Leading to Economic Resilience during the Urban Transition in Vietnam
Scott Handler
East-west Center Hawaii
scott.handler@ewca.eastwestcenter.org
.01 Economic Resilience and Urbanization
.02 State Owned Enterprises
.03 Industiral Zones, Foreign Direct Investment and the New Global Space-Economy of Vietnam.04 Growth Pole Decentralization from HCMC
.05 Agriculture, Rural Development and Urbanization
.06 The Third Economy -- Craft and Industrial Villages (CIVs)
.01 Economic Resilience and Urbanization (return to index)
Global events in recent years have underscored the need to pursue strategies of economic resilience rather than economic growth alone. The East Asia economic catastrophe beginning at the end of 1997 was not only a finance debacle but was a combination of several crises: severe environmental degradation of urban-industrial regions coupled with prolonged deforestation and environmental stress in rural areas; declining competitive advantage and falling rates of economic growth in key export sectors; and political crises associated with the rise of democratic movements.
In terms of economic growth, beginning in the late 1980s, labor-intensive manufacturing begin to rapidly move out of Japan and the first generation newly industrializing economies (NIEs) of Korea, Taiwan, Hong Kong and Singapore and into a selected number of Southeast Asian economies and China. This created a boom in Southeast Asia that ended abruptly with the finance-driven crisis of 1997. Subsequently, with the exception of China, Southeast Asia as well as Northeast Asia has experienced great difficulties in sustaining even modest rates of economic growth. In Southeast Asia, including Vietnam, the sudden downturn in global investment in the late 1990s continues and is now being exacerbated by the steep fall of the “new” information-knowledge economy that Asia had been servicing through low wage assembly operations in electronics and computer-related production.
International terrorism, marked by the attack on the World Trade Center in New York City on September 11, 2001, has exacerbated a worldwide downturn in economic growth that again underscores the need to nurture internal capabilities for economic resilience. Unlike the 1997 crisis that was triggered by a combination of internal and external factors, the industrialized countries triggered the current slowdown. The Asian Development Bank (September 2001) summarizes the current condition as follows:
The years since the onset of the Asian crisis represent the most turbulent half decade in East Asia’s recent economic history, with the severe recession in 1998 followed by a sharp slowdown now…Most East Asian countries will see a deceleration in growth. External risks to the region’s growth have increased and the slowdown is turning out to be deeper, longer, and broader than expected. This year’s global growth may turn out to be close to that posted in 1998 at the height of the Asian crisis.
The principal exception to this is China, which has continued to economically expand and has received the lion’s share of foreign direct investment (FDI) coming to East Asia. China’s entrance into the World Trade Organization in November 2001 is expected to augment the shift of FDI to China and away from other labor abundant East Asia economies.
How to create economies that are able to rapidly adjust to these vagaries while also creating the basis for social and political stability is now a central question in national economic development. This question of economic resilience is embedded in the urban transition in Vietnam. Higher levels of urbanization invariably correlate positively with higher levels of per capita income. Conversely, inhibiting urbanization through direct control over population mobility is likely to inhibit economic growth and efficiency. The promises of economic betterment will be jeopardized, however, if economic growth and the urban transition are associated with the persistence of poverty, degradation of natural and urban environments, and a low level of endogenous capacity for innovative responses to sudden global shifts and turbulence. There is thus a manifest need to go beyond the short-term economics of urban-industrial development and to consider the wider environmental, political and social basis for the urban transition.
A key spatial question in the issue of economic resilience is how to spread opportunities for urban-industrial growth over the national territory, rather than concentrating them in only one or two major metropolitan regions, which is the typical pattern observed in most countries. In a nation that is still substantially rural, a parallel question is how can mutually supportive rural-urban linkages be promoted in rural regions. The idea of resilience gives importance to creating diversity in production, localizing multiplier effects through intensive upstream and downstream linkages, and enhancing social capital as the basis for local level capacities for problem solving and innovation. Resilience in pursuing an outward-oriented economic growth in a global arena rests on expanding endogenous capacities of a whole nation to better absorb and respond to the effects of shifts and downturns in global markets. This would, in turn, lay out the territorial basis for more equitable wealth distribution throughout the entire country.
In Vietnam, economic resilience over national space will be found through localizing combinations of three sources of economic growth: state owned enterprises (SOEs), global enterprises operating through direct foreign investment (FDI), and endogenous non-state enterprises emerging in urbanizing rural regions as well as in metropolitan centers of the nation.
.02 State Owned Enterprises (return to index)
State owned enterprises (SOEs) were created to be the economic engine of development in Vietnam. They are also used as a means to distribute economic growth and employment opportunities more evenly among provinces. SOEs still account for the bulk of manufacturing in Vietnam, officially comprising more than half of the manufacturing GDP and 49 percent of the total GDP in 1998, employing about 24 percent of the industrial workforce (World Bank, 1999).
In 1986, with the introduction of doi moi, the Vietnamese government embarked on a new era of industrial policy. By introducing these market reforms, the government recognized the importance of private enterprise in helping stimulate higher levels of economic growth in the country. Most of Vietnam’s current industrial policies have been written to simultaneously reform the SOEs and attract foreign direct investment as an alternative source of national economic growth. Because of the large number of loss-generating SOEs, reform is seen as being vital to the future of the economy.
Doi moi policies also have been accompanied by a more positive acceptance of urbanization as an essential counterpart to the process of industrialization. Previously, the government carried out policies to redirect population growth away from major industrial cities through resettlement out of the densely settled regions, notably the Red River Delta, to rural farming areas with low population densities, mostly in the Central Highlands. Though the policy of trying to control the movement of people to Hanoi and Ho Chi Minh City continues, doi moi policies are having the effect of accelerating the movement of people to these centers as market forces and global linkages focus economic growth impulses on them (Smith and Scarpaci, 2000). There is thus a great potential for a growing gap between the spatial balances ideally being sought and the implicitly spatially polarizing orientation of the FDI-led export-oriented industrial policy
By 2000, SOEs still absorbed more than half of all bank credit; yet a large number of SOEs were found to be generating financial losses, with SOEs accounting for a great portion of the $4 billion in non-performing loans. SOE employment growth was also assessed to be very low. In response to continuing problems, in 1999 the government initiated further reforms to improve the financial viability of SOEs and to try to make them more resilient through (1) diversifying ownership through equitization and divestiture; (2) restructuring and downsizing large SOEs to make them competitive with the private sector; and (3) reducing the number of non- or poor performing SOEs through liquidations and mergers (World Bank, 1999).
Under these reforms, the government has planned to divest, equitize, merge, or liquidate within three years almost one-third of the 5,300 SOEs that existed in 1999 (World Bank, ADB, and UNDP, 2000). Under Decision 177/1999/QD-CP, the government further moved to establish a special fund for reorganization and equitization of SOEs that will provide severance pay to laid off workers and also give them skills training. Additionally, the fund are to provide investment for new SOEs and help workers buy shares in them, but with an emphasis to be given to severance pay and skills training (World Bank, 1999). This appears to be a positive boost in energizing local enterprises across the nation, although much still depends on the pace and scale of implementing the reforms.
Though substantial, the downsizing of the state’s direct involvement in economic enterprises in the form of SOEs is also selective. SOEs are still expected to play key roles in energy, communications, advanced services and high technology. As stated in the 1999 policy: “SOEs shall be the leading actors in developing production of important materials and in high-tech industries. [SOEs will be strengthened] to take control of economic groups in petroleum, …, telecommunications, mechanics, construction materials, fertilizers, banking, insurance, and auditing” (World Bank, ADB, and UNDP 2000:11). Because urbanization represents quantum increases in energy demand and urban networks depend on the development of communications systems and higher order producer services, how this policy will actually work itself out as de-regulation and privatization proceeds is an important consideration for the urban transition.
Table 1 shows that SOEs contribute around 41 percent to the total GDP of Vietnam, which, from official statistics, has remained stable between 1995 and 1999. This contribution to the GDP from the state sector occurred with only 8.8 percent of the total national employment between 1995 to 1999, which means each state sector employee contributed more than 25 million Dong in 1995 and more than 31 million Dong in 1999 to Vietnam’s GDP. This contribution is around 7 times higher than a non-state employee, whom only contributed around 3.72 million Dong in 1995 and 4.29 million Dong in 1999. Total state sector employment increased by around 300 thousand workers from 1995 to 1999, compared to the non-state sector that increased by more than 3.6 million workers during the same time frame.
Table 1
Gross Domestic Product and Employment Comparison
between State Owned Enterprises and Non-State Enterprises
| YEAR | ||||||
| GDP by Sector | Unit | 1995 | 1996 | 1997 | 1998 | 1999 |
| Total GDP | Dong (bn) | 195,567 | 213,833 | 231,264 | 244,596 | 256,269 |
| Total Employment | 1000 persons | 34,590 | 35,792 | 36,994 | 38,746 | 38,546 |
| State Sector GDP | Dong (bn) | 78,367 | 87,208 | 95,638 | 100,953 | 105,286 |
| Non State Sector GDP | 117,200 | 126,625 | 135,626 |
143,643 |
150,983 | |
| Collective | 18,978 | 19,654 | 20,173 | 20,879 | 21,630 | |
| Private | 5,978 | 6,838 | 7,507 | 8,103 | 8,607 | |
| HH | 70,287 | 74,913 | 79,128 | 81,819 | 85,020 | |
| Mixed | 8,802 | 9,511 | 9,848 | 10,249 | 10,115 | |
| FDI | 13,155 | 15,709 | 18,970 | 22,593 | 25,611 | |
| State Sector Employment | 1000 persons | 3,053 | 3,138 | 3,267 | 3,383 | 3,370 |
| Non State Employment | 31,537 | 32,654 | 33,727 | 35,363 | 35,176 | |
| State Sector GDP/Employee | Dong (mn)/person | 25.7 | 27.8 | 29.3 | 29.8 | 31.2 |
| Non State GDP/Employee | 3.7 | 3.9 | 4.0 | 4.1 | 4.3 | |
Sources: IMF, 2000:13-15; MoLISA, 1999:44-45; General Statistics Office (GSO), 1999:24-25.
