Serenity in the Buddha Park.
The Asian Trends Monitoring Bulletin is a project
Production
sponsored by the Rockefeller Foundation, New
Chris Koh, Manager, Production & Research
York and the Lee Kuan Yew School of Public Policy,
Dissemination
National University of Singapore. The Lee Kuan Yew School of Public Policy gratefully acknowledges the
Image credits, with thanks
financial assistance of the Rockefeller Foundation.
All the images in this issue were taken by the ATM team during their Vientiane trip of August 2012,
The Asian Trends Monitoring Bulletin focuses on
except for the following images on:
the analysis of pro-poor projects and innovative approaches that will contribute to alleviate poverty.
• the cover, copyrighted by Many Moon Honeymon
The emphasis is put on identifying major trends
• page 2, copyrighted by Adamina
for the poor in rural and urban areas, highlighting sustainable and scalable concepts, and analysing
Permission is granted to use portions of this work
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copyrighted by the Lee Kuan Yew School of Public
being and future development.
Policy. Please follow the suggested citation:
The Asian Trends Monitoring Bulletin are designed
When citing individual articles
to encourage dialogue and debate about critical
Indrakesuma, T., & Loh, J. (2012). Laos in transition:
issues that affect Asia’s ability to reduce poverty and
different from the rest. In Asian Trends Monitoring
increase awareness of the implications for pro-poor
(2012), Bulletin 19: Vientiane: poor but different
policy and policy development.
(pp. 4-11). Lee Kuan Yew School of Public Policy, Singapore.
Disclaimer The opinions expressed in the Asian Trends Monitoring
When citing the entire bulletin
Bulletin are those of the analysts and do not
Asian Trends Monitoring (2012), Bulletin 19: Vientiane:
necessarily reflect those of the sponsor organisations.
poor but different. Lee Kuan Yew School of Public Policy, Singapore.
Frequency The Asian Trends Monitoring Bulletin will be produced
When citing our survey data
eight times a year and can be downloaded for free at
Asian Trends Monitoring (2012). A dataset on urban
http://www.asiantrendsmonitoring.com/downloads
poverty and service provision. Lee Kuan Yew School of Public Policy, National University of Singapore.
Principal Investigators Darryl S.L Jarvis
Please acknowledge the source and email a copy of
Phua Kai Hong
the book, periodical or electronic document in which
T S Gopi Rethinaraj
the material appears to chris.k@nus.edu.sg or send to
Research Associates
Chris Koh
Johannes Loh
Lee Kuan Yew School of Public Policy
Taufik Indrakesuma
469C Bukit Timah Toad
Nicola Pocock
Singapore 259772
Contents 3 • Vientiane: poor, but different 4 • Laos in transition: different from the rest 12 • Providing stepping stones to opportunities 16 • Tourism: a path to equitable growth
3
Vientiane: poor, but different by Taufik Indrakesuma & Johannes Loh
Among the cities that the ATM team researched this year, Vientiane stood out for its small population and its close integration to the surround-
• four alternative futures of how tourism could contribute to poverty alleviation in Laos.
ing rural communities. Vientiane, the capital of Lao People’s Democratic
The ATM team sees Vientiane as a city with much potential for equitable
Republic, is the second smallest ASEAN capital after Bandar Seri Begawan
growth. It is in the unique position of being able to learn from the growth
of Brunei Darussalam. It has a population of 700,000 people, which is tiny
trajectories of other major cities in the region. The recommendations in this
compared to 23 million in the Greater Jakarta Area, Manila (16.3 million),
bulletin are hoped to be able to lead Vientiane in the right direction.
or Hanoi (6.5 million).
The data and case studies that are used in this bulletin are the result of
Despite being small and relatively underdeveloped, Vientiane has
primary data collection and field research—we talked to a honey seller in
grown rapidly in the last few years. The economy is booming with a growth
front of the famous That Luang Stupa, interviewed a farmer who moon-
of 8% per year, and the country is set to join the World Trade Organisation
lights in a garment factory to feed her family and learned from a shop
in 2013. However, the growth is not distributed equitably with mining, for-
owner how she grew her business with the help of micro-loans.
estry, hydro and tourism as the major drivers of the economy.
This year’s focus on urban poverty entailed travelling to four of
The poor are often left on the side lines, suffering from a lack of infra-
Southeast Asia’s major cities: Jakarta, Manila, Hanoi, and Vientiane. In
structure and inaccessible services. The field interviews and case studies
the coming months, we will compare the four cities with regards to their
in this bulletin illustrate the tremendous challenges Vientiane’s adminis-
emerging problems in the fields of education, financial access, and health.
trators are faced with. In this bulletin we look into the following issues:
We invite you to share the ATM Bulletin with colleagues interested in pro-
• wide service gaps for the poor, specifically in the areas of health
poor issues in Southeast Asia. The Bulletin is also available for download
and education;
at www.asiantrendsmonitoring.com/download, where you can subscribe
• low transportation connectivity even within the capital;
to future issues. We encourage you to regularly visit our website for more
• a lack of opportunities for the city’s poor and recent migrants from
updates and recent video uploads in our blog. Thank you again for support-
rural areas; and
ing the ATM Bulletin, and as always, we gladly welcome your feedback.
Suggested citation When citing individual articles • Indrakesuma, T., & Loh, J. (2012). Laos in transition: different from the rest. In Asian Trends Monitoring (2012), Bulletin 19: Vientiane: poor but different (pp. 4-11). Lee Kuan Yew School of Public Policy, Singapore. When citing the entire bulletin • Asian Trends Monitoring (2012), Bulletin 19: Vientiane: poor but different. Lee Kuan Yew School of Public Policy, Singapore. When citing our survey data • Asian Trends Monitoring (2012). A dataset on urban poverty and service provision. Lee Kuan Yew School of Public Policy, National University of Singapore. Tuktuk drivers like Khat Kong, rely on tourists to earn a living.
4
Construction companies lie in wait for Vientiane's development to kick off.
