Serenity in the Buddha Park.

The Asian Trends Monitoring Bulletin is a project

sponsored by the Rockefeller Foundation, New

York and the Lee Kuan Yew School of Public Policy,

National University of Singapore. The Lee Kuan Yew

School of Public Policy gratefully acknowledges the

financial assistance of the Rockefeller Foundation.

The Asian Trends Monitoring Bulletin focuses on

the analysis of pro-poor projects and innovative

approaches that will contribute to alleviate poverty.

The emphasis is put on identifying major trends

for the poor in rural and urban areas, highlighting

sustainable and scalable concepts, and analysing

how these could impact the future of Asia’s well-

being and future development.

The Asian Trends Monitoring Bulletin are designed

to encourage dialogue and debate about critical

issues that affect Asia’s ability to reduce poverty and

increase awareness of the implications for pro-poor

policy and policy development.

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Bulletin are those of the analysts and do not

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http://www.asiantrendsmonitoring.com/downloads

Principal Investigators

Darryl S.L Jarvis

Phua Kai Hong

T S Gopi Rethinaraj

Research Associates

Johannes Loh

Taufik Indrakesuma

Nicola Pocock

Production

Chris Koh, Manager, Production & Research

Dissemination

Image credits, with thanks

All the images in this issue were taken by the ATM

team during their Vientiane trip of August 2012,

except for the following images on:

• the cover, copyrighted by Many Moon Honeymon

• page 2, copyrighted by Adamina

Permission is granted to use portions of this work

copyrighted by the Lee Kuan Yew School of Public

Policy. Please follow the 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.

Please acknowledge the source and email a copy of

the book, periodical or electronic document in which

the material appears to chris.k@nus.edu.sg or send to

Chris Koh

Lee Kuan Yew School of Public Policy

469C Bukit Timah Toad

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

Among the cities that the ATM team researched this year, Vientiane stood

out for its small population and its close integration to the surround-

ing rural communities. Vientiane, the capital of Lao People’s Democratic

Republic, is the second smallest ASEAN capital after Bandar Seri Begawan

of Brunei Darussalam. It has a population of 700,000 people, which is tiny

compared to 23 million in the Greater Jakarta Area, Manila (16.3 million),

or Hanoi (6.5 million).

Despite being small and relatively underdeveloped, Vientiane has

grown rapidly in the last few years. The economy is booming with a growth

of 8% per year, and the country is set to join the World Trade Organisation

in 2013. However, the growth is not distributed equitably with mining, for-

estry, hydro and tourism as the major drivers of the economy.

The poor are often left on the side lines, suffering from a lack of infra-

structure and inaccessible services. The field interviews and case studies

in this bulletin illustrate the tremendous challenges Vientiane’s adminis-

trators are faced with. In this bulletin we look into the following issues:

• wide service gaps for the poor, specifically in the areas of health

and education;

• low transportation connectivity even within the capital;

• a lack of opportunities for the city’s poor and recent migrants from

rural areas; and

• four alternative futures of how tourism could contribute to poverty

alleviation in Laos.

The ATM team sees Vientiane as a city with much potential for equitable

growth. It is in the unique position of being able to learn from the growth

trajectories of other major cities in the region. The recommendations in this

bulletin are hoped to be able to lead Vientiane in the right direction.

The data and case studies that are used in this bulletin are the result of

primary data collection and field research —we talked to a honey seller in

front of the famous That Luang Stupa, interviewed a farmer who moon-

lights in a garment factory to feed her family and learned from a shop

owner how she grew her business with the help of micro-loans.

This year’s focus on urban poverty entailed travelling to four of

Southeast Asia’s major cities: Jakarta, Manila, Hanoi, and Vientiane. In

the coming months, we will compare the four cities with regards to their

emerging problems in the fields of education, financial access, and health.

We invite you to share the ATM Bulletin with colleagues interested in pro-

poor issues in Southeast Asia. The Bulletin is also available for download

at www.asiantrendsmonitoring.com/download, where you can subscribe

to future issues. We encourage you to regularly visit our website for more

updates and recent video uploads in our blog. Thank you again for support-

ing the ATM Bulletin, and as always, we gladly welcome your feedback.

Tuktuk drivers like Khat Kong, rely on tourists to earn a living.

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.

Vientiane: poor, but different

by Taufik Indrakesuma & Johannes Loh

4

Laos in transition: different from the rest

With growing exposure to global markets, for-

eign investments in the country’s rich natu-

ral resources, and an upbeat tourism industry

driving economic growth, Laos appears to be a

country on the right path to economic develop-

ment. According to Gross national income (GNI)

per capita levels in 2009, Laos, with US$853, is

slightly richer than Cambodia (US$615), though

it still lags behind its other neighbours Thailand

(US$3,719) and Vietnam (US$1,032).a Compared

to the 2005 figure of US$441, the pace of Laos’

growth seems extraordinary.

However, these numbers are misleading.