One of the main contributors to the GDP is the industrial or manufacturing sector, which comprised around 23 percent of the total GDP in 1995 and steadily increased to 27 percent in 1999, with a large share of the increase in energy-related sectors (GSO, 1999:24-25). Figure 1 shows the decline in GDP contribution from the agricultural sector and the rise of GDP in the industrial sector between 1995 and 1999. The industrial sector comprises mining and quarrying, manufacturing, electricity, gas, and water supply activities.
Based on the 1999 GSO Statistical Yearbook, the state owned 1,958 enterprises that employed around 754,000 workers in 1995, but in 1998, the state owned 1,821 enterprises that employed around 842,000 workers. During the same period, the domestic non-state sector operated 612,977 enterprises in 1995, but decreased to 590,246 enterprises in 1998. Meanwhile, the foreign direct investment sector owned 439 enterprises in 1995 and increased rapidly to 881 in 1998. Together, the domestic non-state and foreign invested sectors employed roughly 2.83 million workers in 1995 and 3.15 million in 1998 (see Table 2).
Figure 1
GDP Distribution based on Type of Activity
Source: GSO, 1999:24-25.
From a spatial perspective, although industrial SOEs have been expected to play a key role in balancing spatial patterns of development, they are not evenly distributed throughout the provinces. The majority of centrally managed industrial SOEs are in Hanoi or HCMC, which comprise about a half of total SOEs in the entire nation. Meanwhile, seventeen provinces do not have any centrally managed SOEs located within them. By using the average gross industrial output per centrally managed SOE it is possible to measure the efficiency of each enterprise’s output. Higher output rates indicate enterprises with greater efficiency. The nationwide average output rate of centrally managed SOEs in 1995 was about 44,709.60 million Dong, but this decreased slightly to 44,352.35 million Dong in 1998. However, the average output rate at the provincial level provides a different picture.
Figure 2 shows the output rate for the centrally managed SOEs in each province. The data reveals that the output rate of thirteen provinces decreased between 1995 and 1998 level, ranging from 895 to 419,750 million Dong; Kien Giang province decreased the most. The remaining provinces with SOEs produced greater than average output rates; Hai Duong, Ba Ria-Vung Tau, Long An, HCMC, and Da Nang were the top five provinces, respectively.
Figure 2
Change of Output Rate of Industrial SOEs Managed by
the Central Government for Each Province between 1995 and 1998
Source: GSO, 1999:154-157, 164-165, 167 and 226
A different story exists with locally managed industrial SOEs. In 1995, of the 1,409 total recorded SOE enterprises, 189 of them were in HCMC and another 116 were in Hanoi and in 1998, the total decreased to 1,246 SOEs throughout the nation, with HCMC and Hanoi retaining the most, 165 and 105, respectively. However, neither of these provinces has produced high output rates. Figure 3 shows the average gross industrial output per locally managed SOE. The top five productivity gaining regions between 1995 and 1998 were Soc Trang, Can Tho, Kien Giang, Bac Lieu, and Khanh Hoa, respectively, while the worst performing province was Ca Mau; Binh Phuoc is the only province that does not have any locally managed industrial SOEs. The national average output rate increased throughout the country during this period from approximately 12,077 million Dong in 1995 to 19,254 million Dong in 1998 for local industrial SOEs.
Based on the output rates of industrial SOEs depicted in Figure 2 and Figure 3, it appears that some of the centrally and locally managed industrial SOEs have generated losses. The centrally managed SOEs have generated higher output rates relative to the locally managed SOEs; however, the centrally managed SOEs also showed a greater decrease in output rate in 1995 to 1998, which could mean that the centrally managed SOEs have generated greater losses compared to the locally managed SOEs. In general, the locally managed SOEs seem to have performed better than the centrally managed SOEs.
Table 2 calculates the average number of laborers engaged per enterprise. On average, each SOE provided employment for 385 workers in 1995 and increased the number of employees to 462 workers in 1998. SOEs provide large levels of mass employment compared to the non-state enterprises, including foreign invested enterprises (FIEs), which employed an average of 4.6 workers in 1995 and 5.3 workers in 1998. The table also depicts the average production output – in terms of gross industrial output per enterprise – of each SOE. This average production output is much greater than non-state industry but lower than FDI. The FDI average production output decreased by 4.2 billion Dong from 1995 to 1998. Yet the gross output to investment ratio shows that SOEs tend to have lower efficiency rates compared to non-state enterprises or FIEs. This ratio explains that more labor intensive SOEs require greater investment in order to maintain high gross output.
Table 2
Condition of Industrial Enterprises Based on Ownership
| Kind of Ownership | Labor Engaged (1000 workers) | Number of Industrial Enterprises | Industrial Gross Output (Bill Dong) | Total Investment Outlays (Bill Dong) | Gross Output per-Enterprise (Mill Dong/ enterprise) | Gross Output/ Investment Ratio | ||||||
| 1995 | 1998 | 1995 | 1998 | 1995 | 1998 | 1995 | 1998 | 1995 | 1998 | 1995 | 1998 | |
| State Owned Enterprises | 754 | 842 | 1,958 | 1,821 | 51,991 | 69,463 | 23,257 | 40,793 | 26,553 | 38,145 | 2.2 | 1.7 |
| Domestic Non-State | 2,833 | 3,150 | 612,977 | 590,246 | 25,451 | 33,402 | 17,857 | 15,918 | 42 | 57 | 1.4 | 2.1 |
| Foreign Direct Investment | 439 | 881 | 25,933 | 48,359 | 19,643 | 18,869 | 59,073 | 54,890 | 1.3 | 2.6 | ||
| Total | 3,587 | 3,992 | 615,374 | 592,948 | 103,375 | 151,223 | 60,757 | 75,580 | ||||
Source: GSO, 1999:154-157, 164-165, 167, and 226.
In summary, SOEs are still a key dimension of industrialization in the Vietnamese economy, provide a great share of the GDP and are acting as significant sources of employment. Although many SOEs have lower efficiency compared to foreign and non-state enterprises, and output rates have decreased for centrally and locally managed SOEs in recent years, they play an important role in the state structure as a de facto social safety net that helps control the unemployment levels of the nation. As government will likely continue to use SOEs in this role, questions of improving efficiency and equity are also paramount. In addition, as stated previously, many provinces do not have any centrally managed SOEs located within them. In the larger spatial picture, SOEs play a more limited role in decentralizing growth away from the principal metropolitan regions than seems to have been expected. As a form of top-down planning, they also have limitations in stimulating the local non-state economy. As important as they might be, SOEs thus need to be seen as a partial, substantially reduced, and spatially restricted approach toward national industrialization.
Figure 3
Change of Output Rate of Industrial SOEs Managed by the Local Government
for Each Province between 1995 and 1998
Source: GSO, 1999; 154-157, 164-165, 167, and 226
.03 Industrial Zones, Foreign Direct Investment and the New Global Space-Economy of Vietnam (return to index)
The selective downsizing of SOEs is part of a larger strategy that is expected to see a pervasive emergence and rapid growth of private enterprise as the new vanguard of economic growth. A very high level of reliance is now being placed on foreign direct investment (FDI) to stimulate an industrial take-off in Vietnam (World Bank, 1999). With industrialization as a national development priority of government, social and economic energies are being directed toward attracting transnational corporate investment into an exceptionally large number of industrial zones (IZs) being constructed by national and provincial governments throughout the country.
The first major multi-lateral agreement on foreign investment occurred in 1995 with the entry of Vietnam into the Association of South East Asian Nations (ASEAN). Vietnam’s entry into ASEAN helped to improve its macroeconomic stability and has opened it to foreign trade and investment regimes, although Vietnam has not fully caught up with the original ASEAN members. FDI and foreign trade is expected to increase as the implementation of requirements based on the ASEAN Free Trade Area (AFTA) is furthered (Gates, 1999). In addition to AFTA, the signing of the Bilateral Trade Agreement with the US, which was ratified and signed by the US government in mid-October 2001 (Vietnam Economy, 22 Oct 2001) and approved by the Vietnam National Assembly in November, will also allow Vietnam to be more competitive in the global market place if it implements the necessary policy reforms. If these reforms are not steadily accomplished, some observers feel that Vietnam will lose more FDI to China, to which much of the FDI that was in previously moving into Southeast Asia has shifted since the financial crisis began in 1997 (FEER, 6 Sep 2001).
The Foreign Investment Law (FIL), which has had several modifications since its introduction 1988, is the principal governing legislation for foreign investment policy. In addition to the FIL, there are multiple decrees from the central, provincial, and city governments that enhance the FIL and may add constraints to approved investments (DPI, 2001a). Within the FIL, the investor is provided rights, privileges, and guarantees. One right is to be able to repatriate profits abroad. To attract FDI, the government is allowed to offer tax concessions, below market land rents, and other special treatments deemed appropriate to attract target industries, such as agriculture, export industries, high-tech manufacturing and infrastructure development (Mason, 1998).
The FIL also provides for the four different types of allowed foreign investment. First, there are joint ventures that the law mandates have a minimum 30 percent foreign capital contribution and are often established with SOEs. Second, the FIL allows for fully owned foreign enterprises, but these licenses are most often granted only in targeted sectors. The third type of investment vehicle is the business cooperation contract (BCC), which is a pure foreign and domestic contract for a specific project, but does not create a separate legal entity. The final foreign invested vehicle, although rarely used, is the Build-Operate-Transfer contract (Mason, 1998). Vietnam has also entered into multi-lateral and bi-lateral agreements to encourage foreign investment and trade.
If the experience of other Asian countries is relevant to Vietnam, the general tendency of these overtures is for a limited number of sites, especially those around coastal metropolitan areas, to be successful, while others experience substantial difficulty in attracting branch plants and other footloose investments. Research on this question shows FDI to be much more spatially concentrated than domestic investment in the same sectors (Douglass, 2000). As the discussion below indicates, this is the pattern that is also clearly emerging in Vietnam.
A well-known limitation of the type of labor-intensive assembly or branch plant investment moving in to low income countries is the weakness of local multiplier effects, technology transfer and endogenous capacity building. While there are many exceptions to this pattern, and in acknowledging the importance of short-term contributions to industrial growth and employment expansion, the evidence in East Asia suggests that this type of investment is sustainable for about a 15-20 year period, after which it shifts on to lower income economies. In other words, should Vietnam be successful in massively accelerating economic growth through FDI, and thereby raise wages and incomes of the Vietnamese people to levels above those of competitor economies, it can be expected to experience problems of retaining investment that the first generation NIEs of East Asia have been experiencing since the mid-1980s after only two decades at most of FDI-led industrial growth. The negative impacts of offshore redeployment of footloose assembly plants from Japan, Korea and Taiwan fell particularly hard are the second-level urban regions that never developed local managerial functions or local networks of industrial linkages to counteract the shift of investment from these regions to lower income economies (Douglass, 2001).
