As some Asian countries started figuring out how to stimulate their national economies beginning back in the 1990s, years of strife and economic mismanagement would leave Cambodia, Laos and Vietnam – part of what is often referred to as the Mekong region – at a standstill. In just the last several years, having transitioned to largely market economies, these countries have turned somewhat of a development corner, albeit with foreign donors playing a pivotal role. According to the Asian Development Bank, over the last two decades gross domestic product (GDP) per capita has more than doubled in the CLV countries.
While progress has been observed, poverty and other development challenges still reign. Indeed, large sections of the population in Cambodia (30 percent), Laos (28 percent) and Vietnam (15 percent) are still mired in poverty, which is often defined and noticeable along geographic and ethnic lines. Infrastructure in Cambodia, Laos and Vietnam is perhaps the most underdeveloped in the world, such as in Laos where only 14 percent of the country’s roads are paved. Unsurprisingly, poor governance and corruption are also major problems that cut across all three countries and hold development implications. In Transparency International’s Corruption Perceptions Index for 2011, Laos and Cambodia placed 154th and 164th, respectively, out of 178 countries – just barely ahead of countries like Libya and Angola. Vietnam performed slightly better at 112th place, alongside countries including Egypt and Senegal. Phnom Penh’s recent threat to expel a United Nations representative over his comments on the country’s anti-corruption law begins to explain the gaps and misgivings in governance, which are characteristic of the region.
The effects of climate change – both immediate and longer term – are also critical for the Mekong region. Specifically, the three countries continue to be some of the most disaster-vulnerable places in the world and crisis management and response systems are severely lacking. This reality has garnered a significant amount of foreign aid attention – a trend that is likely to continue. Furthermore, a report by the Vietnamese government found that rising sea levels could potentially submerge the heavily rice-producing Mekong Delta, dealing a serious blow to the region’s food security.
On the positive side, Vietnam is setting the pace and example for market-oriented development in Asia and even elsewhere. Once hardly a player in the global economy, Vietnam has now reached middle-income country status and is attracting praise for its emergence as a hub for low-cost, light manufacturing, thanks in no small part to its welcoming and constructive policies on foreign investment. Others commend Hanoi, which has accomplished five of the eight Millennium Development Goals ahead of schedule, for harnessing the gains of its economic growth by channeling it toward social equity programs. Analysts warn, however, that the Vietnamese economy’s reliance on labor-intensive and low value-added goods such as textiles and garments could prove unsustainable in the face of rising incomes, potentially stalling growth in the years to come. Many argue that it is now incumbent upon Vietnam and its donor partners to make the necessary investments in education, research and innovation in order for the country’s industry to move up in the value chain.
Meanwhile, recent political developments in the greater Mekong region could alter aid flows to Cambodia, Laos and Vietnam. Particularly with Myanmar promising political and economic reforms and poised to join the international community, development experts in the region are anticipating a shakeup in foreign aid flows. U.S. Secretary of State Hillary Clinton’s recent visit to Myanmar has placed the spotlight back on the country and may be enough to put it back on the American development agenda. Back in 2009, Tokyo had pledged $6.4 billion in assistance to the Greater Mekong region (Cambodia, Laos, Vietnam, Myanmar and Thailand). Recently, the Japanese foreign ministry has indicated an interest in supporting Myanmar’s infrastructure, which could result in funds being diverted and spread rather thin. The Japanese deputy foreign minister recently argued that rebuilding Myanmar’s infrastructure could hold the key to linking the rest of the Mekong region with India, a growing market for Cambodia, Laos and Vietnam’s commodities.
Closer to home, Thailand had ratcheted up its aid to the three countries, placing among Laos’ top five donors in recent years until the global financial crisis changed priorities in Bangkok. It remains to be seen whether newly elected Prime Minister Yingluck Shinawatra has inherited her elder brother Thaksin’s enthusiasm for aid as an instrument of Thai foreign policy.
