43 Figure 4: HRDNC Framework Deputy Prime Minister (Chaired) Minister of MOEC Minister of MPI Deputy Head of Vice Chairperson of (Vice Chairperson) (Vice Chairperson) CCOP NA (Vice Chairperson) (Vice Chairperson) Members • Vice Minister of Education and Sports. • Vice Minister of Planning and Investment. • Vice Minister of Finance. • Vice Minister of Home Affairs. • Vice Minister of Foreign Affairs. • Vice Minister of Labour and Social Welfare. • Vice Minister of Information and Culture. • Vice Minister of Health. • Vice Minister of Justice. • Vice Minister of Agriculture and Forest. • Vice Minister of Industry and Commerce. • Vice Minister of Defense. • Vice Minister of Public Security. • Vice Rector of the Political and Governance Institute. • Vice President of the Lao Women’s Union. • President of the Lao National Chamber of Commerce and Industry. Source: MPI (2016); ADB (2017).
44 3.2 Review of the previous strategy of HRD in the Lao PDR The HRD Strategy 2000 covers six sectors (e.g., political/ideological development, civil service, education and training, health, labor and social welfare, and information and culture) and focuses mainly on the achievement of traditional quantitative targets (e.g., enrollment rates, numbers of graduates) and largely neglects the equally important dimensions of quality (e.g., learning outcomes and the creation of needed skills) and inequality (e.g., sharp disparities in most HRD outcomes by gender, location, ethnicity and socio-economic status). Although some initial monitoring of the previous was done, no systematic assessment of the previous Strategy’s implementation was done after 2008. Because more than ten years had passed since the previous national HRD Strategy 2000 was adopted, some of the issues it addressed were no longer relevant, while new issues had arisen (e.g., regional cooperation, sharply increased labor migration to Thailand, and acute shortages of skilled labor). Furthermore, the HRD Strategy 2000 concludes that it contains a perceptive situation analysis and many interesting and useful ideas. The review also finds that most of the targets are on track to be achieved by 2020, despite chronic under-funding of HRD during the Strategy’s initial decade. Otherwise, the review also finds that there have some challenges points in previous strategy, such as, (1) lacks a strategic framework (there are too many objectives in each sector without any clear identification of priorities or sequencing and a general neglect of cross-sectoral objectives); (2) the situation analysis fails to identify the many constraints to HRD in Lao PDR (including but not limited to funding); (3) it frequently confuses objectives and policies; (4) it omits some important HRD issues (e.g., nutrition); (5) the Strategy does not include an action plan, and (6) the indicators in its monitoring framework do not accurately reflect the content of the Strategy and are in some cases unclear. The review concludes that a substantially revised HRD Strategy is needed (LNCCI, 2016; MPI & UNDP, 2017). 3.3 Human Resources Development Strategic Framework 2016-2025 The HRD Strategic Framework (SF) includes six strategic objectives, each containing 2-3 strategic thrusts, and four cross-cutting themes (See Table 9). The key feature of the HRD Strategic Framework is that it focuses on HRD issues that require multi-sectoral solutions, leaving purely sectoral issues to the many existing sector and sub-sector strategies and master plans that have been developed in recent years. The latter are explicitly incorporated into the revised HRD Strategic Framework. In this way, the revised HRD Strategic Framework is designed to add value to the large existing stock of sector-specific strategies and master plans. Table 9 shows the proposed HRD strategic objectives (SOs) and strategic thrusts (STs) which are including in HRD Strategic Framework. Additional, under the world of globalization, the model of development had mentioned all dimensions of political, economic, social and environment into countries’ development strategic. Thus, for keeping the Lao PDR economic growth on a sustainable level and to develop human resources with relevant knowledge and abilities, the Lao PDR had included all dimensions in the HRD Strategic Framework by proposing four cross-cutting themes (CCTs) in SF, there are including (1) Political leadership; (2) Civil service; (3) Gender; and (4) Regional cooperation. Moreover, to consistent with the HRD Strategic Framework, the Action Plan had developed and
45 was endorsed by the Human Resource Development National Commission Meeting in the end of 2015. Table 9: The proposed HRD strategic objectives (SOs) and strategic thrusts (STs) (2016-2025) HRD strategic objectives HRD strategic thrusts (STs) (SOs) SO-1: Reduce and eventually ST-1.1: Identify and invest in gifted children from eliminate disparities in disadvantaged population groups at an early age HRD outcomes ST-1.2: Educate poor rural children to become effective parents ST-1.3: Strengthen the demand for HRD investments among disadvantaged groups SO-2: Support HRD through ST-2.1: Get poor rural children off to the right start multi-sectoral through effective early childhood education investments in ST-2.2: Build the job-relevant skills that employers want education and training in higher education SO-3: Increase labor ST-3.1: Improve the performance of labor markets productivity ST-3.2: Develop evidence-based migration policies SO-4: Support HRD through ST-4.1: Reduce the high prevalence of short height for age multi-sectoral (stunting) among children under 5 investments in health and nutrition ST-4.2: Prevent non-communicable diseases SO-5: Preserve and enhance ST-5.1: Develop cultural heritage sites to promote tourism traditional culture, ST-5.2: Improve the capacity of the mass media promote tourism and foster the development (especially TV) to support HRD of sport ST-5.3: Develop broad-based participation in sport SO-6: Protect the population ST-6.1: Strengthen disaster prevention and mitigation from catastrophic risks ST-6.2: Protect the population from the risk of catastrophic health care costs Source: MPI (2016), MPI & UNDP (2017).
46 3.4 Human Resources Development Action Plan 2016-2020 The HRD Action Plan that was based on the 8th Five-Year NSEDP and HRD Strategic Framework. The 8th Five-Year NSEDP laid out the direction of macroeconomic management as related to maintain the inflation rate within reasonable limits; manage the exchange rates to sustain a stable monetary situation and advantageous position for competitiveness; manage the internal debts (government and public) and decrease foreign debts step by step; improve and enforce measures to enhance financial and monetary liquidity; increase foreign exchange reserves; build up state reserves to secure the contingencies and urgent payments, such as post natural disasters; and bring the Lao PDR to graduate from the Least Development Country in 2020. The Action Agenda for Human Development and Smooth Graduation as follow: Lao PDR seems on track to graduate from its LDC status. Lao PDR’s three- year average (2011-2015) GNI per capita was roughly US$1,232; about 99 percent of the threshold (US$1,242). Its GNI per capita in 2018 is projected to exceed the graduation threshold and will be substantially above the level in 2021, provided the threshold does not change significantly. If the GDP growth rates are as high as the 8th Five-Year NSEDP forecasts, Lao PDR’s GNI will be double the income graduation threshold, and the country should graduate out of being an LDC in the 2020 irrespective of what happens on the HAI or Economic Vulnerability Index (EVI). However, Lao PDR’s economy lacks the structural economic transformation and diversification required for smooth LDC graduation (MPI, 2016). The 5th National Human Development Report (MPI & UNDP, 2017) examines different facets of underdevelopment in the Lao PDR that classify it as a LDC. To a great extent, the Human Asset criterion and its indicators used for LDC classification are the same as those that categorize a country’s level of HD. In the continuum of human development, LDC graduation is one of the early milestones a country has to reach. Improving HD is essential for smoothly moving out of LDC status. Therefore, the LDC graduation process has to be viewed from the perspective of HD. Of the three criteria for LDC graduation, Lao PDR is most lacking in economic vulnerability, followed by human asset. Human development plays a critical role in addressing both deficits. While elements of HD overlap with the indicators of human asset, the Lao PDR needs to develop human capital to diversify its economy in order to reduce vulnerability. The action agenda below is drawn from the policy implications by the Government of Lao PDR that related to enhancing HD and thereby human asset and economic diversification for Lao PDR’s smooth graduation out of LDC status. 3.5 Enhancing Human Asset by Harnessing Demographic Dividend Early Childhood Development: (1) Expand and strengthen early childhood development and education to help develop school readiness skills, basic cognitive and behavioral skills; (2) Increase efforts to reduce chronic malnutrition, which threatens cognitive development; and (3) Ensure that all children can read by the end of grade 2, making reading a national obsession so that Lao PDR can build a skilled and productive workforce.
47 Skills Gap and Education Quality: (1) Develop an overarching youth policy to realize the full potential of youth and demographic opportunities; (2) Resolve the current mismatch between labour market needs and young people’s education and skills; (3) Upgrade the education and skills of the young population to meet the demand for medium-skilled and highly skilled workers generated by AEC entry; (4) Take a more strategic role in vocational skills development by developing policies and setting standards; (5) Improve teacher quality, teacher training programmes and teacher distribution; and (6) Invest in training materials and instructors, and carry out regular training evaluations. Health and Nutrition: (1) Strengthen existing Health Equity Fund (HEF) schemes and free delivery of maternal, neonatal and child health care “free MNCH”; (2) Increase efforts to achieve the goals of the ongoing health sector reform, notably in human resources, health financing and health system governance; and (3) Lay the foundation for a national programme and move towards universal health coverage. Poverty and Vulnerability: (1) Develop a sustainable universal social protection floor to protect households from falling back into poverty and safeguard the progress made so far; (2) Urgently consider the recommendations of Assessment- Based National Dialogue on Social Protection (ABND) carried out under the oversight of the Government’s Drafting Committee for the National Social Protection Strategy; (3) Tackle multiple deprivation by improving other aspects of human welfare that have long-lasting effects on poverty; and (4) Invest to bridge the gap in HD outcomes such as schooling and health, even when monetary poverty is reduced. 3.6 Diversifying the Economy to Reduce Vulnerability Agricultural Productivity: (1) Increase public expenditures on irrigation, rural roads, agricultural research, extension services and other public goods; (2) Promote agricultural modernization through expanding irrigation, spreading modern seed/fertilizer technologies, adopting farming systems approaches, etc.; (3) Reconsider approaches in expanding irrigation. Irrigation should not be large dams alone; a combination of small, medium and large irrigation methods is required; (4) In addition to extension services, provide farmers with marketing services including market information, packaging, and certifications. Thus, there needs to be clear definition of roles and responsibility between agricultural promotion authorities and commerce authorities in providing these services; (5) Carefully examine the policy of large agricultural concessions, as they do little to create jobs and do not seem to encourage farm labour to migrate for non-farm jobs and to produce spillover effects to smallholders, e.g. through technology transfer; (6) Help Lao rice farmers slowly diversify into high-value rice production or other crops, such as specialty coffee, tea, and most of organic products; and (7) Take steps such as cadastral exercises to provide title deeds to farmers, improving farmers’ access to financial services (savings, credit and insurance) and providing better integration with markets, which are likely to contribute to higher farm income and stability. Manufacturing Sector Development: (1) Prevent upward pressure on wages and the exchange rate coming from large inflows of FDI in the resource sector, to ensure the rise in wages is commensurate with productivity gains to prevent a rise in unit labour cost and fall in profitability; (2) Build up foreign exchange reserves from resource-sector windfalls to keep the exchange rate undervalued to support export- oriented manufacturing; (3) Improve access to finance and other modern services,
48 such as electricity, especially for SMEs; (4) Strengthen backward and forward linkages by encouraging larger manufacturing firms, especially foreign-owned ones, for local procurement, particularly from SMEs. Services Sector Enhancement: (1) Improve the quality and range of services for achieving economy-wide gains in productivity and competitiveness; (2) Invest in hard and soft infrastructure, particularly in transport and energy, including electricity, water and internet connectivity; (3) Make regional liberalization commitments, e.g. ASEAN Framework Agreement on Services (AFAS) compatible with multilateral ones (with GATS/WTO); (4) Complement openness with sound regulatory reforms to help materialize the gains; and (5) Support the implementation of reforms in the services sector by empowering relevant agencies with adequate financial resources and skilled staff. Governance: (1) Improve the business climate by streamlining and simplifying the business compliance and transaction costs associated with dealing with the Government; (2) Improve transparency in the provision of public sector services to business through measures such as publication of all fee schedules, permits and licensing requirements; and (3) Establish a more predictable playing field for the private sector, with consistent implementation of publicly available legislation, rules and regulations, and with reduced bureaucratic discretion. 3.7 Existing Labour Policy Measures to Enhance Skills, Education, and Training in the Lao PDR In recognition of the growing importance of having a skilled workforce, the Lao PDR has introduced several related policy mechanisms. Overall, however, these have proven neither efficient nor effective in resolving the perennial shortage of skilled labour. Among these measures is the National Technical Committee (NTC), which acts as an umbrella body for all for TVET issues, and which serves as an advisory body. It is mandated to facilitate cooperation between the MOES and the MLSW, as well as to promote cooperation with and among the public and private sectors in developing technical and vocational education. The ultimate aim is to apply an organized and well-coordinated approach to cultivating a skilled workforce. However, the NTC itself lacks the full technical capacity to reach its objectives and implement its mandate. In line with the Trade Working Group (TWG) Notification, the TWG was established through partnership between the public and private sectors to serve as a NTC technical unit. Twelve TWGs have been established, though they generally lack the capacity to assume their roles and responsibilities, and face difficulties in playing the key role in the Government of establishing and implementing a well-structured National Vocational Qualifications Framework (NVQF). There has been increasing cooperation with multi- and bi-donors in support of Lao TVET development. This includes development of specific programmes/projects, as well as overall partnership with counterpart institutions in other countries to develop a master plan for TVET development. As early as 2006, it was clear that the Government could not cover the high costs of TVET infrastructure, equipment, and teacher training and qualification, and empowered the employers to be responsible for skills development of their workers.