Given these experiences, how to successfully internalize and sustain positive linkages with the powerful forces of globalization is a central issue of economic resilience. Recently put forth as a question of creating “learning regions”, the main elements of internalizing economic capacities focus on building synergistic networks among transnational corporations (TNCs) and endogenous enterprises (Douglass, 2001; Edgington, 1998). These networks further serve to extend multiplier effects inward into the economy rather than principally outward to the world and to high-income economies, building social capital. In sum, they help to create localized capacities to innovatively adjust and rapidly respond to changing economic fortunes.
In recent years the government of Vietnam has pursued an industrial policy that devotes considerable resources to the construction of regional growth poles – export processing zones and industrial parks – to attract foreign direct investment (FDI) into the economy and possibly create local centers for linking the domestic with the international economy. Currently, at least 74 such zones are in various stages of development, with more likely to be promoted in the future. Table 3 in this section displays the breakdown of Vietnamese, foreign, and jointly developed IZs. Contrary to expectations, it shows that foreign investment does not play the major role in IZ development.
Part of the reason for this disappointing record is the downturn in foreign investment in Southeast Asia as a whole in parallel with the 1997-98 crisis. Since the late 1990s, China has been absorbing the lion’s share of investment – approximately 90 percent of Pacific Asia FDI outside of Japan – in labor-intensive assembly operations (Douglass, 2001), with most of Southeast Asia experiencing a leveling off or even sharp downturn in FDI. With the collapsing “dot.com” economy since 2000, even higher technology investments in Southeast Asia have recorded dismal records. FDI in Southeast Asia accounted for one-third of all FDI in Asia in the mid-1990s, but fell drastically to make up only 10 percent of the Asian total in 2000 (UNCTAD, 2001). There is no immediate turn around in this record on the horizons (ADB, 2001).
In the case of Vietnam, after several years of stellar increases in FDI in the early 1990s, it began to taper off by the end of the decade. In addition to the general malaise in Southeast Asia as noted above, reasons often cited for the fall of FDI in Vietnam include a number of bottlenecks that are reported to be more severe than in other countries: dual pricing discriminating against foreigners, extensive bureaucratic red tape that enhances corruption, lack of transparency in laws and policies, limited infrastructure, and very high costs and limited telecommunications capacity. In response to these issues, in 2001 the government announced that it would pursue FDI more rigorously through reforms, legal framework adjustments, infrastructure, and other measures. In declaring a goal of licensing FDI projects worth US$12 billion over the next five years, it projected an increase in FDI that would reach a 15 percent share of the GDP and one quarter of the nation’s exports by the end of 2005 (Asia Times, 2001).
For the first eight months of 2001, the government has reported 281 new foreign investment projects worth $1.13 billion, representing a 35 percent increase in the number of projects compared to the same period in 2000. Few were in manufacturing, as energy-related projects continued to make up the largest share of investment, followed by infrastructure and property development. Food processing also gained. However, more than half of this amount ($700 million) has now been declared to be invalid. As noted, events in the latter half of 2001, including the impacts on the world economy of the September 11 terrorist destruction of the World Trade Center in New York, do not auger well for foreign investment-led economic growth in most of Asia, including Vietnam.
In terms of economic resilience, a recent report (FEER, 21 Sep 01) concludes that because Vietnam does not have a high reliance on the world economy in terms of share of TNC-linked exports in its economy, it will be spared the worst impacts of the recent global turbulences and the economic downturn. Such statements reveal the paradoxes of global integration, which promises higher levels of economic growth with higher levels of risk and turbulence. For example, in September 2001, Fujitsu Corporation’s FCV, which is Vietnam’s largest foreign-invested higher technology firm, capitalized at $188 million, announced it would cut 500 jobs in its Dong Nai province plant, making it the biggest staff cut under FDI so far, but thought to signal a much larger cutback throughout FDI firms under the global economic slowdown (VIR, 2001).
Investing in IZs as a form of linking with the global economy through FDI is caught up in this paradox. On one hand, some distance from full integration into the global economy via FDI is shown to allow for lower levels of risks and negative impacts, but, on the other hand, in a country perceived to be extremely short of investment capital, FDI is viewed as being a principal source of economic growth. For these reasons, the mix of domestic, state and foreign investment as well as the spatial, and thus sectoral, distribution of IZs will be crucial to economic resilience as Vietnam becomes more integrated into the world economy.
Table 3 below shows the expected cost of and total number of IZs that the Vietnamese government is investing in by itself or jointly with a foreign firm and foreign firm development of IZs in Vietnam. It is unknown how many of the projects and how much of the industry investment in the IZs are from SOEs or private investors (foreign or domestic). The term investor below simply defines where the infrastructure development money comes from and does not distinguish between state or private enterprise development. As the table indicates, the fully Vietnamese or Joint Venture projects have the greatest planned infrastructure cost to total investment ratio. Although many incentives, to be discussed later, are given to attract FDI to the IZs, in the form of tax holidays, below market land rents, etc., the foreign built IZs have a negative infrastructure cost to investment ratio.
The idea of concentrating infrastructure and other publicly provided subsidies for investors in a limited number of industrial growth poles has been a central feature of urban and regional planning throughout the world for many decades. The common objective of these policies is to counter the spatial polarization of industry in one or a few metropolitan regions by creating countermagnets capable of pulling investment to more distant secondary cities or newly created industrial zones. In most countries, these efforts take the form of industrial estates, export processing zones and, more recently, high technology research parks.
Table 3
Sources of Funding and Investment in Industrial Zone (IZ) Development
| Investor | Numberof IZs Planned | Infrastructure Investment ($ mn) | Total Investment ($ mn) | Planned Infrastructure Cost to Total Investment Ratio ($) |
| Vietnam | 60 (81%) | 1609.0 (68%) | 3458.8 (78%) | 1:2.2 |
| Foreign | 10 (14%) | 575.6 (25%) | 409.5 (9%) | 1:0.7 |
| Joint Venture | 4 (5%) | 168.8 (7%) | 549.0 (13%) | 1:3.3 |
Source: Ho Chi Minh CityWeb, 1999; Vietnam Trade Network, 2001
Borrowed from abstract economic space alluding to fields of forces emanating from a propulsive industry (Perroux, 1961; Gore, 1984), growth pole policies have, however, been confounded by a number of conceptual problems when applied in real geographic space. Most of these problems direct attention to two questions: how to make a growth pole grow, and, if it grows, how to make its benefits spread to its hinterland.
On the first question, the general experience in Asia has been that proximity to national and international urban networks prevails over even magnificent incentives to attract investment to more peripheral locations. Being near major core metropolitan regions proves to be more compelling than almost any amount of infrastructure or subsidies provided to potential investors elsewhere. Whether this polarization tendency is due to the agglomeration economies of these regions, the political power concentrated in them (they are often national capital regions) or higher order amenities such as schools, hospitals, and entertainment found in them is not clear. But the evidence is consistent: only a relatively limited number of industrial growth poles actually attract sufficient investment to begin to cover their costs of construction; a very large number remain empty or seriously underutilized. In many cases, this record suggests a severe misallocation and waste of public resources for industrial growth.
Where similar infrastructure is being provided by core regions, competition by secondary cities and industrial estates is even less likely to succeed. However, not providing such infrastructure to attract investment to core regions does not mean that it will then go to more peripheral locations within Vietnam. Industrial investment, especially in labor-intensive assembly operations, has become internationally footloose as transportation costs continue to diminish and communications advance, making corporate executives able to choose among global rather than only subnational alternatives, particularly as tariffs on imports of manufactured goods are reduced. Thus, secondary cities in Vietnam are not only competing among themselves or with Hanoi and Ho Chi Minh City – they are also competing with locations in China and in other East Asian economies and even the world for light industry and assembly operations.
In implementing its industrial estate program, the government of Vietnam is attempting to simultaneously seize the spatial advantages of three core regions – Ho Chi Minh City, Da Nang, and Ha Noi- Hai Phong (with HCMC developing as the primary growth pole) – while also providing IZ infrastructure to provinces throughout the county as a means to attenuate the likely polarization in the three core regions. To date, Vietnam has earmarked at least $1.6 billion to build the infrastructure necessary to attract and host foreign investors, which does not include the implicit subsidies to investors coming in the form of land lease below market prices, tax holidays or other benefits not generally afforded to domestic firms (Warr, 1988; UNCTAD, 2001). Official data show that this outlay has attracted approximately $3.5 billion in investment.
At first glance, the policy to spatially disperse IZs appears to be confirmed in practice as they can be found in almost all provinces of the country, which is consistent with government policies to promote spatial equity in creating opportunities for industrialization. As shown in Figure 4 to Figure 7, the industrial zones are, however, concentrated along coastal areas. Although this pattern matches the general distribution of population in Vietnam, it is also immediately apparent that outward oriented industrialization via industrial estates is not of relevance to inland or more peripheral mountain regions. Though perhaps appropriate in the context of the geographical and demographic characteristics of Vietnam, it is clear that these other regions require alternative approaches toward creating non-agricultural employment.
Figure 4
Provincial FDI per Capita and IZ Infrastructure Disbursement
Source: Ho Chi Minh CityWeb, 1999; Vietnam Trade Network, 2001
Figure 5
Provincial FDI per Capita and IZ Infrastructure Disbursement
in the Northern Region
Source: Ho Chi Minh CityWeb, 1999; Vietnam Trade Network, 2001
Additionally, Figure 4 graphically shows the polarization in core cities. The shading of the provinces represents the amount of FDI given to the province per capita and the circles represent the millions of dollars disbursed for IZ infrastructure development. As the maps show, the provinces with the most FDI also have the IZs with the greatest amount of infrastructure development. These maps also displays the severity of agglomeration; Table 4 shows that 78 percent of the IZs are located in the core regions. Additionally, recall from Table 3 that 81 percent of the infrastructure development money comes from within Vietnam, so the policy of developing the periphery appears to not have as much priority as developing the core.
