Regional Environmental Technical Assistance 5771
Poverty Reduction & Environmental Management in Remote Greater Mekong Subregion (GMS) Watersheds Project (Phase I)

Review of Policies and Institutions related to
Management of Upper Watershed Catchments

Vietnam

By

Esa Puustjarvi

CONTENTS

1. Introduction

The review of policies and institutions related to watershed management in Vietnam relies on the general analysis framework developed at the sub-regional level, and presented in the regional report of this study. Country reports are presented in a form, which allows for reading them as stand-alone documents. However, a general discussion on the issues and conclusions as well as a detailed comparison at sub-regional level can be found in the Regional Report. As the structure of country reports and that of the regional report is largely the same, and the discussion relevant to various issues can be referred to by looking up the corresponding sub-heading.

Topics such as health, education, and gender have been excluded from the scope of this report, as they are covered under other assignments.

2. Socio-economic status

2.1. General

The population of Vietnam has rapidly expanded from 43 million in 1970 to the level of 77 million in 1997. The annual rate of population growth has been slowly declining. The current estimate for the annual population increase is 1.9 %/a, which puts Vietnam among the middle group of countries in the Mekong sub-region. Large-scale urbanisation has not yet taken place, and it is estimated that 81 % of Vietnamese citizens still live in the rural areas in 1995. Ethnic minorities inhabiting mainly the northern and western border areas represent approximately 13 % of total population. However, locally they often constitute the majority population.

In social terms Vietnam has made remarkable progress. Life expectancy has risen from 44 years in 1960 to 66 years in 1995, adult literacy rate increased from 73 % to 94 %, and infant mortality dropped from 147 per thousand live births to 33 . In all these regards, Vietnam is among the most progressive countries in the region. However, economic development has been modest. In 1995, GDP per capita in Vietnam was only USD 240, and purchasing power parity USD 1236, which is more than in Myanmar, but less than in Cambodia and Laos.

Since economic liberalisation, the doi moi policy, the Vietnamese economy has expanded rapidly, albeit from a low initial level (Table 1). The average rate of growth between 1992-96 was 8.9 %/a, which is a high level even in comparison with the fast expanding economies of the sub-region. The fastest growing sector has been industries at 13.9 %/a followed by services reaching 9.4 %/a. Growth in agriculture has been recorded at 4.9 %/a, which is a reasonably high level for the sector. In 1996, agriculture represented 27.2 % of GDP, which is a fairly low level in the sub-region. The service sector and industries accounted for 42.1 % and 30.7 % of GDP, respectively.

Table 1: GDP Growth in selected sectors and overall in Vietnam between 1981-1995

Source: International Monetary Fund

In 1992, measured by headcount index the number of people living under national poverty line was 51.0 %, which was the highest level in subregional terms. However, preliminary results of a survey conducted in 1997 suggest that the proportion of poor would have dropped to 30 %. Distribution of income is relatively even. Measured by Gini coefficient (0.36) Vietnam has the highest equality after Lao PDR.

Measured by the human development index compiled annually by the UNDP* Vietnam ranks at 122, which puts it above average in the subregion. The modest level of economic development is compensated by the high achievements in the social sphere. In global terms, Vietnam qualifies as a country of "medium human development".

2.2. Upland development

For the purposes of this study "upland area" was defined as the Northern Mountain and Northern Midlands (North East and North West) as well as Central Highlands following the standard statistical division into geographic units.

The average density of population in Vietnam is very high in subregional terms, 224 persons/ sq.km (Table 2). In the upland areas density is not as high as in the lowlands, but relative to the carrying capacity of the environment, the burden may be higher in the uplands than in the lowlands. Population growth rates in the uplands are above the national average, partly because of high natural birth rates and partly due to in-migration. The latest available figures for upland areas indicate that they remain high, and may even be accelerating. The rate of change for agricultural population in 1990-95 was 7.3%/a in the Central Highlands, and 4.3 %/a in the Northern Uplands and Midlands.

Table 2: Population data

Source: General Statistical Office 1998
World Bank 1995

Measured by headcount index the upland regions are among the poorest regions, even though they are not the most disadvantaged ones (Table 3). GDP per capita suggests a similar pattern. On the other hand, in terms of GDP growth the two upland regions are strikingly different. While in the Northern Uplands growth has practically ground to a halt, the Central Highlands have recorded a very high growth rate. This may be a reflection the relative pressure on natural resources, which in the Northern Uplands is pushing the environment to the limits of its carrying capacity. In the Central Highlands, population density is still relatively low, and natural resources can be relied upon for economic expansion.

