US embassy cable - 04HOCHIMINHCITY1581

UNCLAS SECTION 01 OF 02 HO CHI MINH CITY 001581 
 
SIPDIS 
 
SENSITIVE 
 
DEPARTMENT PASS USTR - ELENA BRYAN 
 
E.O. 12958: N/A 
TAGS: ECON, EAID, EINV, PREL, SOCI, ETRD, PHUM, VM, SOE, ETMIN 
SUBJECT: CENTRAL HIGHLANDS PROVINCE OPEN TO U.S. AID 
 
REF:  A) HCMC 1493 B) HCMC 1173 
 
1. (U) This is a Ho Chi Minh City - Hanoi joint reporting cable. 
 
2. (SBU) SUMMARY:  An ECON HCMC-Hanoi and USAID visit to the 
Central Highlands province of Kon Tum revealed the area's economic 
and development situation is particularly desperate, even compared 
with its impoverished Central Highlands neighbors.  Trade and 
investment levels are low, and state-owned enterprises (SOEs) 
dominate.  Government, local non-government organizations (NGOs) 
and some international organizations provide assistance for 
poverty reduction, including for ethnic minorities, but Kon Tum's 
average income is roughly half that of Vietnam as a whole, and 
ethnic minorities still largely fall outside the province's 
economic structure.  Kon Tum authorities are eager for U.S. 
assistance, which contrasts with other Central Highlands 
provinces, like Dak Lak, which are uninterested in any activity 
that might hinder government control of the province.  END 
SUMMARY. 
 
LOW GDP, EXPORT, FDI AND ODA NUMBERS 
------------------------------------ 
 
3. (U) Hanoi Econ counselor, USAID Country Manager and HCMC 
EconOff visited Kon Tum December 13-15 to assess the province's 
economic and development progress.  The northernmost of the 
Central Highland provinces, Kon Tum is a thinly populated and 
densely forested area that borders Cambodia and Laos.  According 
to local authorities, more than half of Kon Tum's 370,000 
residents are ethnic minorities, and 64 percent of the province is 
forested. 
 
4. (SBU) Kon Tum People's Committee Chairman-elect, Mr. Ha Ban, 
reported that Kon Tum's average annual growth rate in the last ten 
years was 11 percent.  However, much of this growth was due to 
exploitation of the province's forest resources, which has been 
halted.  Figures that give a more realistic picture of Kon Tum's 
economic status are per capita GDP, export turnover, foreign 
direct investment (FDI) and overseas development assistance (ODA). 
According to Chairman-elect Ban and his colleagues at the 
Departments of Planning and Investment (DPI) and Trade and 
Tourism, per capita GDP in 2004 is $260, barely half the national 
average.  Kon Tum exports less than $10 million a year in goods, 
mainly coffee and furniture.  The province has only one FDI 
project, a $4.5 million Thai investment in a tapioca processing 
plant that is under construction.  In the last ten years, Kon Tum 
has received only $40 million in ODA, mostly from the European 
Union (EU) for infrastructure projects.  These numbers compare 
unfavorably with neighboring Dak Lak Province, which, for example, 
exports $250 million a year and has received $100 million in ODA 
from Denmark alone (ref A). 
 
5. (SBU) Kon Tum authorities appeared to be pinning their hopes 
for growth and development on the planned Ho Chi Minh Highway, 
which will trace the path of the Ho Chi Minh Trail.  Local leaders 
hope the highway's intersection - 300 kilometers north of Kon Tum 
-- with the East-West Corridor highway from Danang across 
Southeast Asia to Burma will open up the province to more regional 
trade and tourism.  Kon Tum authorities also noted with pride that 
Kon Tum is part of the development triangle identified by the 
prime ministers of Vietnam, Laos and Cambodia that includes nine 
Vietnamese provinces and neighboring provinces in Laos and 
Cambodia.  However, specifics on how this triangle of provinces 
will promote development were not forthcoming. 
 
SOEs AND A LITTLE PRIVATE ENTERPRISE 
------------------------------------ 
 
6. (SBU) That SOEs still dominate Kon Tum's economy was 
illustrated during our visit to the local branch of the Bank for 
Investment and Development, an SOE itself.  According to Mr. Tran 
Lam, the bank's director, loans to SOEs make up 70 percent of bank 
lending because "there are very few private enterprises in Kon 
Tum."  Mr Lam said the bank primarily lends to state-owned coffee 
and rubber companies because they create the most jobs in the 
province and the bank can thus contribute to employment and 
poverty reduction.  The only three banks with branches in Kon Tum 
are state-owned banks. 
 
7. (SBU) While most private enterprises in Kon Tum are small- 
scale, at least one private investor has had success in the 
province.  Duc Nhan Company produces outdoor furniture for export 
mainly to Europe; in 2004, the company expects to export 250 
containers of furniture.  Duc Nhan is one of 70 factories that 
contract with Danish furniture-maker ScanCom International. 
According to Nguyen Thanh Nhon, director of Duc Nhan, and Chad 
Ovel, managing director of ScanCom Vietnam, furniture companies in 
the Central Highlands like Duc Nhan originally developed because 
of their proximity to wood sources; with the stoppage of forest 
exploitation in Vietnam, furniture companies now import wood from 
South America, Malaysia and South Africa.  While a company like 
Duc Nhan is competitive in terms of low labor costs, the cost of 
transporting wood inland from seaports could in the future 
diminish the viability of furniture enterprises in the Central 
Highlands. 
 
ETHNIC MINORITIES POOR AND MARGINALIZED 
--------------------------------------- 
 
8. (SBU) According to Kon Tum authorities, 54 percent of Kon Tum's 
population consists of ethnic minorities.  Local agencies like the 
Department of Health, the Department of Labor, Invalids and Social 
Affairs (DoLISA), and the Women's Union have assistance and micro- 
credit programs for the poor, the majority of whom are ethnic 
minorities.  One standout is a Department of Health program to 
educate doctors to work in villages throughout the province.  Of 
the 90 medical students whose training is being funded by the 
Department of Health, 81 are ethnic minority members.  However, 
most of the ethnic minority population appears to fall outside the 
economic system.  Only one company we visited reported employing 
ethnic minorities, which made up 10-15 percent of that 
enterprise's workforce.  The state-owned Dak Uy Coffee Company 
reported it did not employ ethnic minorities because there were no 
ethnic minorities in the area from which they draw their 
employees. 
 
KON TUM EAGER FOR U.S. AID 
-------------------------- 
 
9. (SBU) In virtually all of our meetings, local officials asked 
what U.S. aid might be available to the province.  They asked in 
particular for infrastructure assistance and noted the need to 
develop Kon Tum's limited road network.  USAID Country Manager 
described the nature of U.S. assistance to Vietnam and noted that 
USAID would be reviewing its Vietnam program next year.  Options 
for assisting Kon Tum in the areas of micro-credit or disabilities 
would be included in the review.  (NOTE:  USAID has one modest 
activity in the area, a low-key effort via the Pearl S. Buck 
Foundation on inclusive education for the disabled.  END NOTE.) 
 
COMMENT 
------- 
 
10. (SBU) While most of the Central Highlands provinces are 
plagued by low economic growth and the social/economic/religious 
dilemmas of the ethnic minority issue, Kon Tum appears especially 
affected by these problems.  The provincial leadership indicated a 
willingness to work with the United States, including allowing an 
active U.S. NGO presence, if the result was monetary assistance. 
This contrasts with the attitude of authorities in Dak Lak, who 
view further development and opening up of the province as a 
threat to the government's ability to keep a lid on local socio- 
economic forces (ref A). 
 
CHERN