49 This led to the creation, under the 2006 Labour Law, of the National Skills Development Fund. To date, however, no related funds have been allocated or disbursed; effectively, the Fund was never set up. Industry representatives remain skeptical, moreover, given that the Fund faces many implementation obstacles, including enforcement of legal provisions regarding governance, accountability, and transparency (Hilal et al., 2013). The Lao Government also supports public secondary and post-secondary TVET programmes that deliver formal TVET and informal basic vocational training programmes. Private schools offering diploma-level TVET courses have also been established. As of 2013–2014, public and private entities were managing 164 training and skill development centres. All these centres were being under-utilized, however. For one thing they were often providing courses that failed to reflect prevailing market trends, and were therefore insufficiently relevant to labour market needs. Centres also operated in competition with each other. Furthermore, the lack of qualified teachers and trainers in the TVET schools/centres was a concern, despite training by the Vocational Education Development Institute (VEDI). The lack of unified national competency standards also complicates the definition of clear skills development qualifications. While efforts are underway to unify various standards at five levels (basic, semi-skilled, skilled, technician, and higher technician), this is a time-consuming process, one that requires a comprehensive and coordinated approach among all institutions involved in TVET. The country operates about employment services centres (ESJCs). These were created to promote the better matching of jobseeker skills with those skills needed by employers, as well as to foster closer links with training institutions. However, the ESJCs suffer from a lack of technical staff, inadequate labour market information, and insufficient infrastructure to facilitate improved labour market function and collabouration with employers. Effective measures to address TVET development-related challenges depend crucially on collecting and monitoring accurate and timely labour market data. The Labour Market Information System (LMIS), currently being established under the MOLSW, is to replace the former population census, conducted every ten years. MOLSW faces challenges, however, in developing the in-house capacity needed to support and manage the LMIS. That is the overview picture of the human resources supply side in the Lao PDR which mentioned about both quantity and quality of the human resources and labours in Lao PDR. The following sector will continue move to the demand side, the key business challenges and plans for the future of HRD and labours in Lao PDR. 4. Demand Side Analysis: Key Business Challenges and Plans for the Future One primary aim of this part is to identify the key challenges faced by firms and briefly discusses the greatest challenges reported by firms, thereby placing the rest of the paper in context. The purpose enhances capacity to advocate with the Government and donors to provide services that address the challenges. Therefore, the analysis information from the firms’ perspective or from the demand side of the labour market also needed. Regarding to the survey report of the Lao National Chamber of Commerce and Industry (LNCCI, 2016), Figure 5 shows that 23 percent of firms identified this
50 as a shortage of skilled workers - a result consistent with the findings of the World Bank’s latest enterprise survey in Lao PDR, which reported 20 percent of firms citing an “inadequately educated workforce” as their main constraint (World Bank, 2014b). About 7 percent of firms instead identified high labour costs as their biggest challenge. Taken together, this means that nearly one-third of firms cited a labour-related issue as their greatest challenge. This finding was echoed by many stakeholders who participated in the survey. Alternative greatest challenges reported by significant numbers of firms included high electricity costs; lack of access to finance; competition from businesses that are not fully registered; and competition from foreign business demand. Interestingly, few respondents selected taxes, regulations, or informal fees as their biggest challenge. Figure 5: Perception of Greatest Business Challenges 23% 9% 9% 7% 5% 3% 3% 2% 1% 1% 0.50% Note: In addition to the responses above, 19 percent of respondents nominated a wide range of “other” issues as their biggest challenge, while 2 percent answered “do not know” and 7 percent answered “not applicable” (NA), suggesting they faced no challenges. Sources: LNCCI-ILO survey 2014 (LNCCI-ILO, 2016). Different types of firms faced different types of challenges. Figure 6 shows that a shortage of skilled workers was the biggest challenge for firms of all sizes, but it was a much bigger challenge for medium-sized and large firms than it was for small firms. Notably, nearly half of all medium-sized and large firms cited a shortage of skilled workers as their biggest challenge. On the other hand, high labour costs were a more common challenge for small firms (8 percent) than for large firms (0 percent). This suggests that large businesses were much more concerned with skills shortages than they were with having to pay high salaries. Other notable differences included the following: competition from informal (unregistered) businesses was a bigger concern for medium-sized firms (12 percent) than for small firms (6 percent) or large firms (5 percent); and high electricity costs were a bigger concern for large firms (15 percent) than for small firms (10 percent) or medium-sized firms (4 percent). Otherwise, the study still showed that the shortage of skilled workers was felt most strongly in the mining, construction, and manufacturing Competition fSrhLooaLHrHciomtigkiagwhnghafHeceitmolcrgaoreefarhcsmtnsklssraekatiltiplcboilobdotferiueuytdsnrimccsanctaoonesosancsttsfsdsetfs Comply withLroewguplratoidouncsItinafvinotrPdyalmioucfaltesafntexsaeeefsfss
51 sector (41 percent), followed by the “other services” sector (28 percent). Interestingly, 19 percent of hotels and restaurants cited high electricity costs as their biggest challenge, which was much higher than for other sectors. Competition from informal businesses was a bigger challenge for firms in the wholesale and retail trade (10 percent) than in other sectors, while competition from foreign businesses was more of a challenge for firms in “other services” (9 percent). In addition, it was difficult to identify differences in the challenges faced in each province, because any such differences also reflected differences in each province’s sample distribution by firm size and sector. Due to sample size constraints, the study was only analyzed for the largest possible grouping - small firms in the wholesale and retail trade sector in each province. There are many challenges for small firms in the wholesale and retail sector that related to labour, such as the skills shortages were a bigger challenge of firms in Luang Prabang (19 percent) than in other provinces (0-11 percent), and high labour costs were a bigger challenge of firms in Savannakhet (20 percent) than in other provinces (4-5 percent) (LNCCI-ILO, 2016). Consistent with the above survey results, many Government reports stressed that the main challenges differed according to sector and location (province) and the importance of looking at labour shortages by sector, province and field/discipline also stressed (MPI, 2016; MPI & UNDP, 2017). Additional, disaggregating employment results by firm size and sector reveals interesting differences (MPI & UNDP, 2017). More small firms in the mining, construction, and manufacturing sector (52 percent) had expanded their workforce than had small firms in accommodation and food (27 percent), other services (26 percent), or wholesale and retail trade (13 percent). Otherwise, the opposite results are apparent among medium-sized firms, with employment growth highest in wholesale and retail trade (71 percent) and lowest in mining, construction, and manufacturing (43 percent). Thus, further research is needed to confirm and interpret such contrasting results. In terms of future employment plans, 42 percent of owners and managers expected to increase the size of their workforce over the following two years, with another 39 percent expecting employment to remain unchanged. Only 5 percent expected to reduce employment over the following two years. Owners and managers of medium-sized firms were the most optimistic regarding employment, with 70 percent expecting to increase their workforce over the following two years (MPI, 2016).
52 Figure 6: Biggest Challenge, by Firm Size 120% Shortage of skilled staff 100% 1% High electricity costs 3% 9% 8% 9% 5% Lack access to finance 20% High labour cost 80% 25% 3% 5% 21111%%%%% 0.15%0% 3% 1% 3% 3% 3% Competition from informal businesses 12% 5% 000...1555%000%%% 0% 2111%%%% 10% 5% Competition from foreign 3% 6% 3% businesses 60% 4% 40% 7% 7% 5% High transport costs 20% 6% 8% 4% 15% 7% Low market demand 9% 7% 10% Pay taxes 9% Low productivity of staff 49% 45% 9% Comply with regulations and licenses 15% Informal fees 23% Other 0% NA Small Medium Large All firms Note: Respondents from small firms nominated a much wider range of challenges that were not listed on the questionnaire, as represented in the “other” category (23 percent). Sources: LNCCI-ILO survey 2014 (LNCCI-ILO, 2016).
53 Disaggregating future employment plans by sector and firm size echoes the finding on employment in the preceding two years: small firms in wholesale and retail were less likely to expand than were small firms in other sectors, while medium-sized firms in wholesale and retail were more likely to expand than were medium-sized firms in other sectors. Again, this issue could be explored through further research on the labour market. In overall, for keeping the Lao PDR economic growth on a sustainable level and to develop human resources with relevant knowledge and abilities will help Lao PDR to reach their future goal of leaving the list of LDC by the year of 2020 need to be addressed. Therefore, the way how to matching the supply and demand sides of HRD and labour both in term of quantity and quality in the Lao PDR is another important issue in Lao PDR that need to be address. 5.Mismatching between Demand and Supply of Labour 5.1 Gap between Demand and Supply: Skills, Education, and Training The mismatch between demand and supply of skilled labour both in terms of quantity and quality is another prevailing issue in the Lao PDR. Government of Laos and its development partners such as international development banks have dedicated great efforts to improving vocational education and training by investing their resources in revamping the TVET system. Higher education systems have also been undergoing reforms since 1995. This resulted in an increase in the number of higher education and vocational schools from 55 units in 2000 to 163 units in 2015 (See Table 10). Table 10: Number of Higher and Vocational Education Units in Lao PDR 2000 2005 2010 2011 2012 2013 2014 2015 University 1 3 5 5 5 55 5 College 5 25 99 108 108 111 111 111 TVET 49 47 39 39 48 47 47 47 Total 55 75 143 152 161 163 163 163 Note: TVET = Technical and Vocational Education and Training. Source: Lao Statistics Bureau. Despite such efforts, the vocational education system fails to produce workers at a quality level that employers find satisfactory and are willing to properly reward (World Bank, 2013). This reflects the fact that an improvement in the quantity and quality of higher education has not kept up with evolving labour market needs, which suggests that the focus of the education system itself is the root cause of this mismatch. According to the study on HRD (World Bank, 2013; MPI & UNDP 2017), the focus should be not only on increasing quantity (e.g. increased enrolment, higher labour participation rates, etc.) but also on improving quality to enhance the workforce’s basic skills (such as cognitive skills) and equipping tertiary students with relevant, job-specific technical skills. A study on job matching of TVET graduates in the Lao PDR, which is a case study of Pakpasak Technical College, suggests that the mismatch occurred in vocational education, not the whole TVET system, and the causes of the mismatch are job selection pressure by family, the unavailability of relevant jobs, the personal preferences of workers who dislike their field of study, a preference on the part of jobseekers for working places close to their homes, wishing to have much leisure time
54 in their private lives, and a desire to secure tenure jobs (Onphanhdala & Thongsavath, 2015). A lack of accurate, consistent, and up-to-date labour market information is another reason for the mismatch. This makes it difficult for the relevant authorities to design a vocational and skills training curriculum that satisfies present and future needs in the labour market. The mismatches of HD in Lao PDR have also been a reflection of commonly known issues of low labour productivity. Table 11 presents the labour productivity figures in the Lao PDR by broad sector in 2008 and 2013. As indicated earlier, the agricultural sector had the lowest labour productivity in both periods, and yet it absorbed the maximum number of workers. Data (from LECS, not presented here) suggest that the yield rates of most crops seem to have remained unchanged between 2008 and 2013. Data on land area cultivated, suggest that it was an expansion in the area that had permitted the labour productivity to be maintained (MPI & UNDP, 2017). At the same time, the manufacturing sector has not been absorbing workers (the sector’s elasticity of labour use with respect to production is near zero). But the sector’s labour productivity has risen dramatically, by some 51 percent during 2008 and 2013 (See Table 11). The services sector shows a healthy employment elasticity of 0.59 (LECS 5, 2013), while at the same time its labour productivity has risen by some 19 percent over the five-year period. The relatively small rise in labour productivity in the services sector compared with the manufacturing sector is widely believed to be due to the proliferation of low-productivity services, which employ many people, especially young people, who want to escape from the agricultural sector, having had some exposure to education and to the world beyond their agrarian environment. However, they do not find high-paying jobs for reasons of both supply and demand: (1) They do not possess the appropriate skills to meet the job requirements in the high- paying job areas; and (2) The composition of growth is such that there are few, if any, jobs created in the high-growth sectors. Some 57 percent of new investments are made in the mining and power sectors, which have so far engaged much less than 1 percent of the workforce (MPI, 2016). Growth based on extractive industries (spearheaded by foreign capital and technology) does not create jobs or advance HD to the extent desirable and potentially achievable. Consequently, workers and families stay trapped in low productivity subsistence agriculture, experiencing degrees of underemployment. This incomplete or distorted structural transformation is the fundamental reason for less than desirable welfare levels in the country. It results in low HD. Table 11: Labour Productivity by Sector of the Lao PDR, 2008 and 2013 Sector 2008 2013 Agriculture and Related Activities 4.35 4.35 Manufacturing 10.52 15.93 Construction and Services 15.84 18.92 Sources: Calculated from LECS databases (for workers) and GDP statistical databases (for production) (MPI & UNDP, 2017).