It is important to consider the Lao population

of only 6.2 million people and the low popula-

tion density of 27 per square kilometre. More

than a third of the population lives below the

global poverty line of US$1.25 PPP a day in a

society largely dependent on subsistence

agriculture. Farming accounts for a total of

67.6% of total employment, compared to

16.9% self-employed and only 15.5% in wage

employment.b In terms of contribution to GDP

agriculture still accounts for 29%, industry for

19% and services for 51%.c

Transforming this agrarian labour force into

one more focused on manufacturing or services is

difficult due to problems in the education sector.

Compared to the other countries in our urban

poverty series, Laos has a much lower literacy rate

with 73% as of 2008. Indonesia, the Philippines

and Vietnam all have literacy rate in the low nine-

ties. Currently, the average Laotian adult has only

5.1 years of schooling.d Without an education sys-

tem that is able to equip the labour force with new

skill sets, the people will not be able to participate

and benefit from the new economic opportuni-

ties that may arise in the long run.

The problems of these poor, uneducated

farmers are exacerbated by this rapid economic

growth. The “Lao way of life” is undergoing

a rapid shift from an agricultural subsistence

by Taufik Indrakesuma & Johannes Loh

a http://data.un.org/CountryProfile.aspx?crName=Thailand b World Development Report 2013 c World Development Report 2011

d Ibid

Construction companies lie in wait for Vientiane's development to kick off.

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 coun-

tryside 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 low-

skilled workers is much higher in neighbouring Thailand. The capital,

Vientiane, is still at an early stage of growth and has space to accom-

modate new people. But this may change soon.

How would you describe Laos’ economic progress?

The fact that it is a country with lots of natural resources and very low

population density makes it very unique when compared with its

neighbours. Laos has water, soil, forest land, minerals that are in high

demand in their neighbouring countries due to their industrialisation

process. This has allowed Laos to grow at more than 8% GDP annually.

It doesn’t mean that it is automatically generating higher income for

the local people living nearby those resources. For the moment, what

we observe is that they have been excluded from the process, more

than being integrated. People have been losing their access to those

natural resources. Going forward, it is important that smallholder

farmers get better access to markets by shortening the value chain.

One of the major challenges for the rural economy, which is dom-

inated by agricultural, will be the sustainable integration of rural

farmers into the market economy, allowing small scale farmers to

have a decent living from their activities. For the broader population

the country also requires better and affordable access to services

such as education and health facilities in both, rural and urban areas.

Has the increasing exposure to the global economy

impacted the lives of people in Laos?

The cost of living is constantly increasing, especially in the prospering

city centre. It has not yet become a major issue, but incomes are not

rising at the same rate. The life of urban residents is still closely linked

to the country side. This a unique difference as well, since in Vientiane,

the rural and urban linkages are still very interconnected for day to

day existence, whereas in cities such as Jakarta, residents are not so

interlinked to rural Indonesia. Often, households source their rice and

vegetables from family members and relatives practicing subsistence

agriculture within the city’s official borders. They are following the tra-

ditional lifestyle. At the moment, it is probably more sustainable but

we are already seeing a shift and with that more and more people are

losing their old livelihoods. Vientiane is a city at the brink of transition.

You mentioned that international labour migration is an

important trend, why?

Within Laos the opportunities for non-agricultural labour are limited.

If your farm income is not sufficient, the next best option is to work as

a factory worker. Many women and men migrate for a couple of years

to Thailand to work on commercial farms, in construction or in facto-

ries all over Thailand where demand for non-skilled workers is high.

Of course, this type of labour migration has many social implica-

tions back in Laos. Children are brought up by their grandparents

and many spouses live apart for most of the year. Without educa-

tion these workers don’t have any opportunities waiting for them

upon return to Laos.

What are the needs in the medium to long-term?

As I mentioned before, access to education and health, in particular

in the country side are very important. On the next level, the coun-

try also needs improved vocational training programs and technical

schools. Continued economic growth will trigger higher demand for

skilled workers in a range of industries—right now Laos’ workforce

would not be able to meet that demand.

Finally, I hope that the government will be able to provide ser-

vices to all income groups regardless of whether they live in rural

areas or in the city. Access to basic services should not become a

commodity that is reserved for the wealthy.

Dominique Van der Borght, Country Director Oxfam.

6

economy to a cash economy. In order to provide

for their families, farmers increasingly need cash

to buy goods previously obtained from nature

or through barter.

Despite these changes, the capital, Vientiane,

still has a rural feel about it as soon as one leaves

the immediate centre of town. It has not (yet)

witnessed dramatic levels of rural-urban migra-

tion and thus the poor do not suffer from over-

crowding. The real problems are insufficient

infrastructure and low quality or inaccessible

services.

Urban service deficiencies

During the visit to Vientiane, the team observed

a major deficiency in urban service provision.

We noted that for basic services such as water,

sanitation, and education, as well as public infra-

structure such as roads, the pace of progress

made towards universal provision is very slow.

