Nguyen Van Hanh, Ph.D.
California Environmental Protection Agency, Sacramento
Email: [email protected]
February, 1997

Since 1989, the economic reforms in the Socialist Republic of Viet Nam have brought encouraging results. The lifting of the US trade embargo in February, 1994, followed by the admission to the Association of Southeast Asian Nations (ASEAN) in July, 1995, have expanded Viet Nam's opportunities to stabilize its course of economic development and foreign trade. Building a better environmental foundation for future economic growth to match the performance of the ASEAN dynamic region remains a challenge.  

This paper will attempt to outline some observations on the recent economic progress in Viet Nam enhanced by foreign trade and investment, discuss the environmental conditions, and present an approach to incorporating environmental protection policy and measures into the economic development process.

The discussion on recent economic progress and foreign trade and investment draws generously from my recent paper presented at the Second International Trade Conference, August 2, 1996, sponsored by the Assembly Select Committee on the Americas, California State Legislature [1].

Experiences in other nations, developed and developing alike, suggest a successful approach to sustainable economic development can be pursued through effective policies and programs integrating environmental protection into economic development efforts. Recent gains in economic growth amidst environmental degradation in Viet Nam point to the necessity to address the concerns for environmental quality and proper management of the natural resource base.

The Vietnamese economy was in a deep crisis during 1975-1989, experiencing widespread poverty, hunger, high unemployment, and hyper-inflation [2]. The environmental conditions suffered serious degradation. The economic reforms (renovation, or doi moi) undertaken since 1989 have focused on removing price controls, renovating the financial sector and the legal system, improving macroeconomic management, and encouraging foreign investment. These reform efforts have demonstrated encouraging results, even in the absence of economic assistance from the former USSR since 1989. Inflation was drastically reduced in 1990 from its triple- digit ranges during the late 1980's, and has been kept at manageable levels since. The dong was effectively devalued in the early years of the reforms, floated at world market rates, and has remained stabilized. Viet Nam now has a population of 75 million, with approximately 80 percent living in the countryside and the rest in urban areas. Increased at 2.2 percent a year during 1988-93, the Vietnamese population is one of the fastest growing in Asia [3]. A traditional agrarian society, Viet Nam has the potential for rapid industrialization and foreign trade, due mainly to its inexpensive labor supply and relative abundance of natural resources.

 As a result of the reforms, the country has experienced on the average 8.2 percent real growth per year in Gross Domestic Product (GDP) during 1991-95, reflecting a vibrant economy in transition (Table 1).

Remarkable changes have transformed the agricultural sector, which makes up about 36 percent of GNP but absorbs over 70 percent of the labor force. The country once again became self-sufficient in food production and began exporting rice in 1989. Since then Viet Nam has established itself as the third largest rice exporter, after the United States and Thailand. Aquaculture (fish and shrimp farming) has also expanded vigorously since 1991. Increased coffee and rubber production, along with other agricultural commodities for exports, have become significant foreign exchange earners.

Tourism has increased remarkably during the past 6 years. Over 1 million visitors came to Viet Nam in 1994, and 1.3 million in 1995 [3]. Tourism and hospitality will continue to be expanded in the coming years, if the current construction and infrastructure projects can meet the vastly increased demand for hotels and transportation. Geographically, the country has two thousand miles of coastline including hundreds of miles of white sand beaches. Recent accounts from many American visitors to Viet Nam suggest that any resentment from the war appears to have given way to business and economic development.

 During 1991-95, the country managed to match the dynamic growth rates in the ASEAN countries, and surpassed the Philippines and Indonesia in their economic growth. The passage of the 1987 Foreign Investment Law, with subsequent amendments, has been viewed as one of the cornerstones of the economic reforms. Foreign investment continues to grow, and has further increased after the lifting of the US trade embargo. Presently foreign investment accounts for over 26 percent of total investments in Viet Nam. Most important to the local economy, perhaps, is the fact that expansion of trade activities has encouraged rapid absorption of unemployed labor.

