Vietnam: urban-rural divide could stunt progress

By Ben Bland in Hanoi

Earlier this month, several dozen Vietnamese-American pro-democracy campaigners travelled to Hawaii to protest against human rights abuses in their former homeland.

Their target was Truong Tan Sang, the Vietnamese president, who was attending the Asia-Pacific Economic Cooperation forum in Honolulu.

Waving the old flag of South Vietnam – yellow with three red horizontal stripes – they called for the release of jailed activists and internet bloggers, and an end to the communist dictatorship.

The country’s paranoid internal security officials constantly fret about the influence of the boisterous overseas Vietnamese groups who still fly the flag for the US-backed southern regime ousted by communist-run North Vietnam in 1975.

But, securocrats and former southern refugees aside, the old north-south split has been superseded by other, newer divides in a country that is growing in a fast, yet increasingly unequal, manner.

Following the commencement of market-orientated reforms in 1986, Vietnam’s economy has grown at an average of more than 7 per cent per year over the past two decades. This was helped by the signing of a bilateral trade agreement with the US in 2001 and entry into the World Trade Organisation in 2007.

Ho Chi Minh City has long been the country’s commercial heartland and its key engine of growth. But, unlike many other countries in the region, Vietnam has benefited from a second major pole of growth. Hanoi, the capital city that lies more than 1,000 miles to the north, is another large business and industrial centre.

This contrasts sharply with the other major emerging-market nations of south-east Asia, such as Indonesia, Malaysia, the Philippines and Thailand, where growth has been driven from their respective capitals.

These “primate cities”, as geographers have dubbed them, tend to suck in talented people, migrant workers, domestic capital and foreign investors – which leads to a concentration of strategic resources and creates big challenges for urban infrastructure. It also deprives the hinterlands of such assets.

Vietnam’s bipolar expansion has been more balanced, says Jamie Gillen, an assistant professor of cultural and urban geography at the National University of Singapore. But, while the prosperity of Ho Chi Minh City and Hanoi has brought the benefits of economic transformation to both cities, the increasing rural-urban divide “is potentially crippling for Vietnam”, he warns.

About 60-70 per cent of Vietnam’s 87m people live and work in the countryside, where small-scale agriculture is the economic and social lifeblood. Apart from the two big urban areas, only a few cities can claim populations of more than one million people.

Although the impact of integration into the global economy is most visible in the big cities, where shops selling Prada handbags and jewel-encrusted Vertu smartphones sit alongside banners promoting Marxist-Leninist ideology, life has improved across the country.

But while the United Nations Development Programme and other aid donors trumpet Vietnam’s impressive record of poverty reduction, they are becoming concerned about increasing disparities between the wealthy urbanised provinces and the rest.

While levels of human development in Hanoi, Ho Chi Minh City and the third city of Danang are on par with China, poor rural provinces such as Ha Giang and Lai Chau are more comparable with Papua New Guinea.

“Vietnam’s focus on gross domestic product growth has led to an imbalance in social and human development,” says Ingrid Fitzgerald, policy adviser at the UNDP in Hanoi.

By striving for high growth figures over economic stability, and relying on a huge expansion of credit over the past decade, Vietnam’s leadership has built up deep imbalances that have manifested themselves in wide trade and budget deficits, a weak currency and persistently high inflation.

This has undermined the confidence of investors, both foreign and local, and made life tough for wage labourers, migrant workers and the rural population.

With most people in this nominally socialist country forced to pay out of pocket for vital health and education services, the UNDP and other donors fear that the remote provinces are being left behind.

But Edmund Malesky, a political scientist at the University of California, San Diego, argues that Vietnam actually has a more equitable redistribution of resources to rural areas than many other countries at a similar level of development.

“Seven provinces account for 70 per cent of revenue, but only about 40 per cent of expenditures,” he says. “More ends up reaching the lower [income] groups than happens in China.”

Vietnam’s leaders, including the president, also rely on the support of Communist party delegates from the 63 provinces to get elected.

That means handing out goodies to the provinces in the run-up to the key national congress, which met last in January this year and approved the leadership for the next five-year term.

In a country beset by low efficiency in public investments and widespread corruption, some of these transfers are invariably spent badly.

Nguyen Xuan Thang, president of the Vietnam Academy of Social Sciences, accepts that investments in the important development drivers of health and education have been both “inadequate” and “inefficient”.

He admits that the country faces an “enormous task” to ensure more balanced development for all in future.

But the UNDP believes that Vietnam can look to a bright future of more equitable, sustainable growth if the government can pull off difficult but much needed governance reforms and invest more money, more wisely in social services.

“It’s all about the choices the government makes,” says Jairo Acuña-Alfaro, a policy adviser at UNDP in Hanoi.