Table 3: Income poverty

Source: World Bank 1995

Regarding infrastructure a high level of road access to village centres is reported. In the north 70-80 % of village centres are served by roads and in the Central Highlands a figure as high as 96.2 % has been recorded (Table 4). The proportion of households with electric supply is significantly below the national average in the Central Highlands and in the "northern" northwest. Elsewhere in the northern mountains the supply is close to national average. The availability of sanitation display a similar pattern. The number of households with access to sanitation is low in the Central Highlands, but in the Northern Uplands the situation is better than on average in Vietnam.

Table 4: Infrastructure

Source: World Bank 1995

The high concern for social issues of the Vietnamese Government is evidenced by the relatively even level of achievements in education and health within the country. In the Northern Uplands the situation is average or better than average, but Central Highlands stands out as a region, where social development is clearly lagging behind (Table 5).

Table 5: Selected Social Indicators

Source: World Bank 1995

In sum, the upland areas are among the poorest regions of the country, but apart from the more industrialised Southeast region, the differences between different parts of the country are not large. However, it appears that the development of Northern Uplands has stagnated, and there is risk of it plunging into a negative downward spiral. The Central Highlands lags behind in terms of social development, but the economic indicators suggest that it has greater potential for growth than the north. The challenge is to ensure that this will take place in a sustainable manner.

2.3. Remote watersheds

The Government has designated 1175 poverty communes, which are entitled to special support. Approximately 70 % of the people living in these communities are in the upland regions. In Northern Uplands these people account for 13 % of total population and in the Central Highlands they represent 4 % of all people living there. The five provinces, where more than half of the communities belong to this group (Ha Giang, Cao Bang, Bac Can, Lao Chau, Lao Cai), are all located in the Northern Mountains. In 1996, the average GDP in these "distress provinces" was USD 107 per capita as opposed to USD 138 in the whole region (Table 6). Population density in these provinces was below the regional average, and agriculture sector dominated the economy more than it did in the rest of the province. The social indicators suggest a mixed picture regarding Government support. The pupil/teacher ratio in primary education is better than in the region or in the country, whereas doctors are fewer. Overall, however, the difference from the national average is rather modest.

Table 6: Selected indicators on "Distress Provinces" in 1996

Source: Caclulated from data provided by General Statistical Office 1998

The high incidence of poverty among ethnic minorities, who are usually the main population group in the remote watersheds, is another indicator for the disadvantaged status of distant mountain communities. The average incidence of poverty among the majority Kihn population is 48 % measured by headcount index. Among the ethnic minorities the values for this indicator vary between 65 – 100 % (with the exception of Chinese minority).

3. Environmental Status

In Vietnam, the forest area diminished rapidly until the early 1990’s. The drop was particularly sharp in the Northern Mountains, where forest covered shrunk from 95 % to 17 % in 1991 (Table 7). The delta areas post even lower percentages in terms of forest cover, but the change has been less dramatic, as most of the forest areas had been converted to agriculture much earlier. Central Highlands retained the by far highest forest cover estimated at 60 %. The rate of deforestation was most rapid between 1973-85, after which the forest area ceased to dwindle. By 1993 unproductive barren areas represented two fifths of the total land area. The ratio was highest in the Northern Mountains, where two thirds of the land areas had become denuded.

Table 7: Deforestation in Vietnam between 1943 -1991

Source: World Bank 1995

The present trend in changes of forest cover is somewhat unclear. Official statistics indicate that in 1990’s forest area has increased. In part, this can be attributed partly to the massive reforestation campaign but also partly to a change in classification, which included early regeneration stages, new forest plantations and bamboo forests in the area under forest cover. Based on this definition the forest cover in 1997 was 9.4 mill. ha accounting for 28.5 % of forest. The dependence of the estimate on the methodology is highlighted through a comparison of assessments carried out by FIPI and FAO. While FIPI has recorded and increase in forest cover between 1991-1995, the FAO estimate indicates the contrary (Table 8).

Table 8 Indicators for deforestation in Vietnam periods 1980-90 and 1990-95

Source: FIPI, 1998
FAO 1991, 1996

(Figures in parenthesis indicate increase in forest cover)

Protection forests, which mostly represent watershed areas, account for two fifths of forest land (Table 9). Their share has been rapidly increasing at the cost of production forests. However, more than half of protection forests is non-forested, which is indicative of their poor status.

Table 9: Area of forest categories in Vietnam

Source: FIPI 1998

A large part of Vietnamese forests are degraded. Average stocking is 62 m3/ha (Table 10). Fully-stocked forests (250-300 m3/ha) can be found only in areas which are not yet accessible by road. Production forests have the highest stocking, protection forests are below the average. In Northern Uplands the forests are severely degraded with only an average stocking of 26 m3/ha remaining. Central Highlands has the highest average volumes in the country estimated at 80 m3/ha.