 Viet Nam exports primarily crude oil, rice, other agricultural and marine derived products, coal, textiles, and garments. Foreign trade has increased over 20 percent annually since 1991. In 1995, exports grew to $4.7 billion while imports grew to $6.5 billion. For the first half of 1996, import-export volumes reached $7.8 billion, with a 5:3 ratio of imports over exports. The country is experiencing a persistent trade deficit. With most of the export commodities (crude oil and agricultural products) from natural resources and the industrial sector, damaged environmental conditions resulted from industrial discharges, overexploitation of natural resources, and urban decay present serious difficulties for the long-term growth of the economy.

 The lifting of the embargo was a new starting point for US-Vietnam trade relations. Since the establishment of full diplomatic relations with the US in August 1995, foreign trade has become an issue of significant interest to both countries. As of June, 1995, the top ten investors in Viet Nam, in descending order, included Taiwan, Hong Kong, Japan, Singapore, South Korea, Malaysia, Australia, the US, France, and Switzerland. A total of almost $14.5 billion has been invested by these foreign investors.  

Table 1

Annual Growth Rates of Major Economic Sectors and Inflation (percent per annum)

 GDP Industry Agriculture Service Inflation

 1991 6.0 10.0 2.2 8.1 67.6

1992 8.6 15.0 7.2 8.3 7.0

1993 8.1 12.0 4.4 13.0 5.3

1994 8.8 13.5 4.5 12.5 9.0

1995 9.5 13.0 4.7 11.0 12.7

(Sources: Combined data from Vietnam Economic Times, Dec. 1994 / Jan. 1995; Indochina Chronology, Volume XIV, Number 4, Oct.- Dec., 1995; and Economics Intelligence Unit (EIU) Country Reports, 1st Quarter, 1996).

 American corporations had pledged a total of about $700 million in 52 projects, making the US the 7th largest investor in Viet Nam by early 1996. More US firms are expected to explore trade opportunities in the new market, in competition with other well established transnational corporations. Overall, US businesses seem to enjoy a positive reception in Viet Nam. Technological advantage, financial support and services by American firms, low local labor costs, and connections to the large Vietnamese-American communities in the US have contributed to the trend in US-Vietnam trade and investment expansion. US exports to Viet Nam in 1996 are estimated to reach $230 million, while imports projected at $50 million, in the absence of the Most Favored Nation status [4].

 Although progress has been significant since 1989, the economic turnaround in Viet Nam remains tenuous. The country continues to face deep poverty, especially in the countryside. Many chronic problems persist: high unemployment, widespread malnutrition among children, a continuous migration to urban areas, outdated legal system, bureaucratic inefficiency, and corruption. In particular, environmental degradation has become a major issue [5]. The pervasive poverty affecting Viet Nam is further exacerbated by increasing disparity in income distribution. Recent economic progress has benefited mostly urban areas, leaving the much larger rural sector in subsistence living standards. Income per capita in HoChiMinh (HCM) City was estimated at about $800 per annum in 1995, compared to the average of about $220 for the entire nation [6].  

 Economic activities and population growth in the past two decades have impacted the environment in large measures. Abject poverty, continuing population pressure, unsustainable aquaculture and logging practices have eroded the natural resource base and aggravated the environmental problems throughout the country.

 Hanoi, HCM City, and other swelling urban areas are now facing major environmental problems with air pollution, water contamination, industrial discharges, municipal wastes, and urban decay. Concentrations of carbon monoxide, nitrous oxides, particulate matters, and lead have risen steadily. Outdated and poorly maintained equipment in industrial plants, and leaded gasoline used in transportation have contributed significantly to air pollution [7].

 Widespread damage to natural resources and fragile ecosystems continues due to the constant struggle for survival by the majority of the peasants. In the absence of adequate public education to encourage environmentally benign agricultural practices, a vicious circle of deep poverty has been perpetuated. Low income in most areas is exacerbated by high population growth, poor health, unemployment, overexploitation of natural resources, and further environmental degradation.

 Natural resources in the Red River Delta in the North have become generally degraded as a result of domestic wastes, mining, reduced soil fertility, and contaminated drinking water. Demand for fuel wood and crop expansion onto the hillsides in Northern and Central Highlands Provinces have aggravated deforestation and soil erosion. The national forest area has lost some 350,000 ha annually to deforestation in the past 25 years, shrinking from 40 percent to 25 percent of the total area of the nation [8].