55 Figure 7: Per-Worker Labour Productivity Levels of the Lao PDR (2000-2014) Per-Worker Labour Productivity Levels Lao PDR, 9.0 10 Lao PDR, 7.4 Unit: US$ 1,000 8 6 Lao PDR, 4.7 2014 4 2010 2 0 2000 Lao PDR Sources: APO-Productivity Databook (2016). Figure 8: ASEAN Per-Worker Labour Productivity Growth (2000-2014), % ASEAN Per-Worker Labour Productivity Growth (2000-2014), 8.7 % 300 4.3 4.6 4.4 2.5 3.8 3.1 2.4 1.7 10.0 200 5.0 Unit: US$ 1,000 Camb… Myan… Lao… Vietnam Philip… Indon… Thaila… Malay… Singa… Brunei % 100 0.0 0 -1.1 -5.0 2000 2010 2014 Per-Worker Labour Productivity Growth (2000-2014), % Sources: APO-Productivity Databook (2016). Figure 7 shows the labour productivity of Lao PDR increase dramatically from 4.7 in 2000 to 7.4 in 2010, and 9.0 in 2014; with 4.6% of per-worker labour productivity growth rate between 2000 and 2014 (See Figure 8). Otherwise, when comparison of per-hour labour productivity between Lao and ASEAN countries’ workers in 2014 (See Figure 9), we found that, the Lao PDR get higher level of per-hour labour productivity more than Myanmar and Cambodia but lower than 7 countries, including Vietnam, Philippines, Indonesia, Thailand, Malaysia, Singapore and Brunei.
56 Figure 9: ASEAN Countries Per-Hour Labour Productivity Levels 2014 ASEAN Countries Per-Hour Labour Productivity Levels 2014 US$ dollar % 90 151.4 160 140 80 120 100 70 100 80 60 60 40 US$ DOLLAR50 20 % 0 40 30 44.5 20 15 21 20.8 10 4.3 6.8 7.5 7.7 0Cambod2ia.3Myanm3a.r7Lao 4.1 Vietna4m.P2hilippin8e.s2Indone1s1ia.5Thaila1n1d.3Malay2si4a.S2ingap5or4e.4 82.4 PDR Brunei Sources: APO-Productivity Databook (2016). Moreover, when comparison of labour productivity between Lao and Thai’ workers in various sectors in 2014 (See Table 12), we found that, In the manufacturing and agricultural sectors, the Thai workers were 3.6 and 6.5 times more productive, respectively, than the Lao workers. Table 12: Lao and Thai Workers’ Productivity in 2014 Sectors Productivity Thai/Lao (US$/worker) (× more productive) Agriculture, forestry and fishing Lao Thai 3.6 Mining and quarrying 517 1,875 11.8 Electricity and water supply 17,049 201,279 3.2 Manufacturing 6.5 14,081 45,433 2,324 15,160 Construction 2,786 3,106 1.1 3.5 Services 2,333 8,182 5.8 All sectors 1,167 6,799 Note: Productivity = Real GDP (US$)/Number of employees. Source: Calculation based on data from Statistic Bureau.
57 In sum, while economic growth in Lao PDR has been impressive, it has largely originated from the mining and power sectors. In other words, the growth has not been broad based and has not produced sufficient levels of productive employment. Workers and families in large numbers are still engaged in low-productivity agriculture and its related activities, resulting in an incomplete structural transformation. This lack of broad-based growth also reduced the pace of poverty reduction and HD. Demand for skilled labour continues to increase, and the gap between demand and supply of skilled labour is filled by the inflow of foreign workers. The main finding from a recent study of skilled labour employment conducted by the Asian Development Bank (ADB, 2015b) was that multinational enterprises (MNEs) in Lao PDR employ a common strategy of sending staff holding high-level positions from their headquarters to their subsidiaries in Lao PDR. Since the existing pool of local workers does not yet possess the necessary knowledge and technical know-how, it is difficult for local personnel to substitute for foreign personnel at the same work level. In mid-level management jobs, however, local personnel may be able to substitute for foreigners in areas such as marketing and administration, if they can successfully upgrade their job skills. Lao enterprises do offer training to their employees but, according to a World Bank enterprise survey (2012), the proportion of employers offering formal training to workers (28.5 percent) was lower than the average for Asia and the Pacific (an average 45.2 percent) and the world overall (37.8 percent). In response to the prevailing skills shortages, many companies had invested in some form of training for their employees. According to the LNCCI-ILO survey 2014 (LNCCI-ILO, 2016), 43 percent of all enterprises had provided training to employees in the previous 12 months. Figure 10 shows that large enterprises were most likely to provide training (95 percent), followed by medium-sized enterprises (86 percent), and then small enterprises (30 percent). In comparison with countries of similar income in East Asia and the Pacific, the World Bank enterprise survey (2012) reported, only 28.5 percent of Lao enterprises offered formal training, compared to the regional average of 44.6 percent; and only 33 percent of Lao manufacturing workers received formal training, compared to the regional average of 60 percent. Figure 10: Provision of Employee Training, by Enterprise Size 120% 5% 0% 0% 100% 14% 5% 80% 60% 64% 40% 86% 95% 20% 30% 0% Small Medium Large Yes No No response Sources: LNCCI-ILO survey 2014 (LNCCI-ILO, 2016).
58 In addition, the LNCCI-ILO survey 2014 (LNCCI-ILO, 2016) also found that enterprises had designated employees responsible for staff training, according to 77 percent of medium-sized enterprises, 75 percent of large-size enterprises, and only 30 percent of small enterprises (See Figure 11). Figure 11: Firms Having Someone in Charge of Training, by Enterprise Size 120% 100% 80% 23% 25% 70% 60% 60% 40% 77% 75% Large 20% 30% 40% All firms 0% Medium Small Yes No Sources: LNCCI-ILO survey 2014 (LNCCI-ILO, 2016). Similarly, they had allocated budget for staff training purposes, as reported by 75 percent of large enterprises, 67 percent of medium-sized enterprises, and only 16 percent of small enterprises (See Figure 12). Figure 12: Share of Small, Medium-sized, and Large Enterprises Allocating Budget for Employee Training 80% 67% 75% 60% 16% Large 40% 20% 0% Small Medium Sources: LNCCI-ILO survey 2014 (LNCCI-ILO, 2016).
59 Of the 179 enterprises providing employee training, most (74 percent) conducted in-house training provided by internal staff (See Figure 13). External providers of training services include private companies, government agencies, universities/colleges, NGOs, and business associations. Two thirds of the responding enterprises rated the quality of training as “good”, and 24 percent rated it as “neither good nor bad” Figure 13: Training Sources 0.8 74% 0.7 0.6 0.5 0.4 0.3 0.2 7% 8% 8% 10% 12% 0.1 0 Business associations NGOs Universities/Colleges Government agencies In-house/internal staff companies/individuals traning Private Sources: LNCCI-ILO survey 2014 (LNCCI-ILO, 2016). Different sizes of enterprise adopted very different approaches to the training of their employees. About three-quarters of medium-sized and large enterprises designated a staff member in their organization as responsible for employee training decisions. The corresponding figure for small enterprises was only 30 percent. Enterprises in the mining, construction, and manufacturing sector (60 percent) were most likely to have such a person, while enterprises in wholesale and retail trade (24 percent) were least likely. Similarly, 75 percent of large enterprises and 77 percent of medium-sized enterprises allocated a budget for employee training, while only 16 percent of small enterprises had such a budget. Reporting results similar to those of the LNCCI-ILO survey, the GIZ enterprise survey 2013 (GIZ, 2014) revealed that owners and managers of large enterprises sought advice and training from government agencies, business partners, business organizations, and the Internet. Use of training and advice from providers of Business Development Services (BDS) was minimal. Only 0.3 percent of BDS users were enterprises. In 2014, a study specific to the BDS market looked at 120 SMEs in Vientiane, Luang Prabang, and Champasak (EDC, 2014). The study found fewer than half of them (48 percent) had used BDS since 2012. The half of the sample that did not use the training services reported they either used their own internal (and informal) learning via peer learning (staff learns from one another, 50 percent of the responses) or did not know of BDS providers (43 percent).
60 Among the interviewed owners and managers, those from medium-sized enterprises reported higher BDS use rates (71 percent) than those from small enterprises (41 percent). On average, SMEs sent three to four staff for training yearly; this included seminars organized by government agencies. Half of those trained thus did not pay. The courses included training in service marketing, general management, production, human resources, and technology. Other topics were food processing, finance, accounting, transport, and legal issues. All respondents reported that the courses provided “moderate to extreme” benefits. About 65 percent of respondents claimed they would need BDS in 1-3 years’ time, 20 percent are not sure yet, and 15 percent reportedly did not need them. Owners and managers of medium-sized enterprises reported a greater need for BDS than those from small enterprises. Clearly, this positive trend favours BDS services. This might be even truer today, given that increasing competition, globalization, and the challenge of ASEAN economic integration are expected to continue intensifying the need for such training (EDC, 2014). Major deterrents to the provision of training include lack of available time and difficulty in finding suitable training options due to the lack of information regarding available courses and providers, as well as the lack of good quality courses/providers. As for future training plans, more than 90 percent of owners and managers of medium-sized and large enterprises intended to provide training to their staff in the following 12 months, while fewer than half of the owners and managers of small enterprises intended to do so. 5.2 Reported Constraints on Provision of Training for Employees including the following (LNCCI-ILO, 2016): − Lack of available time (60 percent of large enterprises, 33 percent of medium, 14 percent of small); − Lack of information about available training courses/providers (22 percent of medium, 10 percent of large, 6 percent of small enterprises); − Employees not interested in training; − Employers worried that employees would leave after being trained; − Lack of quality training courses/providers; − Cost of training outweighed benefits; − Did not know what skills employees needed; and − No training was needed (55 percent small enterprises). The LNCCI-ILO survey 2014 (LNCCI-ILO, 2016) also indicated that 44 percent of the companies hired non-permanent employees, who comprised almost 40 percent of their total workforce. Depending on the sector, the turnover rate for these non-permanent employees could be high (e.g. in the garment sector). This could decrease employer enthusiasm for training their staff. Nevertheless, among those who did provide training, the quality of such training was mostly rated as “good”. Large enterprises were most proactive in providing such training, while SMEs were particularly proactive in the mining, construction, and manufacturing sectors and other service sectors. While large and medium-sized enterprises had usually allocated training budget, small enterprises often did not. In addition, many of
61 the owners and managers of small enterprises did not see the need for training, though this could be attributed to the sector in which most of them were engaged (wholesale and retail trade), an area that not does not require high levels of technical expertise. Another factor could have been that some small enterprises were less aware of the benefits of staff training. Some 30 percent of all workers at the 404 surveyed companies had tertiary- level educations. Otherwise, companies in general expressed dissatisfaction with the lack of or insufficient levels of practical skills on the part of employees recruited from local universities. This reflects a long-standing disconnect between the formal training provided in academia and actual skills needed on the job. Moreover, across all enterprises interviewed, training was most needed for marketing and customer service, leadership, management, and supervisory skills. The surveyed enterprises considered the development of soft skills (customer services, leadership and management, health and safety, and communication and teamwork) as the greatest employee need. Foreign language training for staff was an additional interest among large enterprises, while accounting and bookkeeping were of special interest to SMEs (MPI & UNDP, 2017). All mentioned above are related to the gap between demand and supply of labour in the Lao PDR which related to the skills of labour, education of human resources, and the training for employees. The mismatch between demand and supply of skilled labour both in terms of quantity and quality is another prevailing issue in the Lao PDR. The next part of the study, the author will show the challenges, opportunity, and provide the guidelines for the implementation of upcoming policies in relation to human resources development and labour quality improvement in the Lao PDR. 6.Challenges and Opportuinities 6.1 Challenges Lao enterprises face is recruiting and retaining skilled labour. Lao PDR’s economy is growing fast but growth is mainly driven by the hydro and mining sectors where very few jobs are created only 22,000 people work in these sectors and this number is unlikely to increase much, given how capital intensive those sectors are. Currently, most of the jobs that are available in Lao PDR are not very attractive: productivity and growth remains very low, and this implies relatively low wages, and relatively slow growth in those wages. Additionally, the underlying problem is that a difficult business environment keeps foreign and domestic private investments away. Large proportions of the workforce are trapped in lower-productivity farming jobs. This implies that a very large number of workers is needed, each producing very little and making only a meager living. As mentioned, demand for skilled labour continues to increase, and the gap between demand and supply of skilled labour is filled by the inflow of foreign workers. Furthermore, labour lacks necessary skills and human resource development is not linked to the demand for socio-economic development, especially in the area of SMEs under the condition of the Association of Southeast Asian Nations (ASEAN) Economic Integration and accession to World Trade Organization (WTO) membership because of low in international knowledge and not because high rates of labour migration from rural to urban areas. This gives rise to opportunities as well as challenges in terms of HRD in the Lao PDR.