Laos in transition: different from the rest by Taufik Indrakesuma & Johannes Loh
With growing exposure to global markets, for-
of only 6.2 million people and the low popula-
Compared to the other countries in our urban
eign investments in the country’s rich natu-
tion density of 27 per square kilometre. More
poverty series, Laos has a much lower literacy rate
ral resources, and an upbeat tourism industry
than a third of the population lives below the
with 73% as of 2008. Indonesia, the Philippines
driving economic growth, Laos appears to be a
global poverty line of US$1.25 PPP a day in a
and Vietnam all have literacy rate in the low nine-
country on the right path to economic develop-
society largely dependent on subsistence
ties. Currently, the average Laotian adult has only
ment. According to Gross national income (GNI)
agriculture. Farming accounts for a total of
5.1 years of schooling.d Without an education sys-
per capita levels in 2009, Laos, with US$853, is
67.6% of total employment, compared to
tem that is able to equip the labour force with new
slightly richer than Cambodia (US$615), though
16.9% self-employed and only 15.5% in wage
skill sets, the people will not be able to participate
it still lags behind its other neighbours Thailand
employment.b In terms of contribution to GDP
and benefit from the new economic opportuni-
(US$3,719) and Vietnam (US$1,032). Compared
agriculture still accounts for 29%, industry for
ties that may arise in the long run.
to the 2005 figure of US$441, the pace of Laos’
19% and services for 51%.
a
The problems of these poor, uneducated
c
Transforming this agrarian labour force into
farmers are exacerbated by this rapid economic
However, these numbers are misleading.
one more focused on manufacturing or services is
growth. The “Lao way of life” is undergoing
It is important to consider the Lao population
difficult due to problems in the education sector.
a rapid shift from an agricultural subsistence
a
b
d
growth seems extraordinary.
http://data.un.org/CountryProfile.aspx?crName=Thailand
c
World Development Report 2013 World Development Report 2011
Ibid
5
Interview with Dominique Van der Borght, Country Director Oxfam (Laos Office) What is your perspective on urban poverty in Vientiane? Urban poverty is something new—somewhat difficult to define in Laos’ case. If there is a trend of rural-urban migration from the countryside to Vientiane, we are only at the very beginning. There is no big attraction to seek work in the city—there is no industry that needs workers from the country-side. Currently, demand for lowskilled workers is much higher in neighbouring Thailand. The capital, Vientiane, is still at an early stage of growth and has space to accommodate new people. But this may change soon.
Dominique Van der Borght, Country Director Oxfam.
How would you describe Laos’ economic progress?
agriculture within the city’s official borders. They are following the tra-
The fact that it is a country with lots of natural resources and very low
ditional lifestyle. At the moment, it is probably more sustainable but
population density makes it very unique when compared with its
we are already seeing a shift and with that more and more people are
neighbours. Laos has water, soil, forest land, minerals that are in high
losing their old livelihoods. Vientiane is a city at the brink of transition.
demand in their neighbouring countries due to their industrialisation process. This has allowed Laos to grow at more than 8% GDP annually.
You mentioned that international labour migration is an
It doesn’t mean that it is automatically generating higher income for
important trend, why?
the local people living nearby those resources. For the moment, what
Within Laos the opportunities for non-agricultural labour are limited.
we observe is that they have been excluded from the process, more
If your farm income is not sufficient, the next best option is to work as
than being integrated. People have been losing their access to those
a factory worker. Many women and men migrate for a couple of years
natural resources. Going forward, it is important that smallholder
to Thailand to work on commercial farms, in construction or in facto-
farmers get better access to markets by shortening the value chain.
ries all over Thailand where demand for non-skilled workers is high.
One of the major challenges for the rural economy, which is dom-
Of course, this type of labour migration has many social implica-
inated by agricultural, will be the sustainable integration of rural
tions back in Laos. Children are brought up by their grandparents
farmers into the market economy, allowing small scale farmers to
and many spouses live apart for most of the year. Without educa-
have a decent living from their activities. For the broader population
tion these workers don’t have any opportunities waiting for them
the country also requires better and affordable access to services
upon return to Laos.
such as education and health facilities in both, rural and urban areas. What are the needs in the medium to long-term? Has the increasing exposure to the global economy
As I mentioned before, access to education and health, in particular
impacted the lives of people in Laos?
in the country side are very important. On the next level, the coun-
The cost of living is constantly increasing, especially in the prospering
try also needs improved vocational training programs and technical
city centre. It has not yet become a major issue, but incomes are not
schools. Continued economic growth will trigger higher demand for
rising at the same rate. The life of urban residents is still closely linked
skilled workers in a range of industries—right now Laos’ workforce
to the country side. This a unique difference as well, since in Vientiane,
would not be able to meet that demand.
the rural and urban linkages are still very interconnected for day to
Finally, I hope that the government will be able to provide ser-
day existence, whereas in cities such as Jakarta, residents are not so
vices to all income groups regardless of whether they live in rural
interlinked to rural Indonesia. Often, households source their rice and
areas or in the city. Access to basic services should not become a
vegetables from family members and relatives practicing subsistence
commodity that is reserved for the wealthy.
6
economy to a cash economy. In order to provide
areas we surveyed, a whopping 58% of sur-
Vietnam’s percentage of paved roads has gone
for their families, farmers increasingly need cash
veyed households resort to bottled drink-
from 25% in 1995 to 47% in 2007, with the total
to buy goods previously obtained from nature
ing water because they do not have access to
road network itself growing from 100,000km to
or through barter.
a clean piped connection. Worse yet, 17.3% of
160,000km.
Despite these changes, the capital, Vientiane,
respondents still get their water from open,
This poor state of road infrastructure is a
still has a rural feel about it as soon as one leaves
unfiltered sources such as open wells or rivers.
severe impediment to economic growth and
the immediate centre of town. It has not (yet)
This data, presented in the charts below, lead us
service provision in the urban periphery. In our
witnessed dramatic levels of rural-urban migra-
to two possible conclusions: either piped con-
interview with Friends International Laos, our
tion and thus the poor do not suffer from over-
nections are not available at all for the major-
source noted that there are parts of Vientiane
crowding. The real problems are insufficient
ity of households, or the water from the piped
that would benefit greatly from services such as
infrastructure and low quality or inaccessible
connections is not of potable quality. The conse-
skills training or health check-ups, but are very
services.
quences of this poor water provision are evident
difficult to reach because of the road conditions.
in our respondents’ self-reported health.