Table 10: Level of stocking in Vietnam’s forests

Source: NISTPASS 1998a
NISTPASS 1998b

The reasons for forest degradation and deforestation are numerous, and lacking detailed studies it is difficult to assess the significance of various potential causes. However, it is probable that logging and conversion to agriculture are the main agents of deforestation. The immediate cause is most often conversion to agriculture either for subsistence production or cash cropping. Logging and road construction accelerate deforestation, as they enable local populations to move into formerly inaccessible forest areas.

Conversion to agriculture can be attributed either to increasing land scarcity for those living in semi-subsistence agriculture or to profit-seeking in commercial agriculture. Land scarcity, in turn, is the result of a number of factors including in-migration, population growth, expansion of hydropower reservoirs etc. Economic liberalisation has increased the significance of commercial agriculture as an agent of deforestation. For instance, the boost given to coffee production in Central Highlands by opening up of coffee export markets was practically paralleled by an increase in the area of deforestation in Central Highlands.

Fuelwood and other household consumption are indirect causes of deforestation. Lack of alternative fuels and prominence of wood as construction material in rural areas put high pressure on forests. Even though it is unlikely that household use would be carried out to an extent that would lead to total clearing of forest areas, it reduces the quality and quantity of growing stock and pave the way for eventual conversion to agriculture.

4. Regional Policy

4.1. Funding

The Policy of the Vietnamese Government towards regional development is that of reducing socio-economic disparities between different parts of the country. The question is whether it is vigorous enough to offset the present trend of increasing inequalities. The dilemma faced by the Government is that poor regions often suffer from low rates of growth, and investments made there may not generate as much tax revenue as spending in richer regions would do. From an equity stand transfers from richer regions to poorer ones would be justified, but the problem lies in the reasoning "wealth can be redistributed only after it has been generated". In Vietnam, this is a severe problem as the Government’s revenue base is limited, and even distribution of resources over the whole country may shrink the resources available to all regions below a critical level, which is necessary to have any significant impact.

The available data indicates that from the 1980’s until early 1990’s Government transfers reduced markedly the differences in public expenditure between wealthy and poor regions. The biggest net recipients were the Northern Uplands and Central Highlands, where approximately one third of Government expenditure was based on transfers from other parts of the country (Table 11). Apart from the southeastern region, where the high revenue-base of HCMC made the expenditure soar, the regional differences in public spending were modest.

Table 11: Regional per capita revenues and expenditures of Vietnam, 1992

Source: World Bank 1995
Note: These include only the revenues and expenditures, which could be allocated by the province, about 40 % of total spending

As part of this policy the Government launched a number of development programmes targeting the poor and disadvantaged areas in the 1990’s. Most programmes have had the upland areas directly or indirectly included in their scope. Between 1992 and 1995 a total of 2 855 billion dong (USD 285 mill) was spent on them, which represented approximately 1.7 % and 5.8 % of the Government’s total expenditure and social expenditure, respectively. The proportions are significant and indicate the Governments commitment to support disadvantaged groups. It is noteworthy that these investments were made at a time when the overall level of economic development was still very low.

However, it appears that in the last few years the Government may have revised its policy and accorded more emphasis on developing the urban and industrialised areas. Future Government investment will be targeting in particular the three growth centres: Hanoi-Haiphong, Quang Nam Da Nang, Ho Chi Minh City/Dong Nai-Vung Tau. In 1995 the proportion of these growth centres of investment outlays made by the local Governments was about 18 % (Table 12). However, the Public Investment Plan for 1996-2000 is proposing to increase this proportion to 30 %. If implemented as planned, this is likely to reduce the allocation available to upland areas not only in relative but also in absolute terms.

Considering the impact of private sector investment and foreign direct investment the disadvantage of upland areas will be even more marked. Private sector is expected to account for 16% and FDI of 32 % of total investment in Vietnam (Table 12). The regional distribution of private investment is not known, but FDI clearly favours these growth centres, and shuns the upland areas. Almost 80 % of all FDI has been placed in the growth areas.

Table 12: Investment by Local Government and Foreign Direct Investment

Source: Calculated from data provided in Statistical Yearbook 1997

Given that investment from the private sector and foreign sources will hardly be forthcoming without infrastructure development by the Government, the present trend is disquieting. The upland areas are standing at the brink of a downward spiral, and very little is needed to set the process in motion. Even if shifting emphasis towards rural development – especially upland development - may not be warranted in strict economic terms, the disadvantage of the upland regions would make it justified on equity grounds.