Looking closer, however, a very large number of these zones are concentrated in the metropolitan regions of Hanoi-Haiphong, Da Nang and contiguous extensions along the central coastline, and the greater Ho Chi Minh City southeast region. These core regions have received 91 percent of the planned infrastructure and 98 percent of the total $4.3 billion investment in production in industrial estates (Figure 4 to Figure 7). Thus, the remainder of the nation has yet to see a significant share of IZ investment by firms despite the $200 million spent on IZs outside of the core regions. Some IZs have become quite successful in certain provinces, primarily in HCMC. The lack of FDI in other regions compared to HCMC is comparative to the disappointments other countries have felt in trying to develop IZs to attain objectives of industrial decentralization away from core regions.
Figure 6
Provincial FDI per Capita and IZ Infrastructure Disbursement
iin the Central Region
Source: Ho Chi Minh CityWeb, 1999; Vietnam Trade Network, 2001
More than three-quarters (78 percent) of the IZs in Vietnam are in one of the three core regions with almost half of the total IZs in the HCMC metropolitan region alone. Table 4 below displays the wide discrepancy in the spatial development pattern of IZs in the core and the periphery. This shows how just the poles are growing and firms are agglomerating around them, leaving the periphery behind and likely causing backwash. Despite the periphery having 22 percent of the IZs in it, these IZs have only received 8 percent of the planned infrastructure investment and 2 percent of the industrial investment dollars. Additionally, while the core has disbursed 25 percent of the planned infrastructure investment, the periphery has only disbursed 3 percent of the planned infrastructure costs. HCMC by far has the greatest infrastructure disbursed to investment ratio. The high ratio in the periphery can be explained due to the low level of disbursement of infrastructure funds.
Figure 7
Provincial FDI per Capita and IZ Infrastructure Disbursement
in the Southern Region
Source: Ho Chi Minh CityWeb, 1999; Vietnam Trade Network, 2001
Table 4
Infrastructure Costs and Investment in IZs in
Three Core Regions and Periphery, 2001
| Region | Number of IZs | Planned Infrastructure Investment ($) | Infrastructure Investment Disbursed ($ mn) |
Percent of Planned Investment Disbursed | Total Investment ($ mn) | Infrastructure Disbursed to Investment Ratio ($) |
| Core Regions: | 58 (78%) | 2,153.6 | 536 | 25 | 4,337.3 | 1:8.1 |
| Hanoi- Haiphong | 10 (17%) | 500.3 | 231 | 46 | 516.2 | 1:2.2 |
| Da Nang | 12 (21%) | 184.6 | 13 | 7 | 62.0 | 1:4.8 |
| HCMC | 36 (62%) | 1,468.7 | 292 | 20 | 3,759.1 | 1:12.9 |
| Periphery | 16 (22%) | 199.8 | 5 | 3 | 80.0 | 1:16.0 |
Source: Ho Chi Minh CityWeb, 1999; Vietnam Trade Network, 2001
In addition to the spatial concentration of investment in IZs, a common concern in implementing similar growth pole strategies in other countries is whether they are acting as propulsive engines of industrialization that generate upstream and downstream multiplier effects in the host region and deeply into the national space-economy. A principal indicator of this is the degree to which FDI can be shown to generate the growth of local firms through sub-contracting and other mechanisms. By creating these IZs, the host nations generally expect investors to use local raw materials, transfer technology, and improve local working conditions and wages. In the long-run, this should lead to less foreign dependence for expertise, technology and research and development, more balanced distribution of income, create a population balance by provoking or preventing migration, greater integration in international trade flows, and diversification of foreign factors of production (Basile and Germidis, 1984:13).
Whether global investment is linking with and generating growth of local enterprises in Vietnam is an important question for further research. One window on this question is migration, namely, whether job creation through FDI goes beyond local labor force supplies to provide new sources of employment for migrants, most of who in Vietnam are migrating to the city (and frontiers) from densely-settled rural areas. In anticipation of the expected job creation, many laborers migrate to the core regions where they expect to find work in the IZs or in jobs created through the expected local industry linkages. The map series Figure 8 through Figure 11 juxtaposes migration trends in Vietnam with patterns IZ investment. The background shows the level of in-migration per region, and the circles represent the location of each IZ and the level of investment into each one.
The maps clearly show that the greatest number of IZs and the ones with the greatest amount of investment are located in the regions that have had the greatest amount of in-migration. The exception to this pattern is the Central Highland region, which has experienced heavy rural-to-rural migration for land and employment in cash crop production. The other two regions with the heaviest in-migration are the HCMC and Hanoi-Haiphong extended metropolitan fields. These are also the two regions that have had the greatest amount of FDI, suggesting that migrants travel to these regions because they expect to find jobs there with the influx of investment dollars.
This correlation between FDI in industrial zones and migration might, however, be spurious. Available evidence suggests that to date the employment impact of FDI has not been large enough to account for significant levels of migration to the receiving metropolitan regions. One reason is that in typical cases of FDI in labor intensive activities, IZs tend to be enclave operations with limited local linkages. The reasons for this are many, including the need to produce reliable standardized parts that are produced for final assembly in other countries, lack of skills in local firms, and other practices in the oligopolistic competition among TNCs, such as the desire to protect technology from being made accessible outside of parent firms. As noted, more research is needed on this issue.
In addition, an earlier study sponsored by the Australian National University (Warr, 1988) found that industrial and export processing zones designed to attract FDI are also subject to sudden abandonment by footloose firms especially in light manufacturing, which, thanks to governments bearing the costs of infrastructure for industrial sites, has low sunk costs and can be readily relocated to other regions or countries.
Finally, it bears repeating that FDI has declined relatively since the 1997 crisis and, further, a very large share is in capital intensive, rather than labor-intensive, energy sectors, rather than in manufacturing or assembly. In the future, should FDI begin returning to Southeast Asia and Vietnam is able to streamline its FDI processing through government, which has been one of the principle reasons given be investors for shying away from Vietnam, then it might begin to play a more demonstrably key role in the urbanization process. But even if this were the case, and following the experiences of other East Asia economies, the pattern would still likely be one of polarization in the Ho Chi Minh City region and, secondarily, in Hanoi and the Hanoi-Haiphong corridor. As such, most regions of the country will need other strategies to generate non-agricultural employment.
Figure 8
IZ Investment Patterns and 1994-1999 Migration Trends in Vietnam
Source: Ho Chi Minh City Web, 1999; Vietnam Trade Network, 2001; GSO, 2001
Of interest in the extreme north of Vietnam is the affinity of investment toward border towns of China (Figure 9). Elsewhere in East Asia as well, border towns have over the past two decades become important growth points forming transborder regional economies with provincial areas of neighboring countries. Thailand, Malaysia, Singapore, Indonesia, and the Philippines have all formally fostered the growth of these regions (Douglass, 2000). The importance of the shift in national policy manifested by these new transborder regional formations should not be overlooked. Borders, once outposts of national defense, are fast being transformed into economic lines demarcating a territorially created division of labor between adjoining countries.
The most well-known of the transborder regions in East Asia is the Sijori Growth Triangle composed of Singapore, Johor Bahru in Malaysia, and a few of the Riau islands in Indonesia. In the case of Vietnam, it is well known that border trade with China is a vital dimension of the economy. Development corridors between Hanoi and key border towns will undoubtedly be an increasingly important dimension of the expanding space-economy, especially as trade liberalization proceeds.
Figure 9
IZ Investment Patterns and 1994-1999 Migration Trends in the Northern Region
Source: Ho Chi Minh CityWeb, 1999; Vietnam Trade Network, 2001; GSO, 2001
As shown in Figure 10, Da Nang is the only significant site for investment in the Central Region. Yet migration in and to this region remains principally rural-rural, with the Central Highlands acting as a relief valve for the increasing densities in other rural regions. This has produced little in terms of urbanization, however, as industrial zones have little meaning for such low-density inland areas and non-agricultural production, such as agro-industry, from the cash crops in the region does not seem to be significant.
As noted, Ho Chi Minh City and the southern region dominate urban-industrial development patterns in Vietnam (Figure 11). Can Tho is the major industrial pole outside of HCMC. Given the difficulties in connecting HCMC with southern areas of the Mekong Delta, which due to major flooding requires costly bridge and other types of construction, the major issue in the coming years is how to link the dynamics of rural and urban development in the southern areas of the delta with the economy of HCMC and the gateway to the world economy that it represents.
Figure 10
IZ Investment Patterns and 1994-1999 Migration Trends in the Central Region
Source: Ho Chi Minh CityWeb, 1999; Vietnam Trade Network, 2001; GSO, 2001
In sum, globalization via industrial zones has resulted in some areas receiving substantial amounts of investment that have promoted objectives of improving employment opportunities for unskilled and semi-skilled workers. These remain highly spatially polarized, however, and, although current employment generation is not at high levels, if FDI rates recover from the current downturn, transnational investment in export-oriented manufacturing is likely to become major contributors to migration to metropolitan areas, most notably Ho Chi Minh City. Many of the IZs in more peripheral provinces have hardly any and perhaps even no investors to date, suggesting a mismatch between national industrial strategies and their particular comparative advantage in attracting footloose industry.
Finally, the local spread effects of FDI investment into domestic firms and technology transfer appears to be limited even in successful IZs. These findings raise policy questions about the economic efficiency of on-going interprovincial and intercity competition for footloose industry through the construction of IZs and associated incentive packages. In so doing, they also raise crucial issues about the resilience of Vietnam economy.
Figure 11
IZ Investment Patterns and 1994-1999 Migration Trends in the Southern Region
Source: Ho Chi Minh CityWeb, 1999; Vietnam Trade Network, 2001; GSO, 2001
Global-local space-economy of competition for FDI (return to index)
The heavy reliance in policy and expectations of growth to be created from FDI has intensified competition to attract it among provinces in Vietnam, as it has throughout Asia and the world. Within Vietnam, HCMC has been the major winner in attracting FDI. It alone has garnered 85 percent of total planned foreign investment within the country (Ho Chi Minh CityWeb, 1999; Vietnam Trade Network, 2001). In order to attract such a high portion of the foreign investment, the provinces in the HCMC metropolitan field have tapped into their long entrepreneurial traditions and market savvy. This experience plus its favored location as a major port city have combined with aggressive provincial policies to allow this region to out-compete by far all other regions of the country.