This means that such services cannot be pro-
Urban service deficiencies
In the case of road infrastructure, we
vided regularly, depriving these people of the
During the visit to Vientiane, the team observed
observed that paved roads could only be found
a major deficiency in urban service provision.
within a certain radius of the city centre, whereas
Some other issues for Vientiane’s poor resi-
We noted that for basic services such as water,
most of the roads leading to the city’s periphery
dents include getting access to good quality
sanitation, and education, as well as public infra-
were unpaved dirt roads. According to World
health and education services. Costs are often
structure such as roads, the pace of progress
Bank data, the percentage of paved roads in
the largest barrier to this access. While about
made towards universal provision is very slow.
Laos has remained stagnant at around 13-14%
half of the respondents rated their difficulty
All of these observations were backed up by the
since 1995, despite having almost no growth
in paying for both services as neutral, 17% on
data collected in our survey of poor households
in the total length of the road network (only
health and 40% on education expressed con-
in the city.
around 7,000km of new roads). This implies that
cern over costs, respectively.
opportunities for life improvement.
In the case of water, survey evidence points
no work has been done to improve the roads
On the issue of financial access and savings,
to a lack of a reliable central grid. In the four
in Laos in the last 20 years. As a comparison,
there are some promising signs. About half
Figure 1. Response to the question: Where do you primarily get your drinking water?
Figure 2. Response to the question: How would you rate your personal health?
Source: Asian Trends Monitoring (2012). A dataset on urban poverty and service provision. Lee Kuan Yew School of Public Policy, National University of Singapore.
7
CDEA
through water charges of LAK 2000/m3. After CDEA recoups its costs, all subsequent water charges are pooled into a community fund.
The Community Development and Environment Organisation
This community development fund can be used for multiple pur-
(CDEA) is one of the non-governmental organisations that have tried
poses. First, it is sometimes used to cross-subsidise the extremely
to fill the gap in the central water grid. During the team’s visit to
poor households so that they can access the water for free. Secondly,
Vientiane, we were able to speak with Mr. Khampha Keomanichanh,
this community development fund also acts as capital for small sav-
CDEA’s founder and current head.
ings and loans operations in the community. The organisation loans
When it was founded in 2004, the organisation focused its opera-
out money at 0.5% interest per month for emergencies and educa-
tions on providing a clean water supply in Vientiane. The provision
tion loans, and at 2% interest for working capital loans. Finally, the
model they have continued to use since the beginning is commu-
fund is also used for maintenance and further development of the
nity-based: they build one groundwater pump per village and pro-
community water infrastructure.
vide one pipe for use by the entire community. If households want
CDEA’s adaptation of a community fund model is partly due to
a direct household connection, they must pay out of their own
Keomanichanh’s belief that donations and provisions do not work.
pockets to build the pipes. This helps to ensure “ownership” for
He said, “Some of these households are poor because they are lazy.
maintenance within the community and makes the solution more
In these kinds of situations, if you give them handouts, it will not
sustainable.
change their ways and they will not improve their own lives.” This
More recently, they have expanded their reach to the outskirts of the city. They also began improving the condition of sanitation sys-
is why he believes that the community itself needs to have a real stake in the maintenance of the water pipes.
tems in the poor neighbourhoods around the city by implementing
When asked about future challenges to water provision in
a Community-Led Total Sanitation (CLTS) model, where they teach
Vientiane and Laos as a whole, Keomanichanh believes there are two
the community to build their own toilets and sanitation networks.
major environmental problems. First, there is the risk of accelerated
One notable part of CDEA’s provision model is the use of a “com-
deforestation due to the entry of foreign companies looking to build
munity development fund”. Every water provision project is meant
plantations to replace the traditional Laotian subsistence farming.
to be fully funded from within the community. However, since this
This would cause problems with the groundwater levels. Additionally,
capital is usually not available immediately, the initial building phase
the plans to build dams as hydroelectric generators will also jeop-
is co-funded by CDEA and donors. CDEA then recoups its investment
ardise the quantity and quality of the water supply.
Many micro-entrepreneurs resort to street-side food stalls.
8
of the respondents indicated that they were
Our survey on urban poverty and service provision in Vientiane, Laos The Asian Trends Monitoring team conducted a survey among people living in poor neighbourhoods in Vientiane between September 3 and September 9 2012. We collected a total of 349 responses from four different districts with the help of 10 field interviewers. We used the random walk method to sample respondents from every third house/shelter. Our sample included 211 women and 138 men due to the fact that the survey was conducted during the day when most of the men are at work. 79.4% of respondents indicated that they are the head of the household (119 respondents), or the wife (158 respondents) of the head of household. The average age was 43.4 years with an average household size of 4.98 members. The overall sample consisted of 85.5 % inhabitants born in Vientiane and 15.5 % rural-urban migrants. The low number of migrants can be explained by two factors. First, the official capital region Vientiane stretches far beyond the urbanised part of the aspiring city; and second, Laos has not (yet) witnessed rapid rural-urban migration such as reported in its neighbouring Vietnam or Thailand. The survey had a “perception of difficulties” section comprising ten categories, each to be rated on a 5-point scale (from “easy” to “impossible/unable to do”). The breakdown (Figure 10, see page 11) shows which categories were perceived as particularly difficult. For more details on the ATM survey please contact one of the researchers listed at the end of this bulletin. The results from our previous surveys conducted in Jakarta, Manila and Hanoi are available on our website, www.asiantrendsmonitoring.com, in ATM Bulletins #16, #17 and #18, respectively.
able to regularly put some money aside. This is much higher than the responses in Jakarta (17.3%) and Manila (24.7%), indicating positive developments in financial literacy. The most popular choice for keeping the money save was cooperatives, followed by the traditional ‘under-the-mattress’ method (home) and commercial banks. It should be noted that banking services are only easily accessible within the city and ATMs are not yet found at every corner. Compared to other ASEAN countries Laos has a low density of ATM with 4.3 per 100,000 adults (See Figure 6). The other side of the financial access coin is whether the poor are able to take loans from safe sources. The rapid growth of Laos’ economy drives a trend towards cash transaction even among the poor who used to live from subsistence agriculture and exchange of goods. However, many urban poor do not earn enough to pay for their families’ essential needs and thus, they borrow money (73% of respondents). Commercial banks and cooperatives were the most popular sources of loans, followed by loans from relatives and friends. The services of money lenders (popular in
Figure 3. Perception of difficulty with regards to paying for medical or educational services
Source: Asian Trends Monitoring (2012). A dataset on urban poverty and service provision. Lee Kuan Yew School of Public Policy, National University of Singapore.
