IJERD – International Journal of Environmental and Rural Development (2012) 3-2

Research articleerd

Role and Opportunities for Foreign Investment and ItsRisks for Rural Development in Laos
SATOMI KIMIJIMA*
School of Engineering and Technology, Asian Institute of Technology, Thailand
Email: kimijimasatomi@hotmail.com

MASAHIKO NAGAI
Geoinformatics Center, Asian Institute of Technology, Thailand
Received 16 December 2011

Accepted 18 April 2012(*: Corresponding Author)

Abstract Recently, foreign investment has grown significantly in the Greater Mekong
Sub-region (GMS) hence its macro-economic impact has been the subject of numerous research studies. However, there is a lack of studies assessing the micro-economic impact offoreign investment in the rural areas of GMS countries. This paper (a) assesses the change
in rural non-farm wage employment as a result of foreign investment and its socioeconomic impact on rural people in Laos, (b) highlights the participation of women in aplantation project initiated by a Japanese company, and (c) analyze the effect of foreign
investment  on  people’s  mobility  patterns,  the  change  on  their  interactions  at  local  level  and  the risks for rural development. Data has been collected using purposive sampling methods with a total of 80 respondents from two villages and were selected randomly at ahousehold survey in 2009. The respondents comprised 50% of men and also 50% of women in each village. Questionnaire survey, focus-group discussion and field observation
were conducted. The results showed a significant change of income for rural people employed  by  the  project,  particularly  for   women.  Improved  women’s  participation   had provided opportunities for their empowerment and changed their mobility patterns. This, inturn, facilitated  women’s  networking  with  people  with  diverse  status  and  experiences  outside  their  village.  This  resulted  in  a  slight  change  in  women’s  active  participation  in  community meetings at the local level as well as their relations with men, challenging existingsocio-cultural norms. It was concluded that foreign investment can contribute to rural development by creating a non-farm rural employment opportunities. However, it is also
cautious to become excessively dependent on foreign investment for rural employment
opportunities since foreign investment have a high risk of changing condition in the global
market.
Keywords employment creation, foreign investment, Laos, mobility, women’s
empowerment

INTRODUCTION
Socio-economic change at the community level is one of the factors influencing gender roles andstatus of women. Rapid socio-economic change has been observed in many developing countries
involved in Foreign Direct Investment (FDI). FDI   is   deﬁned   as   “an   investment   involving   a   long  term  relationship  and  reﬂecting  a  lasting  interest  and  control  of a resident entity in the source county  (foreign  direct  investor  or  parent  firm)  in  the  host  country”  (Razin and Sadka, 2007). It is argued
that through FDI, the host country can be provided with more employment and increase local production growth. However, there is little information regarding the contribution of FDI to socioeconomic levels in developing countries especially in Greater Mekong sub-region countries.
FDI has grown significantly with the increasing globalization of the economy since the 1960s
that was operated by multi-national companies. This affected third world countries by creating a
New International Division of Labor (NIDL), which is the relocation of export-oriented industrialiⒸISERD150

IJERD – International Journal of Environmental and Rural Development (2012) 3-2zation from developed countries to developing countries. The NIDL has enabled developing countries to export not only primary products, but also competitive products to developed countries
thereby shifting the areas of manufacture. This is because of the availability of cheap and obedientlabor force such as women engaged in reproductive sectors. Thus, giving rise to feminization oflabor. FDI paradigm is believed to be more stable associated with technology and skill transfer.
Southeast Asian countries initiated the Greater Mekong Subregion (GMS) Economic Cooperation Program in 1992 (Ngampramuan, 2008) with the aim to promote socio-economic development
within countries sharing the Mekong River through strengthened intra-regional economic cooperation. Such initiatives, in fact, facilitated economic liberalization and deregulation leading to freemarket policies (ibid) and encouraged various foreign investments in the GMS countries. Severalstudies regarding GMS regional economic corporation pointed out positive socio-economic impacts
at macro level, specifically with the increase in foreign investment (ADB, 2006). However, the dynamic impact of foreign investment at the micro-level in rural areas of the GMS countries is documented only in a few studies.
In Laos, the New Economic Mechanism introduced in 1986 enabled the expansion of foreign
direct investment in the country, facilitating the transition from subsistence to a market economy(Mwankusye, 2002). Furthermore, GMS Economic Cooperation systematized the way towards foreign investment (ADB, 2006). Investment in rural Laos is quite significant in the sectors of agriculture, industry, trade/service, hydropower and mining (ADB, 2005). As a result, various types ofemployment opportunities have been created by foreign investment in Laos.
In 2005, a Japanese company took over a foreign-owned tree plantation, a joint venture company that was set up in 1996. The Japanese investor implemented 112 plantation projects in 150villages, employing workers in tree nursery, grooming, planting, weeding and fertilizing activities.
In Nongboua Noy village of Laos, many villagers are employed in a tree plantation nursery centernear the village.
This paper (a) assesses the change in rural non-farm wage employment as a result of such investment and its socio-economic impact on rural people in Laos, (b) highlights participation of
women in a plantation project initiated by a Japanese company, and (c) analyzes the effect of suchinvestment  on  people’s  mobility  patterns  and  the  resulting  change  in  interactions  at  local  level  and  analyzes risks of such investment for rural development.
METHODOLOGYThis paper discussed the changes in socio-economic status of local people after their employment
in the plantation project managed by Japanese company in rural Laos. The study areas are locatedin Hinboune district, Khammouane province, Lao PDR. The study purposively selected the villages
named Nongboua Noy and Hath Yai. Nongboua Noy village was selected as many villagers havebeen employed at a nursery center established nearby. Furthermore, Hath Yai was selected as there
was no significant employment creation in the village. The purpose of selecting these two villages
was to compare the socio-economic impact by foreign investment.
A total of 80 individual respondents from the two villages were randomly selected for ahousehold survey through pre-tested questionnaires in 2009. The respondents comprised 50% maleand 50% female in each village. The study also employed formal and informal interview to retrieve
information  from  key  informants  such  as  the  Laos’  branch  manager  and  village  heads  using  check  lists and from Focus Group Discussions (FGDs). Male and female participants were grouped separately during the discussion on FGDs. Data collection also involved direct field observation. Local
language was used as the means of communication with local people assisted by a translator particularly during the interview.
Both qualitative and quantitative types of data were collected. Primary data was collected inorder to analyze how the Japanese plantation project affects the socio-economic condition of ruralpeople, influences mobility patterns and household community relations in rural Lao. Secondary
data from Asian Development Bank, Japan External Trade Organization, the Japanese Paper Company, and their Laos branch were also collected in order to find out the historical background of theⒸISERD151

