For farmers and factory workers, rising prices offset gains from Vietnam’s growing economy – Asia Sentinel/RTÉ World Report


radio report here –

Lu Van Thinh at his bamboo farm in Thanh Hoa province (Simon Roughneen)

HO CHI MINH CITY– With average per capital annual incomes of just over US$1,000, Vietnam is officially a lower-middle income country. In Hanoi, the seat of government and commercial capital Ho Chi Minh City – still popularly known as Saigon – property prices are on an upward curve with new buildings sprouting-up faster than new growth in Vietnam’s lush tropical rainforests.

But Vietnam must also address rising inflation, forecast by Standard Chartered Bank at 19.7 percent in December and with an 11.3 percent rise forecast for 2012. The Dong is expected to continue to depreciate throughout the year, given Vietnam’s US$8 billion current account deficit and low foreign currency reserves.

With the State Bank of Vietnam attempting to sop up liquidity, tight monetary policy is starting to put pressure on the banking sector, with the result that some small banks have raised interest rates as high as 18 percent despite a request from the bank to keep it to 14 percent.

The high interest rates, rising inflation and property oversupply have turned the boom to a bust and the urban areas are suffering from the hangover. In addition to curbing lending through monetary tightening, the government has categorized some property as high risk for commercial banks, making it difficult for state banks to extend loans for new projects. According to developers are now seeking joint venture partners for financing because of the scarcity of bank loans.

Nonetheless, there is a sense of a country on the up. Government announcements proclaim overseas investments while new luxury cars weave their way through an endless din of tens of thousands of motorbikes filling the streets of Hanoi and Saigon.

Vietnam and Indonesia were last year the top two destinations for foreign direct investment into Southeast Asia, with FDI inflows increasing by 174 percent and 140 percent respectively, topping the 120 per cent jump seen in Singapore, the major investment destination in the region.

“When I first came here eight years ago, it was so different,” recalled one European investor, who asked not to be named. “Even then, there were much fewer motorbikes, and big cars were rare, especially in Hanoi.”

Vietnam’s doi moi policy, or economic ‘opening-up,’ has reduced poverty from 75 percent in the mid-1980s to 14.5 percent in 2008. Per capita income averaged around US$400 in 2000, less than half what it is today and the result of 7 percent annual per annum average economic growth. GDP growth was 6.5 percent in 2011 but us expected by the World Bank to fall to 5.5 percent in 2012.

Rice paddies in Thanh Hoa, northern Vietnam (Simon Roughneen)

A decade of robust growth has generated an urgent need for efficient transportation networks and modern infrastructure of all kinds from electricity to transport, which has spurred the government to release US$7 billion for highway, rail and other transport infrastructure over the next two years through the end of 2014.

Nobody knows that better than Lu Van Thinh, a bamboo farmer in Ngheo village, a three-hour drive from Hanoi through stunning karst mountain landscapes reminiscent of an inland Halong Bay. He has about 1,000 bamboo plants on his farm, which lies close to the Vietnam War-era Ho Chi Minh Trail.

But Lu, a member of the Thai minority, said that poor roads and lack of cash to purchase a truck in turn limit his options to expand the business.

Over plates of fried chicken and noodles, washed down by eye-glazing toasts of rice wine, village residents said that the house-on-stilts dwellings were lit by power supplied by locally-made and installed water wheels. The village of Ngheo, the name of which translates as “poor” in English (another village 5 miles away is called “Difficult”), lacks streetlights and is not yet connected to the national grid.

This kind of rural poverty is the ‘push’ to match the ‘pull’ of urban growth and job prospects in Hanoi and Saigon. The Vietnamese government estimated in 2009 that there were 7 million migrants in Saigon and 26 million across the country — huge numbers in a country of 90 million people.

As with most other Asian countries, the total fertility rate has been dropping sharply — from more than 2.5 live births per woman in 2000, to 1.9 today –- below the 2.1 rate to maintain equilibrium. But with 25 percent of the population under the age of 14, the absolute number will continue to rise until those in the early baby boom generation age past their reproductive cycles.

In the industrial park suburbs ringing Saigon, a vast city of 12 to 14 million people that spills out into neighboring provinces, around 65 percent of the population are migrants.  People on the move offer investors a low-cost and flexible labor supply, but sometimes this is not without trouble. “We tend to lose around 20 percent of our staff every year after Tet,” the Vietnamese New Year, said Kim Jung Hee, a factory manager in Binh Duong province, an hour’s drive from Saigon’s centre.

Kim’s Korean company, NB Blue, employs 1,000 workers in a clean and well-lit factory churning out hoodies and tee-shirts for well-known brand names. Kim said that she is ready for anticipated staffing losses when her factory -– like most others in Vietnam –- shuts for a week or more around the January 23 holiday. Seven weeks out, domestic flights and trains are already running close to booked-up, and Kim conceded that most her staff will head north for the break, some never to return. “They go back to their villages, and they hear about new jobs elsewhere so follow those rumors,” she said.

NB Blue has signed up to Better Work Vietnam, an initiative backed by the International Labour Organization and the International Finance Corporation, which aims to clean up the country’s sweatshop image. Kim Jung Hee said she is happy with this arrangement  as otherwise NB Blue would miss out on supplying big fashion brands such as Gap, which has also subscribed to the Better Work project.

At work inside NB Blue (Simon Roughneen)

The mostly young, female, rural-origin workers earn an average of US$120 per month, in keeping with Vietnam’s minimum wage requirements. One of the few men in the factory, Nguyen Van Vu, 28, migrated to Saigon almost 10 years ago, and after numerous job changes, is now head of the ironing section. He said his salary has risen three times this year and added that “in general working in this factory is good”.

However raises are being eaten up by Vietnam’s stubborn inflation, which, if not curbed, could send some of the new “middle income” Vietnamese back into poverty. Food prices have doubled over the past year, meaning that in Vietnam, as in many other poorer countries where people spend a high proportion of their income on food, low-wage workers are struggling to make ends meet.

Vu remits some of his earnings to his parents, who live on a farm in Quang Tri province, not far from the old Vietnamese imperial capital of Hue. Recently married with a wife seven months pregnant told, he is feeling the pinch — as are those dependent on his earning power.

On top of everything else, Vu’s meager yet locally-competitive salary helps fund his sister’s studies in Danang, Vietnam’s fifth-biggest city. Danang is a former US marine airbase during the Indochina wars and sits about halfway down Vietnam’s 2,140-mile coastline. “Without my wages, she will have to quit,” Vu lamented.

Story republished by The Jakarta Globe

RTÉ radio report is a shorter version of the above, and featuring the following:

Last week, Ireland’s Minister of State for Trade and Development Jan O’Sullivan visited Vietnam, to see how Irish aid has contributed to growth and to launch a new five year programme costing 11 million euro a year.

The Minister said that Vietnam’s story shows that development assistance works, and that a rising Vietnam can offer commercial opportunities for Irish businesses seeking a low-cost foothold in the Asia-Pacific. “Ireland’s development work has created good will towards us in Vietnam”, she said.

Cork-based software developer Glandore Systems has made the move, opening an office in Saigon which is managed by James Galvin. He said compared with Ireland, Glandore can achieve greater flexibility with lower costs in Vietnam.

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