Over the past 15 years, Vietnam has achieved one of the world’s fastest declines in poverty. The country’s poverty rate – measured as the percentage of people who live below $1 a day – has declined from about 58% in 1993 to 16% in 2006, and 34 million people have come out of poverty. Steady and rapid growth in income, of about 7% to 8% a year, have been a key factor in this reduction.
But what marks Vietnam out from other-fast growing economies – such as China and India – is the combination of spectacular growth with limited increase in inequality. The Gini coefficient, a measure of income inequality, has increased from 0.34 in 1993 to 0.36 in 2006 – lower than in other emerging economies – which helps explain the dramatic poverty reduction. The depth of poverty, measured by what proportion of the poor are close to the poverty line, is declining rapidly, so we could expect many more people to escape poverty in the near future.
The secret of success
So how has Vietnam succeeded? First, unlike in many other countries, growth and poverty reduction has occurred in both rural and urban areas. While urban poverty is much smaller – about 4% of the urban population in 2006 – rural areas have also seen rapid poverty reduction. In 1993, two-thirds of the rural population was considered poor, declining to one-fifth today.
Second, the reduction in poverty has occurred in all parts of the country. It is much lower in the Mekong and Red River delta than in other areas, but the decline in poverty has also been felt in the Northern Mountain and Central Highlands, where poverty is relatively higher. No region has been left out. Third, poverty is much lower among the Kinh and Chinese people compared to other ethnic minorities. But even among ethnic minorities, while poverty remains high, it has shown a steady decline in the past 15 years,
Three factors have led to Vietnam’s inclusive growth so far – literacy, trade and infrastructure. Vietnam’s drive towards literacy began as early as 1945 and picked up through the 1970s and 1980s. A final major push for universal literacy was made in the 1990s, when provincial and commune-level literacy campaigns were launched. Today Vietnam has achieved more than 95% literacy, higher than China and India, which has been a key factor in achieving inclusive growth.
Vietnam’s openness to trade – at more than 150% (its trade ratio defined as exports plus imports over GDP) is one of the highest in the world and has been another key to inclusive growth. From a food deficit country in the early 1990s, Vietnam has emerged as a big exporter of agricultural products. The country’s far-sighted bilateral and World Trade Organisation trade agreements have also helped bring in huge levels of foreign direct investment – almost $16bn, more than 20% of GDP in 2007 – and made it a major exporter of apparel and light industrial products and wood products with huge employment benefits to the economy.
Finally, infrastructure – especially connectivity to rural areas, with one of the world’s most impressive rural electrification and rural roads programmes – has ensured that remote areas are not left behind. Today, almost 95% of Vietnamese households have electricity connections, compared to only 50% in the early 1990s, and 90% of the population are within two kilometres of an all-weather road. This has allowed connectivity between rural and urban areas, to the major ports and transport networks, and access to radio and television, even in remote areas.
As Vietnam races toward an average income of $1000 and middle-income status by 2009, the big question is whether the inclusive development pattern so far can be sustained. To do so,Vietnam must help its citizens access higher education, ensure that rural productivity is lifted as it industrialises further, and that its ethnic minorities are provided opportunities to develop so they are not left behind. It must also build modern social safety nets for those who could be left behind and ensure that its growth does not come at the cost of its environment. But as it meets these challenges, Vietnam has left behind a record of inclusive development which others can learn from.
Ajay Chhibber is the World Bank’s country director for Vietnam.