 The devastating annual floods during 1994-1996 in the Mekong Delta, especially the regions bordering Cambodia, the Tien Giang River, and Dong Thap Muoi came as a result of severe deforestation and sedimentation upstream in Thailand and Cambodia. Runoffs caused by soil erosion were intensified by uncoordinated diking in the lowland paddy fields.

 Uncontrolled use of pesticides and chemical fertilizers has been on the rise as more farmers engage in cash crops for exports. Chemical pest control by excessive use of insecticides, in particular, has left high levels of pesticide residues toxic to other organisms and humans. Water contamination by chemical residues was blamed for a major loss in shrimp farming in 1994.  

Unsustainable practices in aquaculture have significantly reduced the wetland forest areas in the Mekong Delta. Over half of the mangrove forests in Minh Hai Province was destroyed by uncontrolled shrimp farming since 1982. Leaving behind highly acid and unproductive ponds, these practices alone have created a severe opportunity cost that the impacted communities can hardly absorb [9].

 As agricultural commodities comprise a large portion of exports, proper remediation, maintenance, and improvement of the natural resource base should be a high priority in the national economic reform policies. The fundamental difficulties in environmental management in Viet Nam have been compounded by (a) the lack of consistency in environmental parameters and coordination among institutions conducting environmental monitoring, (b) the inadequacy of environmental database and the unavailability of electronic data storage and retrieval equipment, (c) the fragmentation of environmental laws, regulations, policies, guidelines, and enforcement procedures, and (d) insufficient resources and trained personnel [10].

 Noticeable national efforts, however, have been initiated in recent years to improve the environment. The Law on Environmental Protection passed in January, 1994 institutes the safeguards of the national environment, protects public health, and promotes effective management of the environment. This legislation also established the Ministry of Science, Technology, and Environment (MOSTE) as the lead agency for central coordination and provided the direction for related decrees and directives [11]. Still in their developmental stage are standards for industrial pollution emissions and effluent release, and procedures for Environmental Impact Assessment (EIA). Foreign investment, joint ventures, and large-scale projects are now required to submit an EIA report to the government. This requirement, however, remains largely pro forma at the present.

 During the past 6 years, international assistance programs have provided valuable assistance to help address some of the major environmental concerns. Reforestation has been noticeable in many areas throughout the country. UNDP has implemented several environmental projects. The Master Plan for the Mekong Delta was completed in 1993 by the Netherlands Engineering and Development Consultants. This significant effort was undertaken under a World Bank contract, in coordination with the local government, the Mekong Secretariat, and UNDP [12]. The World Bank has conducted an environmental assessment nationwide and supported a training program for natural resource planners and decision-makers, in addition to other major projects. In 1995, the Asian Development Bank financed an environmental improvement project for HCM City and the development of a national urban strategy. Some environmental management training for local professional staff has been provided by Singapore [13].

 Remediation efforts and systematic integration of environmental safeguards into economic development activities should become a national priority, if sustainable growth is to be maintained in the years ahead.

 As Viet Nam is forging ahead with continuing economic reforms, solutions must be found to alleviate air pollution, industrial discharges, and municipal waste problems in urban centers. Deforestation, barren land expansion and shifting cultivation in the Central and Northern Highlands Provinces, wetland destruction in the Mekong Delta, and over exploitation of marine resources in coastal regions... all require mitigation measures. Additional financial resources and trained personnel need to be made available to undertake these major tasks. Public education and participation in environmental activities and development of employment opportunities for the rural sector should receive high priority.

 Short-term actions can be initiated to deal with pressing issues such as air and water contaminations, and hazardous waste disposal in urban centers, where health problems remain a major concern. Longer-term solutions will be essential to address many interrelated problems in integration of environmental protection into economic decision making process. In the context of economic reforms, the integration efforts should involve industrial and agricultural investment evaluation, natural resource utilization, infrastructure upgrade, training and education, as well as management and organizational reforms. Technology transfer and financing capability will be needed in most of the short- and long-term actions required for Viet Nam as a low-income economy in transition.

