Cablegate: Central Highlands Province Open to U.S. Aid

This record is a partial extract of the original cable. The full text of the original cable is not available.





E.O. 12958: N/A

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


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

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.


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


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


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.)


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).


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