9
Figure 4. Response to the question: Do you save money regularly?
Figure 5. Response to the question: What is your main method of saving?
Figure 6. ATMs per 100,000 adults
Figure 7. Estimated regular savings amount
Source: Global Financial Inclusion (Global Findex) Database (2011)
Figure 8. Response to the question: Do you borrow money regularly?
Figure 9. Response to the question: Where do you primarily borrow money from?
Source: Asian Trends Monitoring (2012). A dataset on urban poverty and service provision. Lee Kuan Yew School of Public Policy, National University of Singapore.
10
ability to save regularly represent 39% of our
Phonethong Village
there is a supply of medicine for everyday ailments.
Phonethong Village is located in Xaisettha
Water and sanitation in the village do
District, still within the boundaries of
not quite meet urban standards of ade-
Vientiane Capital. However, it is a small
quacy. The Vientiane tap water grid does
village of only 150 households, with a
not extend very far, so all households in
total population of 985 people. Most of
Phonethong get their water for daily use
its inhabitants earn a living from farming,
from open wells, and often resort to bot-
while others work as construction workers
tled water for drinking. Also, although
or factory workers.
each house in the village has its own toi-
In
Phonethong,
we
interviewed
let, the lack of a central sanitation system
Khamphan Daangphachan, one of the
forces each household to use septic tanks.
members of the village council. When
The dangerous interaction between sep-
asked about whether life in the village
tic tanks and groundwater use becomes
had improved in the past ten years, he
immediately clear. However, the way in
was convinced that it had. He pointed to
which the councilman described the situ-
the quality of houses and the number of
ation suggests that the people are actually
households with motorcycles as evidence
quite satisfied with what they have.
that people in the village were getting richer.
Despite the general level of satisfaction with the progress of the village, the council-
Daangphachan also believes that
man still hoped that more improvements
government services have gotten better.
would come. His primary concern was agri-
While taking us on a tour of the village, he
cultural training. Vientiane’s small farmers
pointed to all twelve roads that the gov-
are still working with primitive methods
ernment has built in the past few years.
and equipment, so providing better equip-
Most of these roads were unpaved dirt
ment and training programs could improve
roads, but they were roads nonetheless.
their potential yield and economic compet-
He also mentioned that there are more
itiveness. Also, he plans to ask the govern-
schools now, with one primary school in
ment to build some youth activity halls or
each village and two secondary schools
sports and leisure facilities for the people of
in the sub-district. It has also become
the village to socialise and engage in
easier to access health care, as one health
healthier lifestyles. All of these things are
care centre was recently set up in the sub-
beyond the financial means of the village,
district. Although there are no trained
so they must rely on the government’s
doctors in the sub-district health centre,
good will.
sample. Interestingly, the differences between the two groups who have weekly savings are only US$4.30 per week. Unfortunately, slightly more than half of respondents are unable to save up at all. An easily-satisfied constituency The final trend we observed in the field is how content the people of Vientiane were with their lives. All of the evidence from our survey, interviews, and general observations suggest that people in Vientiane are satisfied with their quality of life and the level of government services they receive. With all of these deficiencies in income opportunities and service provision, this final trend is perhaps the most worrying. The survey indicates that people do not find it difficult to access basic services. For example, despite the poor conditions described earlier about drinking water in the city, the vast majority of respondents stated that accessing clean water in the city is “easy” or “fairly easy”. Also, transportation is another aspect of life that was considered relatively easy by Vientiane respondents, although these respondents live in areas that do not have many paved roads or public transport lines running through them. All in all, the top three difficulties reported by the respondents were finding work opportunities, saving money and providing enough food for the family. None of the ten categories stand out as a major issue. When the data from Vientiane is compared to other cities, it is clear that there is a significant difference in perceptions about life difficulty between respondents from Vientiane and respondents from the other three cities. Figure
Jakarta and Manila) were only used by about
that respondents with bank accounts should
11 shows how most other cities have two or
8% of respondents. This also supports the
be better off on average, than those without
three categories that are almost unanimously
hypothesis that the poor of Vientiane are finan-
accounts. Our survey results show that only a
regarded as difficult or impossible to access,
cially knowledgeable and are a viable market
quarter of respondents have an account at a
whereas in Vientiane, even the most “diffi-
for services like microfinance.
commercial bank, and less than 12% of respon-
cult” category is only said to be very difficult or
Requirements set up by banks to ensure they
dents have an account and save up regularly.
impossible to access for roughly one-third of our
attract profitable clients raise the expectations
Respondents without accounts but with the
respondents.
11
Figure 10. Perception of difficulty among Vientiane's poor
Figure 11. Perceptions of difficulty in ASEAN cities (% of respondents who rated access to services “very difficult” or “unable to access”)
Source: Asian Trends Monitoring (2012). A dataset on urban poverty and service provision. Lee Kuan Yew School of Public Policy, National University of Singapore.
One of the sectors that showed a huge dis-
education. The team observed that schools in the
sometimes not of the appropriate size for the
crepancy between perceptions recorded in our
peri-urban areas were not in the best condition.
grade level, and facilities such as sports fields and
survey and actual conditions in the field was
Classrooms were dimly lit, chairs and desks were
libraries were mostly non-existent.