All of these observations were backed up by the

data collected in our survey of poor households

in the city.

In the case of water, survey evidence points

to a lack of a reliable central grid. In the four

areas we surveyed, a whopping 58% of sur-

veyed households resort to bottled drink-

ing water because they do not have access to

a clean piped connection. Worse yet, 17.3% of

respondents still get their water from open,

unfiltered sources such as open wells or rivers.

This data, presented in the charts below, lead us

to two possible conclusions: either piped con-

nections are not available at all for the major-

ity of households, or the water from the piped

connections is not of potable quality. The conse-

quences of this poor water provision are evident

in our respondents’ self-reported health.

In the case of road infrastructure, we

observed that paved roads could only be found

within a certain radius of the city centre, whereas

most of the roads leading to the city’s periphery

were unpaved dirt roads. According to World

Bank data, the percentage of paved roads in

Laos has remained stagnant at around 13-14%

since 1995, despite having almost no growth

in the total length of the road network (only

around 7,000km of new roads). This implies that

no work has been done to improve the roads

in Laos in the last 20 years. As a comparison,

Vietnam’s percentage of paved roads has gone

from 25% in 1995 to 47% in 2007, with the total

road network itself growing from 100,000km to

160,000km.

This poor state of road infrastructure is a

severe impediment to economic growth and

service provision in the urban periphery. In our

interview with Friends International Laos, our

source noted that there are parts of Vientiane

that would benefit greatly from services such as

skills training or health check-ups, but are very

difficult to reach because of the road conditions.

This means that such services cannot be pro-

vided regularly, depriving these people of the

opportunities for life improvement.

Some other issues for Vientiane’s poor resi-

dents include getting access to good quality

health and education services. Costs are often

the largest barrier to this access. While about

half of the respondents rated their difficulty

in paying for both services as neutral, 17% on

health and 40% on education expressed con-

cern over costs, respectively.

On the issue of financial access and savings,

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

The Community Development and Environment Organisation

(CDEA) is one of the non-governmental organisations that have tried

to fill the gap in the central water grid. During the team’s visit to

Vientiane, we were able to speak with Mr. Khampha Keomanichanh,

CDEA’s founder and current head.

When it was founded in 2004, the organisation focused its opera-

tions on providing a clean water supply in Vientiane. The provision

model they have continued to use since the beginning is commu-

nity-based: they build one groundwater pump per village and pro-

vide one pipe for use by the entire community. If households want

a direct household connection, they must pay out of their own

pockets to build the pipes. This helps to ensure “ownership” for

maintenance within the community and makes the solution more

sustainable.

More recently, they have expanded their reach to the outskirts of

the city. They also began improving the condition of sanitation sys-

tems in the poor neighbourhoods around the city by implementing

a Community-Led Total Sanitation (CLTS) model, where they teach

the community to build their own toilets and sanitation networks.

One notable part of CDEA’s provision model is the use of a “com-

munity development fund”. Every water provision project is meant

to be fully funded from within the community. However, since this

capital is usually not available immediately, the initial building phase

is co-funded by CDEA and donors. CDEA then recoups its investment

through water charges of LAK 2000/m3. After CDEA recoups its costs,

all subsequent water charges are pooled into a community fund.

This community development fund can be used for multiple pur-

poses. First, it is sometimes used to cross-subsidise the extremely

poor households so that they can access the water for free. Secondly,

this community development fund also acts as capital for small sav-

ings and loans operations in the community. The organisation loans

out money at 0.5% interest per month for emergencies and educa-

tion loans, and at 2% interest for working capital loans. Finally, the

fund is also used for maintenance and further development of the

community water infrastructure.

CDEA’s adaptation of a community fund model is partly due to

Keomanichanh’s belief that donations and provisions do not work.

He said, “Some of these households are poor because they are lazy.

In these kinds of situations, if you give them handouts, it will not

change their ways and they will not improve their own lives.” This

is why he believes that the community itself needs to have a real

stake in the maintenance of the water pipes.

When asked about future challenges to water provision in

Vientiane and Laos as a whole, Keomanichanh believes there are two

major environmental problems. First, there is the risk of accelerated

deforestation due to the entry of foreign companies looking to build

plantations to replace the traditional Laotian subsistence farming.

This would cause problems with the groundwater levels. Additionally,

the plans to build dams as hydroelectric generators will also jeop-

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

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 com-

mercial 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 trans-

action 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 cooper-

atives were the most popular sources of loans,

followed by loans from relatives and friends.

The services of money lenders (popular in

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 aver-

age 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.

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 8. Response to the question: Do you borrow money regularly?

Figure 6. ATMs per 100,000 adults

Figure 5. Response to the question: What is your main method of saving?

Figure 9. Response to the question: Where do you primarily borrow money from?

