What makes Vietnam's informal economy tick?

Inside Vietnam’s
informal economy
– heroic struggles!

Spent Wednesday talking to a range of people in the ‘informal economy’ of Ho Chi Minh City (formerly Saigon). I was accompanying our excellent Vietnam team, who together with Action Aid Vietnam, are running a 5-year ‘poverty monitoring programme’ in 9 rural and 3 urban sites, including this one. More on that in another post – this one is just impressions.

We talked to three separate groups: motorbike taxi drivers (all men); lottery ticket sellers (mostly disabled or blind) and street vendors

A competitive market
A competitive market

(all women). With each we had a semi structured focus group discussion for about 90 minutes, running through issues of work, finance, access to essential benefits, housing and the like. Discussions took place in cafes and people’s houses, on chairs and on the floor, and at various degrees of sweltering.

Key themes that emerged?

1. The importance of papers: virtually everyone we talked to was a migrant from other parts of Vietnam, without permanent residence or, in most cases, even temporary registration. That excludes them from a range of benefits like health insurance, food parcels, and political participation (no-one tells them when the meetings are). The state bureaucracy appears remote, incomprehensible and ‘not for people like us’. If you care about active citizenship, it’s hard to think of a better development intervention than helping people sort out their status, allowing them to escape this twilight world and appear on the radar of officialdom.

2. The educational gradient: all saw finishing secondary education as the way out of poverty for their children, while most had failed to achieve it themselves. Many lamented the lack of options created by not having finished secondary school.

3. The invisible networks of finance: discussions bore out the findings of Portfolios of the Poor: poor people are remarkably active financial managers, but they do so through a range of mechanisms that lie largely outside both the official system and the much vaunted networks of microfinance institutions. People lend and borrow constantly to smooth out their incomes, to friends, relatives and work colleagues and if necessary, the local loan shark. We found only one woman who had a bank account, which she needed to put her son through police training college in Hanoi. Not one mention of microfinance.

4. Rapid bounce back from the global economic crisis, although several mentioned issues like increased competition (more people entering the informal economy), falling demand (more people using public transport instead of motorbike taxis) that could be the result of the crisis.

A hard slog
A hard slog

5. Vietnam Rising: hours were achingly long (one of the street sellers rises at 2am to start making the tofu for her street stall) and take-home profits were typically of the order of $3-6 for each group, but they all had a stake in what one of the lottery sellers called the ‘modern world’ of mobile phones and consumer goods. Those who had returned to their villages had swiftly returned to the city. The houses we sat in were scruffy and overcrowded, but had electricity, clean water, tiled floors and tin roofs. Even the lottery sellers, most of them disabled and largely outside the system, saw life getting better in Vietnam – when the World Bank asked people in 23 countries in the Voices of the Poor project whether their lives were improving, Vietnamese were the only ones to answer with an unequivocal ‘yes’. After today, I can see why.

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Comments

3 Responses to “What makes Vietnam's informal economy tick?”
  1. Ken Smith

    Do the people in the informal economy really want “to appear on the radar of officialdom” ?
    Good develoment as well as making it easier to appear would first and foremost make it beneficial.

    Duncan: know what you mean Ken, some people take refuge in the informal economy to avoid taxes and red tape, but in a fairly non-predatory and effective state like Vietnam’s, that also means sacrificing a lot of potential benefits. The ones we talked to certainly didn’t seem to be off the radar through their own choice.

  2. Hernando de Soto’s book, The Mystery of Capital gives a good description of why these informal financial networks are so effective.

    Duncan: Does it Jane? I’ll have to go back and take another look. As I remember it, de Soto’s big idea was that property rights enable people in the informal economy to break into the formal economy, particularly credit systems, not that there were substantial informal financial systems already in operation.

  3. Duncan,

    The one aspect that drives the Vietnamese is their cultural similarity and a view that the future might be better. One will in most cases not find the same happening in other less developed countries, especially not in Africa, where faction fighting and diverse populations limit the development of anything that might resemble a vibrant economy.

    Duncan: Hmm, don’t know Vietnam well enough, but not sure I agree with you on this one, Robert. Big differences between South and North (beyond that little matter of the war…), and substantial ethnic minorities, although those have to some extent been left behind by the ‘Vietnamese miracle’. And other Asian take-off countries like Malaysia are of course, very diverse.

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