The elements of HCMC’s success are many. First, the city has created a streamlined process to approve FDI projects within 15 days. Normally, a business would need to go through a long process requiring various ministries of the central government’s approval, but HCMC has been allowed by central government to control the entire approval process (DPI, 2001a). Secondly, HCMC provides major tax incentives to investors. Currently, the city has four tax rates (0, 5, 10, and 20 percent), yet multiple exemptions exist for each of these categories and most of the preferential tax rates last up to 15 years (DPI, 2001b). It is up to each firm to negotiate the most favorable tax exemption that it can leverage.
Another major incentive that the government provides foreign investors is below market land rent prices. Just as with the taxes, each firm negotiates the most favorable package for itself with the government when developing their investment contract. Often, the firms can gain even better land rents inside of the IZs (DPI, 2001c, d). The rates in the IZ remain constant and can potentially be negotiated to even better rates. Meanwhile for most domestic enterprises and households under the new market-driven real estate system, land prices in HCMC have increased 20 percent (Hong Kong Trade and Development Council, 27 Sep 2001), which means that urbanites are subsidizing IZ investors at ever higher rates.
To compete with HCMC, other provinces have to create even greater incentives. For example, Dac Lac in the Central Highlands is offering free land rent for 15 years and a ten-day maximum licensing process to attract FDI (Vietnam Economy, 5 Oct 2001). Despite these already generous incentives, the national government is seeking ways to offer even more incentives to attract more foreign investors into the domestic market (Vietnam Economy, 4 Oct 2001). Among the issues being addressed is the dual pricing system for such services as airline tickets and communications, which charges non-citizens rates substantially higher than for citizens. An issue underlying all the state-investor relations are complaints about under-the-table rent-seeking behavior by some regulatory officials that seriously impedes the ability of investors to get their operations on the ground and going.
Despite the many generous incentives and the relative success of the HCMC metropolitan field in attracting FDI, Vietnam has experienced a decline in total FDI in recent years, as has the rest of Southeast Asia, and seen a shift in the FDI dollars moving to China. Figure 12 shows the foreign direct investment in East Asia between 1997 and 1999 and shows how all the nations depicted, except for Korea, have experienced decreases in total FDI, while China has gained new FDI approximating the amount lost by the other nations.
Figure 12
Foreign Direct Investment in East Asia, 1997-1999
Source: UNCTAD, 2001; Douglass, 2001
In addition to the general downturn, the more advanced industries being promoted -- electronics, information technology, and biotech research -- by establishing research institutes and schools in addition to all the other incentives are the same sectors hardest hit during the economic crisis and have still yet to recover. As the director of JP Morgan Chase’s Asian economic and policy research unit stated, “Over dependence on electronics exposes the region to huge cyclical swings, [which] Asia is paying for now (FEER, 6 Sep 01).”
As competition within Asia has become more intense since the financial crisis in 1997, Vietnam has continued to try to replicate the past path of success in Asia, recognizing that the stakes are being competitively pushed higher and higher among candidate nations and regions while FDI has not been expanding in Southeast Asia. The importance given to reforms Vietnam has embarked on to comply with AFTA, the US BTA, and to qualify for entry into the WTO is indicative of the great hope being placed on expected trade with the US and Europe. Given current trends and issues, the case is readily apparent for seeking a better balance between the reliance of global investment and the mobilization and promotion of endogenous resources and capacities.
.04 Growth Pole Decentralization from HCMC (return to index)
While national policies are in principle seeking to more evenly distribute industry broadly over national space through the creation of provincial industrial zones, the metropolitan region of Ho Chi Minh City is also attempting to spatially organize its expansion through the establishment of more localized growth centers around the metropolitan core.
HCMC in the national economy (return to index)
Ho Chi Minh City is rapidly expanding as the primary national growth pole in Vietnam. The city’s share of economic activities in Vietnam surpasses that of any other city or province. With a population of 5-7 million people, or 7-10 percent of the population (depending on official versus estimated population size), the city had a per capita GDP of $1,365 compared to the nation’s per capita GDP of $387 in the year 2000 (HCMC People’s Committee, 2000; Vietnam Venture Group, 2001). Additionally, the city itself, not including the economic activity in the surrounding provinces that also make up the HCMC metropolitan field, accounts for nearly one-fifth (19 percent) of the national GDP, 34 percent of the central government budget transfer to local government, 13 percent of local expenditures, and obtains 22 percent of the total investment dollars in Vietnam. In almost all measures, HCMC is a major component of the Vietnam space-economy, and, under current national strategies and the opening of Vietnam to the world economy, it will likely absorb even larger shares of national economic resources as the urban transition continues (HCMC People’s Committee, 2000).
HCMC has achieved greater than national average economic growth rates, but has also followed the national GDP growth pattern of a downturn in 1996 that did not seem to begin to recover until 2000. In 2000, the service sector accounted for 53 percent of the city’s GDP, while industry and construction accounted for 45 percent, and agriculture was 2 percent (HCMC People’s Committee, 2000). Currently, the foreign firms favor investing in the industrial and hotel and tourism sectors (DPI, 2001f). Foreign firms come to the IZs to produce low value added commodities and use the low cost labor resources available while taking advantage of the locational benefits, economic acumen, and special incentives of HCMC. As of yet, few of these activities seem to have strong employment or inter-firm multiplier effects in the economy.
HCMC accounted for 28 percent of all FDI attracted to Vietnam by the end of the first half of 2001 (VIR, 2001). Additionally, if the entire HCMC core region, including the southern provinces of Dong Nai, Binh Duong, and Ba Ria – Vung Tau, is considered as a single metropolitan region, then this region accounts for an astonishing 74 percent of the total foreign investment in Vietnam (Cohen, 13 Sep 2001). Of this investment, 62 percent has gone to joint ventures and 27 percent to fully foreign-owned enterprises (HCMC People’s Committee, 2000); the remaining 11 percent has gone to business cooperation and offshore investment (DPI, 2001f).
Despite its comparative success in attracting FDI in Vietnam, HCMC has experienced declines in the levels of investment. The city saw steady growth from 1993-1995, but then steady decline in realized investment from 1996-2000 (HCMC People’s Committee, 2000). To overcome the decline in FDI, the HCMC government has taken the lead in developing IZs in Vietnam and has streamlined legal measures to make investing in HCMC less complicated for foreigners. Yet despite the push by the government to attract FDI to the IZs, very little goes to them. In the first eight months of 2001, HCMC licensed $250 million in new FDI projects. Of these projects, only $40 million went to thirty projects inside the IZs, the remaining $210 million and eighty-three projects were licensed outside of the IZs (Vietnam Economy, 12 Oct 2001).
Due to inconsistent data from newspapers and government sources, however, the total percentage of all FDI projects that has gone to developing businesses or constructing IZs cannot be determined. This inconsistency is highlighted in trying to determine the number of people employed in the IZs. Currently in HCMC, there are a total of 10 IZs (2 EPZs and 8 IPs) that employ 107,000 workers - 47,000 at the EPZs and 60,000 at the IPs (DPI, 2001e). How many of these jobs were created through FDI is not known. In 2000, the city’s total labor force was 3.35 million people, of which 682 thousand were considered “qualified labor” (DPI, 2001g). Despite the heavy emphasis on IZs and FDI, only 28 percent of total investment in the city – inside and outside of IZs came from foreign investors. Of the rest of the investment distribution in the city, 23 percent were from SOEs and 13 percent from domestic private enterprise in 2000 (HCMC People’s Committee, 2000). Although data shows that the majority of FDI in HCMC goes into industrial production, housing, and hotels and tourism, consistent data is not available to show how much of each industry’s investment exists in the IZs.
The HCMC metropolitan field (return to index)
Regionally, HCMC is part of the Southeast region that also contains Dong Nai, Binh Duong, and Ba Ria – Vung Tau provinces. These four provinces are ranked one, three, four, and five respectively, in terms of FDI received and account for 52 percent of the total FDI in Vietnam (VIR, 2001) and 74 percent of all investment (Cohen, 13 Sep 2001). This total area can be called the HCMC metropolitan field, but until now, each province has acted autonomously of one another in policies concerning economic development. A goal of HCMC during the past decade was to create closer ties and economic coordination with these provinces, but these efforts did not bear fruit during the 1990s (HCMC People’s Committee, 2000). The underlying lack of coordination will possibly improve over the next five years as HCMC gains greater autonomy in making economic policy and the city moves forth with its plans to create polycentric decentralization growth nodes. Prime Minister Phan Van Khai has come to an agreement with the leaders of HCMC to allow them more freedom in creating economic and administrative policies and possibly a larger portion returned to the city of the money it contributes to the state. In return, HCMC promises to promote and generate more business and investment, which will lead to greater revenues sent to the central government (Cohen, 13 Sep 2001).
By obtaining these extra freedoms and funds, the city will be more readily able pursue its Five-Year Plan for development. In the plan, the city calls for three general solutions to promote rapid economic development: (1) increase the total investment of society in the city; (2) raise the investment efficiency; and (3) expand the market for production and services of the city. These solutions are very broad and the city is placing a lot of emphasis on developing the “spearhead” industries of electronics, information technology, and new material and biotech in Ho Chi Minh City and trying to create greater links to the market place (HCMC People’s Committee, 2000). Creating linkages with the global market is important for the future of the city’s economy. The decision to develop new sea routes from the port in HCMC to Pusan, Vladivostok and Bangkok are important steps in developing the role of HCMC in the global economy (Vietnam Economy, 10 Oct 2001a). Additionally, the recent decision to gain support from Japan to finance the urban transport system in HCMC will also help to improve transit in the city and increase the potential to attract foreigners to invest in and conduct business in HCMC (Vietnam Economy, 10 Oct 2001b).
In view of the many positive steps being taken to improve the local and global transportation linkages, the emphasis on developing businesses in the “new economy” needs to be carefully assessed as a principal FDI strategy component. HCMC does not have comparative advantage over other countries in the region in the IT, electronics, or new material and biotech sectors. Two of the key limiting factors are HCMC’s lack of educated workers in these fields and of managerial skills. Between 1991 and 2000, the city government had a stated emphasis on developing these sectors, which was put into practice by essentially focusing on the establishment of the Quang Trung Software Park as the principal tool (HCMC People’s Committee, 2000). This park has not been very successful, however, reportedly because of the lack of skilled workers and managers that understand the needs of the global customers and are not competitive with the other software developers in South and Southeast Asia. Despite this, the city still projects increasing the size of the IT sector by 65 percent in 2005 through generating between $250-300 million in investment and employing 20,000 workers (Vietnam Economy, 10 Oct 2001c).