Figure 7. Estimated regular savings amount

Source: Asian Trends Monitoring (2012). A dataset on urban poverty and service provision. Lee Kuan Yew School of Public Policy, National University of Singapore.

Source: Global Financial Inclusion (Global Findex) Database (2011)

10

Jakarta and Manila) were only used by about

8% of respondents. This also supports the

hypothesis that the poor of Vientiane are finan-

cially knowledgeable and are a viable market

for services like microfinance.

Requirements set up by banks to ensure they

attract profitable clients raise the expectations

that respondents with bank accounts should

be better off on average, than those without

accounts. Our survey results show that only a

quarter of respondents have an account at a

commercial bank, and less than 12% of respon-

dents have an account and save up regularly.

Respondents without accounts but with the

ability to save regularly represent 39% of our

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, inter-

views, and general observations suggest that

people in Vientiane are satisfied with their qual-

ity 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 major-

ity 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 respon-

dents, although these respondents live in areas

that do not have many paved roads or pub-

lic 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 signifi-

cant difference in perceptions about life diffi-

culty between respondents from Vientiane and

respondents from the other three cities. Figure

11 shows how most other cities have two or

three categories that are almost unanimously

regarded as difficult or impossible to access,

whereas in Vientiane, even the most “diffi-

cult” category is only said to be very difficult or

impossible to access for roughly one-third of our

respondents.

Phonethong Village

Phonethong Village is located in Xaisettha

District, still within the boundaries of

Vientiane Capital. However, it is a small

village of only 150 households, with a

total population of 985 people. Most of

its inhabitants earn a living from farming,

while others work as construction workers

or factory workers.

In Phonethong, we interviewed

Khamphan Daangphachan, one of the

members of the village council. When

asked about whether life in the village

had improved in the past ten years, he

was convinced that it had. He pointed to

the quality of houses and the number of

households with motorcycles as evidence

that people in the village were getting

richer.

Daangphachan also believes that

government services have gotten better.

While taking us on a tour of the village, he

pointed to all twelve roads that the gov-

ernment has built in the past few years.

Most of these roads were unpaved dirt

roads, but they were roads nonetheless.

He also mentioned that there are more

schools now, with one primary school in

each village and two secondary schools

in the sub-district. It has also become

easier to access health care, as one health

care centre was recently set up in the sub-

district. Although there are no trained

doctors in the sub-district health centre,

there is a supply of medicine for everyday

ailments.

Water and sanitation in the village do

not quite meet urban standards of ade-

quacy. The Vientiane tap water grid does

not extend very far, so all households in

Phonethong get their water for daily use

from open wells, and often resort to bot-

tled water for drinking. Also, although

each house in the village has its own toi-

let, the lack of a central sanitation system

forces each household to use septic tanks.

The dangerous interaction between sep-

tic tanks and groundwater use becomes

immediately clear. However, the way in

which the councilman described the situ-

ation suggests that the people are actually

quite satisfied with what they have.

Despite the general level of satisfaction

with the progress of the village, the council-

man still hoped that more improvements

would come. His primary concern was agri-

cultural training. Vientiane’s small farmers

are still working with primitive methods

and equipment, so providing better equip-

ment and training programs could improve

their potential yield and economic compet-

itiveness. Also, he plans to ask the govern-

ment to build some youth activity halls or

sports and leisure facilities for the people of

the village to socialise and engage in

healthier lifestyles. All of these things are

beyond the financial means of the village,

so they must rely on the government’s

good will.

11

One of the sectors that showed a huge dis-

crepancy between perceptions recorded in our

survey and actual conditions in the field was

education. The team observed that schools in the

peri-urban areas were not in the best condition.

Classrooms were dimly lit, chairs and desks were

sometimes not of the appropriate size for the

grade level, and facilities such as sports fields and

libraries were mostly non-existent.

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.

12

Providing stepping stones to opportunities

The official Vientiane Capital Region extends

over 3,920 km2 of which only 6% were occu-

pied by built-up areas, 68% are forest areas and

16% paddy fields.e With a total population of

just over 800,000 people many settlements in

the capital region are still villages. Even within

Vientiane good roads are a privilege and often

dirt roads represent the only way to access

essential services such as schools or hospitals.

The booming economic development of

the country does not automatically improve

access to services—a major issue for the poor.

Without a system of social protection, the poor

have to rely on relatives and friends in times of

economic hardship. The case of Kaum and her

family (see page 14) illustrates how difficult it is

to make ends meet despite having a number of

income-generating activities. As a farmer with

a small plot without any job training, the pros-

pects of supplementing a family’s income in a

non-farm job are very slim.

Government programmes for skills training

or small business development do not exist and

the few NGOs operating in Vientiane reach only

a small proportion of the people who would ben-

efit from such offers. As Oxfam country director

Dominique van der Borght points out, the coun-

try’s education system falls short of delivering the

services needed in a country that has a rapidly

growing economy. Foreign firms often bring their

own staff and workers into the country because

lack of skills and language barriers make it diffi-

cult to work with local workers. For them only the

lowest categories of jobs remain accessible.