4.2. Development Strategy

In terms of resources planned for their implementation the principal development programmes impacting on the remote watersheds the "Socio-economic Development Programme for Disadvantaged Communes in Mountainous and Remote Areas"* . The programme constitutes an overall framework for all Government efforts to support the remote areas. These include programmes aimed at sedentarization of agriculture, afforestation, health and child care, providing support to ethnic minorities etc..

Government contribution to the "Socio-Economic Development Programme" is planned to represent one third of its total budget. The rest is expected to be forthcoming from the private sector and international organisations (Table 13). Part of this funding will become available from other programmes such as the "Five Million Hectare Reforestation Programme" (cf. ch. 6.1).

Table 13: Budget of Socio-economic Development Programme

Source: Ministry of Agriculture and Rural Development

"The Socio-economic Development Programme" targets 1175 most disadvantaged communes, especially those located in the remote areas. The activities to be carried out within the programme framework include

• land use planning
• promotion of agriculture and forestry production combined with processing
• development of rural infrastructure with priority given to transport, clean water and electricity
• zoning and establishing centers for commune groups
• training
• policy development as regards land, investment & credit, human resource development and taxes

The investment component of the programme emphasises infrastructure development (38 % of investment volume), providing credit (27 %) and measures enabling sedentarization of shifting cultivation (12 %).

In general terms, the programme has an appropriate scope and a focus on central issues. However, much depends on the technical approach adopted in the execution of various components. These issues will be dealt with in subsequent sections of this reports, but two remarks on the general features of the strategy can be made.

It has been claimed that the general pattern of resource use is unfair to upland areas. The resources extracted from the upland regions would be benefiting mainly the lowland people and economy, and Government transfers would be a meagre compensation for foregone benefits. For instance, the Hoa Bin hydropower development project has been referred to as an example of a development scheme, which benefits mainly the lowlands (flood protection, cheap electricity). The costs, in the form of the loss of productive farm land and displacement of local people from the area flooded by the reservoir, would have been borne almost exclusively by the uplands.

While in many cases it is difficult to refute these claims, it is equally problematic to establish a "fair" level of compensation. Government programmes for upland development are to some extent working towards compensating the inequalities, but they may be insufficient, and do not explicitly link the cost to the compensation. On the other hand, it should be noted that the connection is usually rather difficult to establish, and that the benefits to be derived from e.g. erosion control might not be as large as is often believed.

A study conducted in Philippines found that most benefits of watershed protection accrue on-site. Similarly, an analysis conducted in Sri Lanka suggests that downstream benefits justify rather limited subsidies to soil conservation. In Thailand, a case study established that the downstream benefit per hectare put under soil conservation was approximately 1000 Baht/ha/a (approximately USD 25-30/ha/a). Even if these benefits are significant, they may not warrant the establishment of an elaborate compensation system, which may be necessary if the beneficiaries are e.g. individual farmers depending on an irrigation scheme.

However, as the proposals put forward in Lao PDR in conjunction with the Ngam Ngum dam indicate, a compensation scheme is relatively simple and straightforward, if the main beneficiary is a hydropower plant. The opportunities for developing similar compensation schemes in Vietnam should be explored further either as independent projects or as part of basin-wide watershed management systems (cf. ch.10.2).

A potential weakness of the proposed development strategy is that it is focused on activities that can be carried out on-site, mainly primary production. Even if on-site activities are undoubtedly necessary, it is doubtful whether it is a sufficient response in circumstances where the carrying capacity of the environment has been pushed to the limit, and where trends aggravating land scarcity are difficult to thwart. An on-site strategy does not fully tap the development potential held in a fruitful interaction between rural and semi-urban settings within the upland areas. Therefore, the development of employment opportunities in upland towns through rural industrialisation and service sector development needs to be included more explicitly and forcefully in the development strategy, especially in the northern uplands. While it is true that the positive effects of developing semi-urban areas such as job creation and increased demand for local goods often do not automatically extend to remote areas, it may be possible to substantially strengthen these linkages applying carefully targeted measures (cf. ch. 7).

It should be noted that investment allocation is only one policy instrument available to the Government, and increasing its volume should not be an end in itself without consideration to efficiency in its use. The administrative costs of Government-sponsored development programs are often substantial in relation to the benefit that is actually received by the target group, and there are indications that this may be a concern in Vietnam as well. Even more importantly, an inefficient policy framework may substantially reduce the impact of Government financing. Even large outlays of Government funding will not be able to match the impact of policies, which succeed in mobilising people and harnessing their own resources. In Vietnam, arrangements for securing local people access to land play a key role in this regard (cf. ch. 9).