62 In addition, very low human capital is another challenge of HD in the Lao PDR. Its labour force is the least literate and numerate in the South-east Asian region. An Early Grade Reading Assessment showed that over 30 percent of 2nd graders could not read a single word, and among those who could read, 57 percent did not understand what they had just read. Language is a serious barrier for the minority ethnic communities. The Lao PDR also has shortages of vocational skills. The size of Lao PDR’s labour force will remain very small. The current size of Lao PDR’s labour force (aged 15-64) is 4.2 million. It is projected to increase to 5.6 million in 2030, and to only 7 million in 2050. On the other hand, the size of the labour force in Cambodia is projected to increase from 10 million in 2015 to 12.5 million in 2030, and to 14.8 million in 2050. Myanmar will have a labour force of 41.7 million in 2030 and 43.1 million in 2030. Therefore, Lao PDR cannot follow the diversification path of early industrializers in the region, which were largely labour surplus economies. Lao PDR is likely to face more intense competition from other labour surplus countries in low-end, assembly-type production than the early industrializers confronted, especially in a more globalized economy. Lao PDR cannot compete in the shifting labour-intensive activities for long with its small labour force - labour surplus countries Cambodia, Myanmar and Vietnam will have an edge. Related to the challenges of the HRD, Lao PDR’s current public expenditure on education, health and social protection is low compared with its partners in the ASEAN and many other LDCs. For example, public spending in Lao PDR on education during the period 2005-2014 was only 2.8 percent of GDP, against Vietnam’s 6.3 percent. In landlocked LDCs Nepal and Bhutan, which have similar resource endowments and topography, it was 4.7 percent and 5.5 percent of GDP, respectively; the average for the LDCs was 3.4 percent of GDP. The picture is very similar in public health spending. Lao’s public expenditure of 2 percent of GDP on health in 2013 was far below Vietnam and Nepal’s 6 percent of their respective GDPs, and the LDC average of 5.2 percent. Lao PDR’s public expenditure on social protection in 2011 was 0.9 percent of GDP, below Cambodia’s 1.0 percent, Bhutan’s 1.2 percent, Nepal’s 2.1 percent, Thailand’s 3.6 percent and Vietnam’s 4.7 percent. Lao PDR’s integration into the AEC can make the situation more challenging. Tariff cuts required for full integration are likely to adversely affect the Government’s fiscal revenue which also affect to HRD. Lao PDR has already reduced tariff rates to zero for 79 percent of all products listed under the region-wide Common Effective Preferential Tariff (CEPT) and by 2015 some 8,879 listed products had zero tariffs. Lao PDR may also face pressure to cut corporate tax rates in a race to attract foreign investment. Prospects for compensating revenue losses by expanding value added tax (VAT) are limited, due to the dominance of agriculture and informal business activities. VAT is also regressive and its expansion may worsen inequality. Corporate tax cuts may result in net revenue loss if they fail to attract enough foreign investment, as is evidenced elsewhere. In addition, with tariff cuts, Lao PDR may not have enough policy tools to protect its nascent manufacturing sector. The AEC is more likely to bring “production integration” more than market integration. Intra-ASEAN trade and investment are still very limited, constituting about 25 percent of total trade and 16 percent of total foreign direct investment (FDI). Major exports and imports among ASEAN countries are parts and components of electronics and automotive products. Thus, intra-ASEAN market integration is not a
63 major driver of ASEAN integration. More FDI into the resource sector and participating at the lower end of the global/regional value chain would not be very beneficial for Lao PDR in the long term. Lao PDR must be able to participate at the higher end, for which it needs to increase the stock of human capital or skilled of labours, improves connectivity and strengthens its institutions as well as its governance capabilities. 6.2 Opportunities Alongside of challenges as mentioned above, the Lao PDR also has some opportunities that related to the human resource and labour dimensions. The changing age structure of Lao PDR’s population, the so-called demographic dividend, is another opportunity for Lao PDR to benefit from human capital development. The Lao PDR has the youngest labour force in the region and is expected to benefit from demographic transition. The share of the population of working age (aged 15-64 years) in Lao PDR is projected to increase to 69 percent in 205012, compared with 68 percent in Myanmar, 65 percent in Cambodia and 62 percent in Vietnam. This change implies that the proportion of the population of working age will increase; Lao PDR will be able to depend on a higher number of workers than the current level. Otherwise, to fully benefit from the comparative advantage of the demographic dividend, job- relevant, specific technical skills and high-quality jobs should be provided to the growing working age population. ASEAN economic integration should create more opportunities for Lao PDR to grow and diversify in different directions. Within the AEC, there should be expansion of infrastructure and the regional value chain. The Lao PDR has been able to attract a number of multinational companies during the past few years, which has resulted in rapid growth in the assembly and equipment parts sectors (such as camera parts), indicating Lao PDR’s potential to effectively participate in regional and global value chains. Lao PDR should also gain comparative advantage from AEC integration in a number of areas. They include: agro-processing (from the emerging agricultural surplus, such as in tea and coffee), value-added cultural and eco-tourism, organic agri- horticulture and high-value-added secondary wood products, which the Lao PDR Government has already identified. With the free flow of skilled workers there is the possibility of more skilled workers coming to Lao PDR, which should help the transfer of technology/skills to Lao workers. There are also opportunities for Lao PDR to enhance the quality of education through exchange and twinning arrangements with high-standard educational institutions in advanced ASEAN countries such as Singapore and Malaysia. 7. Conclusion and Policy Recommendation Compared to other countries in the region, Lao PDR has in recent years displayed a relatively stable economic growth trend. Based on this positive track record, there is overall confidence in the market growth potential of local enterprises. 12 This estimate is provided by the Lao Statistics Bureau. A population census was completed in 2005 and a further decennial population census was undertaken in 2015, with preliminary results expected in the first quarter of 2016.
64 A positive outlook is further supported by the prospect of ever more opportunities for Lao PDR to participate in global value chains. At the same time, opportunities to develop new enterprises and expand existing ones are accompanied by challenges that need to be addressed. One challenge that Lao enterprises face is recruiting and retaining skilled labour. The Lao PDR’s economy is growing fast but growth is mainly driven by the natural resources sectors where very few jobs are created. Currently, most of the jobs that are available in Lao PDR are very low attractive and this implies relatively low wages, and relatively slow growth in those wages. Additionally, the underlying problem is that a difficult business environment keeps foreign and domestic private investments away. Unless this problem is addressed, it is unlikely that the economy in Lao PDR will be able to provide attractive job opportunities to the 96,000 young people entering the labour market each year. Furthermore, large proportions of the workforce are trapped in lower- productivity farming jobs: 7 in 10 Lao workers are employed in the agriculture sector. This implies that a very large number of workers are needed, each producing very little and making only a meager living. Thus, to take advantage of better jobs, young people need better foundational skills - the reading skills of adults in Lao PDR lag behind adults in neighboring countries. Agriculture remains primary economic activity, with 71 percent of the labour force reporting framing, fishing, or forestry as their main economic activity. Over time, as households have become increasingly integrated into the market economy, new sources of vulnerability are emerging, which have been highlighted during the recent crises. A growing share of the population relies for their consumption on purchased food, either because of shortfalls in their own production or because they have shifted their production to cash crops. At the same time, the labour market in Lao PDR is experiencing a gradual transformation as opportunities increase in the non- farm sector. These changes can have important benefits for households but also expose them to the vagaries of price fluctuation and other macro shocks. Furthermore, improving the business environment will be necessary to attract investment to create non-farm jobs and raise wages without hurting competitiveness, as well as increasing investment in education and strengthening the social protection system. To fully capitalize on the growth opportunity, it is critical to address this skills challenge. To improve the country’s competitiveness in the global market, the GOL advocates improving national capacity to build skills, educating and training the Lao work force to meet enterprise needs. To achieve this goal, the GOL encourages placing labour market needs at the centre of education and training through developing stronger partnerships among all stakeholders, including the relevant government entities; education and training providers; TVET service providers; industry employers; and business associations. According to LNCCI-ILO survey, more than half of owners and managers of small enterprises believed that no training was needed. This may have reflected the nature of their enterprise (with some small enterprises having less obvious training needs) as well as a lack of understanding about how training could improve the skills of their employees to the benefit of the enterprise (LNCCI-ILO, 2016). Therefore, in addition to providing medium-sized enterprises with information about training options, business associations such as the GOL could also
65 emphasize to the enterprises that training can also play a valuable role in boosting the productivity and competitiveness of small enterprises. In line with the above discussion, the author presents the following policy suggestions for human capital development: (a) Improving Educational Attainment: Some Actionable Proposals Human capital development should start before the schooling stage to ensure that the later stages of education produce a capable and competent work force that can be utilised for further industrialisation. Lao PDR needs to ensure, therefore, that basic literacy skills are provided through expanding and strengthening early childhood development and education. Overall, Lao PDR’s education system is still inadequate in both quantity and quality despite some reasonable progress. Poor quality and disparities (across regions and among ethnic groups as well as income class) are the main concerns that need urgent attention, keeping in view Laos’ LDC graduation aspiration and commitments to the Sustainable Development Goals (SDGs). The GOL has set goals and targets in the 8th Five-Year NSEDP for better public transport, financial supports, training and appointment of more teachers, supplying quality teaching materials, etc. The Government’s strategies need to be complemented with intense community-based efforts to publicize the advantages of education and dispel outdated beliefs. Given the current quality of the education and training system in Lao PDR, job-relevant skills for industrial development can be enhanced through collaboration between training institutions and firms, particularly through internship programmes and on-the-job training. In addition, the Government can implement these human capital training programmes provided by international agreements that are concluded between ASEAN and other partner countries (e.g. human resource training programmes formulated by the ASEAN Economic Ministers - Ministry of Economy, Trade and Industry of Japan (AEM–METI) Economic and Industrial Cooperation Committee (AMEICC)). For workers to take up the higher- productivity opportunities that become available, priority must be placed on ensuring basic literacy skills. Reforms must focus on: (1) Expanding and strengthening early childhood education to help develop school readiness skills, basic cognitive and behavioral skills. ( 2) Making sure all children can read by the end of grade 2 to build a skilled and productive workforce. ( 3) Building job- relevant technical skills with the Government more strategically focused on developing policies, setting standards, investing in training materials and instructors, improving public information about training systems, and carrying out training evaluations. As experience in other countries shows, conditional cash transfers linked to school attendance can be an important policy instrument for raising the educational attainment of children from poor households. Also, as far as possible, primary and secondary education should be declared to be a “right” and should come under the purview of the Government, since a large majority of the population are unable to afford the fees levied in private schools. Additional, there are problems arising from both students and teachers from ethnic communities not being fluent in Phasa Lao (Lao language). There is also a problem with teaching materials. Moreover, ethnic origin teachers require more