For micro-entrepreneurs who want to take

advantage of new opportunities in the emerg-

ing non-farm economy, another kind of stum-

bling block is awaiting them. Up until 2004, Laos

had no law on microfinance and formal finan-

cial services were inaccessible for the poor. As

of 2012, a number of MFIs are offering savings

and loan products, however mostly for clients

with collateral. Moreover, their branch network

is focused on Vientiane serving small, but estab-

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

An NGO displays its achievements in aiding the poor.

by Johannes Loh

13

We met with Ali, a friendly entrepreneur,

who has enthusiastically taken up the financial

services by Ekphattana Microfinance Institution

(EMI) and within two years has managed to

build up emergency savings while successfully

repaying several loan cycles (See box above).

In a way, the risk-averse business model of

any financial organisation helps to better serve

those who have already established their busi-

ness models. For those without collateral, the

MFIs do offer group loans, but the reach of those

initiatives is still limited. The MFI capacity to pro-

vide free business training and actively support

aspiring entrepreneurs is very limited, as they

still struggle to build reliable client bases to

Dreaming big, thanks to microfinance

Where did you learn how to run a business?

I learned by myself. First, I sold noodles, one bowl for 3,000 kip

(US$0.37). But it became difficult as more people started to sell noo-

dles, so that’s why I changed to this shop with a wider range of goods

on offer. Our shop is in between two noodle shops, so I switched to

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.

Can you describe a typical working day for you?

Every day, I go to the market to buy food to cook and sell. On a typi-

cal day, I can earn US$50–60. However, most of my profits are rein-

vested into the shop. I have to spend on many things: electricity,

water, school fees for my children. At the end of the day my profit is

about US$12.5; I make just enough money to live here with my family.

Do you take loans to grow your business?

Yes, I do. The shop and my product range used to be much smaller

before I found out about EMI’s services for small business owners.

I take loans from EMI because other loan sources have very high

interest rates.

What do you use as collateral for the loan?

I use my motorcycle certificate as the collateral. Before that, I bor-

rowed from money lenders who collect payments daily, but charge

very high interest rates. For a US$125 loan, I had to repay US$190. It

was not good for my business. That’s why I decided to take loans

from EMI instead. The interest is low (2% per month), which allowed

me to save at the same time as repaying the loan. By saving with

them, I have built up US$400 in personal savings.

How long have you been a client for EMI, the microfi-

nance organisation?

I’ve been a client for a little over two years. I have already borrowed

four times, with each loan cycle lasting six months. The first time,

I borrowed US$375; the next time it was US$500, and after that

US$625. I think I have proven that I am a reliable debtor. Now, I

already have plans to take another loan and use it to expand.

What are your business plans for the future?

I have plans to grow my business. For example, I plan to have more

goods to sell, which will allow me to earn more. Maybe I can sell

some more traditional candies and cookies; maybe I can expand the

shop space. With a little bit more capital, I could sell beer or soft

drinks as a wholesaler—that’s something I dream about.

Easy access to capital catalysed her business' success.

14

secure their long-term survival in the competi-

tive market.

Founder and executive director of Laos’ first

MFI EMI, Somphone Sisenglath, adds that “sav-

ings is part of our mission...[...] Access to credit is

one thing, but if there is nothing left [at the end

of repayment], they are still poor.” EMI makes it

a requirement for all their clients to save 10%

of their initial loan in order to teach them the

importance of savings.

Unfortunately, this type of service is not avail-

able to families like Kaum’s, who form the bottom

of the pyramid. They would need it to develop

alternative income streams outside of farming.

Access to microloans coupled with opportuni-

ties for learning about managing a small business

would go a long way in building an additional

stream of income for families relying on subsis-

tence farming and moonlighting on other farms.

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 with plenty of natural

assets, but at the same time suffering from a lack

of infrastructure and accessible services for the

poor. Some of the important future enablers to

boost people’s household income from on- and

off-farm economic activities are better access to

knowledge, access to affordable financial ser-

vices (credit-led as well as savings-led) and full

Three jobs, still trapped in poverty

In Phonethong Village, located on the outskirts of Vientiane Capital,

we met a woman named Kaum—a mother, farmer, labourer, and fac-

tory worker—living at the far end of the village. She and her husband

own a small plot of land barely enough for subsistence agriculture. In

order to feed the family, they moonlight as labourers on other villagers’

farms. Kaum also puts in additional shifts at a nearby garment factory.

Working at the factory earns her US$50 per two weeks, or US$3.57 a day.

That is barely sufficient to feed the family of four, let alone the expen-

ditures for school or investments to enhance their agricultural output.