5. Agriculture

The centrepiece of the Government’s policy on upland agriculture has been the pursuit to reduce the area under shifting cultivation. The perception underpinning the strategy that swidden practices have detrimental effects on the environment. The option promoted by the Government is a switch to market-based sedentary agriculture.

Land scarcity in the upland areas, especially in the Northern Uplands, has reached a level, where original forms of shifting cultivation can no more be environmentally sustainable. With the available land fallow periods cannot be maintained at the requisite level of 10 to 15 years, which would prevent the depletion of the natural resource base. However, swidden practices are a highly diversified and dynamic land use, and many upland groups have adjusted the original swidden systems by combining rotational shifting agriculture with permanent cultivation. These systems can be highly sustainable provided that the decline in land availability can be held at bay.

However, there are many areas, where the practice of shifting cultivation is not sustainable neither from an environmental point of view, nor from a production standpoint. Fallow periods have been reduced to three to four years and the yields have declined to 400-600 kg of rice per hectare, which is an extremely low level. On the other hand, in many remote and inaccessible areas financially and environmentally viable alternatives are lacking. Despite increasing workloads farmers have no choice but to continue with swidden practices. In such circumstances it may be unreasonable to require the farmers to abandon their sole means of survival.

However, as a general policy the objective of reducing shifting cultivation can still be considered warranted, even if the strategies may need modification. Continuation of this policy is justified by the fact that the trends increasing land scarcity have not been contained. Even if vigorous programmes of family planning would be implemented, population levels are projected to double within 20 years. Spontaneous and voluntary in-migration to Central Highlands from the lowlands and northern upland areas is continuing, and it may be very difficult to reverse this trend in the short term. In addition, the Government’s resolute policy to further develop "New Economic Zones" and agro-industrial plantations will continue to foster in-migration to Central Highlands.

This does not suggest, however, that only the agricultural sector should be charged with dealing with land scarcity. Trends, which aggravate the situation such as in-migration, and other developments reducing land availability including establishment of hydropower reservoirs and national parks should also be addressed. However, the policy on agriculture has to be based on the current and foreseeable situation, and under any scenario land scarcity is undoubtedly one key issue that needs to be addressed. Despite the fact that impact of commercial agriculture on environment is not only positive (cf. ch. 3), there are very few alternatives to it in the upland areas of Vietnam.

However, even if the overall policy may be considered appropriate, there may be a need to review the implementation strategy. The thrust of the present development approach is placed on promoting agricultural expansion through modernisation and industrialisation. In particular in the Central Highlands there is a major development push for large scale agro-industrial and New Economic Zone development. It is implemented either directly by the government agencies or through parastatal corporations (General Rubber Corporation, Coffee, Sugarcane etc.) establishing large agricultural plantations.

From an environmental point of view this strategy will have a mixed impact. To the extent cashew, rubber and other tree plantations will not be established by clearing existing forest, and provided that proper environmental safeguards are put in place, the strategy has potential to reduce erosion. On the other hand, these crops combined with other cash crop plantations such as coffee, will require substantial amounts of water, which may have ecological consequences and give rise to conflicts with downstream water users. Expansion of other cash crops such as sugarcane and tea will significantly reduce biodiversity. From an environmental viewpoint, the positive aspects of improving erosion control have to be balanced against the increasingly unsustainable use of water resources and biodiversity losses. In particular, it would be necessary to estimate and set limits for the carrying capacity of the environment in terms of agricultural expansion.

From an economic and social point of view, the strategy will probably also have a mixed impact. The establishment of New Economic Zones aims to encourage both in-migrants and indigenous people to adopt permanent agriculture. However, the land area made available to rural households is often insufficient to provide them a sustainable livelihood. In addition, the past experiences both in Vietnam and other GMS countries suggest that inducing a successful transition to cash cropping requires substantial resources, especially when indigenous populations are involved. Both infrastructure investments and extension capacity are needed to encourage the adoption of alternative practices. It is unlikely that required resources would be available to all upland areas in Vietnam. Spurred by observations that extension is, indeed, an efficient tool for fostering the change, many well-resourced donor projects have assumed intensive extension as a key strategy. However, recent reviews indicate that many projects have hand a limited impact, as the restricted resources available to the Government have not permitted to sustain the approach in project areas, let alone to scale them up.

Given these constraints it may be advisable to attempt formulating strategies, which are more in line with the actual resources of the Government. The resource-intensive approach may be more appropriate in areas, where resources can be concentrated and farmers are more familiar with intensive agricultural practices. However, in areas inhabited by indigenous groups such as the remote watersheds the aim should be adjusted towards a gradual and spontaneous transformation of land use practices. There are indications that when faced with land scarcity indigenous communities are able to intensify agricultural production of their own accord e.g. by conversing purely swidden practices to composite systmes^. Thus, the limited resources available to the Government could be spent on ensuring that the conditions conducive to change are in place (e.g. market access, market information, awareness of changes in regulatory framework, demonstrations on available technologies etc.). For technical innovations one could rely largely on the villagers’ capacity to handle change.

