Blog: Lao People’s Democratic Republic: COVID-19 Business Impact Survey results for inclusive recovery (en)
Over the past decade, the Lao People's Democratic Republic has been among the fastest growing economies in Asia. With an average annual GDP growth of over 7%, the country was on a good projection for graduating from least-developed-country status. Economic growth next to a structural change in the economy, largely characterized by diversification towards resource-based development, and an export boom made this possible¹. However, the COVID-19 pandemic put the world economy on hold, and the Lao People's Democratic Republic was no exception.
The country's first cases of COVID-19 occurred in March 2020 and forced the government to adopt containment measures. While these measures have proved successful in fighting the spread of the virus - with the government announcing no new cases for 59 consecutive days on 10 June - the country's economy slowed down, to the extent that negative growth in 2020 is projected to be in the range of -1.8% to 1%². In fact, the onset of coronavirus has affected business operations as well as employment across the tourism, logistics, processing and construction sectors - attributed to travel restrictions and disrupted supply chains.
By the end of March 2020, the Lao National Chamber of Commerce and Industry (LNCCI) - the national focal point for businesses - initiated a survey to evaluate the economic impact of COVID-19, in close collaboration with provincial chambers and the Ministry of Industry and Commerce³. The chamber collected data from its members to inform policy and support the private sector⁴. It then presented the results of their COVID-19 Impact on Business Survey to the country's National Taskforce Committee for COVID-19 Prevention, Control and Response, National Taskforce Committee for Impact Assessment and Policy Response to Mitigate COVID-19 on the economy⁵.
Around 80% drop in revenue for a quarter of businesses in the first trimester
Survey findings show that Lao businesses have suffered heavily due to the pandemic, across all economic sectors. Over a quarter (27%) of respondents, report a drop in revenue of more than 80% in the first quarter of the year, as compared to the same period in 2019. Only 17% of companies did not report any drop in revenue. As witnessed globally, the tourism sector is the most affected in terms of revenue, with 37% of respondents reporting over 80% of year-on-year drop of revenue in the first quarter. In turn, the agriculture, forestry and fishery sector has the highest share (20%) of companies reporting no drop in revenue in the first trimester year-on-year.
Drop in revenue of business in the Lao People's Democratic Republic in the first quarter of 2020 (year-on-year)
Note: Respondents were asked: (1) What is your business revenue during COVID-19 outbreak (i.e. for Q1 2020)? and (2) What is your business revenue for Q1 2020? Total respondents: 291 people.
Source: LNCCI calculations based on national Covid-19 Business Impact Survey. Data collected 6-27 April 2020.
Drops in revenue compromise business capacity to maintain jobs and survive
The important drops in revenue are not without consequences, as survey results show. Temporary closure has put pressure on the capacity of companies in retaining their workers. Businesses reported 'Payment of salaries' as the biggest obstacle, followed by 'Loan and interest payments'. It is indeed worrisome that about 70% of respondents will need to furlough some employees, and even more that almost 40% will need to let go over 50% or more of their workers.
Overall, this points to challenges in cash flow: temporary business closure has created a liquidity crisis for the vast majority of business, and most of them do not have the resources to remain operative for long. In fact, when asked about their risk to close or suspend business operations due to COVID-19, half of the respondents considered being at high risk (80% to 100% likelihood) of ending their business operations, with women-led companies more at risk. These findings are in line with results from the ITC global survey of micro, small and medium enterprises (MSMEs).
Share of companies expecting to lay off employees due to COVID-19
Note: Respondents were asked: (1) What is your employee count before COVID-19 outbreak? and (2) How much staff do you think you need to make redundant due to COVID-19 outbreak? Total respondents: 387 people. Source: LNCCI calculations based on national Covid-19 Business Impact Survey. Data collected 6-27 April 2020.
To reduce cash-flow challenges and the likelihood of lay-offs, firms highlighted tax waivers or relief, reduced utility payments, financial and employment programmes, as well as cash payments as the most helpful government measures to tackle the economic effects of the COVID-19 crisis. Indeed, in their response to the COVID-19 pandemic, governments should prioritize policies that support small businesses, as they are the backbone of the local economy⁶.
Building an action plan towards recovery
In the past, the International Trade Centre (ITC) and LNCCI have been working together successfully to support capacity development, entrepreneurship, diversification and using information and communications technology. To guarantee a long-term relationship, ITC supports the country's private sector to combat the impact of the COVID-19 crisis.
Through its Trade for Sustainable Development Hub rooted in LNCCI, ITC has been providing advice, assistance and information to a number of beneficiaries in the agriculture sector on how to best cope with the unprecedented situation. The ITC ARISE+ project in the Lao People's Democratic Republic has developed tools to assess the impact of the crisis on selected sectors, and is re-evaluating certain planned activities to cope with the 'new normal'. The Systematic Mechanism for Safer Trade (SYMST) project is focusing on assessing the impact on quality. All three ITC projects are strengthening small businesses with greater competitiveness to increase their ability to trade across borders.
To continue supporting its partners worldwide through these difficult times, ITC has developed a 15-point action plan for micro, small and medium-sized enterprises, business support organizations and governments. In this plan, business support organizations - such as the Lao Chamber of Commerce and Industry - play a key role as agile, expert and trusted connectors of small businesses and governments.
² WB (06/2020) Lao Economic Monitor: https://www.worldbank.org/en/country/lao/publication/covid-19-to-impact-lao-pdr-growth-debt-in-2020-new-world-bank-report
⁵ The full report can be accessed here: https://lncci.la/documents-for-impacts-of-covid-19/