Policy focus fosters SME development
Policy focus fosters SME development
Laos has succeeded in maintaining high growth during the past decade but its engine of growth depends largely on the resources sector, especially mining and hydropower, which in fact hinders long-term development.
To diversify the economy and investment, development of SMEs is key, according to the Organisation for Economic Cooperation and Development (OECD).
SMEs have strong potential in agribusiness, tourism, textiles and handicrafts, among other industries. Their development is one of the country's most important policies.
The main objective is to provide policy recommendations to support SME development in Laos, according to the OECD report on the Economic Outlook for Southeast Asia, China and India 2016 that was delivered at the recent Asean-BIS meeting in Vientiane.
SMEs play an important role in diversifying the economy and generating employment, income and new technology for long-term development. Therefore, strengthening their development is one of the most important factors for long-term growth.
However, SMEs in Laos are at an early stage of development and face various problems, including access to capital, finding skilled technical labour, access to technology and business development service providers, and increased fees and regulations.
To overcome these problems, the country needs a comprehensive and effective policy to support SME development, the OECD noted.
SMEs in Laos perceive the lack of capital to be their most significant internal constraint. A recent increase in the number of financial institutions in the country has not contributed much to easing access to finance for SMEs.
Complex application procedures, high collateral requirements and high lending rates are the main issues. The skills shortage is another major constraint facing SMEs.
The government is starting to focus on strategies to redress the twin problems of low skills levels and the insufficient number of skilled workers in the country, which also faces a shortage of unskilled labour. These internal constraints on SMEs are amplified by low levels of technology and high labour costs.
As for external constraints, the majority of SMEs are more concerned about domestic competition than international competition, and high taxes and duties are also problematic. High taxes harm competitiveness and deter FDI, leading to less economic growth.
Electricity, fuel prices and exchange-rate regulation are important external issues for SMEs. Even as Laos exports electricity to neighbouring countries, domestic demand for electricity has increased significantly, leading to a shortage of electricity and higher prices.
And since Laos imports all of its oil, price fluctuations make it difficult for producers to plan inputs and outputs accurately. Foreign exchange-rate regulations have been identified as a more important external problem for large enterprises than for smaller enterprises, since large firms are more involved in international transactions.
A small change in foreign exchange rates can have a large effect on turnover and profit. While many of these external factors are difficult to control, SEZs can be useful in providing SMEs with a better operating environment and opportunities to develop productive clusters.
The Lao government has enhanced private-sector development to promote growth of both SMEs and private-sector development.
Several laws and regulations have been issued in support of private-sector development, which the government views as an engine of growth.
The Lao government has ranked SME development as the top priority of its development agenda. Seven strategic tasks have been defined.
Those include improving the regulatory environment and public administration of economic activities, improving access to finance, training of new entrepreneurs, increasing support and business development services, enhancing business linkages between large enterprises and SMEs, promoting increased productivity to upgrade the quality and standards of products and services offered by SMEs, as well as enhancing access to markets and enlarging markets for SMEs.