By reinforcing the spontaneous adjustment of production methods the shift may not be as rapid as by using more radical approaches. However, it is likely to reduce the risk that the farmers experience, which may, in turn, increase the attractiveness of transformation. The approach may also prove more cost-efficient, because the extension input, which is required to carry the farmers successfully over a major modification of his/her production practice is usually quite large. By concentrating Government resources on creating a suitable regulatory and market environment the required input may be reduced. When resources for technical support are limited, efforts to find alternatives to shifting cultivation are probably more successful, if the transition is gradual rather than abrupt.

It is true that from the Government’s point of view the main objective is production increase, and they see intensification as a key strategy in their pursuit to provide livelihoods to the entire population. Establishment of large-scale agricultural plantations to provide employment to in-migrating people as well as indigenous groups is an essential element of this strategy. Given that many areas from which the in-migrants originate are the poorest in Vietnam, even poorer than the upland areas, the Government’s objective is understandable. Therefore, the Government may be reluctant to adopt a low-intensity strategy, as it may consider it an inefficient use of resources. However, apart from the constraints set by technical, financial and environmental imperatives, it is questionable, whether the present practice can be considered just. Intensification often involves the transference of the user rights to indigenous’ people’s customary lands to in-migrants and state corporations. Compensations to indigenous people are currently limited or non-existent, and other benefits accruing to them such as employment opportunities are still few (cf. ch. 7). Unless proper measures to safeguard the interests of indigenous people are taken, there is a risk that the drive for agricultural intensification, especially in the Central Highlands, makes them a marginalized population group. The way in which indigenous people’s land use rights are recognised is the key issue.

Market access would significantly facilitate the intensification of land use. To this end, the Vietnamese Government has made significant investments in road construction in the remote areas. The importance of sufficient transport access to market-based development is obvious, and the significance of this factor is corroborated by many research findings. On the other hand, it should be noted that it is not necessarily in all circumstances the most critical factor for the viability of agricultural production. Northern Vietnam is an example of an area, where the existing road network is heavily underutilized. Unless the root problem, e.g. the low yield of agricultural production, can be addressed in an adequate manner, the viability of road investments is put at risk. In such circumstances lighter options such as farm tractor and motorbike trails need to be carefully considered as an alternative to full-fledged road construction. Lighter roads might be more cost-efficient and they would also have merit in terms of their effect on the environment. Considering the very large share of investment funding that is allocated to road construction, a revision of the road investment strategy towards lighter roads could substantially increase efficiency in resource use.

Regarding the long-term perspective for development of agricultural development in the upland areas, it appears that there is still untapped potential, especially in the Central Highlands. Exploration of the comparative advantage of upland areas for annual and perennial cash crops as well as livestock production deserve more attention. On the other hand, it is clear that in the most fragile and densely populated areas such as the northern mountains the limits of agricultural expansion are rather close. Providing even a minimum standard of living for the entire population living in such areas will be difficult relying on primary production. While agriculture will remain the mainstay of upland economies, diversification of the economic base must be vigorously sought.

6. Forest-based Development

The regulations concerning forest utilization and protection seem to be in a constant state of flux. Many regulations are vaguely defined, contradictory or lacking. To mention only one example: the boundaries of areas classified as forest land can often not be identified on maps or in the field. On one hand, this is undermining the effectiveness of regulations and policy implementation, and it provides a breeding ground for abuse of power and corruption in the administration. On the other hand, if the negative implications have not been overwhelming, the laxity of regulations has also provided flexibility in local planning. For instance, theoretically only household use is allowed in protection forests. However, the vagueness of regulations coupled with lack of enforcement capacity has made the permitted utilization of watershed forests highly varied ranging from use of non-timber forest product to cultivation of agricultural tree crops.

6.1. Reforestation

As a response to the continuing degradation of watershed areas, the Government has launched major replanting programmes. The most recent ones are the so-called 327 Programme launched in 1992, and its continuation "Five million hectare programme" in 1998. However, due to its very large scope and funding requirements, the start of implementing the "Five million ha programme" has been delayed, and specific guidelines for it are currently being formulated.

