Vietnam giving itself a raw deal

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Workers drill coal in a mine in northern Vietnam

Vietnam has developed very fast in the exploitation of its raw natural resources, but experts say this is actually a backward trend that will not lead to a developed economy.

Exporting raw resources was okay decades ago when Vietnam was poor and had to sell some of its resources to create a base for the economy to grow.

But if Vietnam stays on this track, it will fall back from a middle-income country to a poor one, experts told Thoi Bao Kinh Te Saigon Online.

They said Vietnam has the "Dutch disease," an economic term describing the relationship between the increase in exploitation of natural resources and a decline in the manufacturing sector, coined by The Economist after the decline of the manufacturing sector in the Netherlands following the discovery of a large natural gas field in 1959.

Studies carried out by the Vietnam Chamber of Commerce and Industry show that Vietnam is still making money from direct export of raw materials as it had done in the 1980s, with more than 5,000 mines for 60 different natural resources including metals, oil and coal.

It said resource exploitation contributes 10 to 11 percent of
the GDP, with export revenues worth more than US$9.6 billion last year, including $8.1 billion from crude oil and $1.24 billion from coal.

But experts say the money is insignificant compared to how much land and forest area has been sacrificed, not to mention what can be purchased with so much revenue.

Nguyen Thanh Son, director of the Red River Energy Company under the Vietnam coal and mining group Vinacomin, said crude oil revenue last year was just enough to import fuel for domestic use.

He said the country is selling raw material, while its manufacturing sector still relies on imports of refined materials, hence the paradox in investments.

"Natural resources are the quickest, but also the least sustainable income generators," Son said.

He also noted the risk of losing materials when they are excavated on a large scale; for instance, around five to six million tons of coal worth more than VND10 trillion ($478 million) were lost last year to smuggling.

Official data shows that the mining sector expanded from 427 companies in 2000 to nearly 2,000 in 2011.

A survey by the Hanoi-based Consultancy on Development Institute (CODE) showed that 3,882 licenses were granted nationwide between 2005 and 2008 for natural resources exploitation, more than ten times the number granted in the previous 12 years.

Bac Lieu Province in the Mekong Delta is the only locality out of the country's 64 cities and provinces that has contained the exploitation by not granting those licenses.

Experts at the institute said the easy granting of licenses for exploitation of raw materials has caused a double waste of resources, as most licensed companies use low technology and do not even exploit the materials efficiently.

They said between 40 to 60 percent of coal was lost in the excavation process, as was 26 to 43 percent of apatite a calcium phosphate mineral used in making fertilizers, and 15 to 20 percent of metal ores.

Pham Quang Tu, deputy head of CODE, said the government is speeding up "the blood drain of natural resources" by giving the export of raw materials an easy pass and not developing material refining technologies.

Tu warned that when Vietnam develops its manufacturing sector to a certain level one day, it might not have any resources to work on.

He took the example of how the country has treated anthracite, a hard, splendor and compact variety of mineral coal needed for thermal power generation.

"Vietnam has been developing hydropower and thus exporting a lot of the coal. But now that the power sector has announced big plans for thermal power, the country might have to import it soon."

He said the Vietnamese government recently issued various policies to contain the use of raw materials, "but it is a long way from policies to practice."

Several decisions to tighten the export of raw resources were gradually abolished, including one around two years ago that allowed businesses to only export their stockpiled ilmenite a raw mineral containing iron and titanium, by the end of June 2012. But this restriction was removed recently.

Also, the export of iron ore is illegal under several government decisions, except to exchange for coke, but many businesses have found no problem exporting the ores for money.

Tu said the governments are manipulated by businesses motivated by the quick profit they can earn from natural resources.

"If we are not cautious, we will be tricked to have illusions about reserves."

He said one trap is about the amount of titanium in Vietnam, which is around 20 million in the black sand layer and more than 600 million in the red sand.

Businesses tend to add up the numbers to report a huge amount of reserves, ultimately for their benefit, and the authorities are just willing to grant licenses.

But while the small amount in black sand is easily exploited, the other is very hard to take, Tu said.

He said such deceit is only made easy because many leaders still consider natural resources the savior of the economy, and thus encourage exploitation after exploitation.

"That kind of perception no longer suits today's circumstances. I do not mean that we should be done with mining, but we need to use it to serve other industries in the country," he said.

"Too much dependence on mining and loss of attention into other sectors can drag down the countries' economy and facilitate some kind of monopolies and group powers," Tu said.

He said Vietnam in general is not having a severe case of the "Dutch disease" but many localities are, like Quang Ninh Province which is dubbed the coal capital of the country.

"What will happen to the province if coal mining hits a standstill?" Tu said. "All governments need to shift some attention to services and commerce as we will not be able to rely on natural resources in a couple years to come."

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