66 rigorous training in bilingual skills. The Government has a policy to increase the numbers of people from ethnic communities in the teacher training programmes; this includes some financial incentives, which may need to be supplemented with government-provided accommodation facilities. The language issue requires resolution on a priority basis in order to address a much deeper structural problem that extends beyond skills mismatching, such as the low comprehension abilities of the Lao workforce. More functional schooling facilities need to be set up with trained bilingual teachers and teaching materials to control the drop-out rate and repetitions, and to improve literacy and numeracy levels (MPI & UNDP, 2017). Furthermore, keeping in view the fact that English is the link language in ASEAN, the teaching of English would be advantageous. Students should be introduced to a foreign language at secondary school level. International collaboration with the ASEAN countries should help improve the quality of English in Lao PDR. Additionally, it would be wise to integrate vocational training with the high school (especially lower secondary) curricula. (b) Seizing Opportunities to Compete in the Global Market During the previous 20 years, the Lao economy had grown, on average, by more than 7 percent annually (MPI, 2016). According to the LNCCI-ILO survey (LNCCI-ILO, 2016) almost half of the companies surveyed reported both increased profits over the previous two years and an increasing number of employees. In 2013, Lao PDR joined the ASEAN Free Trade Agreement and the WTO further integrating with the global economy. The AEC will deepen that integration into global markets. These developments are expected to bring about changes in both the regional economy and in the economy of Lao PDR. Among the enterprises surveyed, owners and managers of medium-sized or large enterprises tended to be aware of the AEC launch. Most expressed optimism rather than pessimism about its potential impact on their enterprises. To compete in the larger integrated market, enterprises prioritized improving the quality of their products or services and providing training to employees. In this context, over 40 percent of respondents were planning to increase their workforce over the following two years. Such a need was most noted among owners and managers of medium-sized enterprises, of whom 70 percent confirmed the intention to increase hiring. The LNCCI-ILO survey also identified future employment plans among all enterprises, 42 percent of which expected to increase the size of their workforce in the next two years, 39 percent of enterprises expect to remain the same size, and only 5 percent of enterprises expect to reduce employment. Some 70 percent of owners and managers of medium-sized enterprises (the largest share) were optimistic about increasing their workforce in the following two years. Accordingly to this survey, wholesale and retail medium-sized enterprises were more likely to expand than enterprises in other sectors (LNCCI-ILO, 2016). (c)Greatest Constraints to Business Growth: Challenges in Recruiting and Retaining Skilled Labour The demand for additional workforce in the Lao PDR is a positive phenomenon, but meeting this demand is no easy task. Regarding to the LNCCI-ILO survey (LNCCI-ILO, 2016), there are 56 percent of owners and managers, regardless of enterprise size, reported difficulty in recruiting and retaining medium and high-
67 skilled workers over the previous 12 months. Among these, 79 percent of the enterprises were medium-sized and 60 percent were large enterprises. The mining, construction, and manufacturing sector faced the greatest difficulty (80 percent), followed by accommodation and food (65 percent). In fact, this was the greatest reported constraint inhibiting business development and growth among all enterprises. Owners and managers of medium-sized enterprises were affected by skills shortages much more than were other respondents. The survey results offer possible explanations for this: (1) mining, construction, and manufacturing were expanding in line with the country’s economic growth, and thus new skills were in demand; and (2) some 16 percent of survey respondents from small enterprises were in the mining sector, compared to 31 percent from medium enterprises and 50 percent from large enterprises. As for large enterprises (more than 100 employees), unskilled workers comprised a significant share of their workforce and were of greater concern to owners and managers of large enterprises compared to those of medium enterprises in the same sector. A similar challenge also prevailed in recruiting and retaining low-skilled workers. This distinctive characteristic of the Lao labour market was partly due to the migration of low-skilled Lao workers to Thailand for comparatively higher wages. The 8th Five-Year NSEDP 2016-2020 (NSEDP) estimated that the country’s labour pool would include 3.22 million people by 2015, equivalent to 98.7 percent of the labour market demand. The prevailing labour structure was transitioning from agriculture to industry. Agricultural labour declined from 75.1 percent in 2010 to 69 percent in 2014. Industry increased from 5.5 percent in 2010 to 7.6 percent in 2014, and the service sector increased from 19.5 percent in 2010 to 23.4 percent in 2014 (MPI, 2015). But, the labour skills profile has yet to catch up with this shift. In 2010, the labour force profile included 60 percent unskilled, 35 percent semi-skilled and fewer than 5 percent skilled. Many analysts had observed, at the time of this writing, which this profile had not changed dramatically since then. Lao PDR needs to align the skills profile with the shifts in labour structure, but having the least skilled workforce among ASEAN member States will make it difficult to achieve that objective, and the socio-economic plan requires some 90,000 foreign workers (Vientiane Times, 2015). While it remained unclear whether the actual labour pool had reached this target. In addition, the real challenge may not lie in simply fostering a growing labour pool, but rather in enhancing its quality. The essential task at hand is to develop a local workforce that has the skills adequate to the actual job market. This will become increasingly important as Lao PDR continues to undergo the transition from an agrarian economy to an industrial economy. As the World Bank reported, referring to the 2012 data for the country, “Inadequately educated workforce is the most cited major constraint”. Among all the other Asian countries, Lao PDR stands out as that country where worker skills are most criticized. The share of the Lao workforce that was uneducated was almost double that of Viet Nam in 2009, and was significantly higher than those of Indonesia and the Philippines (World Bank, 2014b; 2015). Without skilled workers, Lao enterprises cannot grow. A lack of skilled workers will have direct impacts on enterprise productivity and competitiveness, quality of products and services, innovation, and, ultimately, on profit margins. This will turn away potential foreign investors and dampen overall market development.
68 While enterprises could replace low-skilled local labour with skilled foreign labour in the short term, this would not present a suitable long-term solution for any player in the Lao market. If low skills levels among Lao workers persist, this could encourage further migration to neighbouring countries, thereby exacerbating the domestic shortage of low-skilled labour. Employing high-skilled foreign workers, on the other hand, would eventually increase operational costs for Lao employers, as the cost of skilled labour increases and the demand for skilled labour rises within the AEC. Boosting agricultural productivity is a top priority to raise farm incomes, lower the need for labour in the agricultural sector, and eventually free agricultural workers to move out of farming to higher-productive, higher-paying sectors with more growth prospects. This includes: (1) Facilitating trade in paddy and rice to encourage private investment in milling that will reduce milling costs and give farmers greater incentive to increase production for export; and (2) Making better use of public resources supporting rice farmers, such as technology development and irrigation. The Lao economy will need to generate more off-farm jobs to absorb these new workers coming into the economy. The essential first step is creating an environment conducive for farm and non-farm businesses to make investments and grow. In particular, action is needed on three fronts: (1) Streamlining and simplifying business compliance and transaction costs associated with dealing with government to create a more business-friendly environment; (2) Improving transparency in the provision of public sector services to business through measures such as publication of all fee schedules, permits, and licensing requirements; and (3) Establishing a more predictable playing field for the private sector, with consistent implementation of publicly available legislation, rules, and regulations and with reduced bureaucratic discretion. In addition to the apparent economic implications, furthermore, these developments may be expected to have social and political implications. To tackle these challenges, the author proposes the following recommendations: (1) Pilot sector specific labour skills development fund The working group with representatives from GOL as well as employers’ and workers’ organizations should be set up to consider the feasibility of establishing a sector-specific skills fund that supports an approach to skills development which is aligned with industry needs, and which ultimately increases enterprise competitiveness. This would encourage private sector commitment to investments in skills development in certain growth industries through public-private partnerships, and would result in increased confidence among those who contribute to the fund. (2) Support for a more effective National Training Council (NTC) and strengthened role for the Trade Working Group (TWG) in National Vocational Qualifications Framework’s (NVQF) governance and implementation Employers’ representatives should actively participate in the NTC, and nominate active TWG members at the national and regional levels, ensuring that the needs and concerns of all stakeholders are well represented in the consultation process. This in turn will ensure that the NTC has a more powerful impact in providing skills training that is actually needed by industries and specific regions. In addition, increase the private sector representative in the composition of TWG and provide more support, particularly financial and technical support, to strengthen TWG management and
69 leadership capacities, helping them to fulfill their roles of providing oversight to NVQF implementation. (3) Enhance coordination between MOES and MOLSW and relevant agencies by establishing a dialogue structure that promotes a unified approach to skills development Through improved collabouration, these two main ministries can deliver better results, including the development of national competency standards. Activating more open, periodic dialogues with key relevant private institutions (industry training institutions, private academic institutions, and industry representatives) will also promote more effective coordination. (4) Establish relationships with training providers and business development services Connect enterprises more closely with TVET providers in the market. Obtaining the latest LNCCI information regarding these service providers and their programmes will enable enterprises to make better decisions on the type/quality of training offered to staff. Build stronger partnerships between industry-specific training providers and other training providers in the ASEAN region. Increase collabouration between vocational training providers and leading enterprises so that practical and relevant skills are taught to the incoming workforce. At the same time, enterprises should be provided with incentives to encourage knowledge transfer at the enterprise level, which upgrades Lao workers’ skills and increases the opportunities to substitute for foreign workers in high-skilled positions. (5) Set up a structure to enable enterprise engagement in the LMIS Providing a means for enterprises to provide their latest and most accurate information to the national and provincial LMIS helps the Government to develop a policy conducive to creating a business-friendly climate. (6) Strengthen collabouration of employment services job centres and employers annual job fairs and other annual industry events Strengthening collaboration between the employment services job centres, employers, and training institutions opens the way to more adequately addressing skills gaps and to generating more employment opportunities, especially among the youth workforce. Furthermore, where business associations and industry groups organize dialogues and other collaborative activities they can build more interest in industry-based skills and career paths among potential employees, especially the youth. Jobs fairs and annual industry expos provide a good opportunity for future workers to gain useful information about a variety of industries and enterprises. Concurrently, such activities allow enterprises to reach a broader audience, serving as an effective and inexpensive marketing strategy. (7) Conduct an annual survey of occupation and skill needs (8) Annual surveys of enterprises will allow the LNCCI to better advocate for the needs of members. Such surveys can provide accurate and timely data regarding actual member needs, in particular human resources recruitment and development. They also help to identify emerging trends by enterprise size, sector, and region. While participating enterprises need to make investments of time, no significant financial costs are associated with such surveys. Enterprises
70 should have opportunities to communicate their workforce and skills needs. Such measures should also promote open discussion and development, in partnership with other concerned entities, of practical measures to address these needs. In the meanwhile, firms should be provided with incentives to encourage knowledge transfer at the firm level, which upgrades Lao workers’ skills and increases the opportunities to substitute for foreign workers in high- skilled positions. Moreover, to fully benefit from the comparative advantage of the demographic dividend, job- relevant, specific technical skills and high- quality jobs should be provided to the growing working age population. Expanding Human Capability Even though Lao PDR has made definitive progress in HD and on all the three criteria of LDC graduation, there is no room for complacency. Heightened commitment to HD is needed, not only to reach LDC graduation thresholds but also to face the post-graduation challenges and to reap the benefits from openness, especially the international integration in globalization world. Therefore, expanding human capabilities is the ultimate aim of sustainable and inclusive development. The Lao PDR needs to raise public expenditure on education, health and nutrition on a sustained basis. It is essential not only for raising its human asset as required for smooth LDC graduation, but also to expand the capabilities of its citizens. 8. Summary In overall view of HRD and labour economic landscape in the Lao PDR along with the perspective of both LDC graduation by the year of 2020, and full integration into the AEC by reducing the poverty for Lao people. There are many things that the Lao PDR must be concerns: Lao PDR’s human asset needs accelerated improvement. In 2015, Lao PDR’s HAI value was about 92 percent of the LDC graduation threshold. An analysis of marginal contributions of individual components of the HAI shows that a maximum increase in the HAI would occur if the nutritional status of the population were to increase, followed by an increase in the literacy rate, then an increase in secondary school enrolment and, lastly, a reduction in U5MR - all are elements in the HDI. Lao PDR needs to give immediate attention to reducing its economic vulnerability. A decomposition analysis of the Economic Vulnerability Index (EVI) shows that economic diversification and reducing the exposure of the population to natural disasters are critical for lowering the EVI value. Universal social protection is vitally important to protect HD gains from shocks and misfortunes. A good starting point is to urgently consider the recommendations of the Assessment - Based National Dialogue on Social Protection carried out under the oversight of the Government’s Drafting Committee for the National Social Protection Strategy. Lao PDR needs to leapfrog and create competitive advantage in high-value- added niche products. This is necessary to rapidly draw its large agricultural labour force to high-productivity, non-farming activities in the manufacturing and services sectors, and also to lift the productivity of the agriculture sector where the vast majority of the poor live and work. Creating backward and forward linkages among manufacturing, agriculture and services sectors by linking SMEs to the supply chain and production network is a key. Improving access to low-cost finance is vital for SMEs.