“I would like to open a small shop to earn more money, but

nobody wants to give me a loan,” says Kaum. Since her home does

not qualify as collateral, she can’t get loans to improve or expand her

farm. At the current household income, her children can only hope

to finish primary school before helping at the farm full time. Due to

Laos’ relatively young microfinance sector, her village has yet to be

reached by microfinance organisations that would provide group

loans without collateral. When asked what she expects her childrens’

future to look like, she simply says: “My children don’t have a choice

but to become farmers just like my husband and I. […] there are no

other jobs for them.”

Kaum’s family is constrained by lack of opportunities to lift them-

selves out of poverty—better access to finance, help with income-

generating activities and advanced education for the children

remain out of reach.

Subsistence farmer, Kaum, with her children.

15

integration into the supply chain. All three repre-

sent tremendous barriers which prevent the poor

from becoming empowered market players.

Knowledge solutions will need to reach farm-

ers as well as small business owners like Kood, the

rice trader (see box above), in order to build up

their business acumen, market knowledge and

price awareness. It can also boost their productiv-

ity and increase their household income. The vil-

lage chief we interviewed in Phonethong village

emphasised that better know-how is required to

provide his constituents a way out of poverty. In

the absence of a functioning agricultural exten-

sion network, even villages within Vientiane do

not have access to the advanced knowledge

required to run a profitable farm businesses.

As was mentioned before, the bottom of the

pyramid remains underserved by Laos’ young

microfinance industry. Savings services in partic-

ular would support the process of building

knowledge and awareness about financial man-

agement before granting this bottom of the pyr-

amid market access to credit-led services. Finally,

better connectivity in terms of road infrastruc-

ture as well as digital connectivity is necessary to

allow for effective initiatives to better integrate

poor farmers and non-farm entrepreneurs into

the supply chain. Pushing market integration for

the poor will be an important tool, to enable

them to lift themselves out of poverty.

Roadside rice trader with unknown future

At the outskirts of the city centre, we meet Kood, a rice trader and

entrepreneur. She used to sell small goods and make-up in a shop

outside her house in central Vientiane, but three years ago, she lost

everything when her house burned down in a fire. However, she

immediately found a contingency plan. “I know a lot about rice,” she

said. “My father, a lifelong rice farmer, taught me everything. So, I

thought that the rice business would be something easy to under-

stand and be successful in.”

She was born and raised in the Northern part of Laos before migrat-

ing to Vientiane with her family. Now she rents a roadside stall to sell

a wide variety of rice. “Business closer to the city is better, but rental

prices are too high,” says Kood. At her current location, 5km away from

the centre, the rent is US$37 per month. Her monthly profits fluctuate

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

testing the quality and managing her rice inventory. Given the large

quantities of rice that she has in stock, cash flow regularly becomes

an issue. When business is bad, she has to take loans from a local loan

shark in order to pay the rent and her daily expenditures. The condi-

tions follow the 5/6 principle: for every US$5 borrowed, you need to

repay US$6 after a fixed period (usually 30 to 50 days later). This 20%

monthly interest rate can quickly turn into a debt spiral for small road-

side merchants like Kood, but she has no other options.

Kood is wary of the ongoing development of Vientiane—she

fears that rents will go up as the city centre expands. For her, that

would mean either shrinking profit margins or a decision to relocate

her business farther away from the city. Right now, she can’t think of

a plan B.

Commuters buy directly from their cars and motorbike at Kood’s rice stand.

16

Tourism: a path to equitable growth

Tourism is one of Vientiane’s economic sectors

that have received much attention in recent

years. This is perhaps because tourism currently

represents a large share of Laos’ total export

revenues, with Vientiane as the centre of tourist

activity. Tourist numbers have grown rapidly for

the past decade, going from 700,000 annual vis-

itors in 2000 to over 2,000,000 visitors in 2010.f

The government has recently stepped up its

efforts to attract tourists through tourism cam-

paigns such as the Visit Laos 2012 campaign.

More importantly, it has also begun work on

improving the capital city’s underdeveloped

physical infrastructure through the Vientiane

Vision 2030 project.

These two stable trends of growing tour-

ist numbers and physical infrastructure devel-

opment present an optimistic outlook for

Vientiane’s tourism sector in the next decade or

two. However, the question remains of whether

this growth will be enjoyed by the city’s low

income population.

Tourism is an industry with high impact

potential on the poor, whether positive or neg-

ative. If the city’s tourism strategy is developed

in a way that is favourable to small businesses

and micro-entrepreneurs, these businesses will

be able to reap the benefits of catering to high-

spending tourists and improve their welfare.

However, the development of tourism has not

traditionally followed this kind of trajectory. In

the tourist hubs of many emerging economies,

the aggressive expansion of the tourism indus-

try is one that favours high-end businesses,

such as shopping malls, expensive gift shops,

and five-star hotels, while displacing the small

businesses (often along with the poor people

themselves).

