SME Development in Lao PDR

Small and medium-sized enterprises (SMEs) play a very important role in enhancing economic development in Laos. However, SMEs in Laos are small and lack competitiveness. The inflow of foreign direct investment (FDI) and trade liberalization in Laos bring opportunities and challenges for SMEs in Laos. Moreover, issues of SMEs and assessment of SMEs promotion policy are not well understood for lack of studies. This paper study provides an overview of the current situation, issues, and policies confronting SMEs in Laos. It evaluates the impact of FDI and trade liberalization on SME development. Although the government of Laos has defined policies and strategy to support SMEs, it lacks specific programs that could flesh out these policies. SMEs are thus faced with the problems of high tax collection, high inflation, unstable exchange rate, and inadequate funding. Moreover, SMEs are confronted with problems of innovativeness, lack of competitiveness, limited market, and networking. FDI provides SMEs with opportunities to increase their production through subcontracting production linkages. The impact of trade liberalization on SMEs is not well understood but trade liberalization seems to have negative impact rather than positive impact on SMEs.