Vietnam must look to rural
economy By Elliot Brennan and
Tung Phung Duc
Vietnam's economic growth
will slump this year to a level not seen since
1999, if forecasts are accurate. As a result of
this and factional in-fighting over this issue,
Prime Minister Nguyen Tan Dung on October 22
apologized for the government's "weakness" in
managing the economy.
While poverty rates
continue to fall in Vietnam, concerns about
sustainable growth and employment are becoming
more prominent. After a strong process of
industrialization, Vietnam's economy is now
stiffening as local enterprises find credit harder
to attain and many export manufacturing contracts
move to cheaper countries such as Bangladesh.
Much of the problem is attributed to the
estimated 10-15% of bad loans in the banking
system. Many of these loans reside with
state-owned enterprises
(SOEs) that have had, many claim, preferable
treatment in attaining capital. Approximately 30%
of these enterprises closed in 2012.
This
has been coupled with high interest rates and weak
banking regulation as well as growing competition
in the Asian markets for, among other things,
manufactured goods and textiles. These myriad
factors have rattled foreign investment and the
stability of the predominantly export-oriented
economy.
The growing debt and bankruptcy
of many SOEs across the economy, including those
in agriculture - such as Vinacafe Buon Ma Thuot, a
coffee producer owing an estimate US$100 million
in debt - will undoubtedly effect jobs and
livelihoods. The rural economy is of particular
importance given that over 70% of the population
still live in rural areas. Rejuvenating the health
of the rural economy is thus important both for
the wider stability of the economy and to
accommodate unemployed workers in a tougher
economic climate. As such, lessons from South
Korea's rural renaissance could be applicable.
The problems The "Doi Moi", or
"Renovation", reforms in Vietnam of the late 1980s
were fundamental to poverty alleviation and
increased agricultural production. The Doi Moi
reforms and the subsequent land laws of the 1990s
and in the early 2000s established farms as the
basic economic unit in Vietnam. Initially
possession of these was for a 10-15 year period.
This was then extended to 20 years for annual
crops and aquaculture, with a two-hectare plot
limit, and 50 years for perennial crops, with a
10-30 ha limit.
Further reforms saw
land-use certificates (LUCs) awarded and farmers
were given the right to gift land to their
relatives. This is often complicated, however, for
households who receive just one LUC for several
plots of land. It remains complicated and costly
to transfer land-use rights and the difficulties
therein lead to illegal and opportunistic
behavior. Estimates put the number of plots of
land today at 75-100 million - on average seven or
eight plots per household. The integrity of the
communist government necessitates equitable
distribution, yet the large number of plots makes
for inefficient production.
These issues,
which beg reform in order to improve and increase
production, put pressure on the health of the
agricultural sector. Yet reform of the
agricultural sector has at times been forgotten in
favor of industrial growth.
As the economy
has developed, Vietnam has experienced a common
shift from agriculture to industry. The
agricultural sector, as a proportion of GDP,
declined from 40% in 1990 to approximately 21% in
2010, and is expected to decline further over the
next decade. Meanwhile, according to a 2012 World
Bank Report, the industrial sector has almost
doubled its share in total GDP to 41% 2010 from
23% in 1990. Migration has thus, in recent
decades, pushed from rural areas to urban areas
where most factories and jobs are located.
Job creation has been a key argument for
new agro-industry developments. From the 1970s to
the 1990s the Vietnamese population grew by an
average of 1.2 million people annually with the
majority living in rural areas. This increasingly
young population created a labor surplus that
continues to put pressure on the rural economy.
Rural to urban migration has also been
exacerbated by poor management of agricultural
lands, as indicated by the above inefficiencies in
the awarding of LUCs. Poor land tenure delineation
and documentation as well as poorly implemented
production technology has stunted growth. The
forestry sector has been neglected as land tenure
and land classifications in the sector remain
fraught with difficulty, particularly in upland
and mountainous areas. LUCs have consequently been
much slower to be issued in the sector.
Yet as demand for manufactured goods from
Vietnamese factories staggers, and as many SOEs
face bankruptcy, the sector as a whole requires
restructuring. Those people once pulled to the
promise of higher wages in factories will likely
be pushed back to rural areas or on to the streets
of big cities, creating further problems and
raising the potential for conflict. Rural reform
therefore becomes an imperative in preventing an
increase in poverty and the possibility of civil
unrest.