 The national endeavor to improve environmental quality requires appropriate policy and management reforms. If past experiences in other Asian nations (People's Republic of China, Taiwan, Thailand...) are any guide, timely availability of sufficient resources and proper technologies will be essential for timely and cost effective environmental protection in Viet Nam [14]. Economic reform can and should go hand-in-hand with environmental protection, as suggested at the 1992 United Nations Conference on Environment and Development in Rio de Janeiro [15].

 The encouraging economic performance in Viet Nam in recent years can only be sustained if a proper balance between economic development and environmental protection is established and maintained. Such a balance begins with a national policy to foster environmental technology transfer and adequate investment in education and training. A coherent set of laws (including the existing law on environmental protection), regulations, and standards should be implemented. The tasks of coordination with economic development activities call for a stream-lined organizational structure with modern management.

 The delicate balance in policy choices requires both regulatory and market-based measures. A proper mix of mechanisms for financial incentives (such as pollution reduction credit, tax exemption or reduction for pollution control equipment, loans or grants for environmental remediation and research projects) are key elements for policy considerations. Rigid punitive actions against polluters have often proven ineffective, so has the "command-and-control" approach, as evident during the 1970's and early 1980's in the US. Practical trade-offs between regulatory enforcement and economic incentives, based on existing environmental conditions and economic potential, would have a better chance of success in Viet Nam at this stage in economic development.

 Efforts should be undertaken to establish cost/effectiveness analysis framework for environmental programs and pollution control measures in industrial projects. Considerations for new technologies, compliance with pollution standards, and market-based incentives to investors should be carefully weighed. These interdependent policy measures should be incorporated into regular project formulation, evaluation, and decision making process for investment projects.

 Effective methods of environmental management need to be established. Training on modern technologies, proper natural resource management, costs and benefits of environmental protection activities, and environmental impact assessment procedures for investment projects should take place in conjunction with management reform. A pilot international training program can be established to provide assistance in the development and management of environmental assistance activities. Key program components can include assessment of specific environmental problems and needs, conducting short-term and medium-term training, identification of proper technologies and services for remedial actions, development of environmental database, identifying financial resources for selected projects, and promotion of international technology diffusion. An example of a training project would be an intensive short-term class to upgrade the local technical capability of conducting Environmental Impact Assessment (EIA). Other training topics can include methods of developing and financing environmental projects, natural resource management, and microenterprise loan management fashioned after the successful Grameen banking model being used in various low income countries.

 A well-designed training program should involve public education on existing environmental problems and encourage public participation in preventing further environmental degradation. The training efforts should involve both men and women in local environmental issues, population control, sanitation and public health safety, community impacts on ecosystems, and environment-related small business development. This interdisciplinary approach will address the key components of the vicious circle of poverty and provide the mechanisms for breaking it by the provision of alternative income earning opportunities in environmentally sustainable economic activities.

 Public participation in the training program can be enhanced by financial assistance from a revolving fund for microenterprise lending to local borrowers for viable small businesses. This comprehensive solution to reduce environmental degradation has been successfully demonstrated in a number of developing nations, and supported by the 1994 International Conference on Population in Cairo [16].

 In conjunction with the policy, management, and training requirements suggested above, technical programs should be expanded to address water and air pollution and to improve infrastructure for toxic and municipal waste management in urban centers. The larger rural sector would benefit from new efforts to promote sustainable agriculture and fish farming activities, modernize water resource management, and mitigate wetland destruction. Over harvesting of natural resources should be alleviated, in conjunction with the development and financing of new environment-related small businesses. In essence, constant efforts should be made to coordinate and integrate the following activities into the on-going economic reform efforts: 

• Promoting international transfer of environmental technologies.
• Upgrading monitoring and assessment of environmental impacts. 
• Adapting sustainable agriculture and aquaculture practices.  
• Expanding employment opportunities and financial assistance to disadvantaged communities near fragile ecosystems. 
• Modernizing technical information management and applied research facilities.