In order to overcome the current problems and make this possible in this sector and the other “spearhead industries,” the government has established four new institutes in HCMC to train the workers needed for these industries; this will include one institute for each, IT, mechanics and electronics, biotech, and new materials (Vietnam Economy, 2 Oct 2001). This is a positive step in improving the social infrastructure of the city, but developing the IT sectors to become a vanguard of economic growth and resilience will require much broader and longer-term investments in education, Vietnam based R&D, and market development.
The spatial dimension of economic growth is also a major element of the current HCMC development plan. Specifically, the government of HCMC is pursuing the creation of polycentric growth nodes to spatially organize the expansion of the economy outward into its greater metropolitan field. HCMC has experienced the same economic downturns as the rest of the economy and much of East Asia has over the last few years, and government wants to prepare the city to better deal with similar challenges in the future. By establishing itself as the center of science and technology, finance and transportation, and travel and culture, the city feels it will modernize its and the nation’s economy. By refracting these developments away from HCMC and concentrating them in a select number of sub-centers, the spatial strategy portends to allow HCMC to ameliorate many of the social and environmental pressures stemming from rapid rates of population and economic growth, which will in turn, sustain the attraction of investment to the region in a spatially and economically efficient way.
The HCMC master plan for the creation of a multi-center metropolitan field includes the integration that it has hoped to develop with its surrounding regions. Some parts of all of the bordering provinces are included in the master plan. Outside of the current municipal boundaries of HCMC, the plan anticipates the development of sixteen different centers of growth. Figure 13 shows the general development plan for the city. The circles represent the locations of the decentralized growth nodes, while the arrows represent the likely trend of the city’s growth, which is planned to the east and northeast, towards Ba Ria Vung Tau, Dong Nai, and Binh Duong.
In its efforts to accommodate future growth in sub-centers away from the metropolitan core, the HCMC Department of Planning and Investment calls for the expansion of the current 14 inner districts to a total of 22 and to consider the outer area as the “counter-weighted urban area.” They expect that the outer area will have a population of over 3 million people and that the economic focus of the whole metropolitan field will be in labor intensive, high-tech oriented industries – or the “spearhead” industries (DPI, 2001h). Combining the inner city population with the outer area, the city expects a population of 10 million people in the developing greater HCMC metropolitan region, which is a major population leap in the urban transition, considering that the official population is now just over 5 million people. But since many observers estimate that HCMC now has 2 million more people than the official numbers, even these projections are likely to underestimate the future population. In either case, major investment will be required in social infrastructure, transportation, and housing to accommodate an expected doubling of the population.
Another related attempt at a planned spatial solution to future needs is the creation of Saigon South, which is one of the officially identified development poles of the region. It is a planned city for one million people being built four kilometers south of HCMC across the Ben Luc River and Doi Canal. This city has been jointly developed by the Tan Thuan Industrial Promotion Corporation (an SOE of the HCMC People’s Committee) and the Taiwanese owned Central Trading and Development Group (Saigon South, 2001). This group has also developed the nearby Tan Thuan EPZ, which is now promoting its software park (Tan Thuan EPZ, 2001). The area also has its own power source, from the Hiep Phouc Power Plant (Hiep Phuoc, 2001).
Figure 13
HCMC Metropolitan Field’s Likely Growth Pattern
Source: After structural plans of the Ho Chi Minh City Department of Planning and Investment
In the context of already high level of concentration of industrial investment in the HCMC region, this level of investment, population and industrial pressures in the southern provinces seems likely to create unexpected sprawl beyond officially targeted areas and is thus an area requiring close attention. In the long-term, economic and social pressures from the southern provinces will force the link up of the two regions and create intense pressure to build more infrastructure in the southern part of HCMC to Tien Giang, Vinh Long, and Can Tho.
In its expansion, the HCMC metropolitan region will face increasing in-migration as people expect to find jobs around the city and as firms agglomerate and create greater economies of scale among industries and in the metropolitan sphere as a whole. Given that official population data does not include most of the unapproved migration to HCMC, and in view of the unofficial estimates that the population is already at the 7 million mark, the metropolitan field of HCMC could readily reach 14-20 million people in two decades from now.
Whether successful or not in attaining a polycentric pattern of expansion, the on-going economic trends reported here have clear population implications: the HCMC metropolitan region will absorb increasing shares of the national population, mostly through migration, but also through extension of urban boundaries into urbanizing hinterlands. In any event, the population will likely be much greater than the seven million people projection for 2010 (HCMC People’s Committee, 2000). As noted, one of the SOEs of the People’s Committee, the Tan Thuan Industry Promotion Corporation, says that the population of HCMC is already seven million and will be at least ten million by 2010 (Saigon South, 2001). The main question is not whether the metropolitan region will grow far ahead of official projections, which is certain to be the case, but rather it is how to spatially organize the expected growth of the region to create not only the conditions for economic growth, but also a livable habitat in which poorer members of society can have access to decent housing and basic services.
.05 Agriculture, Rural Development and Urbanization (return to index)
Spatial patterns of urban growth are taking place in a country that is still substantially agrarian in its population distribution, economic structure and employment. In similar experiences in the urban transition now beginning in Vietnam, agricultural regions in developing countries have typically faced three problems: levels of productivity fall further and further behind those of industrializing cities; commercialization of agriculture results in over specialization in one or a limited number of crops, leading to “boom-bust” swings in the local economy; and a failure to locally generate remunerative non-agricultural employment, which tends to polarize in expanding metropolitan regions. Contrary to models calling for a “strengthening of rural-urban linkages” as a means of stimulating rural development, such linkages just as often heighten backwash effects that result in outward flows of capital, natural resources and labor to metropoles (Douglass, 1998). With few local multiplier effects from commercial crop production or natural resource extraction, incremental additions to the labor force can no longer be absorbed in the regional economy and thus join the march to the city.
Classic models of economic growth in developing countries (Lewis, 1954) implicitly posited this as a virtuous process of transferring rural surplus labor to urban industry at a constant wage until accelerated industrial “take off” would eventually lead to labor surpluses and rising wages all around. This theorizing came before the green revolution, biotechnology, and other changes such as the industrialization of agriculture and small farmer sub-contracting to global agribusiness, all of which cautioned against treating agriculture as a moribund sector of the economy. Nevertheless, even where agriculture becomes more productive, it tends to shed labor – particularly when mechanization of farming begins – rather than absorb it. In the extreme cases of Japan and now South Korea, the end result of this process is severe rural depopulation resulting in an aged rural society, decline in urban functions, and a loss of social support systems for vast areas of the country (Douglass, 2000).
From a spatial perspective, this tendency means that unless non-agricultural employment and urban-like functions can be generated in rural regions, even high rates of productivity increases in agriculture will also generate streams of migration to cities. However, the lack of local multipliers from agriculture and the generally low incomes of agricultural workers result in towns also failing to grow in agrarian regions located away from metropolitan areas. Thus migration turns toward a few very large urban regions that are favored as industrial growth poles, political centers and principle national service centers. The principal exceptions to this is rural-rural migration from densely-settled heartlands to frontier regions where population densities are low and commercial agriculture expansion is accomplished through massive opening of new farms bringing previously untilled land into cultivation. In some countries, such as Indonesia, Malaysia, Sri Lanka and Vietnam, state sponsored migration to these regions has been attempted on a massive scale, but with very mixed success.
In addition to having experiences in state sponsored rural-rural migration, Vietnam is beginning to share many of the characteristics of the general experiences of outmigration from densely-settled rural regions accompanying rapid urbanization and the polarization of development in a limited number of large city regions. Past patterns of relatively slow growth of cities reflected state control over access to cities, large-scale rural-rural resettlement programs and the effects of war. Following doi moi reforms, the patterns are now turning toward larger urban regions and more clearly reflect differences in economic opportunity as the space-economy of Vietnam shifts toward globally-linked urban-industry led growth. Nonetheless, Vietnam shows important exceptions to this pattern that could provide the basis for an alternative pathway of urbanization based on localized rural-urban linkages. These exceptions arise from long histories of localized patterns of non-agricultural proto-urban development, including rural industrialization in addition to crafts and central place service functions at the village and commune level (Chapter 1).
The limits of agriculture as rural development (return to index)
An estimated 63 percent of the national labor force works in the agriculture sector on either part-time or full-time basis (this compares to 13 percent in construction and manufacturing and 25 percent in services) (MoLISA, 2000). As is the case in almost all developing countries, the productivity of labor in agriculture is relatively low, as evidenced by the fact that agriculture’s share of the GDP was 24 percent in 1999, which was down from 26 percent in 1996 even though agricultural production increased during these years (VET, 2001a).
Although its share of GDP has been declining, agriculture yields have been increasing. Between 1990 and 1999, the agriculture sector experienced an average annual production yield growth 4.5 percent. Within the food production sector, the average annual growth rate was 5.3 percent (ICARD, 2001a). This growth was three times greater than population growth, which allowed for increased food product exports. Agricultural exports accounted for more than one-third of the 1999 total exports of Vietnam. Rice cultivation occupies more than half of Vietnam’s agricultural land. In 1990, the total rice cultivated area was 6 million hectares and that reached 8.9 million hectares in 1999 (World Bank, 2001a). The expansion of the cultivated area and techniques that produced higher yields per hectare increased total rice production from 19.23 million tons in 1990 to 31.3 million tons in 1999. Vietnam has changed from having to import 450,000 tons of rice in 1988 to a country that exported 4.5 million tons of rice in 1999 worth $1 billion, making it the second largest exporter of rice in the world with a twenty-one percent market share (ICARD, 2001a).