71 Measures are also needed to raise agricultural productivity. These include consolidation of land holdings to make them economically viable for the use of modern technology, use of irrigation that is suitable for the topography, provision of low cost financial services, improved extension services and connection of farmers to the market. Financial inclusion plays a critical role for both SMEs and agriculture. In 2014, only 32 percent of SMEs had a line of credit or an outstanding loan from the formal sector. Financial inclusion cannot be taken for granted since financial institutions when left to themselves will prefer profitable market segments. As the experience in Bangladesh, India and the Philippines shows, a combination of incentives, prudential regulation and specialized public financial institutions is needed to enhance access to finance by SMEs and farmers. Lao PDR needs prudential regulations to ensure competition, financial sector stability and inclusive finance, as well as to prevent environmental degradation. But these should not be so overbearing as to discourage private investment or encourage rent-seeking behaviour. Lao PDR has to depend more on generalized policy instruments for economic diversification. It needs better institutions, improved governance, stronger research and innovation capacity and a skilled labour force. This would require investment in quality education, skill development and better health care. The starting point, of course, is to improve literacy and numeracy as well as the nutritional level of its growing labour force. Lao PDR also needs to build job-relevant technical skills. A more strategic role of the Government in vocational skills development is needed to develop policies, set standards, invest in training materials and instructors, improve public information about the training system and carry out training evaluations. Important lessons can be learned from advanced ASEAN countries such as Singapore on how to involve the private sector in apprenticeship programmes and on-the-job training. Lao PDR has to ensure that its macroeconomic policy framework is consistently countercyclical. This is essential to minimize the impact of external economic shocks and to protect HD gains. Financial inclusion is also important for mitigating households’ economic vulnerability. In 2014, only 7 percent of the population aged 15 years or more borrowed from the formal sector. Digitization of the financial sector and mobile phone technology can contribute significantly, as the experience of Bangladesh shows. There is also a need to improve financial literacy, especially of the poor. Lao PDR needs to strengthen domestic resource mobilization efforts, including better debt management, greater profitability of state-owned enterprises and judicious use of resource-rent. This is necessary to be able to invest in HD and infrastructure in support of economic diversification in view of the potential loss in tariff revenues and decline in access to concessional external finance. Lao PDR has to harness its resource sector in a sustainable manner to minimize vulnerability to natural disasters. Therefore, this would require Lao PDR to
72 strengthen its capacity to assess the environmental impact of mining and hydroelectric projects. Lao PDR needs to deepen its technical cooperation relationships with its ASEAN partners and China. This is required to compensate for any post-graduation drop in technical assistance from DPs. Stronger South–South cooperation is the way to go. An integrated approach to policy and implementation is necessary for enhancing the efficiency of public expenditure and maximizing synergies. Education, health, nutrition and social protection are interlinked: improvement in one area contributes to improvements in others. Donor support coordination is critical for aligning with government’s strategies. Lack of donor coordination leads to fragmentation and threatens long-term sustainability. It also creates a management and reporting burden on the Government.
73 References (1)ADB. (2015a). Lao People’s Democratic Republic: Support for the Human Resource Development Strategy, Technical Assistance Consultant Report, Asian Development Bank (ADB), Manila. (2)ADB. (2017). Lao People’s Democratic Republic: Support for the Human Resource Development Strategy, Technical Assistance Consultant Completion Report, Asian Development Bank (ADB), Manila. (3)ADB. (2015b). Asian Economic Integration Report: How Can Special Economic Zones Catalyze Economic Development, Viewed 06 Nov 2016. http://www.adb.org/sites/default/files/publication/177205/asian-economic- integration-report-2015.pdf (4)APO. (2016). APO-Productivity DataBook (2016). Tokyo, Japan: ASIAN PRODUCTIVITY ORGANIZATION. (5)EDC. (2014). Business development services market assessment (Small and Medium Sized Enterprises Promotion and Development Office). Vientiane, Lao PDR: Enterprise and Development Consultants. (6)ERIA. (2016). Lao PDR at the Crossroads: Industrial Development Strategies 2016–2030, Viewed 18 May 2017. www.eria.org/Lao-PDR-at-the- Crossroads-Agenda.pdf (7)FAO. (2015). The State of Food Insecurity in the World 2015, Viewed 05 June 2017. www.fao.org/3/a-i4646e.pdf (8)GIZ. (2014). Human resource development for a market economy (HRDME) project enterprise survey 2013 for Lao PDR. Vientiane, Lao PDR: German Agency for International Cooperation. (9)GOL and UN. (2013). Millennium Development Goals Progress Report Lao PDR 2013. Vientiane, Lao PDR: United Nations. (10)GOL and UN. (2015). Millennium Development Goals Report 2015, Viewed 04 Dec 2016.www.un.org/millenniumgoals/2015_MDG.../MDG%202015%20rev%2 0(July%201) (11)Hilal, Faridl Noor, Muhammad Febryansyah, Muhammad Majdy Amiruddin, and Issa Qaed Mansour. (2013). Management of Waqf, Study Case In Waqf Institution in Indonesia: Wakaf Al Azhar and Tabungan Wakaf Indonesia. (12) Kumar, A.K. Shiva and Fukuda-Parr, Sakiko (eds). (2004). Readings in Human Development: Concepts, Measures and Policies for a Development Paradigm. New York: Oxford University Press. (13) LCSSMS. (2014). Lao Civil Servant Skill Measurement Survey. Vientiane, Lao PDR: LCSSMS. (14) LNCCI. (2016). Guide of the 2013 Labor Law. Vientiane, Lao PDR: LNCCI. (15)LNCCI-ILO. (2014). Skills, access to finance, regulatory reform and
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76 Acronyms and abbreviations ABND Assessment-Based National Dialogue on Social Protection AEC AEM–METI ASEAN Economic Community ASEAN Economic Ministers–Ministry of Economy, Trade and AFAS ADB Industry of Japan APO ASEAN Framework Agreement on Services BDS CCOP Asian Development Bank APO-Productivity DataBook CEPT CCTs Business Development Services ECD Cabinet of the Party Central Committee on Organization and AMEICC ERIA Personnel EVI Common Effective Preferential Tariff ESJCs EDC Cross-Cutting Themes FAO Early Childhood Development FDI GDP AEM-METI Economic and Industrial Cooperation Committee GOL Economic Research Institute for ASEAN and East Asia HAI HD Economic Vulnerability Index HDI Employment Services Centres HEF HRD Enterprise and Development Consultants HRDNC Food and Agriculture Organization of the United Nations ICT LMIS Foreign Direct Investment LCSSMS Gross National Product LECS 5 Lao PDR Government of Lao PDR LDC Human Assets Index MDGs MOES Human development MLSW Human Development Index MPI MNEs Health Equity Fund NA Human Resource Development NSEDP NTC Human Resource Development National Commission NVQF Information and Communications Technology PHC PM Labour Market Information System SMEs Lao Civil Servant Skill Measurement Survey SF Lao Expenditure and Consumption Survey Lao People’s Democratic Republic least development country Millennium Development Goals Ministry of Education and Sport Ministry of Labour and Social Welfare Ministry of Planning and Investment Multinational Enterprises National Assembly National Socio-Economic Development Plan National Technical Committee National Vocational Qualifications Framework Population and Housing Census Prime Minister Small and Medium-sized Enterprises Strategic Framework
77 SOs Strategic Objectives STs Strategic Thrusts SDGs Sustainable Development Goals TVET Technical and Vocational Education and Training TWG Trade Working Group UN United Nation UNDP United Nations Development Programme UNDP United Nations Development Programme UNESCO United Nations Educational, Scientific and Cultural Organization VAT Value Added Tax VEDI Vocational Education Development Institute VELA Vocational Education in Laos WTO World Trade Organization
78 3 The Dynamic Economic Development of Myanmar: The Role of Private Human Resource Training Lin Kyaw Tun13and Kyaw Min Han14 1. Introduction Myanmar’s dynamic economic growth and untapped potential have led many international businesses to focus on the country as “Asia’s final frontier”, in 2011. There have been many challenges, but many opportunities are still waiting. Myanmar still has young demographics, low labour costs and a huge potential domestic consumer market. Although Myanmar has plenty of natural resources as the base of economic development, Myanmar urgently requires industrial development. She needs competitiveness through improving technological capability together with capable human resources. As the latest comer in ASEAN for industrialization, investing in broad human capital development is fundamental to develop into a modern economy. A dramatic shift in human resources development started in 2013 when telecom companies received their licenses. Their staff recruitment has induced many new employment opportunities that had never been heard of in the traditional job market. Many employees of different skill sets were required and skill matching was very hard to balance. Although many talented Myanmar workers from outside the country came back for these new opportunities, this is a very small talent pool when compared to the skills demand. Currently, Myanmar has entered the stage where different industries ranging from small to large scale in operations have induced a high demand for human resources. From 2014 onwards, the war for talent has become fierce. Owing to market competition, international businesses in Myanmar have raised their salary benchmarks paying more than five times the domestic market rate. The excess market demand for talent has created job-hopping among the Micro, Small and Medium Size Enterprises (MSMEs). The higher wage has induced many talented employees to join these international companies. Employees with experience and exposure with international companies have a greater advantage in landing a job with higher salary package. Employers are finding it harder to find suitable skills, they have to rely on many different means to attract the best employees. There was agreement that finding quality employees and retaining them are the main challenges. 13 CEO, Synergy Focus International Co., Ltd. CEC Member, Myanmar Society for Human Resources Management. Email: [email protected] 14 Lecturer, Academy of Management and Technology. Email: [email protected]
79 HR and other business leaders have for some time expressed concern that it is growing more difficult to locate job applicants who possess the needed skills, experience, educational qualifications and credentials to be successful. Because a high-quality workforce is the most important determinant of business success, these challenges have a direct influence on organizations’ competitiveness both today and in the future. Some criticize the education system as the main reason for the skills shortage. The education system in Myanmar has been seen as having failed to produce the sort of skills for graduates that businesses need in the market, namely independence along with critical thinking, problem solving, analytical, problem solving and customer service skills. Although HR professionals are aware of the need for a skilled workforce, the problem of developing a strong talent pipeline is not one that HR professionals can solve on their own for the whole economy. It involves a complex mix of factors, including economic and social conditions as well as government policy. The right policy urging organizations to invest in their workforce through training and development is a key direction in Myanmar. It is imperative that business leaders and policymakers are actively improving the workforce for their specific industry to solve the skills shortages. The objective of this paper is to point out how to remedy the imbalance of demand and supply of critical human resources in Myanmar. The insufficient provision by formal education and training institutes opens up an opportunity for private provision for short-term training. The second section describes human resource demand and supply in Myanmar in a broad perspective. The third section describes how private provision of talent in response to the skills required in the Digital Era in Myanmar. The fourth section is the policy recommendations. 2. Stylized Facts Myanmar's industrial structure is primarily concentrated in agriculture, natural resources, and some labour-intensive manufacturing industries. The majority of the manufacturing industries are labour-intensive, low-technology industries engaged in relatively low value-added activities like textiles/garments. Capital investment in the manufacturing sector is limited, partly because of import restrictions but also due to the overall absence of a favorable climate for investment. Consequently, Myanmar shows significant import dependency in many industrial materials and parts. Clearly, Myanmar needs to produce higher-value commodities in order to eventually achieve industrial diversification in the manufacturing sector, which should stimulate long-term economic growth. Another aspect of the industrial structure that is hindering Myanmar’s industrial development is the inefficiency of state-owned enterprises (SOEs). Currently, SOEs cover a wide range of sectors including extraction of natural resources, power, and the telecommunications industry. SOEs dominate the industrial sector in Myanmar. Most of them are inefficient, poorly managed and have low productivity. It is crucial to reform the SOEs in Myanmar. The development of small and medium-sized enterprises (SMEs) may help transform the industrial structure in Myanmar. Rural areas are dominated by food-based production with low productivity agricultural labour. Likewsie, other developing countries can supply a cheap labour
80 force to Myanmar’s urban industrial development. The rural-urban migration will be a benefit for the development process but it definitely needs training effort and skill formation. Myanmar has strong desire to create business-enabling infrastructure. These are, for example, access to finance, and the construction of logistics and electrical power infrastructures. More importantly, she has to solve issues of limited human resources development and a lack of skilled workers, etc. The Myanmar government has introduced a series of policies: These are the necessary legal/institutional frameworks and policy mechanisms needed to accelerate the growth of industries. Many laws have been newly drafted, but many have not been enacted yet. Myanmar has put her effort in the current Intellectual Property (IP), the Foreign Investment Law and the State-Owned Economic Enterprises Law to suit the fast-changing business environment. Myanmar has tried to solve the problem of fragmented administrative structure. 2.1 The Employment in Myanmar According to Myanmar Population and Housing Census: The Union Report (2014), reported (See Table 1) that Myanmar has employed over of 21.87 million persons aged 15 years and, the proportion of employees (both government and private organizations) was 39 percent to the total. Those who were self-employed (employers and own account workers) accounted for 44.3 percent, and contributing family workers accounted for 16.9 percent. Analysis by gender shows that males are more likely (41.1%) to be employees than females (35.5%). Similarly, more males (5.8%) are employers than females (3.1%). On the other hand, females are more likely to be working as contributing family workers than males; about 26.1 percent of females compared to 10.9 percent of males respectively. According to the International Standard Classification of Occupations (ISCO), the market has been developing new positions and titles to suit the skill set required for job demand (See Table 2). The employed persons by occupational code in Myanmar are normal like any other developing country. Firstly, ‘Skilled Agricultural Forestry and Fishery Workers’ and ‘Craft and Related Trade Workers' are a major occupational group. The Elementary Occupations and Sale Operators are the other major occupational group in Myanmar.