12
An NGO displays its achievements in aiding the poor.
Providing stepping stones to opportunities by Johannes Loh
The official Vientiane Capital Region extends
have to rely on relatives and friends in times of
growing economy. Foreign firms often bring their
over 3,920 km of which only 6% were occu-
economic hardship. The case of Kaum and her
own staff and workers into the country because
pied by built-up areas, 68% are forest areas and
family (see page 14) illustrates how difficult it is
lack of skills and language barriers make it diffi-
2
16% paddy fields. With a total population of
to make ends meet despite having a number of
cult to work with local workers. For them only the
just over 800,000 people many settlements in
income-generating activities. As a farmer with
lowest categories of jobs remain accessible.
the capital region are still villages. Even within
a small plot without any job training, the pros-
For micro-entrepreneurs who want to take
Vientiane good roads are a privilege and often
pects of supplementing a family’s income in a
advantage of new opportunities in the emerg-
dirt roads represent the only way to access
non-farm job are very slim.
ing non-farm economy, another kind of stum-
e
essential services such as schools or hospitals.
Government programmes for skills training
bling block is awaiting them. Up until 2004, Laos
The booming economic development of
or small business development do not exist and
had no law on microfinance and formal finan-
the country does not automatically improve
the few NGOs operating in Vientiane reach only
cial services were inaccessible for the poor. As
access to services—a major issue for the poor.
a small proportion of the people who would ben-
of 2012, a number of MFIs are offering savings
Without a system of social protection, the poor
efit from such offers. As Oxfam country director
and loan products, however mostly for clients
Dominique van der Borght points out, the coun-
with collateral. Moreover, their branch network
try’s education system falls short of delivering the
is focused on Vientiane serving small, but estab-
services needed in a country that has a rapidly
lished entrepreneurs in the city.
e JICA (2011). Vientiane Capital –Urban Development Master Plan – Proposal -. Retrieved October 29, 2012 from http:// www.jica.go.jp/project/english/laos/009/materials/pdf/ pamphlet_01.pdf
13
Dreaming big, thanks to microfinance
What do you use as collateral for the loan? I use my motorcycle certificate as the collateral. Before that, I borrowed from money lenders who collect payments daily, but charge
Where did you learn how to run a business?
very high interest rates. For a US$125 loan, I had to repay US$190. It
I learned by myself. First, I sold noodles, one bowl for 3,000 kip
was not good for my business. That’s why I decided to take loans
(US$0.37). But it became difficult as more people started to sell noo-
from EMI instead. The interest is low (2% per month), which allowed
dles, so that’s why I changed to this shop with a wider range of goods
me to save at the same time as repaying the loan. By saving with
on offer. Our shop is in between two noodle shops, so I switched to
them, I have built up US$400 in personal savings.
selling different food, but you can still get a warm meal in front of my shop. I have sold at this location for 30 years now.
How long have you been a client for EMI, the microfi-
Can you describe a typical working day for you?
I’ve been a client for a little over two years. I have already borrowed
Every day, I go to the market to buy food to cook and sell. On a typi-
four times, with each loan cycle lasting six months. The first time,
cal day, I can earn US$50–60. However, most of my profits are rein-
I borrowed US$375; the next time it was US$500, and after that
nance organisation?
vested into the shop. I have to spend on many things: electricity,
US$625. I think I have proven that I am a reliable debtor. Now, I
water, school fees for my children. At the end of the day my profit is
already have plans to take another loan and use it to expand.
about US$12.5; I make just enough money to live here with my family. What are your business plans for the future? Do you take loans to grow your business?
I have plans to grow my business. For example, I plan to have more
Yes, I do. The shop and my product range used to be much smaller
goods to sell, which will allow me to earn more. Maybe I can sell
before I found out about EMI’s services for small business owners.
some more traditional candies and cookies; maybe I can expand the
I take loans from EMI because other loan sources have very high
shop space. With a little bit more capital, I could sell beer or soft
interest rates.
drinks as a wholesaler—that’s something I dream about.
Easy access to capital catalysed her business' success.
We met with Ali, a friendly entrepreneur,
repaying several loan cycles (See box above).
MFIs do offer group loans, but the reach of those
who has enthusiastically taken up the financial
In a way, the risk-averse business model of
initiatives is still limited. The MFI capacity to pro-
services by Ekphattana Microfinance Institution
any financial organisation helps to better serve
vide free business training and actively support
(EMI) and within two years has managed to
those who have already established their busi-
aspiring entrepreneurs is very limited, as they
build up emergency savings while successfully
ness models. For those without collateral, the
still struggle to build reliable client bases to
14
Subsistence farmer, Kaum, with her children.
Three jobs, still trapped in poverty
not qualify as collateral, she can’t get loans to improve or expand her
In Phonethong Village, located on the outskirts of Vientiane Capital,
to finish primary school before helping at the farm full time. Due to
we met a woman named Kaum—a mother, farmer, labourer, and fac-
Laos’ relatively young microfinance sector, her village has yet to be
tory worker—living at the far end of the village. She and her husband
reached by microfinance organisations that would provide group
farm. At the current household income, her children can only hope
own a small plot of land barely enough for subsistence agriculture. In
loans without collateral. When asked what she expects her childrens’
order to feed the family, they moonlight as labourers on other villagers’
future to look like, she simply says: “My children don’t have a choice
farms. Kaum also puts in additional shifts at a nearby garment factory.
but to become farmers just like my husband and I. […] there are no
Working at the factory earns her US$50 per two weeks, or US$3.57 a day.
other jobs for them.”
That is barely sufficient to feed the family of four, let alone the expen-
Kaum’s family is constrained by lack of opportunities to lift them-
ditures for school or investments to enhance their agricultural output.
selves out of poverty—better access to finance, help with income-
“I would like to open a small shop to earn more money, but
generating activities and advanced education for the children
nobody wants to give me a loan,” says Kaum. Since her home does
secure their long-term survival in the competitive market.
remain out of reach.
