June 07, 2021

June 07, 2021

As a young delta of the world and Vietnam, despite its great potentials, Mekong Delta is lagging in growth. Economic, social, and environmental indicators in Mekong Delta presented the picture of a debilitated area due to resource abuse, sluggish growth trends, obsolete development models, negative population growth, and an aging society.

In 2020, in cooperation with the Vietnam Chamber of Commerce and Industry, Fulbright School of Public Policy and Management (FSPPM), Fulbright University Vietnam launched the first edition of the Annual Economic Report of Mekong Delta for the first time. On May 20, Dr. Vu Thanh Tu Anh, chief editor of the report, summarized key findings of the report and important policy implications to lift the delta out of "the growth trough".

A bleak outlook on the delta

At the beginning of the webinar, Dr. Tu Anh reviewed the growth performance of the Mekong delta from different measures: economic, productivity, and population growth, etc. over the past decades. Once a prosperous agricultural center, in 1990, the GDP of the Mekong delta was 1.5 times higher than that of Ho Chi Minh City; however, the trend has been reversed after 20 years. In detail, structural transformations in the delta are taking place at a much slower pace than in other areas; for instance, the contributions of agriculture, fishing, and forestry to GDP has decreased from 54% in 1990 to 28.3% in 2019; and still, this ratio is doubled of the national average. It can be said that the Mekong delta is essentially an agricultural and rural society, which then raises many concerns, according to Dr. Tu Anh, since no country or region can become wealthy solely depending on agriculture.

Scarcity in economic opportunities resulted in net population outflows (-3.89%), the population growth of the delta reached its downside limit at 0% for the first time in 2016 and this downward trend continued over subsequent years. Throughout 300 years of reclamation, this is the first time population in the delta has diminished in absolute terms.

Since agriculture is no longer an appealing career choice of many, it is understandable that young workers are migrating out of the area, looking for better opportunities in other cities, e.g., HCMC and Southeast industrial areas. The percentage of urban dwellers in the delta is among the lowest in the country, just merely higher than the Northern mountainous area. Scattered population patterns undermine enhanced productivity by economies of scale and scope.

Mekong Delta is among the poorest areas in the country. Compared to other disadvantaged areas such as Central Highlands or Northern mountains, the living standards in the delta are at a subsistence level. Despite its strategic proximity to HCMC, the delta's poverty rate is at an alarmingly high level, indicating the backwardness of the region.

With regards to social investments – necessary resources for regional development, governmental investments into Mekong Delta reached their peak in 2014 at a modest number of 19.2%. This figure is diminishingly smaller over the year and was at its record low levels of 10.1% in 2018. In summary, Dr. Tu Anh argued that four primary resources for growth in Mekong Delta – land, water, human capital, and investments – are being stranded to their limits. Despite being a premature delta, the land area of the Mekong Delta is being severely threatened due to seawater intrusion and erosion. Water resources are under great pressure from upstream dams. Public investments into the region are not allocated effectively to lift the sinking delta.

Natural advantages: a blessing or a curse?

Being close to HCMC and the Southeast region leads to a natural division of labor among the three areas, of which HCMC is the service center, Southeast region is the industrial center and Mekong delta is the agricultural center. Favorable conditions for food production in the delta make it responsible for national food security. However, the fact that "resources" and "food security" are narrowly defined makes the delta exposed to environmental threats.

Rising from an agricultural-based society, food security in Vietnam is associated with rice production and for a long time, most of the resources in the delta have been devoted to rice farming. For example, a large portion of land must be secured for rice. The extensive extraction of underground water, the overuse of fertilizers, and the three-crop-per-year routine have exhausted the delta. The concept of "natural resources", particularly "water resources", has been defined too narrowly. Since rice production is placed to be the top priority, the only freshwater is considered a valuable resource to be preserved. Despite their great potentials for shrimp farming and aquaculture production, saltwater and brackish water are viewed in a negative light and not utilized properly.

Using the analytical framework by Professor Michael Porter, Harvard Business School, Dr. Tu Anh identified the critical weakness of rice production in the Mekong Delta: although rice farming is the top priority of the delta and Vietnam is among the top rice exporters in the world, we have failed to form an interconnected ecosystem for the "rice miller cluster" industry.

 

"If too much focus is placed on production and too little on manufacturing, commerce, transportation, logistics, credit loans, marketing, we can't break out of the vicious cycle of "big crops, low prices". We failed to create consumption markets for agricultural outputs by not promoting brand recognition for our products and establishing effective distribution channels. If we are engrossed in low-valued production activities and failed to develop the rice industry, the chances that we grow strong and rich have dwindled."

Transportation infrastructure is another bottleneck confronting Mekong Delta. Paradoxically, with two sides bounded by sea and interlacing channel networks, waterway transportation in Mekong Delta is underdeveloped. This again is resulted from the fact that rice production is set to be the top priority of the delta. The construction of freshwater dams and reservoirs has stalled the natural passage of vessels, impacting the connectivity and competitiveness of the inland waterway system. Only some lower value commodities which are insensitive to time delivery can be transported via water passages, e.g., sand, cement, wood chips, fish fat. These goods do not require advanced frozen techniques and complicated preservation technologies and thus do not earn substantial profits for transporters.

