While Laos has been the beneficiary of rapid economic growth, not all
are seeing its benefits.
Laos is a country in transition that
is enjoying robust economic growth as a result of its exposure to global
markets, increased foreign investment in the country’s abundant natural
resources, and a blossoming tourism industry. At the same time, more than a
third of Laos's population continues to live below the global poverty line of
U.S. $1.25 PPP a day in a society where most of the population remains
dependent on subsistence agriculture. Farming still accounts for 67.6% of total
employment, compared with 16.9% of the population who is self-employed and only
15.5% who are wage-earners, according to the World Development Report 2013. The
UN Food and Agriculture Organization estimates that 93% of women who
participate in the labor force in Laos are employed in agriculture. Agriculture
also still accounts for 29% of Laos’ GDP, compared with 19% for industry and
51% for services.
The official Vientiane Capital
Region extends over 3,920 km2 of which only 6% are occupied by developed areas
while 68% are forest areas and 16% paddy fields. With a total population of
just over 800,000 people, many settlements in the capital region are still
villages. Even within the city of Vientiane itself, good roads are a privilege
and residents often times must use dirt roads to access essential services like
schools or hospitals.
As this suggests, booming
economic development does not automatically translate into improved access to
services for the poor. Without a system of social protection, the poor have to
rely on friends and relatives in times of economic hardship. This reflects the
fact that unskilled farmers working small plots of land face immense
difficulties in trying to find a non-agricultural job to supplement their
meager incomes.
In Phonethong Village, located on
the outskirts of Vientiane, the capital city, I encountered a woman named Kaum
– a mother, farmer, laborer, and factory worker – living at the far end of the
village. She and her husband own a small plot of land barely capable of
producing a subsidence level output. In order to feed their family, they are
forced to spend their nights laboring on other villagers’ farms. In addition,
Kaum works a number of shifts at a nearby garment factory, earning U.S. $50
every two weeks, or approximately U.S. $3.57 a day. Despite these extra income
sources, Kaum and her husband struggle just to feed their family of four, let
alone to put their children through school or make capital investments in their
farm to increase output.
“I would like to open a small
shop to earn more money” says Kaum, “but nobody wants to give me a loan.” She
informs me that her home does not qualify as collateral, which prevents her
from securing loans to improve productivity or expand her farm.
Government programs for skills
training or small business development do not exist, and the few
non-governmental organizations (NGOs) operating in Vientiane only have enough
resources to reach a small proportion of the people who would benefit from
their work. As Oxfam country director Dominique van der Borght points out, the
country’s education system falls well short of delivering the services needed
in a country that has a rapidly growing economy. Consequently, foreign firms
operating in Laos often bring their own staff and laborers because local
workers lack the necessary skills and linguistic training. Only the lowest
level jobs are given to local residents.
Micro-entrepreneurs who want to
take advantage of new opportunities in the emerging non-agricultural economy
face a different kind of obstacle. Up until 2004, Laos had no laws governing
microfinance institutions (MFI) and formal financial services were inaccessible
to the poor. Eight years later a number of MFIs are offering savings and loan
products, but they largely deal exclusively with clients who have collateral.
Moreover, their branch network is focused on Vientiane where they a serve
small, but established entrepreneurial class in the city.
In a way, the risk-averse
business model of any financial organization favors individuals and companies
who already have established their business model. For those without
collateral, the MFIs are starting to offer group loans, but the reach of these
initiatives is still limited. The MFI capacity to provide free business training
and actively support aspiring entrepreneurs is even more limited. The MFIs
themselves are still struggling to build reliable client bases to secure their
long-term survival in an increasingly competitive market.
Founder and executive director of
Laos' first MFI, Ekphattana Microfinance Institution (EMI), Somphone
Sisenglath, states that MFIs also try to emphasize to clients the importance of
saving part of their incomes. "Savings are part of our mission,”
Sisenglath tells me. “Access to credit is one thing, but if there is nothing
left [at the end of repayment], they are still poor." Accordingly, EMI
requires that all its clients save 10% of their initial loan in order to
instill in them the importance of building wealth.
Access to microloans coupled with
educational opportunities to learn about small business management would go a
long way towards building an additional stream of income for families like
Kaum’s. Unfortunately, as members of the bottom echelon of society, Kaum’s
family and countless others like them do not have access to these kinds of
services.
Mr. van der Borght describes the
situation in Laos as having a "different face of poverty." He
explains that importing solutions from places of scarcity may not work in a
country like Laos, which has an abundance of natural resources but suffers from
a chronic lack of infrastructure and a grossly underfunded social service
system. Expanding access to education and financial services to families like
Kaum’s, as well as integrating them more fully into supply chains, are crucial
if Laos is to boost household income for the vast majority of its citizens
working in agriculture and non-agriculture industries.
Johannes Loh
Business & Investment Opportunities
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