Unfortunately, this type of service is not avail-
as having a “different face of poverty”, he explains
able to families like Kaum’s, who form the bottom
that importing solutions from places of scarcity
Founder and executive director of Laos’ first
of the pyramid. They would need it to develop
may not work in a country with plenty of natural
MFI EMI, Somphone Sisenglath, adds that “sav-
alternative income streams outside of farming.
assets, but at the same time suffering from a lack
ings is part of our mission...[...] Access to credit is
Access to microloans coupled with opportuni-
of infrastructure and accessible services for the
one thing, but if there is nothing left [at the end
ties for learning about managing a small business
poor. Some of the important future enablers to
of repayment], they are still poor.” EMI makes it
would go a long way in building an additional
boost people’s household income from on- and
a requirement for all their clients to save 10%
stream of income for families relying on subsis-
off-farm economic activities are better access to
of their initial loan in order to teach them the
tence farming and moonlighting on other farms.
knowledge, access to affordable financial ser-
importance of savings.
Mr. van der Borght describes the situation in Laos
vices (credit-led as well as savings-led) and full
15
Commuters buy directly from their cars and motorbike at Kood’s rice stand.
Roadside rice trader with unknown future
between US$60–US$120, just enough to feed the family and keep her business afloat. She buys the rice directly from farmers in the region, personally
At the outskirts of the city centre, we meet Kood, a rice trader and
testing the quality and managing her rice inventory. Given the large
entrepreneur. She used to sell small goods and make-up in a shop
quantities of rice that she has in stock, cash flow regularly becomes
outside her house in central Vientiane, but three years ago, she lost
an issue. When business is bad, she has to take loans from a local loan
everything when her house burned down in a fire. However, she
shark in order to pay the rent and her daily expenditures. The condi-
immediately found a contingency plan. “I know a lot about rice,” she
tions follow the 5/6 principle: for every US$5 borrowed, you need to
said. “My father, a lifelong rice farmer, taught me everything. So, I
repay US$6 after a fixed period (usually 30 to 50 days later). This 20%
thought that the rice business would be something easy to under-
monthly interest rate can quickly turn into a debt spiral for small road-
stand and be successful in.”
side merchants like Kood, but she has no other options.
She was born and raised in the Northern part of Laos before migrat-
Kood is wary of the ongoing development of Vientiane—she
ing to Vientiane with her family. Now she rents a roadside stall to sell
fears that rents will go up as the city centre expands. For her, that
a wide variety of rice. “Business closer to the city is better, but rental
would mean either shrinking profit margins or a decision to relocate
prices are too high,” says Kood. At her current location, 5km away from
her business farther away from the city. Right now, she can’t think of
the centre, the rent is US$37 per month. Her monthly profits fluctuate
a plan B.
integration into the supply chain. All three repre-
emphasised that better know-how is required to
knowledge and awareness about financial man-
sent tremendous barriers which prevent the poor
provide his constituents a way out of poverty. In
agement before granting this bottom of the pyr-
from becoming empowered market players.
the absence of a functioning agricultural exten-
amid market access to credit-led services. Finally,
Knowledge solutions will need to reach farm-
sion network, even villages within Vientiane do
better connectivity in terms of road infrastruc-
ers as well as small business owners like Kood, the
not have access to the advanced knowledge
ture as well as digital connectivity is necessary to
rice trader (see box above), in order to build up
required to run a profitable farm businesses.
allow for effective initiatives to better integrate
their business acumen, market knowledge and
As was mentioned before, the bottom of the
poor farmers and non-farm entrepreneurs into
price awareness. It can also boost their productiv-
pyramid remains underserved by Laos’ young
the supply chain. Pushing market integration for
ity and increase their household income. The vil-
microfinance industry. Savings services in partic-
the poor will be an important tool, to enable
lage chief we interviewed in Phonethong village
ular would support the process of building
them to lift themselves out of poverty.
16
Tourist attractions like Buddha Park need to be promoted aggressively to generate revenue.
Tourism: a path to equitable growth by Taufik Indrakesuma
Tourism is one of Vientiane’s economic sectors
More importantly, it has also begun work on
be able to reap the benefits of catering to high-
that have received much attention in recent
improving the capital city’s underdeveloped
spending tourists and improve their welfare.
years. This is perhaps because tourism currently
physical infrastructure through the Vientiane
However, the development of tourism has not
represents a large share of Laos’ total export
Vision 2030 project.
traditionally followed this kind of trajectory. In
revenues, with Vientiane as the centre of tourist
These two stable trends of growing tour-
the tourist hubs of many emerging economies,
activity. Tourist numbers have grown rapidly for
ist numbers and physical infrastructure devel-
the aggressive expansion of the tourism indus-
the past decade, going from 700,000 annual vis-
opment present an optimistic outlook for
try is one that favours high-end businesses,
f
itors in 2000 to over 2,000,000 visitors in 2010.
Vientiane’s tourism sector in the next decade or
such as shopping malls, expensive gift shops,
The government has recently stepped up its
two. However, the question remains of whether
and five-star hotels, while displacing the small
efforts to attract tourists through tourism cam-
this growth will be enjoyed by the city’s low
businesses (often along with the poor people
paigns such as the Visit Laos 2012 campaign.
income population.
themselves).