81 Table 1: Number of employed persons aged 15 years and over by employment status and sex Status in Number Proportion Employment Both Male Female Both Male Female Sexes Sexes Total 21,872,539 13,307,050 8,565,489 100 100 100 1,346,111 770,640 575,471 6.2 5.8 6.7 Employees 32.8 35.3 28.8 (government) 7,166,088 4,698,466 2,467,622 Employees 4.8 5.8 3.1 (private 1,042,235 775,197 267,038 organizations and other entities) Employers Own account 8,629,863 5,611,778 3,018,085 39.5 42.2 35.2 10.9 26.1 workers Contributing 3,688,242 1,450,969 2,237,273 16.9 family workers Source: 2014 Myanmar Census Report Volume 2-B (Occupation and Industry)
82 Table 2: Employed Persons by Age Group-Occupations Occupation Age Group Total 10 - 14 15 - 19 20 - 24 25 - 29 30 - 34 35 - 39 40 - 44 45 - 49 50 - 54 55 - 59 60 - 64 65 - 69 70+ 1,963,978 1,617,700 1,181,372 695,114 353,185 268,953 Total population 21,060,531 514,924 1,958,519 2,546,150 2,681,680 2,618,795 2,430,352 2,229,809 21,359 19,268 18,154 4,491 1,873 1,158 in employment 52,179 43,511 31,404 7,506 3,749 2,582 46,129 36,968 27,641 11,045 4,862 3,324 Managers 128,480 23 246 3,004 8,755 14,016 16,519 19,614 40,428 30,003 23,146 5,700 2,236 1,486 Professionals 488,602 384 6,834 62,833 91,118 75,223 59,338 51,941 291,403 229,374 161,661 92,513 44,737 29,379 888,709 792,830 599,421 401,307 214,065 172,255 Technicians and 377,349 508 7,364 32,200 46,063 54,720 54,242 52,283 183,689 131,296 86,076 46,504 21,886 14,937 Associate 73,627 51,972 31,481 13,152 5,047 3,052 Professionals 276,604 210,892 147,117 80,904 36,917 21,937 19,952 13,329 10,011 842 120 196 Clerical Support 463,838 761 16,652 79,324 88,550 72,177 56,842 46,533 69,899 58,257 45,260 31,150 17,693 18,647 Workers Services and 2,665,582 34,734 175,685 279,418 315,880 342,486 339,402 328,910 Sales Workers Skilled 9,038,014 216,011 773,334 945,423 1,023,217 1,034,864 1,007,661 968,917 Agricultural Forestry and Fishery Workers Craft and Related 2,458,130 52,501 326,212 400,155 359,003 324,922 279,354 231,595 Trade Workers Plant and 783,442 4,561 47,331 98,934 120,393 127,026 112,640 94,226 Machine Operators and Assemblers Elementary 3,404,955 125,420 433,998 465,036 461,645 431,107 386,429 326,949 Occupations Others 151,346 33 774 9,602 22,610 24,621 22,328 26,928 Not Stated 1,100,793 79,988 170,089 170,221 144,446 117,633 95,597 81,913 Source: 2014 Myanmar Census Report Volume 2-B (Occupation and Industry)
83 2.2 The Demand for Skills in Myanmar According to Synergy Focus International Co., Ltd (SFI),15 which conducted a survey with 214 companies in January 2018, there were senior HR managers, of which 12% of HR managers were from consulting, professionals and technical services companies, 9% from finance and insurance company, 14% from IT industry, 1% from telecom and communication companies, 8% from engineering, 14% from manufacturing companies, 24% from trading (wholesale, retail), and 17% construction industry respectively. The respondents reflected a changing demand and supply for skills by the industry as well as their future outlook trends. This survey together with a separate questionnaire of over 3,400 employees was conducted by phone with senior management level employees. The data was used to analyze the market situation and supported by the interviewes16 of local top search firms to give a better understanding of the market trends. The survey shows HR platforms have been changing over the last five years. The types of technology used, the experiences they deliver, and the underlying designs are new. And even more importantly, the way we manage people in companies has changed, forcing many of the traditional HR systems to transform into many companies. As jobs and skills change, finding and recruiting the right people has become more important than ever. Talent acquisition is now the most-important challenge company's face, with 81 percent of respondents calling it important or very important. According to HR managers, their highest five demands in 2017 were Sales and Business Development Managers, Marketing Managers, Financial and Account Managers, Engineers then followed by Admin and Supporting Managers respectively. As modern business demands talent requirements changes to digital, IT related and digital marketing positions are also in the top ten list of requirements by businesses surveyed (See Figure 1). Figure 2 indicates the new positions required in the market; degree of difficulty in finding the position is also a very big challenge for recruiters. 84% of respondents answered that they had a hard time in finding the right people as compared to the last three years. Companies are also transforming their businesses to catch up with global trends and the modern market, where new technologies have to be adopted, a workforce with new skill sets have become a huge requirement. The SFI study also found that both employer and young people have reported that soft skills are equally, if not more, important than technical skills, leading to a higher degree of employability and trainability. They are as important in employment and self-employment. Soft skills can 15A service company that provides recruitment services and also a company conducting market survey conducted its field data collection for the market insight relating to human resources demand and supply in Yangon. 16 The respondents were 6% entry-level staff, 1% general managers, 23% senior manager, 24% junior managers, 25% supervisors and 21% senior staff.
84 be learned throughout the education system and ideally, can be incorporated in the training programs, such as the earn-and-learn models. Figure 1: Most Demanded Management Position in 2017 % 026 /16 /+6 .,6 -36 % -16 --6 % \" ,36 & % ,/6 (! ' ,+6 & ! ' # Source: SFI Myanmar HR Insight Report Figure 2: The Difficulty of Finding Right People Compared To Last Three Years $ \" $ ,6 ,06 ! $2/6 Source: SFI Myanmar HR Insight Report
85 In 2015 GIZ/UMFCCI and Swiss contact /INBAS launched two parallel studies to identify the current forms of in-company training in Myanmar17. Gutmann, E. et al (2015) has conducted a qualitative case study on apprenticeships (and in-company training) covering a total of 32 enterprises in Yangon (20 enterprises) and Mandalay (12 enterprises) respectively. The study was conducted on behalf of Swiss contact/INBAS as part of the Vocational Skills Development Program (VSDP) of the Swiss Development Cooperation (SDC). This study was preceded by a comparative analysis of case studies on apprenticeships in Asian countries by Gutmann, E., (2015). In addition, Feder, F. (2015) undertook a qualitative case study on in-company training in 18 enterprises in Yangon Region. This study also analyzed data collected from 126 in-company training by Soans Aaron, Abe Masato (2015), on behalf of the Republic of Union of Myanmar Federation of Chamber of Commerce and Industry (RUMFCCI). In summary, the combined findings of both the GIZ/UMFCCI and Swiss contact/INBAS studies in 160 firms across different economic sectors and of varying size revealed that about a third of all companies provide initial work-based training in one form or another. These studies noted also that a sizeable number combine on-the-job skills acquisition with off-the-job training (about 25 % according to the Swiss contact/INBAS study). Another sizeable number of firms provide further training to staff already employed. The key actors in providing in-company training are supervisors/experienced workers and other senior staff of the company. In-company training duration varies significantly between 1 week and 3 years and less than 30 % of the firms involving on-the-job training contracts with the trainees. Almost half of the interviewed enterprises reported that they use (firm-specific) training plans. Moreover, a substantial proportion of responding firms monitors and assess trainees' performance regularly. The company assesses learners more systematically through written and practical tests and awarding firm-specific certificates. Whenever CVT is involved in off-the-job training, they award their certificates of completion to successful trainees. Lastly, about a third of the companies expressed a positive attitude towards more regulation of in-company training activities. The findings, therefore, summarize the firms respond to skills formation of their staff in Myanmar. However, not all firms can do own training activities. There is a wide gap between needs and fulfillment in Myanmar companies. 3. Government Effort in Human Resource Development 3.1 The HR Supply Provision by Educational System The education system in Myanmar is conventional, as in other countries (See Figure 3). The gradual transition of students from primary-secondary-tertiary is the source of human resource supply provision. The education process has also provided ‘vocational training'. Like most educational systems, it was concentrated in knowledge based provision rather than the short-term vocational practice of ‘doing the job' like in some countries like Germany, Japan, and Korea that can train ‘craftsman'. The ‘master 17 Apprenticeship and Company-based Training in Myanmar” “Working Paper” “Employment Opportunity Sector Working Group, led by the Ministry of Labour, Employment and Social Security (MOLES)” Yangon, January 2016.
