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Last Updated: Thursday, 26 October 2006, 22:19 GMT 23:19 UK
Challenges for Vietnam's economy
By Bill Hayton
BBC News, Hanoi

Peasants walking past a luxury shop in Hanoi
There are concerns about economic inequality in Vietnam

Vietnam has been given the go-ahead to join the World Trade Organization (WTO), bringing to an end an 12-year journey for the Communist-run state.

The government believes that joining the WTO is vital to the country's chances of maintaining its rapid economic growth and achieving its dream of leaving the ranks of the world's poorest countries by 2010.

But every year the country needs to create a million new jobs for its young population and some economists are worried that the economy may not be able to deliver.

Vietnam is the darling of the international aid community, one of its few development success stories. In the past 20 years it has lifted huge numbers of people out poverty.

In 1998 a total of 38% of the population lived below the internationally-accepted poverty line, but by 2002 that was down to 29% and in the past few years it's fallen even further.

'Making a difference'

In the village of Doc Lap - two hours drive from Hanoi - economic development means electricity, a new road, a new school and a better clinic.

Doc Lap used to be among the poorest places in Vietnam - now it is part of the success story - the road means farmers can sell their produce more easily, the school means children can get better jobs and the clinic means fewer days spent off work.

For the moment we import the vast majority of our parts from south-eastern China because industry in Vietnam is still immature
Sachio Kageyama, Canon Vietnam

The British Overseas Development Minister, Hilary Benn, was impressed with what he saw in Doc Lap.

"What's special about Vietnam's development is that the government took a decision on the direction in which it wanted the country to go, it opened up the economy and they are very focused on doing the things they know will make a difference."

Over half of Vietnam's population still lives in villages but increasingly they are moving to towns and cities in search of better-paid work.

Tens of thousands have become itinerant construction workers, moving from one job to the next and living in bamboo shacks next to their current building site.

Squalid conditions

Pham Thi Dung cooks for the dozens of workers building a factory for a Taiwanese plastics company near the city of Ninh Binh, a short drive north east of Hanoi.

She says she would rather live in the squalid conditions on the site than back in her village.

"I have worked here for five or six years because my work is quite stable. I move with the company whenever they move to a new site," she explains.

"My income in the village was just over a dollar a day - but now it's double that. It's not much but it's stable, and I can support my family."

Cook Pham Thi Dung
Cook Pham Thi Dung follows the work to where it takes her

The flow of cheap labour from the countryside means that costs are low - not only for construction companies but also for the multi-national corporations who are now flocking to Vietnam.

Across the road from the building site is the Canon factory - the company makes half of its printers in Vietnam.

At the factory gates, big containers bring in components from overseas - but there are also little trucks and they are more significant for Vietnam because they are transporting locally-made supplies.

Gradually Vietnam is becoming more than a place to assemble products cheaply - some higher-skilled work is being transferred here - meaning more investment and better pay for workers.

'Unjustifiably rich'

However, Sachio Kageyama, the general director of Canon in Vietnam told me that the process is taking a long time.

"For the moment we import the vast majority of our parts from south-eastern China because industry in Vietnam is still immature. However we are making efforts to raise the ratio of domestic parts and we are also making some key components inside our factory."

WTO membership should encourage more foreign companies to invest in Vietnam, create new jobs and increase the incomes of its people beyond the current average of about $620 per head.

In comparison with some other Asian countries, Vietnam has managed to spread the gains of economic development reasonably widely.

There are a lot of people in rural regions who don't share sufficiently in the progress of the economy
Economist Le Dang Doanh

But increasingly development is widening income differences between rich and poor and particularly between people living in rural and urban areas.

And there's resentment that some of the richest people have made their money through connections or questionable deals.

One of Vietnam's leading economists, Le Dang Doanh from the Ministry of Planning and Investment, warns that policies will need to change to avoid problems ahead.

"There are now some people in this country who are incredibly rich - unjustifiably rich," he explains.

"But on the other side there are a lot of people in rural regions who don't share sufficiently in the progress of the economy. And it's a danger - it could lead to social tension."

More dissent?

There already is discontent in some parts of the country and occasionally protests make it to the streets of Hanoi.

At the end of August 400 farmers from the province of Hung Yen, on the south-eastern edge of Hanoi, blocked one of the main streets of the capital to protest against a housing development that they said was going to push them off the land.

There was no mention of the demonstration in any part of Vietnam's official media, nor of the protestors' allegations that they had suffered because of cosy deals between the developers and local officials.

Protesting farmers
Small-scale protests could lead to wider dissent

Some of these kinds of protests involve hundreds of people, others just a few; but the issues these protestors raise - rising inequality, corruption and abuse of office - worry many in Vietnam.

At the moment such dissent is small-scale and localised - but it concerns the authorities nonetheless.

The problem they face is that joining the WTO - and speeding up the pace of Vietnam's economic development is likely to increase urban-rural inequality - at least in the short term.

And that, warn several economic observers in Vietnam, is likely to lead to more dissent.

WTO membership is going to bring opportunities to Vietnam but also challenges that its political system has not had to face before.

At some point the ruling Communist Party will face a choice about whether the best way to deal with them is to pursue greater openness or ever-tighter control.

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