Most of the agricultural outputs produced in the delta are transported to retail markets or export ports in HCMC and the Southeast region via road systems. Despite the great demand for road transportation, there is only 100 km of the expressway in Mekong Delta, nearly half of the expressway in one Northern province, i.e., Quang Ninh. This ratio is humble considering the total 1300 km expressway nationally. Given its estimated population and economic scale (20% of national average figures), there are only two short highways, i.e., HCMC – Trung Luong Expressway and Lo Te – Rach Soi Expressway. Rising costs driven by traffic congestion have undermined the delta's competitiveness as a manufacturing center despite its great potential in developing food processing industries.

Lacking important resources for breakthrough

Apart from the transportation bottleneck, important conditions for successful development are absent in Mekong Delta. First, with regards to education levels, the Mekong Delta has the highest proportion of the population in the general school age who are not currently attending school (13.3%), equivalent to the proportion in Central Highland and much higher than the national average (8.3%). The overall rate of attending school and rate of attending school at the right age somehow reflects a similar picture. Particularly, the dropout rate in the delta is more severe, moving upwards to higher educational levels, and at the upper secondary level, the attendance rate at Mekong Delta is the lowest (59.6%) in the country. Dr. Tu Anh identified the underlying reasons causing the disappointing performance of the delta in education.

"I disagree with the argument that Mekong Delta's education level is low because people here are intellectually incapable and unaware of the important role of education. In contrast, delta people are more practicality inclined, meaning that if higher education is not associated with better economic opportunities, they are more likely to drop out. People here are keener on actionable rather than theoretical individuals. This is the true reason behind the low attendance rate in Mekong delta."

Statistical figures reveal that the localities with greater economic opportunities will have a higher rate of education enrollment. This leads to an important policy implication for Mekong Delta to address its high dropout rate. Instead of forcing students to attend school for impressive reporting metrics, local governments should cater to their post-education opportunities so that people are able to utilize their trained skills for economic mobility. These are expected to address the underlying causes of low educational levels.

Regarding budget allocation and state investments, Mekong Delta is facing considerable disadvantages. Mekong Delta's budget revenue accounts for 6% of Vietnam and revenue are composed of unsustainable sources with 20% of income from lottery tickets, a regressive tax levied on the poor. On the other hand, the proportion of brought forward expenditures in Mekong provinces are relatively high, implying the inefficient use of capital. As another important metric reflecting the dynamics of the local economy, outstanding credit loans in Mekong Delta are at low levels, accounting for 8.1% of the whole economy.

Continuing with the analysis of the business environment and cluster development, an interesting paradox is observed in Mekong Delta. Although Mekong provinces were ranked in top positions in PCI (provincial competitiveness index), the number of newly-established enterprises in the Mekong delta is among the lowest-performing areas in Vietnam, slightly higher than the Northern mountains area and Central Highlands. "This means local governments can work to improve the business environment and provide more support to business; however, the lack of profitable opportunities could not attract business firms to the delta," explained the presenter.

Policy recommendations for Mekong Delta

After the comprehensive analysis of environmental, infrastructure, and institutional challenges facing the delta, Dr. Vu Thanh Tu Anh put forth some suggested strategies and recommendations for local leaders to transform the extensive growth model – which is running out of steam – into an intensive growth model. He also noted that difficulties facing the area cannot be handled by the commitments of one locality but require coordinated efforts of all concerned provinces. First, Dr. Tu Anh recommended that a dispersed leadership should be replaced by a powerful regional governance board for the sake of general interests. To make the board effective, motivations and performance assessments for local leaders need to be changed. Provincial leaders should not be evaluated using local GDP, budget revenue, and some local indicators to avoid the partiality mindset.

On the production side, Mekong Delta should emphasize market-related activities in parallel with production. Competitiveness should be based on higher added value instead of cheap prices. In 10-20 years later, the middle class in Vietnam is estimated to rise in numbers. The rising middle class is expected to raise the bar for food quality and other commodities. To meet these emerging demands, Mekong Delta must change to more efficient farming techniques focusing on output quality rather than quantity. Food safety and environmental friendliness are some important considerations for food production in the future. In addition, priorities in agricultural production should be rearranged from rice-seafood fruits to seafood-fruits-rice to accurately reflect the added value from these products.

Traditionally, agricultural production in Vietnam in general and Mekong Delta do not pay proper attention to marketing activities. Transforming the agricultural sector to be more technology-based, service-based, and market-based are inevitable solutions to enhance productivity, specialization, and establishing stable markets for agricultural outputs. As per Dr. Tu Anh, these strategies necessarily involve the participation of the private sector and require production models in which associations of producers play the central role.

Dr. Tu Anh argued that there are two core concepts that need to be defined differently. First, saltwater and brackish water are valuable resources and not threats to fresh-water paddle fields. Farmers should strike the balance between rice farming, shrimp farming, and urban development. The second concept that requires changing is "food security". It should be understood that "top rice exporter does not guarantee our food security," and "securing a specified area for rice farming is not equivalent to food security". Surprisingly, being the world's third-largest rice exporter, Vietnam does not perform well in the food security index, ranking 54th. It is understandable if we take a deep look at the breakdown of food security score which exposes various weaknesses of the country, e.g., underinvestment for agriculture R&D (1.7/100). Vietnam's low income per capita implies that in case of a food crisis, it is difficult for the country to finance food purchases from alternative sources. In summary, "even if we are a rice exporter, without proper investments in agriculture and sufficient economic power, it is hard to ensure food security for ourselves," the speaker concluded.

  • Quynh Chi

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