Tourism is an industry with high impact
Based on observations in the field, there are
f
potential on the poor, whether positive or neg-
two critical uncertainties that will influence the
ative. If the city’s tourism strategy is developed
trajectory of Vientiane’s tourism sector. The first
in a way that is favourable to small businesses
is whether the city planners decide to adopt a
and micro-entrepreneurs, these businesses will
tourism strategy that emphasises experiences
Lao National Tourism Administration. “2009 Statistical Report on Tourism in Laos”. Retrieved from: http://www. stdplaos.com/downloads/web-based_knowledge_center/ statistic_report/2009%20Statistical%20Report%20on%20 Tourism%20in%20Laos%20-%20English%20version.pdf (Accessed 18 September 2012)
17
Figure 12. Future scenarios for Vientiane
or expenditures. An emphasis on tourist expe-
agricultural life”. If this culture persists, it is diffi-
different scenarios. These scenarios are detailed
rience would favour preservation of traditional
cult to imagine Vientiane becoming a traditional
in Figure 12.
markets, small vendors, and the “Lao way of
tourist hub full of hustle and bustle anytime
The first scenario, “hypermodernity”, will be
life”, and would generally be favourable for
soon. However, changing this culture may have
reached if an expenditure-focused tourism strat-
micro-entrepreneurs and the informal econ-
its own set of difficulties. The plan might be met
egy is chosen in tandem with strong cultural
omy in general. In contrast, a tourism strategy
with resentment as it forces people to admit that
engineering. This scenario is characterised by
that emphasises expenditures would prioritise
their current way of life is wrong. Even if the peo-
the adoption of the modern tourist hub trajec-
the construction of luxurious tourist attractions
ple accept the need for change, the change itself
tory, following the examples of large Southeast
and comforts, favouring big businesses with
might be difficult to internalise within a short
Asian cities such as Jakarta, Singapore, and
high potential tax revenues.
period of time. Thus, planners should decide
Bangkok. It is a scenario with massive shopping
The second uncertainty entails a more social
whether a type of “cultural engineering” is appro-
malls, expensive tourist restaurants, and air-
aspect: the Laotian culture. One of the unique
priate in order to strengthen entrepreneurship,
conditioned bus tours. This scenario allows for
characteristics of the Lao people is their slow, laid
induce the creation of more SMEs, and acceler-
the improvement of poor urban livelihoods, but
back pace of life. Some say that this cultural quirk
ate economic growth.
not in a way that necessarily empowers them.
has led to low rural-urban migration due to “weak
The combinations of decisions that planners
Rather than enabling low-income households
entrepreneurial desires” and “complacency with
make on these two axes lead us to four distinctly
to start their own businesses and thrive, this
18
these areas more accessible, using off-grid technologies. In this scenario, the improved access
Selling honey to survive
to Vientiane’s tourist sites would increase the
While visiting That Luang Stupa, one of the biggest tourist attractions in Vientiane, the team spoke to several small vendors that make a living primarily from tourists. These vendors’ level of income is influenced by the flow of tourists to the cities, and according to one honey seller that we spoke to, the current level of income is “barely enough to survive”. X is a honey seller who lives about one hour away from That Luang Stupa. Her daily routine consists of waking up at 3AM to sell wasps and honey at the local market, then moving to That Luang Stupa at 9AM to sell there for the rest of the day. She does not raise her own wasps, instead relying on her oldest son to supply the honey from the forests in the outskirts of Vientiane. She was reluctant to mention how profitable her business is, but she claims that she makes just enough to feed her family and send her youngest child to school. Her story was of particular interest because she was part of a group of vendors. This group always sold their goods together, moving from location to location before finally settling in the front area of That Luang Stupa. She became part of the group because the group had a deal with the government officials that would allow them to sell their goods in exchange for a monthly fee. From her stories, we learned one interesting point about government interventions on street vendors: these street vendors must pay fees to the government. She was not the only vendor to mention these fees, but we were not able to determine whether these fees are for official permits or otherwise. Either way, these fees present an additional barrier to entry that cuts into their income. If these fees do not result in any meaningful benefits for the vendors, such as protection of their rights or routine maintenance of the market areas, they become an inefficiency in the system.
potential flow of tourists. However, the real “pull factor” would come from the cultural and infrastructural preservation. Tourists would be drawn to the novelty of a small and traditional capital city, with its small shops and laid back inhabitants. The end result would be an increase in income for small businesses without having to disrupt their culture and lifestyle. However, this approach generates much less tourist expenditure because the attractions are cheaper and more modest. It also leads to even smaller tax revenues because most transactions take place in informal businesses. Finally, “hybrid tourism” is the scenario where an experience-focused tourism strategy is accompanied by a more modern cultural mindset. This scenario involves a more aggressive and commercial promotion of the “cultural tourism” and “eco tourism” niches to generate faster growth of tourist numbers and receipts. Through cultural engineering, the city will also have a larger pool of micro-entrepreneurs to capture this increased tourist expenditure. The cultural engineering can also include providing incentives for micro-entrepreneurs to formalise their businesses, expanding the city’s tax base.
kind of tourist city views the poor as a large sup-
is hindered by the lack of cheap skilled labour
This scenario is an ideal compromise between
ply of cheap labour that will allow the hospital-
that comes with it. Without proper engagement
empowering small businesses and generating
ity sector and large tourist businesses to grow.
with the local low-income populace, there is
revenue for the city’s development.
It may exacerbate the perceived income dispar-
potential for conflict. At best, the poor will con-
Of these four scenarios, “displacement” can
ity between wealthy tourists and local labour.
sider these new sources of employment to be
quickly be discounted from the nexus of viable
In order for this kind of scenario to succeed in
unreachable and will prefer to remain in their
alternative futures, due to its low benefits for the
its poverty alleviation element, proper train-
current low-income agriculture jobs or their out-
poor and its high potential for conflict. Of the
ing must be provided to equip the poor with
competed small businesses. At worst, people
remaining scenarios, “hypermodernity” shows
the necessary skills to enter this formal employ-
will see this form of modernisation as an affront
the greatest potential for profit-generation while
ment, and offer pathways to job advancement.
to the local culture, potentially causing political
still involving the poor. On the other hand, “cul-
tensions between planners and public.
tural tourism” shows the least amount of disrup-
The second scenario, “displacement”, will come about if planners decide to pursue an
The third scenario, “cultural tourism”, comes
tion to the lifestyles of the poor, while still improv-
expenditure-focused strategy without engag-
as a result of experience-focused tourism and
ing their income streams organically through the
ing with or engineering the local culture. This
no cultural engineering. This scenario assumes
increased tourist numbers alone. Finally, “hybrid
scenario plays out much like the “hypermoder-
that tourist areas keep their traditional look and
tourism” is the compromise between the two
nity” scenario with its high-end businesses, but
feel, with infrastructure being built only to make
extremes, attempting to empower the poor by
19
The front yard of an NGO-run school.