Devex analyzed aid flows to Cambodia, Laos and Vietnam in 2010 and found that, with the exception of perhaps South Korea and China, long-established donors continue to lead the way in providing development assistance to the region. According to Devex projections, the following are the top foreign aid donors that contributed at least $200 million in 2010 to the three countries.
World Bank
In 2010, the World Bank budgeted an estimated $2.5 billion for Vietnam, $122.7 million for Cambodia and $40 million for Laos. In Vietnam, the bank’s most recent country partnership strategy (2007-2011) enumerated the following areas of engagement: improving the business environment, strengthening social inclusion, strengthening national resource and environment management, and improving governance. At Hanoi’s request, the bank scaled up its financing for infrastructure from 2010 to 2011, increasing the volume of support for this sector by 25 percent over the previous three years combined. In Laos, where both government and World Bank officials have just commemorated half a century of partnership, the bank’s country assistance strategy (2005-2011) underscores its commitment to help Vientiane in improving the management of key drivers of growth (e.g. regional integration, private sector development), and strengthening public financial management and poverty reduction programs. In June, the World Bank committed an additional $57 million to curb rural poverty in Laos. Though the bank is poised to remain a top donor in both Vietnam and Laos, the prospects for a continued partnership with Cambodia are less promising. In August, it froze new lending to Cambodia over a real estate project tied to the ruling party that has apparently displaced thousands of Phnom Penh’s poor. Perhaps appropriately, the bank’s 2005 country assistance strategy for Cambodia prioritized improving governance in the fledgling democracy.
Japan
For 2010, Japan’s aid budget is estimated to have contributed $1.6 billion to Vietnam, $104.7 million to Cambodia and upwards of $90 million to Laos. In 2009, the Japanese government had pledged $6.4 billion in assistance over three years for the three countries, as well as Myanmar and Thailand, at the first-ever summit between Japan and Mekong region countries. At the same summit, leaders signed the Tokyo Declaration, spelling out priority areas for cooperation including infrastructure development, climate change mitigation and tourism promotion. Since then, Tokyo has warned that looming aid cuts due to the country’s economic woes may derail its programs in the region. This year, Japan has set aside $700 million to construct a bridge and power plant in Vietnam, as well as $54.8 million for the West Tonle Sap Irrigation and Drainage Rehabilitation and Improvement Project in Cambodia, to name just a few of its recent funding commitments.
Asian Development Bank
The Asian Development Bank allocated an estimated $1.5 billion for Vietnam, $124.5 million for Cambodia and $65.5 million for Laos in 2010. In Vietnam, ADB’s programming for 2007 to 2010 targeted accelerating private sector investment, achieving social equity and improving environmental management. ADB is scheduled to release a 2012-2015 country partnership strategy for Vietnam in the first half of 2012. It has already released country partnership strategies for both Laos (2011-2016) and Cambodia (2011-2013). Budgets outlined in these strategies indicate that agriculture and natural resources (29 percent) and transport (19 percent) will continue to be funding priorities for Laos and Cambodia respectively. Alongside its country-level initiatives, ADB also provides assistance through the Greater Mekong Subregion program, an economic integration initiative that has delivered around $10 billion in infrastructure projects since 1992 for Cambodia, Laos and Vietnam, as well as Myanmar, Thailand and China’s Yunnan province. In the past year, ADB’s activities in the three countries have included a loan of $293 million for the construction of a new railway in Hanoi and a $4 million regional grant to promote the use of biomass waste as a clean energy source.
France
France’s aid budget in 2010 allocated an estimated $378 million for Vietnam, $26.7 million for Cambodia and $8.4 million for Laos. Among the three countries – each a former French colony – only in Vietnam does France place among the top five aid donors. France’s current aid portfolio in Vietnam focuses on infrastructure (36 percent), agriculture and food security (31 percent), and the financial sector (24 percent). In May of this year, French Development Agency Director-General Dov Zerah traveled to Ho Chi Minh City to sign a $29.6 million loan agreement to support socioeconomic development in Vietnam’s largest city. Agriculture is a priority sector for French aid in both Cambodia and Laos.