86 craftsman' in Germany was famous for skills development process that can help further the engineering industries. The current democratic government has tried to fix all these obstacles to the economic development mechanism. Importantly, Myanmar has realized the role of vocational education and training according to Yangon Pandita (2016). The State Counsellor Aung San Suu Kyi has also called for the promotion of vocational education in Myanmar when addressing the Technical Vocational Education Training Forum held in Naypyidaw. She called on the students and parents to value the vocational education in addition to university education. Figure 3: Scheme of the TVET System and HRD in Myanmar Source: Ministry of Labour
87 The country has already seen a total of 13 ministries including the Ministry of Education conducting TVET (Technical and Vocational Education and Training) courses at 247 training schools. And more than 210 courses on 16 types of TVET are being opened by the private sector. The Centre for Vocational Training (CVT) located in Botataung Township in Yangon and the Singapore-Myanmar Vocational Training Institute (SMVTI) situated in Bahan Township also in Yangon are two well-known vocational training providers established with foreign assistance. As demands for highly-skilled and well-trained human resources are generally high and increasing in the process of industrialization, substantial improvement of the education sector is required to accomplish Myanmar's vision of an industrialized state. Myanmar's education system is still underdeveloped in terms of the physical infrastructure available for teaching as well as applied teaching methodology that mostly has not changed or developed over the past decades. Thus, the need for specialized training, in addition to high-quality education, is offset by low-level training provided by public institutions that are currently the rule in the country. Completion rates of secondary and tertiary education are low. Public expenditure on education in Myanmar has remained low with the country spending only 0.8 percent of GDP in 201118. However, spending on education has been rising steadily since the military began to loosen its grip on power, supported by a sharp increase in support from foreign donors. As a percentage of GDP spending on education has risen from 0.7% in FY 2011/12 to 2.1% in FY 2013/14. Yet, despite the increase, Myanmar remains well behind its ASEAN neighbors, which spend an average of 3.6% of GDP on education. The NLD is also currently reviewing budget allocations for FY 2016/17, but it has indicated it wants to devote more resources to the sector. Under the National Education Sector Plan (NESP) 2016-20, the policy framework for the reform of the education system, funding for education rose from MMK310bn ($251.8m) in FY 2012/13 to MMK1.4trn ($1.1bn) in 2015/16 and MMK1.5trn ($1.2bn) in FY 2016/17. The government has also said a 5% tax on mobile phones could be directed to education. (Oxford Business Group, 2018). The number of higher education institutions under various ministries was about 163 in Myanmar (See Table 3 and Table 4). Moreover, funds are concentrated on primary education, which takes up over half of the education budget, leaving 24 percent and 19 percent for the secondary and tertiary levels, respectively. A study, conducted by McKinsey in 2013, revealed a significant mismatch between workforce demand and supply due to the low level of qualification of the available workers. There was also a big shortage of skilled and semi-skilled labour supply, while low-skilled labour was being oversupplied. 18 www.factsanddetails.com
88 Table 3: Number of Higher Education Institutions under Various Ministries (2011-2012) Sr. No. Ministry Number 1 Education 66 2 Health 15 3 Science and Technology 61 4 Defense 5 5 Culture 2 6 Environmental Conservation and Forestry 1 7 Agriculture and Irrigation 1 8 Livestock Breeding and Fisheries 1 9 Co-Operatives 5 10 Union Civil Service Board 1 11 Religious Affairs 1 12 Border Affairs 2 13 Transport 2 Total 163 Source: Ministry of Education Table 4: The Number of Universities by State and Region (2011-2012) State/Region Number of Institutions Kachin 9 Kayah 3 Kayin 4 Chin 3 Sagaing 13 Tainintharyi 7 Bago 9 Magway 11 Mandalay 36 Mon 4 Rakhine 5 Yangon 33 Shan 34 Ayeyarwaddy 12 Total 163 Source: Ministry of Education Various issues were identified in public and private education, and the vocational training system. The education system in general has insufficient spending and outdated teaching methods in public education that led to the low quality of teaching. Most of the diplomas and degrees awarded from the private sector were still not officially recognized by government or industry. Currently, vocational training is mostly related to basic skills development and did not meet industrial demand. Therefore, some changes are required for training in employable skills and interdisciplinary studies for students to enter the labour market. In technical and vocational education and training, Myanmar needs a nationwide system defining standards and a basic framework.
89 The findings by Milio, Garnizova and Shkreli (2014) are as follows: The schools are not providing quality, and they are only supply- driven, not demand- driven. When employees graduate from the state schools or even private schools, they are mostly not qualified for the job that they are doing. Production workers have mostly a middle-school education, while middle managers have a degree- level education. Most workers in the industrial zones have a very low education. An apprenticeship model should be established. Businesses have to get workers with general and basic knowledge in the relevant field, but for specific professions, the businesses themselves have to train the skilled workers they need to better match TVET offers and regional needs and conditions. Industrial zones' representatives have to be involved officially in TVET planning. Myanmar may need a multifaceted and multi-level approach in the dialogue between the supply and the demand sides. Myanmar would also need measures towards decentralization and flexibility of the public TVET providers. Secondly, the overall human resource development initiatives need to be strengthened by promoting private investment, internationalization, modernization and specialization to unleash industrial development. An assessment of future demands for a skilled human resource in the priority industry sectors should be an initial step. Based on the results of the assessment, respective feasible approaches to meet the demands of the industry need to be arranged and implemented. Also, worth considering, is attracting international expertise by integrating foreign experts, academics, teachers, professors, and researchers into the education sector. The following measures to enhance the inclusion of international best practices in human resources development, as well as industrialization, should be considered. Myanmar needs not only foreign expert volunteers (e.g. retired persons) in advisory and teaching roles, she would also need to establish mutual academic exchange programs for students and professors with scholarships. Myanmar would need to design a modern curriculum with international standards. In higher education, new education programs/ syllabi should be introduced and enrollment quota in universities adjusted for the industries where increased demand for skilled human resources is foreseen in the future. Moreover, establishing a National Polytechnic University that can offer online teaching courses is also a viable option. It is vital to upgrade and customize training programs in the field of TVET ( Technical and Vocational Education and Training). In order to bridge the gap of TVET’s skills required by industry, Myanmar does not have any centralized body to enhance the cooperation of education institutes and labour market demand. 4. Digital Disruption and Government Effort in Technical and Vocational Educational Training In Myanmar, the role of government effort in the provision of TVET can be seen from the Regional Technical and Vocational Education and Training (TVET) Conference 2017. It was jointly hosted by the Government of Myanmar, the German Federal Ministry for Economic Cooperation and Development (BMZ) and the Asian Development Bank (ADB). It marked the 4th and the last in the series of regional conferences in ASEAN that started in 2012. The conference series reflects the importance given to TVET and aimed
90 to offer a platform for dialogue and exchange between high-level experts, government officials, and TVET professionals. For each conference, the topics were chosen on the basis of the level of relevance and urgency for various stakeholders and the demand expressed by partner countries. The regional TVET Conference 2017 also identified some challenges in the panel discussion in Nay Pyi Taw, Myanmar. That is the requirement to involve the business sector in TVET, which is even more challenging in light of Industry 4.0 and ever faster technological development. The mismatch between the demand for higher quality TVET and the limited infrastructural conditions of some TVET institutes has affected the quality of TVET institutes and fragmentation of TVET within the overall education system. TVET education often does not match industry needs. Therefore, the collabouration between chambers and private industries is needed. There is a strong need to include the local industry in TVET training. The Regional TVET Conference 2017 in Myanmar focused on three specific thematic areas with exceptional relevance to today’s TVET agenda in the region: (1) Labour Markets and Skills in the Digital Era, (2) Sustainable Employer Engagement in TVET and (3) TVET Personnel in the 21st Century respectively. Digitalization is perceived as a major topic for the 21st century, influencing labour markets, job profiles and, inevitably, the way countries conceptualize their education and training systems. Various transformations that are currently taking place are perceived as an industrial revolution on account of the speed at which technological change is evolving, the scope of change, as almost every industry is affected, and the impact of the changes on whole systems of production, management, and governance. An extension of automation and advanced technology, as well as digitalization, will force widespread disruption, yet implementation plans are often under-discussed and under- implemented. In most workplaces, products, processes, and services are subject to constant change. New occupations are emerging and replacing existing occupations, and new skills are needed for the jobs of tomorrow. The speed of ‘catch up' is accelerating and will continue to change. Trends in ASEAN are mixed, with some sectors placing new technology at the core of their growth, while others still rely upon a vast pool of available labour. While it is difficult to assess the impact of the forth industrial revolution on employment, it is known that some jobs will be replaced by machines. On the other hand, new workplaces will be created by the involvement of machines (but will require different skills) and most jobs will be transformed, at least in part, and will therefore require a skills overhaul. TVET will play a crucial role in anticipating this trend and preparing for its arrival. Digital disruption takes place everywhere, as well as to rapidly find sustainable answers that allow people to quickly adapt, we must learn to collabourate and plan. The future economic growth in the ASEAN region will increasingly depend upon countries capacities to broaden their economic base into new areas. Although context and development status differ across the region, understanding the likely impact of structural changes, and developing appropriate responses to maximize the potential for growth, and the role that higher-level skills can play is relevant to every country. As the world and workplaces change, we need 21st-century skills as the cornerstone of new competencies.
91 The challenge is to support developing countries in adapting to the new drivers for change. For TVET this will require new education infrastructure, new TVET curricula and new TVET research, as well as significant investment in the TVET teaching force. The challenge is how to produce talent with employable skill sets at a speed and a scale to keep up with market and business requirements. While a few ASEAN countries are already well on the path to the digital era, others will need a comprehensive plan for these changes and invest significantly in new approaches. As well as introducing new technology-driven approaches to TVET, system leaders will need to understand the importance of 21st-century skills and ensure that foundation and transversal, as well as technical skills, are developed. Government representatives, education institutions, and the private sector should collabouratively shape forward-thinking TVET responses to the new digital economies. Demand for the ‘new skills' comes from industry, but government policymakers and TVET leaders are the ones with the responsibility to respond with a provision of workers with relevant and adaptive skills. Many leaders may not be up-to- date when it comes to understanding and driving responses to such structural changes. For countries just beginning the digital journey, significant effort and investment will be needed to support governments in their preparation for the changes. The inevitability of disruptions induced necessary cooperation between a public and private provision of the technology. The needs of a general education and TVET collectively provide (i) foundational skills; (ii) transversal skills; and (iii) specialized skills. As well as change at the policy and broad level, each TVET institution must change. The TVET institutionalization must include the learning of digital skills with multilevel competency standards aligned with industry needs. Myanmar would require training organizations to adhere to these standards with guiding principles for developing new skills as follows: (1) The system has to solicit an internal feedback-loop among private sector employers, legislators and government in addressing the seriousness of skills mismatch; (2) The system has to ensure flexibility of new skills recognition with on-the-job-training; and (3) The system has to create a platform where the public and private sector can maintain open lines of communication. Myanmar has engaged with ASEAN’s mutual recognition to adopt quality standards of the AEC 2015. The state has to ensure that all relevant vocational areas are covered, even those which cannot be profitably operated by private training providers. Furthermore, the state needs to provide education for highly educated TVET personnel that operate the TVET system. The involvement of industry ensures that the needs of the labour market are being adequately addressed. A cooperation of enterprises and vocational schools and training centers in TVET is a basis for expected quality. Vocational schools need to undergo the change towards demand-orientation, which is a challenging task in a rapidly changing world with respect to new technologies in production and services development in the digitalization process. In short, there are a number of key areas where the government should involve employers on the macro level. These are as follows: 1 (strategy and policy development, 2) standard curricula and training with media materials, 3) research and development of
92 the TVET sector, 4) delivery of school- based TVET, 5) assessment and certification procedures, and 6) image campaigns. Myanmar may apply the German “dual” model. It can be used as a reference, especially in the area of cooperative training. However, the extent to which employers are interested in and capable of engaging in TVET is important to bear in mind. This capability of the industry is much greater in developed countries than in developing countries. Accordingly, when governments involve employers in TVET they should select adequate means tailored to the capacity and needs of local industries. All of this takes time – employer engagement can only be strengthened in the long-term perspective, especially when it comes to sustained and systematic collaboration with governments on the macro level. In the 21st Century, Excellent TVET personnel forms the backbone of every functioning vocational education system. This includes teachers, instructors, trainers and management staff of schools, training institutions and companies. Their competencies, commitment, and motivation drive the entire system, thereby having the potential to significantly contribute to economic and social development at the national and regional levels. TVET Personnel, however, is challenged to flexibly respond to the constantly changing world of education, where learning, for example, does not solely take place in a classroom setting. Digital learning media and channels enable learners to access and absorb know-how from a variety of sources without spatial or temporal limitation. By introducing mobile technology, ubiquitous learning concepts become a common learning mode with an unprecedented assortment of content exceeding the traditional curricular boundaries. Rapid changes in technology along with the change of production organization and structure in the industry pose a big challenge for TVET personnel to react and adapt to accordingly in order not to lag behind. Tougher competition in the globalized labour market calls for broad and current technologies as well as pedagogical skills to prepare learners not only to be able to serve but also to creatively develop the economy. TVET systems and institutes across developing Asia vary enormously in terms of levels of resourcing, numbers, and quality of teachers and trainers, availability and relevance of equipment, and approaches to modern methods of pedagogy. Skills for new technology-oriented jobs are urgently needed and are best acquired in a high-technology learning environment. Of course, the extent to which technology can be reasonably implemented in learning systems has to be carefully selected for each specific country context. Outcomes and recommendations within this thematic field can be summarized as follows: - Teachers often struggle to keep pace with technological changes and may not be fully cognizant of 21st-century skills. ICT has to be integrated with education and training. Likewise, there is a need for new training approaches, and new ways to assess the new learning processes. General digital skills are increasingly needed for all jobs, and thus, methods to teach these skills need to be integrated into all occupational training. - It is important to use new technology with an appropriate pedagogical approach and curriculum to ensure the learning outcomes; soft skills (collaboration, creativity, innovation, problem-solving skills) are also important when we apply new technology for teaching (new technology will not replace soft skills training).
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