building entrepreneurial skills to improve their
current levels of income. It requires micro-credit
scale of microfinance services in Laos, particu-
businesses and allowing small businesses to drive
to be widely accessible in order to enable small
larly in Vientiane, and providing training in
the growth of the tourism sector.
business creation. It also requires the city to be
financial literacy and business development for
This final scenario is perhaps the most ben-
patient with the initially low levels of growth
the poor. Furthermore, in order to measure the
eficial for the two main stakeholders (govern-
and not to succumb to the temptation for rapid
progress of this scenario, planners must closely
ment and the poor), but it is also the most diffi-
modernisation.
monitor the growth in numbers of small busi-
cult to execute. It requires that Vientiane’s poor
Thus, the key policy recommendations for
nesses that cater to tourists, as well as the aver-
population find the motivation to start small
the initial stages of achieving the “hybrid tour-
age income of those employed in these busi-
businesses rather than be content with their
ism� scenario include expanding the reach and
nesses.
20
Principal Investigators
Research Associates
Darryl Jarvis is an Associate Professor at the LKY School
Johannes Loh is working as a Research Associate at the
of Public Policy. He specialises in risk analysis and the
Lee Kuan Yew School of Public Policy. He holds a Master’s
study of political and economic risk in Asia, including
degree in Public Policy from the Hertie School of Public
investment, regulatory and institutional risk analysis. He
Policy in Berlin, and a Bachelor of Arts in Integrated
is an author and editor of several books and has con-
Social Science from Jacobs University Bremen. His previ-
tributed articles to leading international journals. He has
ous research experience includes aid governance, visual
been a consultant to various government bodies and
political communication and public sector reform in
business organisations and for two years was a member
developing countries. Prior to joining the Lee Kuan Yew
of the investigating team and then chief researcher on
School of Public Policy he has also worked for the United
the Building Institutional Capacity in Asia project commissioned by the Ministry of
Nations Environment Programme in Geneva, Transparency International Nepal, and
Finance, Japan. His current research is a large cross-national study of risk causality
the Centre on Asia and Globalisation in Singapore. His email is johannes.loh@nus.
in four of Asia’s most dynamic industry sectors. He teaches courses on risk analysis,
edu.sg and you can follow his updates on trends in pro-poor policies in the region on
markets and international governance and international political economy. His email
Twitter @AsianTrendsMon.
is darryl.jarvis@nus.edu.sg Phua Kai Hong is a tenured professor at the LKY School
Nicola Pocock is a research associate at the LKY School of
of Public Policy and formerly held a joint appointment as
Public Policy. She is also the research manager at aidha,
Associate Professor and Head, Health Services Research
a non profit financial education and entrepreneurship
Unit in the Faculty of Medicine. He is frequently con-
training school for migrant women, especially domes-
sulted by governments within the region and interna-
tic workers, in Singapore. She holds a BA from Warwick
tional organisations, including the Red Cross, UNESCAP,
University and an MSc from Kings College London. Prior
WHO and World Bank. He has lectured and published
to joining the LKY School of Public Policy, she interned
widely on policy issues of population aging, health-
as a Fast stream trainee in the UK civil service at the
care management and comparative health systems in
Home Office and as a research volunteer at Amnesty
the emerging economies of Asia. He is the current Chair of the Asia-Pacific Health
International. Nicola has also carried out social work in Marseille, France as a European
Economics Network (APHEN), founder member of the Asian Health Systems Reform
Union sponsored youth volunteer. Her research interests span health and social policy,
Network (DRAGONET), Editorial Advisory Board Member of Research in Healthcare
health systems financing, social impact assessment, gender, migration and financial
Financial Management and an Associate Editor of the Singapore Economic Review.
behaviours. Her email is sppnp@nus.edu.sg and you can follow his updates on trends
His email address is spppkh@nus.edu.sg
in pro-poor policies in the region on Twitter @AsianTrendsMon #health
T S Gopi Rethinaraj joined the Lee Kuan Yew School
Taufik Indrakesuma is a research associate at the Lee
of Public Policy as Assistant Professor in July 2005.
Kuan Yew School of Public Policy. He is a recent gradu-
He received his PhD in nuclear engineering from the
ate of the Master in Public Policy programme at the
University of Illinois at Urbana-Champaign. Before
Lee Kuan Yew School of Public Policy. He also holds a
coming to Singapore, he was involved in research and
Bachelor in Economics degree from the University of
teaching activities at the Programme in Arms Control,
Indonesia, specialising in environmental economics.
Disarmament and International Security, a multi-disciplin-
Taufik has previously worked as a Programme Manager
ary teaching and research programme at Illinois devoted
at the Association for Critical Thinking, an NGO dedicated
to military and non-military security policy issues. His
to proliferating critical thinking and human rights aware-
doctoral dissertation, “Modeling Global and Regional Energy Futures,” explored the
ness in the Indonesian education system. His research interests include behavioural
intersection between energy econometrics, climate policy and nuclear energy futures.
economics, energy policy, climate change mitigation and adaptation as well as urban
He also worked as a science reporter for the Mumbai edition of The Indian Express
development policy. His email is taufik.i@nus.edu.sg
from 1995 to 1999, and has written on science, technology, and security issues for various Indian and British publications. In 1999, he received a visiting fellowship from the Bulletin of the Atomic Scientists, Chicago, for the investigative reporting on South Asian nuclear security. His current teaching and research interests include energy security, climate policy, energy technology assessment, nuclear fuel cycle policies and international security. He is completing a major research monograph "Historical Energy Statistics: Global, Regional, and National Trends since Industrialisation" to be published in Summer 2012. His email address is spptsgr@nus.edu.sg
The Lee Kuan Yew School of Public Policy is an autonomous, professional graduate school of the National University of Singapore. Its mission is to help educate and train the next generation of Asian policymakers and leaders, with the objective of raising the standards of governance throughout the region, improving the lives of its people and, in so doing, contribute to the transformation of Asia. For more details on the LKY School, please visit www.spp.nus.edu.sg