European Commission
In 2010, the European Commission extended an estimated $332 million in aid for Vietnam, $57.8 million for Cambodia, and $23 million for Laos. Consistent with funding priorities from 2007 to 2010, the commission’s 2011-2013 multiannual indicative programs allocate the bulk of Brussels’ aid budget for Cambodia (30 percent to 40 percent), Laos (56 percent) and Vietnam (49 percent) to support the implementation of their respective poverty reduction and national development strategies. Additional priority areas in the commission’s 2011-2013 aid budget are basic education (30 percent to 40 percent) in Cambodia, sustainable development and mine clearance (31 percent) in Laos, and health (39 percent) in Vietnam. In July, the European Commission, in partnership with the United States, unveiled an $800,000 project to clear unexploded ordinances in Laos.
Korea
In 2010, Korea pledged $270 million in aid for Vietnam, $83.3 million for Laos and $26.5 million for Cambodia. Korea’s priority sectors are environmental management, human resource development and transport infrastructure in Vietnam; education, health, and rural development in Laos; and human resource development and transport in Cambodia. Over the last decade, Vietnam has routinely secured a spot among the top three recipients of Korean aid, a trend that is likely to continue given Seoul’s recent commitment of another $3 billion from 2011 to 2015. Korea’s recent aid initiatives in the three countries include a $7 million human resource development center at the Royal University of Phnom Penh and a $3 million judicial training school in Hanoi.
United States
The 2010 U.S. aid budget allocated $134.1 million for Vietnam, $72.6 million for Cambodia and $10.9 million for Laos. Health programs received the largest allocation in both Cambodia (48 percent) and Vietnam (71 percent) and the U.S. government recently named Cambodia and Vietnam as two of 21 focus countries in its Global Health Initiative. Phnom Penh appears to have allayed concerns expressed by the U.S. Agency for International Development over a controversial law, since put on the backburner, which would have regulated the operations of nongovernmental organizations in Cambodia. Meanwhile, in Laos, the peace and security sector (56 percent) garnered the lion’s share of the 2010 U.S. aid budget for the country with health well behind at 9 percent.
Germany
Germany’s 2010 aid budget topped $137 million in Vietnam, $60 million in Cambodia and $12 million in Laos. The country’s priority sectors are rural development and sustainable economic development in Laos; rural development and health in Cambodia; and environmental policy, natural resources and urban development, sustainable economic development, and health in Vietnam. Earlier this year, the German government pledged $40 million in assistance for the five-year Climate Change in Coastal Ecosystems Program in Vietnam, $5.7 million for a reforestation project in Laos, and $6.5 million for a land reform scheme in Cambodia.
China
Back in 2005, China announced a pledge of $200 million in assistance for Vietnam, but has since remained silent. In 2010, China reportedly committed $100.2 million in aid to Cambodia and $14 million to Laos. Given the uncertainty over the size and scope of Chinese aid, it would be foolhardy to approximate a number for just how much the emerging donor contributed to the three countries in 2010. But assuming that China has at least maintained assistance to Vietnam at its 2005 commitment – a likely scenario given Beijing’s geostrategic interests in the region – then it will have easily joined the ranks of the three nations’ top donors. According to analysts, transport infrastructure and communications have emerged as China’s aid priorities in the region. As tensions escalate between China and Vietnam over disputed territories in the South China Sea, it is far too early to tell whether Hanoi has enough confidence in its economic standing to wean itself off Chinese aid.
Lorenzo Piccio contributed to this report.
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About the author
Pete Troilo
Former director of global advisory and analysis, Pete managed all Devex research and analysis operations worldwide and monitors key trends in the global development business. Prior to joining Devex, Pete was a political and security risk consultant with a focus on Southeast Asia. He has also advised the U.S. government on foreign policy and led projects for the Asian Development Bank and International Finance Corp. He still consults for Devex on a project basis.
