111 companies were surveyed in August and September 1997 to document the state of the corporate private sector in Lao PDR. The sample firms had to be sizeable (US$100,000 in assets) registered, majority private-owned, and engaged in business activities other than farming, trading, and real estate. About 25% of the roughly 400 qualifying companies were interviewed.
A review of Laos’ economy and economic reform revealed that despite the Government’s progress in establishing a legal/regulatory framework to support private sector growth, bureaucracy, delays, unpredictable and irrational regulations, and poor communication continued to make the business environment difficult for private firms. An anecdote illustrated the fact that businesses needed to limit their visibility, perhaps even success, or else risk being “mowed” down by authorities with more taxes.
A comparison of strong firms vs. weak firms confirmed that, besides adequate capitalization, a company’s success often depended on an experienced, knowledgeable, pro-active manager. When asked to identify their biggest constraints, managers cited: 1) fluctuations in exchange rates; 2) access to foreign currency; 3) finance; 4) poor quality of roads; 5) entering foreign markets; 6) inadequate supply and high price of local materials; and 7) insufficient demand in local markets. Researchers added three more: 1) shortages of skilled labor; 2) government regulations, taxes and bureaucracy; and 3) the isolation of managers from the rest of the world.
Based on their findings, the researchers concluded that the private sector in Lao PDR, particularly the indigenous private sector, was very small and vulnerable. They felt the Lao private sector would continue to be hard hit by the ongoing financial crisis in Asia, and survival would require a renewed focus on Lao PDR's core comparative advantages in the marketplace. They urged action on various fronts to support the private sector. In particular, the writers recommended regulatory reform, a renewed focus on exploiting Lao PDR's sources of comparative advantage, and training in business basics.
March 1997
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