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plantation project. Furthermore, data from the Lao National Statistics Centre were gathered in order
to compute gender compositions and to find out the changes in socio-economic conditions after
employment at the Japanese company. Quantitative data regarding the gender composition was analyzed using cross tabulation in SPSS version 16. Qualitative analysis was done with extensive review of secondary data and primary information from the FGDs and informal interviews with villagers.
RESULTS AND DISCUSSION
Changes in rural non-farm wage employment and socio-economic conditions
Rural industries hold high potential of employment contribution, especially for women, who are
categorized as subgroups of the population. The plantation project has employed more than 3000
daily wage workers throughout Laos, of which men and women have been employed in similar
numbers. Approximately 50 daily wage workers have been employed in Nongboua Noy village
with a high participation of women. A comparison of household income revealed that non-farm
employment contributes to increase the annual household income (Table 1).
Table 1 Comparison of annual household income by villages
before-after the establishment of the project
Annual Household Income(Kip)<2,000,0002,000,001 - 4,000,000
4,000,001 - 10,000,000>10,000,001

Nongboua Noy Village
2005
2009

Hath Yai Village
2005
2009

30(75.0)8(20.0)2(5.0)0(0)18(45.0)10(25.0)12(30.0)0(0)0(0)
23(57.5)
15(37.5)2(5.0)

16(40.0)8(20.0)16(40.0)0(0)Source: Field Survey 2009
Note: - Percentage in the figures (inside brackets) denotes the distribution of the respondents within the column- Kip: Laos currency (1US $= 8,338.30 Kip in July 2009)

Households in Nonboua Noy village were benefited relatively more in comparison tohouseholds in Hath Yai village in terms of annual household income. The increase in annual
household income in Nongboua Noy village was noted to be five times higher compared to theperiod before the establishment of foreign investment. The respondents’  active  participation  in  theproject was found to be a significant key factor contributing to the increase of annual householdincome which is not noted in Hath Yai village. Benfica et al., (2002) pointed out that plantation
projects and agricultural industry play a significant role in rural employment creation and reducepoverty through an increase in wages. Plantation industries are also found to contribute to socioeconomic development of rural households.
Participation of women in a plantation project initiated by a Japanese company
Women’s  contribution  to  household  cash  income  was  minimal  before  the  project.  However,  there  were significant changes after the project started. The survey showed higher percentages ofcontribution to annual household incomes among male and female respondents in Nongboua Noyvillage (Table 2).  Nevertheless,  women’s  contribution  to  the  annual  household  income  in  Nongboua  Noy village was much higher than in Hath Yai village. The analysis of Hath Yai village is notpresented since there was no significant change in women’s  economic  contribution. An increase inwomen’s  contribution to household income is widely observed particularly in the lower to medium
annual income from - 2,000,001 to 4,000,000 kip and from 4,000,001 to 10,000,000 kip.
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Table 2 Individual contribution to household annual income
by sex in Nongboua Noy villageRespondents<10Contribution to Annual Household Income (%)
11-30
31-50
51-80

>81

Female1(5.0)

4(20.0)11(55.0)0(0)4(20.0)

Male0(0)0(0)

5(25.0)6(30.0)9(45.0)Total

1(2.5)

4(10.0)16(40.0)6(15.0)13(32.5)

Source: Field Survey 2009
Note: - Percentage in the figures (inside brackets) denotes the distribution of the respondents within the row