Other than rice cultivation and production, Vietnam concentrates on the production of industrial crops – both perennial crops (coffee, tea, rubber, cashew nuts) and annual crops (sugarcane, groundnut) – that have recently experienced annual production growth rates of 10 percent. Of these crops, coffee and rubber are Vietnam’s most exported agricultural goods. In 1999, coffee production reached 486 thousand tons valued at $592 million, 5.2 times higher than 1990 and making it the second largest coffee exporting nation in the world after Brazil, and its planted area grew by 15 percent per year to a total of 397.4 thousand hectares in 1999. Along with the statistical success of coffee, rubber production increased 3.7 times in 1999 from its 1990 level, with 263 thousand tons exported worth $145 million (ICARD, 2001a).
The recent decline in coffee prices has led to a reduction in production as well as income from coffee production (Box 1). This has led to surplus agricultural labor that undoubtedly feels pressure to migrate to other regions, most likely HCMC or Hanoi. With extreme specialization in coffee in some provinces, notably Dac Lac, and limited upstream or downstream linkages to coffee production in the region, no other sectors are readily able to replace coffee as an export. Such episodes show the need to clearly consider the regional dimension of agriculture sector policies. At the national level these policies are acclaimed as measures to diversify the economy; on ground level over large areas of sub-national regional space, the effect can be the opposite. The drop in world coffee prices quickly reverberates back to a region that had previously been the target of migration from other rural regions that was already creating unease between ethnic minorities and Kinh migrants.
Doi moi and rural development policy (return to index)
Specialization in cash crop production has been a key element of doi moi reforms. In April 1988, the Politburo of the Communist Party adopted Resolution 10, which introduced a contractual quota system to replace the conventional quota system and officially recognized the establishment of individual and private farming household (Que, 1998). Through this resolution, the government redistributed cooperative land to households, gave them contracts to produce a specified quota crops, and allowed them to sell any surplus crops. Three drawbacks of Resolution 10 – land distribution based on number of household members, peasants not owning land, and not allowing occupants to transfer land – led the government to adopt a revised Land Law in 1993 that helped improve land use efficiency. This allows contracted households the right to 20 years of land use and also allows the farmers the right to transfer, exchange, lease, inherit, or pawn the land. Although the government could in principal reclaim the land after 20 years, in practical terms, this law essentially provides landownership to these households (Murano, 1996).
Box 1
Coffee Production in the Central Highlands
The adoption of Resolution 10 and the revised Land Law provided the impetus that restructured Vietnam’s traditionally collective agriculture into individual and private farming, which has contributed to the consolidation of farming businesses and increased exports of agricultural products. As such, from a national economic perspective, it has increased the efficiency of agricultural land use and aided in alleviating rural poverty. However, at local levels, when added to policies for cash crop exports, the risks can be high. Ethnic minorities are not readily willing or able to move into these market-oriented regimes and feel threatened by loss of land and environmental degradation resulting from extensive expansion of migrant farms.
Moreover, the high level of regional specialization has not created the type of economic resilience needed to sustain poverty alleviation through export-oriented agriculture. As shown in Figure 14, commodity prices for Vietnam’s key export crops have fallen tremendously over the past decade. Again, due to high levels of local specialization in these crops, the regional impacts of these drops are harsher than national ones. In lieu of increases in levels of output capable of compensating for and going being the falling prices, these trends together suggest a widespread shedding of labor from agriculture which, through technological change, would likely happen anyway, even if at a lower pace.
Reflecting on urban transitions in other East Asian countries, An accelerated decline in agricultural employment in Vietnam will become an increasingly important dimension of the space-economy of developments. Japan and Korea, for example, saw the labor force in agriculture decline from more than half to less than 10 percent in a matter of a few decades as urban industrial growth took off in the 1950s and 1960s. In Vietnam, some densely-settled regions have already experienced a decline in agricultural employment. In the Red River Delta the share dropped from 73 percent to 66 percent between 1986 and 1997 (DiGregorio, 1999). This is, in general, a positive development if other sectors of the economy are more productive and agriculture also increases labor productivity. While some regions might be able to increase employment in agriculture, the overall trend of declining agriculture employment is both desirable and inevitable.
Figure 14
Selected World Primary Commodity Price, 1960-2000
Source: World Bank, 2001d
Where non-agricultural employment will be generated in this structural shift in the economy is a crucial question. If Vietnam were to follow other East Asian countries, labor shed from agriculture will migrate to a few large metropolitan regions (Douglass, 1999). While some economic gains will accrue from the freeing up of labor to move to points of highest income earning opportunities, having non-agriculture employment generated in rural regions has equally important social and economic benefits. Socially, it allows for a continuity of community and family, identity with place, and more likelihood of mutual support in poverty management. Livability is also potentially advanced by allowing households to keep green spaces to supply garden vegetables and other supplementary needs for household food consumption as well as such commercial activities as flower growing and selling to local urban markets. The provision of public services to rural regions also becomes more feasible as population densities do not precipitously decline.
Economically, as agriculture increasingly becomes a part-time occupation for many farmers, keeping labor in agriculture will require local non-agriculture employment growth needed to supplement income as well as provide jobs for family members not working in agriculture at all. If such non-agricultural employment is not locally generated, younger generations will migrate to more distant cities or, as is the case now in many East Asian countries, internationally. This would likely result in an aging farm population and rural depopulation – including depopulation of rural towns – in a very short space of time that would leave an indelible pattern of rural collapse, which in other countries has proven impossible to reverse.
At the moment, such an eventuality seems to be a science fiction scenario; yet experiences in other countries tell that it is not. However, the potential to promote a more regionally dispersed, localized or in situ process of urbanization in Vietnam is higher than elsewhere. At its stage of urbanization, migration to large cities is still relatively small. Moreover, some regions already have vital non-agricultural activities in urbanizing villages that could act as an antipode to the concentration of urban growth in a Hanoi. Vital to seizing this opportunity will be a clearer strategy for integrating rural with urban development in rural regions that goes beyond infrastructure programs to include urban functions in support of agriculture and social development in rural regions.
The government of Vietnam has recognized that a transformation of the rural economy is vital to economic growth and national development. Four types of policies have been adopted toward this end: intensifying agricultural production, diversifying agriculture, promoting off-farm employment, and targeting remote and upland areas. The first two focus on farm production through the application of technology and science, encouraging cash crop production, establishing commodity and financial markets, and promoting the growth of agro-industry. The third strategy involves rural industrialization by promoting private small- and medium-size enterprises (SMEs) and building rural infrastructure. The last one is meant to reduce poverty within ethnic minority areas through the provision of extension services and better farming practices (World Bank, 2001c). As stated, to be more effective toward the ends of reducing poverty, building resilient rural economies, and contributing to environmental management and livability, a clear spatial dimension to these policies is an important addition to sector development policies and projects. Among the most important of these spatial dimensions is the role of craft and industrial villages in capturing the synergies in rural-urban linkages in rural regions.
.06 The Third Economy – Craft and Industrial Villages (CIVs) (return to index)
In contrast to the past state-owned enterprise led economy and the newly embraced globally driven transnational corporate economy, which are top-down policy driven sectors, a third potential vanguard of economic development has been emerging through doi moi reforms from endogenous origins in craft and industrial villages (CIVs) in rural and peri-urban communes of Vietnam. Overlooked by much of the statistics collected and by donor policy initiatives, this endogenous source of non-agricultural production is already substantial. It is also the most obvious foundation for both linking rural with urban development and for fostering in situ urbanization from within rural regions and away from the high-density metropolitan centers of the country. Evidence from the Red River Delta (DiGregorio, 2001) shows an extraordinarily diverse complex of rural industries in many sectors. Though endogenous in origin, these enterprises are not “domestic” in the sense of only selling to local markets. Many are already successfully exporting to the world market. This sector provides the base of economic resilience in the economy through a from the bottom distribution of economic activity. The activity begins in these rural and peri-urban areas and through multiplier effects and upstream and downstream linkages, creates activity in other villages, towns, and eventually reaches the cities.
While, due to lack of data being routinely collected on CIVs, the total magnitude of these endogenous industrial enterprises is not known, they are the actual foundation of the non-agricultural economy and have become a singularly important source of economic resilience in Vietnam. It is estimated to account for 41 percent of the total GDP and employs 64 percent of the industrial workforce, and these percentage shares are increasing (World Bank, 1999:11-13). Within this economy, household enterprises create 83 percent of its contribution to the GDP and employ 58 percent of the workers. The rest of the economic activity occurs within domestically owned small and medium size enterprises, most of which are export-oriented businesses that export about twice as much as the foreign invested enterprises.
Revealing the depth and potential of the CIVs and the third economy also reveals a new map of the urban transition. As shown in Chapter 1 and below, when the identification of local networks of non-agricultural enterprises is seen in relationship to the actual densities of rural communes – especially in the Red River Delta – the potential for an alternative pattern of urbanization based on strengthened rural-urban linkages appears.
There are, however, formidable obstacles that could inhibit the realization of this potential. Much of the third economy is perceived not to even exist and thus receives little or no support. Credit, producer services, infrastructure, and market linkages are among the bottlenecks faced by many of the enterprises in this sector. The growth of this economy in more remote mountainous areas where ethnic minorities reside is frustrated by monopsonies controlled by buyers of crafts who are the principal avenues of access to urban markets. As the economy opens to the world market, many of these enterprises will also face new forms of competition from global producers.
Craft and industrial villages (return to index)
Much of the existing potential of the third economy is emerging from urbanizing villages that produce non-agricultural goods and services. Summarized as craft and industrial villages (CIVs), they are actually quite diverse and consist of crafts, services and industries. Many of these activities have survived over long periods of history in Vietnam with origins that in some cases are reported to date back more than two thousand years. Ancient Vietnamese people adopted vocational skills from China, such as rush mat weaving, copper foundry and smithing, lacquer ware, engraving for printing, parasol making, embroidery, and silk weaving. They also carried out both product and production process innovation to manufacture numerous consumer goods and tools. Though a family gained additional income by making crafts, the family’s primarily income source was growing rice. These traditions continue today, with many households now gaining most of their income through non-farm activities (Booth, 1997).
