung predominate in rural areas, the Vietnamese and Chinese in urban areas and the Lao Lum and Lao Teung are strong in both urban and rural areas

OPPORTUNITIES AND CONSTRAINTS

Education and skills training

Education and skills development are insufficiently linked to market demand and there is a lack of integration of technical and business training. There are also ongoing problems with the basic quality and capacity building of teachers and trainers.

Access to credit

Credit through formal channels is not readily available for most micro and small entrepreneurs, mainly because limited funds are allocated by the banking system. There is therefore heavy reliance on informal credit channels with their onerous interest rates. Small scale credit and revolving fund schemes are the most promising means to overcome traditional shame around debt, especially for women and minority entrepreneurs, but many of these schemes are currently not sustainable.

Infrastructure and mobility

Rural enterprises are significantly disadvantaged in access to infrastructure, roads and electrical power. Only 16 per cent of roads are in good condition. Taxes and bureaucratic obstacles also impede the movement of goods within the country.

Government policy and legal framework.

The existing legal and policy framework favours large enterprises. To redress this balance a comprehensive legal framework, or a dedicated agency, are needed to support micro/small enterprise development and promotion. There is also no legal recognition or policy framework for cooperative or group enterprises. Poor access by all forms of small enterprise to finance, equipment, raw materials and business knowledge impedes their competitiveness, and a comprehensive response to these problems will be needed.

Gender-based inequalities

Traditional values must be respected but the application of those values in ways that prevent women from accessing skills training, credit and business development services, impedes the development of greater family income.

Obstacles to economic participation by people with disabilities

Some 362,420 people, 6.8 per cent of the population, have disabilities and are the ones most affected by limited education and skills training. Most support for them is focused on physical or medical rehabilitation, some on technical skills, but hardly anything on developing employment through micro/small enterprises. Inclusive Education Programmes and Community-Based Rehabilitation are successful, but time will be needed to achieve their sustainability and wider outreach.

SECTOR DEVELOPMENT PROGRAMS

Government Objectives

The Lao Government aims to reduce poverty through agriculture-related businesses and to target rural entrepreneurs, minorities, and family businesses. To assist this it is devolving responsibility for policy and implementation to local authorities.

The government is also emphasizing the promotion of cooperatives alongside the state economy. However, as already noted, there is no national policy or agency dedicated to development of micro/small enterprises or cooperatives as means of generating employment or improving living conditions.

National Agencies

The Lao Women's Union and the Lao Disabled Person's Association are the only national agencies supporting the participation of women and disabled persons in economic development.

International Agencies

Technical skill inputs, community-based projects and credit schemes are being provided by many international agencies, but these need coordination, sustainability and enhancement. The minimal business development services that exist are confined to certain target groups, sectors, locations or types of services.

SUGGESTED IMMEDIATE STEPS

Data

Either another comprehensive and expanded survey of the private sector, such as that of 1996, or else a co-ordinated programme of research into specific sub-sectors and micro/small enterprise issues should be conducted. There should also be coordination of the evaluations of future policies and programme interventions.

Inequalities

Gender-based inequalities need to be addressed in education and skills training. Barriers to participation by women entrepreneurs, including those based on traditional roles, values and customs, need to be sensitively examined.

The particular constraints faced by rural entrepreneurs need to be addressed, including access to skills and credit, and the obstacles to the movement of goods, people and information that are created by both bureaucratic barriers and poor infrastructure

Lack of support for the income-earning activities of women and men with disabilities and their families, needs to be addressed, including in the areas of skills training, physical access and social attitudes.

Cooperative Enterprises

New forms of cooperative enterprise should be encouraged to build on the Lao tradition of family businesses and respect for harmonious working relationships.

There is a need for consultation to develop a Lao cooperative model together with a clear definition of cooperatives in Laos and appropriate legislation and policy.

Policy and Regulation

A mechanism such as a national committee is needed to develop a policy and regulatory environment that is conducive for micro/small enterprises and cooperatives.

There is a related need to build capacity and awareness among all relevant government agencies about the implications of adopting a poverty focus and, in particular, of the relevance of micro/small enterprises in alleviating poverty.

Support Interventions

The existing approaches and mechanisms used by government and other agencies should be made more sensitive to gender, ethnicity, disability and rural disadvantage.

Initiatives to develop micro/small enterprises should have effective follow-up and monitoring systems and learn from both achievements and mistakes.

Local and international organizations should improve the delivery of Business Development Services (BDS).

The establishment of a BDS Centre could be considered and BDS outreach, using appropriate media and channels of communication, should be made available to micro/small enterprises unable to access a business development centre.

A business skills training programme suitable for micro/small enterprises such as the ILO SIYB Programme should be introduced.

The formation of business associations is another important means to help the sector take responsibility for its own development and to advocate for the needs of its members.

A comprehensive programme is needed to improve credit provision through the better mobilization of domestic funds through formal channels and better co-ordination and outreach through community-based channels.

Executive Summary
Study on Generating Employment through Micro and Small Enterprise and Cooperative Development in Lao PDR

top of the page