Backgrounder: DFID Vietnam - Success Brings Further Challenges

AUTHOR: Charlie Warren

ABSTRACT: An insight into DFID’s work in one of Asia’s most rapidly developing countries, Vietnam.

FAST FACTS:
- Name: DFID (Department for International Development) Vietnam
- Founded: 1992 (the date of the first UK government-funded project in the country). Initial Country Strategy Paper covered the period 1998-2002.
- Mission: “To promote sustainable development and eliminate world poverty”.
- Type: Government Agency (UK)
- Annual Budget: $100 million (until 2010)
- Country Director: Mr Donal Brown
- Number of Employees: 24 (7 British, 17 Vietnamese)
- Headquarters: Hanoi, Vietnam.
- Employment Opportunities: n/a

Vietnam is experiencing something of a renaissance. Once the location of one of the most brutal wars of the latter half of the 20th Century, a conflict that left the country on the brink of destitution, Vietnam has emerged in the past 10 years with a strident and confident economy, coupled with a series of social reforms and initiatives that have contributed to the country’s above-average pace of development. Boosted by its status as a leading East Asian tourist destination, and with a growth rate that has averaged about eight percent since 2002, Vietnam is second only to the East Asian behemoth China in terms of economic growth in the region, a factor that has helped reduce poverty from 58 percent in 1993 to 16 percent in 2006. Thus, it should come as little surprise that World Bank President, Robert B. Zoellick, during a visit to the country in 2007, commented that “Vietnam has the potential to be one of the great success stories in development.”

There are two barometers that help to illustrate the progress that Vietnam has made in recent years. The first is that, by current estimations, the country is expected to graduate from low income country status by 2010 – that is to say, according to the World Bank, low income countries are defined as those with a GNI per capita of $905 or less – to be officially recognized as a middle income country under the terms of the Organization for Economic Cooperation and Development in 2012. This is all the more remarkable given that it was not until 1986 that Vietnam undertook its transition from a centrally planned to a market economy, with a series of reforms collectively known as ‘doi moi’ (‘renovation’). Similarly, the Enterprise Law of 2000, which, in the words of the Independent Institute (www.independent.org) “significantly simplified a labyrinthine registration and operation process for businesses in Vietnam”, led to the registration of over 120,000 new private companies in a six-year period.

The second barometer is Vietnam’s accession in 2007 to the World Trade Organization. In a December 2007 press release, The DFID Vietnam Country Director Donal Brown observed that, WTO membership “has opened up huge opportunities for Vietnam and its people.” In a subsequent interview with the Development Executive Group, however, Mr. Brown appeared more pragmatic, conceding that WTO membership brings with it some potential negative impacts. For example, he pointed out, there will inevitably be “greater exposure of the economy to financial shocks as Vietnam integrates itself into global capital and product markets”, which in turn “will increase people’s vulnerability to slipping back into poverty.” Such analysis is particularly prescient considering the recent slowing down of the U.S economy, the effects of which are currently reverberating across world markets. In addition, Mr. Brown was concerned about the potential environmental damage to the country that may arise from “the impetus to develop trade-related infrastructure such as roads, ports, industrial zones, and power plants.”

This should not disguise the enormous potential benefits that WTO can bring for Vietnam. As Mr. Brown noted, “accession should raise growth and further poverty reduction and achievement of the MDGs (Millennium Development Goals)”, primarily through increased income generation and employment opportunities and more government revenue for social sectors. He said membership may also provide momentum for further domestic reforms increased openness and competition among firms.

So what explanations are proferred for such progress in Vietnam’s economic development? Aside from both its enduring relative political and social stability (at least in the past two decades), and the lifting of the trade embargo with the U.S in 1994, Mr. Brown attributes success through “embracing economic reform by prudent management of the economy while investing in its people and infrastructure, along with the liberalization of agriculture and the promotion of low-skill, labor-intensive manufacturing.” Such analysis inevitably draws comparisons to Vietnam’s neighbor to the north, China, yet whilst Mr. Brown admits that the developmental trajectory of the former is following a similar pattern to that of the latter, he notes that China has a more robust foreign investment environment that Vietnam because of the different times at which their economic booms occurred.

Such a statement organically leads to a discussion concerning the precise nature of DFID’s work in Vietnam. The British Government began funding projects in Vietnam in 1992, initially operating from Bangkok, Thailand, before devolving from DFID South East Asia to set up office in Hanoi in 2003. According to the Country Assistance Plan for 2004-07, funds were used to support strengthening public financial management and accountability; improving infrastructure and services targeted to the poor and ethnic minorities; promoting effective responses to the effects of economic and social transition; and improving donor co-ordination and aid effectiveness. The majority of the projects undertaken were done so in tandem with the Vietnamese government’s 5 year Socio-Economic Development Plan for 2006-2010.

The most recent CAP, 2008-2011 focuses more on “governance, marginalized groups and vulnerability” says Mr. Brown. This sequentially addresses three predominant concerns in the present and future of Vietnam’s development: bureaucratic corruption, inequality amongst ethnic minorities, and the current ‘global credit crunch’, the effects of which are beginning to emanate throughout Southeast Asia. Mr Brown is quick to highlight how the government of Vietnam has effectively reduced levels of corruption (DFID aid is conditional upon good governance), but is more sanguine with regards to the economic and social development of Vietnam’s ethnic minority populations, commenting that they “have not benefited from growth to the same extent as the majority kinh/hoa”.

As evidence outlined earlier in the article would seem to indicate, Vietnam – providing it can meet the challenges that evolve from greater integration into world markets, whilst simultaneously continuing its commitment to alleviating poverty throughout the country – can anticipate a bright future. Just as South Korea and Japan’s ‘development model’ set a precedent for Asian nations from the 1960’s onwards, perhaps the same be able to be said of Vietnam in the 21st century.