Lionizing the farmer:
Saemaul Undong South Korea faced a
similar problem in the early 1970s. Between 1964
and 1970, growth in the non-agricultural sector
ran as high as 14.5%, while growth in agriculture
was a meager 2.8%, according to Bank of Korea
figures. Similarly, in the same period, the farm
population decreased by over one million farmers.
From the 1964 base of 15.5 million, this figure
would continue to decline and reached 12.8 million
in 1976.
The trend needed to be reversed.
The implementation of Saemaul Undong, (SMU)
or New Community Movement, offered this change and
was implemented in the early 1970s. It was
successful in alleviating poverty in rural areas
and, subsequently, narrowed the urban-rural
divide.
The SMU reversed labor migration
flows. The 1960s had seen a strong trend of
migration from rural to urban areas. Rapid
industrialization needed a labor force and the
attraction for a young rural population was
significant. There was a strong pull to urban,
industrial environments, yet little incentive to
move back to poor rural jobs.
Notably,
South Korea's strong centralized government meant
that communities had to fall into line with the
policy and land reform, regardless of the direct
benefit to them. Through a government-run
campaign, the country was mobilized to champion
rural development and lionize the role of the
farmer in the state economy. As a result, South
Korea avoided the great unrest witnessed by other
Asian countries in the throes of development, and
instead experienced land redistribution that was
relatively conflict free.
Preventing
conflict through reform Vietnam can learn
from South Korea's successful shift. Indeed, an
acceleration of the country's rural development is
necessary, and has been for some years. As Vietnam
shifts from central planning to a market economy,
this development needs to go hand in hand with
strong agricultural reform.
The 2010-2020
National Target Programme-New Rural Development
(NTP-NRD) and its relevant by-laws, currently
being implemented albeit sluggishly, are intended
to aid this development by promoting new rural
criteria, community ownership, and a stronger,
more supportive role for the state. Currently,
however, the program implementation is not moving
fast enough. This is largely due to a tiny budget
for the NTP-NRD of approximately US$85 million
suitable only for pilot programs in communes.
Thus, balancing economic development and social
pressures within rural areas and within rural
populations continues to be difficult.
Revisions to the proposed land laws, which
should come into effect next year, have been made
and are a step in the right direction. The most
significant of these is the proposed extension of
land-use rights from 20 to 50 years for farmers.
This reform has to be thoroughly carried through.
Even then, land-use rights of 50 years are still
too short a period for sustainable development.
Longer land-use rights would provide incentive for
farmers and their families to develop their plots
over time and improve land quality and production.
Despite this and as a result of sluggish
reform, the chance of further conflict amongst
rural populations on rural issues continues to
grow. Contested land rights and different views on
land-use planning continue to be the most
prominent cause of conflict in land disputes in
the developing world.
Vietnam, despite
often being seen as a strong and stable developing
economy, is no different. Defining unclear land
tenure is the simplest way to correct problems of
land rights and resolve conflict. This also needs
to be supported by relevant institutional
frameworks, while avenues for arbitration, dispute
and settlements are similarly important. A the
2006 World Bank report stated that careful policy
design in Vietnam is necessary to minimize risks
in "surmounting conflicts".
In Vietnam,
which has one of the highest rural population
densities in the world, effective and efficient
rural management is an imperative for stability
and growth. The government must address land
tenure issues which would allow for the greater
productivity and efficiency of the rural economy.
Sufficient funding for such programs as the
NTP-NRD needs to be made available. Rural
development should be prioritized as a key issue
for stability and growth.
Lionizing the
role of the farmer and championing rural
communities as pivotal to the health of the
nation; that is, a changing of attitudes could go
a long way in cushioning such change. In a period
of economic slowdown in the country, effective
rural reform will address many of the needs of the
country's large rural population while also
providing for a strong and stable platform for the
growth of the Vietnamese economy.
Elliot Brennan is Project
Coordinator in resource security (Vietnam) at the
Institute for Security and Development Policy,
Sweden, and Tung Phung Duc is Chairman of
Indochina Research Consulting, and associated
expert with the Information Center for Agriculture
and Rural Development, Institute of Policy and
Strategy for Agriculture and Rural Development
(IPSARD), Vietnam. www.isdp.eu
(ISDP
and IPSARD are collaborating in a SIDA-funded
research program in rural development in Vietnam.
)
(Initially published by The Institute
for Security and Development Policy. Republished
with permission. Copyright Elliot Brennan and Tung
Phung Duc 2012)
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