Based on observations in the field, there are

two critical uncertainties that will influence the

trajectory of Vientiane’s tourism sector. The first

is whether the city planners decide to adopt a

tourism strategy that emphasises experiences

Tourist attractions like Buddha Park need to be promoted aggressively to generate revenue.

by Taufik Indrakesuma

f 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

or expenditures. An emphasis on tourist expe-

rience would favour preservation of traditional

markets, small vendors, and the “Lao way of

life”, and would generally be favourable for

micro-entrepreneurs and the informal econ-

omy in general. In contrast, a tourism strategy

that emphasises expenditures would prioritise

the construction of luxurious tourist attractions

and comforts, favouring big businesses with

high potential tax revenues.

The second uncertainty entails a more social

aspect: the Laotian culture. One of the unique

characteristics of the Lao people is their slow, laid

back pace of life. Some say that this cultural quirk

has led to low rural-urban migration due to “weak

entrepreneurial desires” and “complacency with

agricultural life”. If this culture persists, it is diffi-

cult to imagine Vientiane becoming a traditional

tourist hub full of hustle and bustle anytime

soon. However, changing this culture may have

its own set of difficulties. The plan might be met

with resentment as it forces people to admit that

their current way of life is wrong. Even if the peo-

ple accept the need for change, the change itself

might be difficult to internalise within a short

period of time. Thus, planners should decide

whether a type of “cultural engineering” is appro-

priate in order to strengthen entrepreneurship,

induce the creation of more SMEs, and acceler-

ate economic growth.

The combinations of decisions that planners

make on these two axes lead us to four distinctly

different scenarios. These scenarios are detailed

in Figure 12.

The first scenario, “hypermodernity”, will be

reached if an expenditure-focused tourism strat-

egy is chosen in tandem with strong cultural

engineering. This scenario is characterised by

the adoption of the modern tourist hub trajec-

tory, following the examples of large Southeast

Asian cities such as Jakarta, Singapore, and

Bangkok. It is a scenario with massive shopping

malls, expensive tourist restaurants, and air-

conditioned bus tours. This scenario allows for

the improvement of poor urban livelihoods, but

not in a way that necessarily empowers them.

Rather than enabling low-income households

to start their own businesses and thrive, this

Figure 12. Future scenarios for Vientiane

18

kind of tourist city views the poor as a large sup-

ply of cheap labour that will allow the hospital-

ity sector and large tourist businesses to grow.

It may exacerbate the perceived income dispar-

ity between wealthy tourists and local labour.

In order for this kind of scenario to succeed in

its poverty alleviation element, proper train-

ing must be provided to equip the poor with

the necessary skills to enter this formal employ-

ment, and offer pathways to job advancement.

The second scenario, “displacement”, will

come about if planners decide to pursue an

expenditure-focused strategy without engag-

ing with or engineering the local culture. This

scenario plays out much like the “hypermoder-

nity” scenario with its high-end businesses, but

is hindered by the lack of cheap skilled labour

that comes with it. Without proper engagement

with the local low-income populace, there is

potential for conflict. At best, the poor will con-

sider these new sources of employment to be

unreachable and will prefer to remain in their

current low-income agriculture jobs or their out-

competed small businesses. At worst, people

will see this form of modernisation as an affront

to the local culture, potentially causing political

tensions between planners and public.

The third scenario, “cultural tourism”, comes

as a result of experience-focused tourism and

no cultural engineering. This scenario assumes

that tourist areas keep their traditional look and

feel, with infrastructure being built only to make

these areas more accessible, using off-grid tech-

nologies. In this scenario, the improved access

to Vientiane’s tourist sites would increase the

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 tradi-

tional capital city, with its small shops and laid

back inhabitants. The end result would be an

increase in income for small businesses with-

out 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 strat-

egy is accompanied by a more modern cultural

mindset. This scenario involves a more aggres-

sive 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.

This scenario is an ideal compromise between

empowering small businesses and generating

revenue for the city’s development.

Of these four scenarios, “displacement” can

quickly be discounted from the nexus of viable

alternative futures, due to its low benefits for the

poor and its high potential for conflict. Of the

remaining scenarios, “hypermodernity” shows

the greatest potential for profit-generation while

still involving the poor. On the other hand, “cul-

tural tourism” shows the least amount of disrup-

tion to the lifestyles of the poor, while still improv-

ing their income streams organically through the

increased tourist numbers alone. Finally, “hybrid

tourism” is the compromise between the two

extremes, attempting to empower the poor by

Selling honey to survive

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 accord-

ing 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 bar-

rier to entry that cuts into their income. If these fees do not result in any meaningful ben-

efits for the vendors, such as protection of their rights or routine maintenance of the

market areas, they become an inefficiency in the system.

19

building entrepreneurial skills to improve their

businesses and allowing small businesses to drive

the growth of the tourism sector.

This final scenario is perhaps the most ben-

eficial for the two main stakeholders (govern-

ment and the poor), but it is also the most diffi-

cult to execute. It requires that Vientiane’s poor

population find the motivation to start small

businesses rather than be content with their

current levels of income. It requires micro-credit

to be widely accessible in order to enable small

business creation. It also requires the city to be

patient with the initially low levels of growth

and not to succumb to the temptation for rapid

modernisation.