Initially, the 327 programme had also a very wide scope ranging from "re-greening the major part of the degraded hills" to "creating incomes to the State and consolidating the national security". Later, in 1996, the programme was re-oriented to concentrate on the protection and restoration of degraded watersheds and special use forests. "The Five million Hectare Programme" includes both protection and production areas in its scope. There are two principal strategies of implementation (i) replanting of bare areas and (ii) establishment of so-called protection contracts, where the local population is compensated for protecting existing forest and regeneration areas (see also Box 1).

Box 1: Comparison of "327 programme" and "Five Million Ha Programme"

The official data on the 327 programme include the following achievements between 1993-97 (Table 14):

Table 14: Planned and actual achievements of "327 program"

Source: World Bank 1998

However, there is some doubt as to the reliability of these figures. It is possible that the actual achievements are much below the reported levels.

The "Five million hectar programme" has even more ambitious targets. In protection forests, the aim is to re-plant 2 000 000 ha of bare land, and to continue support to the so-called "protection contracts" made for 1.6 million ha of watershed and special use forests. In production forests the objective is to establish 3 000 000 ha of plantations.

The amount of funding expended on 327 was substantial, and, notably, the discrepancy between the planned and actual budgets was quite small (87 % of planned budget was delivered) indicating the Government’s commitment to the Programme objectives (Table 15). If the "Five Million ha Programme" will be implemented as planned, the volume of funding will be substantially increased.

Table 15: Funding allocations for afforestation programs in Vietnam

Source: World Bank 1998

The implementation of the 327 programme was marred with many difficulties, and it is unclear whether all the reported achievements have been sustainable. It has been suggested that the actual survival rates of plantations are rather low and that forest protection contracts have not been effective.

Apart from technical problems and a top-down approach used in implementing the 327 programme, the main flaw was the emphasis given reforestation in block plantations with natural tree species, which take a long time to yield financial benefits. Local people were rather reluctant to engage in programme activities because they consider alternative land uses, such as grazing or shifting cultivation, to provide higher short-term benefits. Many of the "bare" lands proposed for reforestation were in fact used by local population for other purposes. On the positive side, the most successful experiences were gained with agricultural tree crops such as fruit trees, coffee, tea and rubber, which are able to accommodate people’s need for short-term benefits. The most well-known example of the success of this approach is the developments in the northern Midlands, where the formerly bare landscape is now "re-greened".

In general terms, it seems that when assessing the viability of launching reforestation schemes, it would be necessary to examine more carefully whether the reasons behind deforestation continue to exert pressure on land and forest cover. Unless the fundamental factors causing deforestation have been eliminated, the newly reforested areas run the risk of being exposed to the same pressures, and undergoing the same process of degradation.

The available plans concerning the "Five million ha programme" suggest that a heavy reliance on natural tree species will continue, especially in the watershed protection areas. The apparent reason for adopting this strategy is that alternative crops are not considered as effective as block plantations in preventing erosion and soil loss. In the most fragile areas this is probably a proper approach as they need the best possible protection available. However, it is unlikely that the entire area proposed for watershed protection could be assigned to reforestation and taken out of other land uses without considerable resistance from local population.

One option to increase the feasiblity of the present strategy is to modify it taking advantage of the new watershed classification recently formulated by the Government. The classification has been adopted in the "Five million ha programme" as a basis for differentiating the approach to reforestation. The classification assigns watersheds in three classes.

1. Highly Critical Watersheds (minimum forest cover 70 %)
2. Critical Watersheds (minimum forest cover 50 %)
3. Less Critical Watersheds (minimum forest cover 30 %)

In the highly critical watersheds, the "Five million ha programme" intends to rely on state administration as the principal programme manager, and forest protection contracts as the main instrument of protection. Provided that the forest protection contracts provide a sufficient incentive for protection, the approach seems appropriate.

In critical and less critical watersheds, the watershed area will be "allocated to local administration and communities for protection". It is unclear what this statement holds, but it is probably suggesting that local communities should take the initiative in reforestation and protection. While the basic principle is appropriate, it is unlikely that it can be implemented successfully, if the objective is to use natural tree species, and especially if the local people, as it seems, obtain no direct benefits.

An alternative approach may be based on the notion that the disadvantage of alternative crops to natural tree species in terms of watershed protection is not necessarily very large (cf. Regional Reports). Given the difficulty in engaging local population in reforestation schemes and the large areas involved in the proposed plantation program, it appears advisable to include the promotion of alternative crops in the project strategy. This may be considered a second best solution in the sense that environmental benefits would be reduced, but as it would accommodate better the farmers’ need for short-term returns, the overall net result may be better than in schemes based on reforestation in block plantations.