After the establishment of Democratic Republic of Vietnam in 1954, the ideology and system of the planned economy threatened the existence of CIVs and discouraged their development. Yet somewhat paradoxically, the protection of the economy from world trade, created under socialism, allowed for the continuity of CIVs through sideline activities in Vietnam, while these activities have routinely collapsed in the rural regions of Southeast Asian nations that have adopted open market-oriented economies. Recent policy shifts toward a market-oriented economy in Vietnam now offer a new paradox of offering greater market access for crafts and other local products while, at the same time, transforming craft production from its basis in cultural practices to a basis in commodity production for mass markets in wider spheres of competition in what are increasingly becoming oligopolistic international markets. In the short term at least, the policies have allowed for a possible re-emergence and emergence of diverse CIVs that generate off-farm income and employment (Booth, 1997; DiGregorio, 1999).
CIVs consist of diverse economic enterprises composed of numerous types of actors and groups of people that have spatial networks extending beyond villages and communes to cities and even international markets. People involved in CIV activities play different roles according to their skills and knowledge. Some of them live in the villages where production takes place while others are from other villages or towns and cities where the products are distributed and marketed. Similarly, the scales of production vary based on the different production processes and products produced by a particular village (Booth, 1997). Currently, CIVs can be found throughout the country, although a large share, around 30 percent, are clustered within the Red River Delta region (DiGregorio, 1999). By analyzing this area as representative of the CIVs throughout the entire country, it is possible to identify six general production categories and characteristics.
The first category is handicraft villages, in which each household acts as its own cottage industry. This group specializes in producing daily goods and tools, such as the scissors, knives, baskets, and mats that rely on craftsmen to use hand and power machinery production techniques. The second group is art craft villages that specialize in cultural and decorative goods, such as inlaid wooden furniture, lacquering, statuary, embroidery, and silver jewelry. The third type of village is the service and trading village that usually does not manufacture any of the goods that they trade. The fourth category is the industrial villages that produce semi-finished and finished industrial goods that typically develop an internal horizontal production process that relies on all of the producers in the village to produce a product. The fifth group is food processing villages that are mostly made up of cottage industries that specialize in various kinds of food processing, from breweries to meat processing and everything in between. Finally, there is material supply and processing villages that concentrate on construction materials and recycling. Their production process shares common elements with both handicraft and industrial villages. The villagers in these enterprises produce intermediate goods by processing raw materials or used ones (DiGregorio, 1999).
Within each of these categories of CIVs, four different types of production units exist. The individual household is the major production unit for low skilled activities that require simple techniques to transform raw materials into finished goods and consists of fewer than five persons. The next level consists of a group of households that develops a division of labor where each household takes part in a horizontal production process. The third type of production unit is the workshop, which equates to a small enterprise that contains workers that possess specialized skills and perform assigned tasks. The final category is the centralized production unit, the equivalent of a medium-sized enterprise and the least common unit, which employs a relatively large number of workers and controls all stages of production through a vertical hierarchy (Booth, 1997).
In general, the CIVs employ varying groups of people, to include local villagers, people from other villages, contractors, and traders, which allows for the creation of many linkages. This employment generates an important source of non-farm income that complements agricultural earnings for some and becomes the principal source of income for others. CIVs provide employment opportunities for people that range from unskilled to master artisans. Women, children and outsiders, generally, fill the lower skilled jobs, while the local men predominate the medium skilled and higher jobs. Some of the village production activities are the result of sub-contracting contracts obtained from individual traders, other cooperatives, or private and state-owned firms. By employing outside labor, this allows for the expansion of business operations. Due to the scale and complexity of these interrelations and activities, the organization of the CIVs involve multiple actors in the areas of production and distribution that reach from the local to global scales (Booth, 1997).
This local to global access has helped to create and maintain spatial linkages between clusters of settlements in rural areas and to urban areas. As the villages specialize in certain production activities, these linkages allow for simpler material and equipment purchases, sustained production, and the distribution of goods and services to market. This commercial network development allows for CIVs to act as a viable alternative to large-scale factory production that helps keep people in their traditional rural homes and reduces the pressure to migrate to the HCMC metropolitan field or Hanoi to find jobs. Additionally, these linkages allow the craft villages to retain flexibility in responding to market shifts, changes in resource availability, and technological innovations (DiGregorio, 1999).
The creativity and ingenuity of artisans and workers help develop local technical capacity. Generally, the technological level of production is simple compared to modern manufacturing factories; yet the specifications for equipment are well developed; unique and rely on locally available resources. Often, the villagers need to modify any equipment that they purchase before they can use for it in their production process. As a result, the modified equipment and machines lead to higher productivity and better quality products. The CIVs that have developed their technical capabilities the most have become more competitive and have garnered greater market shares for their goods (DiGregorio, 1999).
Potential of and challenges for craft and industrial villages (return to index)
Despite the many benefits to the economy generated by the CIVs in the third economy, many people still see the rural economy merely as agricultural and still maintain top down oriented approaches for their development. Often, government and development organization policies ignore the role that these rural industries have in maintaining economic resilience in the whole economy. Current government policy is oriented toward industrial growth in the core regions through investment in SOEs and the development of industrial zones (O’Connor, 1998). The World Bank has noted that the general attitude of Vietnamese government policies have been in the belief that, “The only role seen for the rural economy has been the provision of cheap and stable food supplies and other raw materials” (World Bank, 2001a). However, they also note that the government has recognized the role that craft villages can have in promoting non-agricultural production in rural areas.
The development of CIVs has occurred with and without economic reform policies. Despite the success of some CIVs, such as Da Hoi, the metropolitan and IZ centered industrial growth policies have restricted the potential growth of many other industrial villages. A major problem is capital investment shortages created by limited access to bank funds, which the government has passed reforms to fix, SOEs located in rural areas gaining funding priorities and favorable interest rates, and low savings rates. Although the government has arranged limited credit programs through the Bank of Agriculture and Rural Development and VietInCom Bank in rural areas, the residents do not take advantage of them since borrowing procedures are too complicated and time-consuming (DiGregorio, 1999). In addition to the lack of capital access, many villages have social and economic problems that result from limited infrastructure.
Poor basic services and lack of infrastructure hinders the expansion of craft villages. Electrical power supply lines do not reach about 40 percent of rural areas and the areas that are reached often have unreliable power networks. Likewise, a limited number of roadways exist that connect villages with rural transport networks allowing for market accessibility. They also lack clean water supplies, sewage systems, and waste treatment facilities that reduce the livability in some rural areas and threaten residents’ health.
More than physical infrastructure is needed to raise CIVs and the third economy to levels that can compete in an increasingly open economy. The typical result of transportation linkages in situations of high rural-urban income inequalities is for better road linkages to accelerate out-migration rather than develop rural regions. While this has benefits of freeing people to seek better opportunities, it misses the larger potential of assisting in creating those non-agricultural opportunities where people are born. Education and training, access to various kinds of better health care and health centers are basic requirements for sustaining human and social capital formation (Vietnam News, 2000a, b, 2001b).
.07 Conclusion (return to index)
When seen from a spatial perspective, success of doi moi economic policies require a balance between policies oriented toward boosting economic growth through FDI and restructured SOEs and longer-term resilience of the Vietnam economy through more endogenous third economy sources of development. SOEs are expected to play an important, but greatly diminished role as the economy expands in the coming decades of the urban transition. FDI, heavily concentrated in HCMC and not performing well in recent years, remains a future promise rather than current driving force of the economy. In the meantime, many craft and industrial villages are performing well, though they remain relatively unrecognized, and are more spatially dispersed then either SOEs or global investment. The overall resilience of the Vietnamese economy will rest on a mix of SOEs, FIEs, and endogenous enterprises.
In agriculture, Vietnam is being redirected from a closed, self-sufficient economy to one moved from a localized agricultural economy to a net exporter of agricultural products and has created reforms that have commercialized agricultural production. Despite the focus on agribusiness and export production, agriculture’s share of the GDP has decreased and the country has become reliant on a few crops for export, which has created increased local susceptibility to global market price changes. According to the FAO producer price index for Vietnam, rice was valued at 6,000 units in 1986 and fell to 1,500 units in 1994 and coffee fell from 44,000 to 10,000 units over the same time frame (FAO, 2001).
Even a successful strategy of intensification and local diversification of agriculture will not, in most regions, lead to greater absorption of labor into this sector. Labor is likely to try to move our from agriculture at an increasing pace as rural-urban gaps widen and cities offer more opportunities for employment. Where labor freed from agriculture will go is a central question of the urban transition. For villages located very near major urban centers, truck farms and small-scale diversified agriculture for urban consumption may assist in sustaining farm household economies; yet even in these cases, for most people agriculture will increasingly become a part-time occupation, and a large share of new entrants to the labor market will be in search of non-farm employment.
From the great river deltas to the mountainous regions of Vietnam, crafts and village industries have long histories of filling in between agricultural seasons. In more contemporary times, craft villages among ethnic groups have been promoted by the government as one means of providing non-agricultural income. Reports on these activities indicated, however, that they continue to be hindered by monopsonistic control over markets by buyers and face other marketing problems (VNA, 2001). Moreover, there are tremendous difficulties in sustaining the cultural integrity of crafts as they are oriented toward mass markets. More attention to these issues would assist in making successful the road and transportation linkages now being put forth as poverty alleviation measures. In the densely-settled lowlands, CIVs hold greater promise of contributing to an alternative rural-oriented pathway of urbanization.
Notes (return to index)
This data includes approved investment that might not yet be realized, and it also does not distinguish between FDI and State Owned Enterprise investment. As such, the ratio of government resources spent to investment received cannot be readily calculated. What is clear, however, is that some regions have been much more successful in both receiving government outlays for IZs and in attracting FDI.
The data about FDI levels varies from different sources. This article shows that HCMC has raised $9.8 billion by 28 June 2001, but the HCMC People’s Committee claims the city raised $10.5 billion by 31 December 2000 (HCMC People’s Committee, 2001). For the percentage, it was determined using the article in the Vietnam Economic Times, because they track the entire nation and publish their chart regularly.
In determining the level of employment, inconsistencies exist amongst the available data, just as with the FDI data. To highlight this point, the HCMC People’s Committee says 63,000 people work in the two EPZs (HCMC People’s Committee, 2001), while the DPI claims only 47,000 people work in them. It is not possible to determine the exact number.
The HCMC Department of Planning and Investment uses the term Industrial Zones (IZs) when referring to Industrial Parks (IPs). This paper will maintain the consistency of its usage of IZs to mean EPZs and IPs and replace the HCMC DPI use of IZ with IP.
The remaining 36.3percent of investment in HCMS occurred from the city and national budget, credits, and ODA.
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