 More international and US firms are exploring investment opportunities, along with an increasing number of American universities surveying the educational and training needs in Viet Nam. New technology transfer opportunities have emerged for U.S. environmental corporations, educational exchange programs, local importers of industrial equipment, and foreign contractors for built-operate-transfer projects.

A technology transfer component can be built into the comprehensive training and assistance program discussed earlier to promote US and international technologies. Diffusion of American environmental technologies to expand trade and services to Viet Nam would be mutually beneficial to both countries. Through this type of international collaboration, the existing California Environmental Technology Partnership Program may also be included in future joint efforts involving U.S.- and California-based companies, and Vietnamese enterprises. In addition to fostering international cooperation in mitigating environmental degradation overseas, these collaborative endeavors can be effective in promoting US policy on environmental protection overseas, expanding US exports, and creating more employment in the US and in the host country.

 Access to global and regional networks in environmental technologies and trade can be obtained through bilateral and multilateral contacts with governments and private entities. For instance, Korea and Oklahoma recently established a partnership to address air pollution, improve environmental regulations in Korea, and organized a network of Korean and Oklahoma businesses. About $6.3 billion has been allocated by the Korean government for these purposes in the next five years. Through international networking efforts jointly sponsored by U.S. Asian Environmental Partnership (US-AEP) program and the Council of State Governments, Korea was able to establish this mutually beneficial partnership with the US [17]. 

The California Environmental Protection Agency and the California Trade and Commerce Agency have jointly established the California-ASEAN Initiative most recently to assist California environmental companies and other corporations to identify business opportunities and link up with trade and investment partners overseas [18]. While this new program has the potential to help improve the environment conditions through technology transfer and capital inflow into many Asian countries already targeted, the Vietnamese government will first have to gain access to this international program and identify the specific problems in need of assistance.

 Foreign and domestic investors of development projects should be required to finance pollution control measures in a fair and equitable fashion. Both economic incentives and disincentives for effective pollution control should be part of the financial equation for consideration by policy makers and corporate managers alike.

 In addition, to improve environmental quality and protect public health, considerations should be given to the requirements of foreign facility owners and operators to establish and maintain financial assurance mechanisms (enterprise fund, letter of credit, etc.) to pay for future damage from environmental accidents that may be caused by their enterprises.

 Financial resources should be generated to support the revolving funds for the training, microenterprise loan, ecotourism projects, and other rural small businesses. In addition, a national program for low-interest loans, loan guarantees, and grants should be established to provide financial incentives to larger environmental remediation and development projects. Equipment tax credits, as well as assistance in meeting permit requirements, should also be made available to companies engaging in environmental clean-up activities.

 While recent trend in economic performance since 1989 has been encouraging, the road to full economic development for Viet Nam remains an arduous one. The national commitment to pursue economic reforms will necessitate sound policies and implementation measures to address critical environmental problems.

Long-term economic growth in Viet Nam requires a national endeavor to integrate environmental protection activities into a sustainable economic development framework. As a new member of the ASEAN, and a partner in the international trade networks, the current expansion of foreign trade and investment in Viet Nam presents an excellent opportunity to bring in modern technologies essential to long-term economic growth and improvement of environmental quality. Establishing regulatory requirements and market-based incentives for pollution control, promotion of sustainable development of natural resources, and rehabilitation of damaged ecosystems are essential. Supported by new training and financial assistance, these efforts would be effective in a comprehensive approach to integrate environmental protection into sustainable economic development.

The outcome of these endeavors will depend on the soundness of the policy and program structure, and the compliance by domestic and foreign corporations being regulated. Public participation through education and training, management efficiency, and availability of financial resources will also contribute to the effectiveness of these national efforts.

 The challenge to integrate environmental safeguards into sustainable economic development in Viet Nam should be of interest to the international community. Proper responses to this challenge can bring lasting benefits both to the host country and the foreign assistance agencies. As the transition to a market economy is underway in Viet Nam, timely efforts to balance economic growth and environmental protection, in the long run, will minimize the extremely high costs of remediation in the future. The prospects for a polluted environment, shrinking natural resources, in-depth poverty suffered by future generations in Viet Nam, and their negative impacts on the global environment, should be of concern to all of us, as members of the world community.