Thus, the key policy recommendations for

the initial stages of achieving the “hybrid tour-

ism” scenario include expanding the reach and

scale of microfinance services in Laos, particu-

larly in Vientiane, and providing training in

financial literacy and business development for

the poor. Furthermore, in order to measure the

progress of this scenario, planners must closely

monitor the growth in numbers of small busi-

nesses that cater to tourists, as well as the aver-

age income of those employed in these busi-

nesses.

The front yard of an NGO-run school.

20

Johannes Loh is working as a Research Associate at the

Lee Kuan Yew School of Public Policy. He holds a Master’s

degree in Public Policy from the Hertie School of Public

Policy in Berlin, and a Bachelor of Arts in Integrated

Social Science from Jacobs University Bremen. His previ-

ous research experience includes aid governance, visual

political communication and public sector reform in

developing countries. Prior to joining the Lee Kuan Yew

School of Public Policy he has also worked for the United

Nations Environment Programme in Geneva, Transparency International Nepal, and

the Centre on Asia and Globalisation in Singapore. His email is johannes.loh@nus.

edu.sg and you can follow his updates on trends in pro-poor policies in the region on

Twitter @AsianTrendsMon.

Nicola Pocock is a research associate at the LKY School of

Public Policy. She is also the research manager at aidha,

a non profit financial education and entrepreneurship

training school for migrant women, especially domes-

tic workers, in Singapore. She holds a BA from Warwick

University and an MSc from Kings College London. Prior

to joining the LKY School of Public Policy, she interned

as a Fast stream trainee in the UK civil service at the

Home Office and as a research volunteer at Amnesty

International. Nicola has also carried out social work in Marseille, France as a European

Union sponsored youth volunteer. Her research interests span health and social policy,

health systems financing, social impact assessment, gender, migration and financial

behaviours. Her email is sppnp@nus.edu.sg and you can follow his updates on trends

in pro-poor policies in the region on Twitter @AsianTrendsMon #health

Taufik Indrakesuma is a research associate at the Lee

Kuan Yew School of Public Policy. He is a recent gradu-

ate of the Master in Public Policy programme at the

Lee Kuan Yew School of Public Policy. He also holds a

Bachelor in Economics degree from the University of

Indonesia, specialising in environmental economics.

Taufik has previously worked as a Programme Manager

at the Association for Critical Thinking, an NGO dedicated

to proliferating critical thinking and human rights aware-

ness in the Indonesian education system. His research interests include behavioural

economics, energy policy, climate change mitigation and adaptation as well as urban

development policy. His email is taufik.i@nus.edu.sg

Darryl Jarvis is an Associate Professor at the LKY School

of Public Policy. He specialises in risk analysis and the

study of political and economic risk in Asia, including

investment, regulatory and institutional risk analysis. He

is an author and editor of several books and has con-

tributed articles to leading international journals. He has

been a consultant to various government bodies and

business organisations and for two years was a member

of the investigating team and then chief researcher on

the Building Institutional Capacity in Asia project commissioned by the Ministry of

Finance, Japan. His current research is a large cross-national study of risk causality

in four of Asia’s most dynamic industry sectors. He teaches courses on risk analysis,

markets and international governance and international political economy. His email

is darryl.jarvis@nus.edu.sg

Phua Kai Hong is a tenured professor at the LKY School

of Public Policy and formerly held a joint appointment as

Associate Professor and Head, Health Services Research

Unit in the Faculty of Medicine. He is frequently con-

sulted by governments within the region and interna-

tional organisations, including the Red Cross, UNESCAP,

WHO and World Bank. He has lectured and published

widely on policy issues of population aging, health-

care management and comparative health systems in

the emerging economies of Asia. He is the current Chair of the Asia-Pacific Health

Economics Network (APHEN), founder member of the Asian Health Systems Reform

Network (DRAGONET), Editorial Advisory Board Member of Research in Healthcare

Financial Management and an Associate Editor of the Singapore Economic Review.

His email address is spppkh@nus.edu.sg

T S Gopi Rethinaraj joined the Lee Kuan Yew School

of Public Policy as Assistant Professor in July 2005.

He received his PhD in nuclear engineering from the

University of Illinois at Urbana-Champaign. Before

coming to Singapore, he was involved in research and

teaching activities at the Programme in Arms Control,

Disarmament and International Security, a multi-disciplin-

ary teaching and research programme at Illinois devoted

to military and non-military security policy issues. His

doctoral dissertation, “Modeling Global and Regional Energy Futures,” explored the

intersection between energy econometrics, climate policy and nuclear energy futures.

He also worked as a science reporter for the Mumbai edition of The Indian Express

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 secu-

rity, climate policy, energy technology assessment, nuclear fuel cycle policies and inter-

national 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

Principal Investigators Research Associates

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