In areas, where reforestation with natural tree species is considered absolutely necessary, two alternative strategies would reduce the risk of financial loss caused by failed reforestation schemes. Increased reliance on natural regeneration has been recommended as an option in the northern uplands of Vietnam. It is argued that besides being less costly, natural regeneration develops a stand, which displays higher biodiversity and is better adapted to the natural conditions of the site than artificially reforested sites. It appears that the "Five million ha programme" is increasing the emphasis on natural regeneration, but given the large scale of the programme and the uncertainties related to its implementation, augmenting its reliance on natural regeneration appears warranted.

Another possibility, which is perhaps relevant in the areas most vulnerable to encroachment, is a low-cost approach adopted in Sri Lanka. In this approach the objective of restoring full forest cover was relinquished because of the high risk of renewed encroachment. Instead, the principal objective was set at restoring some form of vegetative cover such as shrub able to reduce erosion. The disadvantage compared to natural forest cover was considered minor compared to the level of cost savings achieved.

6.2. Protection of existing forest

One of the reasons for forest clearing is the low level of returns, which make conversion to agriculture an attractive option. In protection areas, the more stringent restrictions on forest use increase the disadvantage of forestry. To counter this effect, the Vietnamese Government has initiated a scheme, where the local people are contracted to protect existing forest. Extraction of firewood or household use is possible upon issuance of a permit by the "owner" of the forest, but this is apparently seldom applied. Lacking thorough assessments the success rate of the programme is difficult to establish. Reportedly, it suffers from problems such as low level of compensation (45 000 VDN/a = USD 3/a), irregularities of payment, and lack of continuity.

The basic principle of the programme is simple and understandable. Augmenting returns to forestry increases the interest of local people to conserve the natural forests. In general terms it appears that this relationship holds, if pressure on land is low. However, if land scarcity is high and food security is at risk, the relationship seems to break down, as forestry appears unable to compete with agricultural production. Therefore, attempts to increase financial returns with a view to bolstering conservation efforts are likely to work effectively only in circumstances, where land availability is not a major constraint. However, the effectiveness of the strategy should be viewed critically, if pressure on land is mounting in the area. In such circumstances devoting resource to developing alternative land uses, especially agriculture, might be a more effective strategy to relieve the pressure on forests.

In the uplands of Vietnam, land scarcity is generally a serious problem, and therefore the effectiveness of protection contracts is somewhat doubtful. The approach may work, if the level of compensation were higher, but it would be a considerable strain on the state budget. If the entire area of protection forests (8 million ha) were managed under the same conditions, the total annual amount needed for compensation would reach VND 400 billion (USD 30 million).

An alternative approach would be to reduce the area covered by forest protection contracts to include only areas, where strict protection is absolutely necessary. At the same time the level of compensation should be substantially raised in order to increase the effectiveness of the programme. In forests falling out of the scope of the protection contracts, restrictions on forest use should be relaxed and forest management should be established on a basis, which would allow the local population share the benefits. One option in well-stocked areas is community-based management (cf. ch.9.3).

7. Rural industrialization

Economic liberalisation of the Vietnamese economy gave a boost to industrial development. The industrial sector became the most rapidly growing section of the economy. The state owned enterprises dominate the economy, especially the large entities owned by the central government (Table 16). The proportion of the non-state sector of total production has remained stable, even though it seems that in 1996, the non-state sector has become the most rapidly expanding industrial sector. The non-state sector includes former co-operatives, private manufacturing enterprises and household enterprises (mainly self-employment). The aggregated data available for 1992 and 1996 does not permit detailed analysis between these sectors, but at least in the early stages, the most dynamic sector was private manufacturing. The former co-operatives were generally shrinking in numbers as well as in terms of their production.

Table 16: Selected indicators on industrial sector in Vietnam

Source: International Monetary Fund 1998

Industrial production in the upland states is quite limited. Gross Industrial Output (GIO) per capita is below the average and among the lowest in the country (Table 17). In the North East the industrial sector is dominated by enterprises controlled by central state administration. In the North West and the Central Highlands non-state enterprises account for the largest share of GIO. However, the absolute level of GIO is very low, and the large proportion of non-state enterprises reflects rather the absence of state enterprises than a large output of the non-state sector in these regions. The oft-cited reason for the small proportion of non-state enterprises is a biased institutional framework favouring state enterprises. While this is undoubtedly true, it seems that it is not the only reason, as in areas where the state enterprise play a minor role, the development of non-state sector is not significantly more rapid than in areas, where state enterprises dominate. Much can be attributed to the low level of economic activity in general and deficient infrastructure. Given the limited resources available to the state, this suggests that the public efforts to boost the development of industrial sector must be concentrated in selected areas showing the highest potential for growth.

Table 17: Gross industrial output by province, and distribution by ownership of enterprise