The economic downturn slowed down Vietnam’s growth considerably in 2009, but the recovery is expected to happen in 2010. The GDP decelerated from an average of 8% growth per year during the last 5 years, to 4-5% in 2009 but is expected to be again at least 8% in 2010. On the social front, job losses were common and cuts in wages affected those who kept their jobs. A good year in agriculture and the recovery in the construction sector may reduce somehow these negative impacts. However economic prospects are clouded by uncertainty. The global financial crisis is likely to reduce foreign direct investment which tripled in the last 3 years. Also remittance inflows are predicted to reduce sharply. The Government reacted and issued a stimulus package which may result in budget deficit. Due to rapid economic growth, Vietnam was able to reduce poverty considerably in recent years. The key to Vietnam’s development has been its success as an exporter of primary goods (rice, coffee, fish, pepper and rubber); light manufactures such as garment, shoes and furniture; and finally petroleum based products. Within a South East Asian context, Vietnam remains poor. The purchasing power of a Vietnamese is at 2/3 that of an average Indonesian and at 1/3 that of a Thai.  Vietnam’s track record in poverty reduction is notable (from 58% in 1993 to 16% in 2006). However, eliminating the rest of the poor (13.5 millions, of which 6 millions are food poor) will be much harder. There is evidence of increased income inequality especially during the last 5 years. As unemployment is likely to increase many households may fall into poverty again. According to a recent survey of the Ministry for Agriculture, farmers were the first sufferers of the economic downturn: 22% of the immigrant labourers have returned to their home because of loosing jobs. While returning to the villages, there is no guarantee at all to find jobs or agricultural land for cultivation. The survey estimates that 70% of the rural households have to cut expenditures for food and products, and hunger is coming back again especially in the remote areas.  Three regions account for more than two-thirds of Vietnam’s poor: the Northern Uplands, the Mekong River Delta, and the Central Coast. Ethnic minorities, which comprise 14% of the population and live mainly in remote upland areas, are disproportionately affected by poverty. About 90% of the poor live in the rural areas. Challenges remain in tackling both, persistent pockets of poverty and poverty among ethnic minorities. Social assistance programs addressing the poor, as well as support for small scale and medium sized enterprises are among the priorities for the Government supported by bilateral and multilateral aid agencies and as well as INGOs. There is a need to raise the economic efficiency especially of State owned enterprises, to improve the legal and regulatory framework for the private sector development, to strengthen public administration reform and to increase the supply of skilled labour. Among the 8 UN ‘Millennium Development Goals’ (MDGs) set for 2015, Vietnam is very likely to miss the target on halving the share of the population without drinking water and proper sanitation. Despite tremendous investment to enhance socio-economic infrastructure, the Government has not always been able to reach the poorest with adapted projects. A still centralised planning methodology and a lack of participation of the population are among the main reasons. As most of the poor are living in rural area an effective, efficient and responsive agriculture and rural service delivery system provided by the state owned extension services are among the pillars for an effective poverty reduction. Vietnam is on target to achieve both millennium development goals related to education (MDG3: education for all and MDG4: eliminate gender gaps in education). All communes in Vietnam have at least one pre-primary and one primary school and around 700,000 state teachers are employed. However, the education system is also challenged by many problems, such as: the lack of secondary schools; poor school management; high dropout rate of girls; uneven access for children in remote areas, especially from ethnic minorities; a lack of English teachers, and of an appropriate bilingual school model. Inappropriate and conventional teaching methods, lack of curriculum development and low quality of teaching methods are additional burdens for the country which needs a higher qualified labour force more than ever. Vietnam will soon become a middle income country. This means not only that its income per capita will cross a defined threshold but also that Vietnam’s’ society is in a deep transition. Two decades of Doi Moi, which means “renovation” have sustained a change. From a poor agrarian economy, Vietnam is becoming a globally integrated player. From being run through command and planning, market mechanisms are now more important. Vietnam needs to layout a more sophisticated society. The economic growth needs to be sustained with adequate measures moving up to more skill-intensive knowledge based activities. Vietnam should avoid draining down natural resources and damaging its environment in ways that could be irreversible or too costly for future generations to redress. It needs to increase transparency and accountability in public administration, avoiding much more the waste of corruption and its damage to public confidence and morale. Vietnam needs also to establish mechanisms to preserve the inclusive nature of its development, at a time when rapid economic growth could easily result in increased hardship and inequality.

Last update: June 15th 2010

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