Lao People's Democratic Republic: Second Private Sector and Small and Medium-Sized Enterprises Development Program - Subprogram 1

Sovereign Project | 44057-012

Summary

The proposed Subprogram 1 of the Second Private Sector and SME Development Program, to be financed from a loan totaling $5 million equivalent plus a grant of $10 million (both from ADF sources), will support the Government of Lao PDR's strategy to develop the small and medium-sized enterprises sector and undertake domestic trade-related reforms with a view to promoting the SME sector as a way to achieve sustained and inclusive economic growth. The expected overall impact of the Program is the expansion of the SME formal sector. The program has three outputs as follows (i) implementation of small and medium-sized enterprises policy, including Improving small and medium-sized enterprises' access to services; (ii) promoting regulatory efficiency; and (iii) strengthening trade policies to support small and medium-sized enterprises' growth.

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Project Name Second Private Sector and Small and Medium-Sized Enterprises Development Program - Subprogram 1
Project Number 44057-012
Country Lao People's Democratic Republic
Project Status Closed
Project Type / Modality of Assistance Grant
Loan
Source of Funding / Amount
Grant 0260-LAO: Second Private Sector and Small and Medium-Sized Enterprises Development Program - Subprogram 1
Asian Development Fund US$ 10.00 million
Loan 2791-LAO: Second Private Sector and Small and Medium-Sized Enterprises Development Program - Subprogram 1
Asian Development Fund US$ 5.00 million
Strategic Agendas Inclusive economic growth
Drivers of Change
Sector / Subsector Industry and trade - Small and medium enterprise development - Trade and services
Public sector management - Economic affairs management
Gender Equity and Mainstreaming
Description The proposed Subprogram 1 of the Second Private Sector and SME Development Program, to be financed from a loan totaling $5 million equivalent plus a grant of $10 million (both from ADF sources), will support the Government of Lao PDR's strategy to develop the small and medium-sized enterprises sector and undertake domestic trade-related reforms with a view to promoting the SME sector as a way to achieve sustained and inclusive economic growth. The expected overall impact of the Program is the expansion of the SME formal sector. The program has three outputs as follows (i) implementation of small and medium-sized enterprises policy, including Improving small and medium-sized enterprises' access to services; (ii) promoting regulatory efficiency; and (iii) strengthening trade policies to support small and medium-sized enterprises' growth.
Project Rationale and Linkage to Country/Regional Strategy

Growth in Lao PDR has been driven mainly by the industrial sector with investments in hydro-power and the mining sector driving industrial expansion in recent years making Lao PDR vulnerable to volatile and unpredictable commodity price cycles. The export sector remains narrowly based with the resource sector (copper, gold, electricity and timber) accounting for 70% of total exports recorded through customs. Mining and hydropower exports reached over 60% of merchandise exports by 2008 and are projected to reach 80% by 2011. Hence, GDP growth from the non-resource sector is estimated to be in the range of 5% to 6%. Also, ADB staff estimates that Lao PDR's potential or long term economic growth rate has been relatively stable (not increasing) at about 6.0% per annum, which may not be sufficient to create enough jobs for the tens of thousands new job seekers each year.

The resource boom is transforming the Lao economy. The Government anticipates significant future revenues to the budget from hydro-power investments and mining in the form of taxes, royalties and dividends over the next decade. The revenue flows provide Lao PDR's for its first time in its modern history, a tremendous opportunity for it to finance its development goals, raise per capita incomes, and reduce poverty. At the same time international experience shows us that if a resource boom is not managed properly, it can lead to a decline in competitiveness in non-resource sectors such as manufacturing through excessive appreciation of real exchange rate. The challenge for Lao therefore, is to manage its resource boom in a way that sustains economic growth in the non-resource sector, creates productive jobs, and continue poverty reduction.

The key to sustaining high economic growth and poverty reduction should be based on three strategies: i) to diversify the sources of non-resource growth from its currently narrow base; ii) to undertake reforms to improve competitiveness at all levels of the supply chain; and iii) to harness trade policies that promote private sector growth and access to international trade. The Government recognizes the above and its development priorities are articulated in the NSEDP7, 2010 2015. Targets include GDP growth of at least 8% annually and GDP per capita to be at least $1,700 by 2015. The Government recognizes that to achieve these targets, private sector growth, and in particular SME development, will be crucial.

Impact Expansion of the formal SME sector
Project Outcome
Description of Outcome Improved business environment for SMEs
Progress Toward Outcome
Implementation Progress
Description of Project Outputs

SME policy implemented, including improvement in SMEs' access to services

Regulatory efficiency improved

Trade policy supporting SMEs' development strengthened

Status of Implementation Progress (Outputs, Activities, and Issues)
Geographical Location
Safeguard Categories
Environment C
Involuntary Resettlement C
Indigenous Peoples C
Summary of Environmental and Social Aspects
Environmental Aspects
Involuntary Resettlement
Indigenous Peoples
Stakeholder Communication, Participation, and Consultation
During Project Design
During Project Implementation
Responsible ADB Officer Mohd Sani Mohd Ismail
Responsible ADB Department Southeast Asia Department
Responsible ADB Division Public Management, Financial Sector and Trade Division, SERD
Executing Agencies
Ministry of Industry and CommercePhonxay Road, Vientiane
Lao People's Democratic Republic
Timetable
Concept Clearance 15 Jun 2011
Fact Finding 16 May 2011 to 27 May 2011
MRM 19 Jul 2011
Approval 04 Oct 2011
Last Review Mission -
PDS Creation Date 16 Apr 2010
Last PDS Update 28 Oct 2010

Grant 0260-LAO

Milestones
Approval Signing Date Effectivity Date Closing
Original Revised Actual
04 Oct 2011 15 Nov 2011 06 Dec 2011 30 Apr 2012 - 31 Jan 2012
Financing Plan Grant Utilization
Total (Amount in US$ million) Date ADB Others Net Percentage
Project Cost 10.00 Cumulative Contract Awards
ADB 10.00 04 Oct 2011 10.00 0.00 100%
Counterpart 0.00 Cumulative Disbursements
Cofinancing 0.00 04 Oct 2011 10.00 0.00 100%

Loan 2791-LAO

Milestones
Approval Signing Date Effectivity Date Closing
Original Revised Actual
04 Oct 2011 15 Nov 2011 06 Dec 2011 30 Apr 2012 - 31 Jan 2012
Financing Plan Loan Utilization
Total (Amount in US$ million) Date ADB Others Net Percentage
Project Cost 5.00 Cumulative Contract Awards
ADB 5.00 04 Oct 2011 4.86 0.00 100%
Counterpart 0.00 Cumulative Disbursements
Cofinancing 0.00 04 Oct 2011 4.86 0.00 100%

Safeguard Documents

See also: Safeguards

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Evaluation Documents

See also: Independent Evaluation

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