A study conducted in India found that wage structure in a plantation industry is biased since
women workers could not access the same wage as men  even  though  women’s  work  load  was  morethan that of men (Reddock and Jain, 1998). However, in the case of Laos, the study showed
positive results as the plantation project positively involved women with the same daily wage ofmen. The wage differentials and occupational segregation as reported from India was not observedin Laos. Labour market regulation has been considered to play an important role in reconciling thegoals of efficiency and equality (Elson, 1999). Such positive economic contribution to householdincome   developed   women’s   self-confidence.   According   to   the   respondents,   that   women’s   selfconfidence had increased with their contribution to household income. The study also found outthat   a   positive   correlation   between   women’s   household   income   contribution   and   their   positive  attitude   at   the   community   level.   Thus,   through   women’s   development   on   self-confidence hasinfluenced them to practice actively in community-based activities.
Change  in  women’s  mobility  patterns  and  their  empowerment  Improved  women’s  participation  provided  opportunities  for  their  empowerment  and  changed  their  mobility patterns. Equal  opportunity  of  women’s  mobility  is  not  being practiced especially in ruralareas, with women, especially having less mobility than men (Jennifer and Mandel, 2004). However, the study found an increase in mobility for women within and outside the village such as traveling to markets, health centers and attending meetings at plantation project. Respondents indicatedthat there is a positive correlation between mobility development and contribution to householdincome. Thus, large mobility developments are observed among women contributing to the household income. The change in mobility can be summarized as from household to community, household to near community, household to another community and another community to household(Fig. 1).

Fig. 1 Change in mobility pattern in Nongboua Noy village
Source: Field Survey 2009

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IJERD – International Journal of Environmental and Rural Development (2012) 3-2Furthermore, development of mobility facilitates   women’s   networking   with   people   with   diverse status and experiences outside their village. Such interactions provided women with alternative sources of knowledge and developed household strategies regarding   women’s   relations withmen in the village. Indeed, women further developed self-confidence through such experiences.
The qualitative information showed positive relations between mobility development and an active
approach to decision making at the community level. In contrast, in Hath Yai village, there were no
positive changes. Thus, the economic development has not only empowered women economically
but also developed their interaction toward different people. Economic development also means
mobility and network development for women and specifically provides them with opportunities toobtain and develop knowledge and strategies to deal with men. This finding is consistent with thefindings of Carr, et al., (1996), that economic empowerment is a significant factor in the empowerment of women with increased levels of awareness, understanding, unity, mobility and confidence to handle problems outside of the family.
Risks of foreign investment to rural development
While FDI in the plantation sector has led to positive results in terms of increased household income,  mobility  development  and  women’s  empowerment  at  the  local  level,  it  is  also  important  to  consider the risks inherent in foreign investment. For example, the global financial crisis in 2008
caused a decline in paper consumption in the United States but the demand for paper in newly industrializing countries like China grew (Paper News, 2010). This became an opportunity for foreign investors to seek and develop new sources of raw material for paper production such as tree
plantations in GMS countries. Indeed, the Japanese plantation company in Laos has shifted its target from the world market to East and Southeast Asia, and is planning other plantation projects andnew factories in Southeast Asia.
At the same time, the new Foreign Investment Law in Laos aims to attract more foreign
investment (ASEAN-JAPAN CENTRE, 2009). An excessive inflow of foreign capital aiming toexploit  the  subregion’s  rich human and natural resources would lead to overuse of depleting naturalresources. In addition, continuous establishment of foreign investments and industries threaten thelocal traditional lifestyles through rapid structural changes transforming the subsistence economy
to a market economy. Furthermore, this will create over-reliance on foreign investment which isvulnerable to international market conditions.
CONCLUSION
Women’s  active  participation  was limited before the establishment of the project due to lack of income and prevalent socio-cultural constraints on women. The socio-economic condition of women,
including household income and mobility improved after their engagement in the plantation project
and alternative mobility pattern and community relations were slightly restructured. Thus, the plantation project contributed to the overall socio-economic  development  and  women’s  empowerment
in rural Laos. The findings in this paper agree with those in the Benfica, Tschirley and Sambo’s  study (2002); additionally, this paper shows that increased rural household income also increased
women’s  mobility  and  their  active  participation  in  the  community.  
Foreign investment can contribute to rural development by creating non-farm rural employment opportunities and economically empower vulnerable social groups such as women, especiallyin developing countries. This is considerably important in the GMS region. However, it is also
prone to become excessively dependent on foreign investment for rural employment opportunities
since foreign investment have a high risk of changing according to the conditions in the globalmarket.

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ACKNOWLEDGEMENTS
This research was supported by the Iizuka Takeshi Scholarship Foundation in Japan. The authors
would like to thank Dr. Kyoko Kusakabe, Asian Institute of Technology and Prof. Dr. MarikoAdachi of Ochanomizu University, for their advice during the research. We would like to thank Mr.
Kan Kaewknogkaew for his generous effort as an interpreter during the field study.
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