SOUTH VIETNAM: SOME ASPECTS OF ECONOMIC GROWTH

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00875R001700010074-8
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 30
• Document Creation Date: December 22, 2016
• Document Release Date: May 18, 2010
• Sequence Number: 74
• Publication Date: July 1, 1971
• Content Type: IM

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Vietnam: Some Aspects Of Economic Growth
Confidential
ER IN.71-122
July, 1971
Copy, No.
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WARNING
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GROUP I
rXeluded from avtomallc
downgrodlnr and
dedouIGcaUon
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I CONFIDENTIAL
CENTRAL INTELLIGENCE AGENCY
Directorate of Intelligence
July 1971
INTELLIGENCE MEMORANDUM
SOUTH VIETNAM: SOME ASPECTS OF ECONOMIC GROWTH
Introduction
1. Until recently, US economic interests in South Vietnam have
focused generally on stabilization of the economy. As Vietnamization
gathers momentum and security continues to improve, however, the need
for longer term economic planning becomes apparent. This memorandum
addresses two basic economic questions which will be of major importance
to Vietnam over the next five years. In Section I the overall employment
situation in Vietnam is considered, particularly as it develops following US
withdrawal. An estimate is made of the total quantity of labor that will
enter the job market during 1971-75, and projections are then made of
what growth, by sector of the economy, would be necessary to employ
this labor with no decrease in production per worker. The second question,
the Vietnamese balance of trade by 1975, is discussed in Section II. In
this section, high and low projections are made to obtain a probable range
of both exports and imports in 1975.
2. Ideally, a quantitative model should be used to relate formally
the economic aggregates discussed in Sections I and II. Because of the
narrov Vietnamese statistical base, however, the description of
interrelationships in this memorandum is more modest. Section III simply
points out how particular assumptions about single changes in the values
of such aggregates as employment, investment, domestic production, and
foreign trade will affect each other.
3. For purposes of analysis, it is assumed that almost all US forces
will be out of Vietnam by 1975, that South Vietnamese army force levels
will remain constant throughout the period, and that security will continue
Note: This memorandum was prepared by the Office of Economic Research
and coordinated within CIA.
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to improve. jj Furthermore, it is assumed that, with a continued high level
of government activity and a population accustomed to the availability of
a wide variety of consumer goods, employment and production should not
be limited by the size of aggregate demand but rather by the available
supply of capital and other resources to employ labor and produce the
desired goods. This memorandum does not attempt to determine specific
limitations on the future availability of resources, but simply sets very rough
orders of magnitude that could be useful for future planning.
Discussion
1. Employment Balance
Increase in the Labor Force
4. A major question to be considered in analyzing longer term
growth prospects is the overall employment situation, including
developments following US withdrawal. An analysis of employment in South
Vietnam during 1971-75 indicates that, if government employment (civilian
and military) remains at the current 1.3 million level, a minimum of roughly
1.4 million new jobs will have to be created during the five-year period
and this number will increase if any South Vietnamese demobilization
occurs. The problems of creating such a large number of new jobs contrast
markedly with those during the period 1960-66, when the number of people
employed in South Vietnam's private sector (including agriculture) actually
declined.
5. During 1971-75, roughly 200,000 new entrants will join the labor
force annually. The addition of these one million people reflects an annual
population growth of 2.6% and a participation rate of 37%. A number of
estimates of the labor force and its distribution have been made since 1954
and these have yielded participation rates ranging from 37% to 43%. On
the basis of past studies in which the 37% rate has been judged to be
most plausible, this rate is adopted for use in this memorandum.
6, At the end of 1969, recorded employment of Vietnamese
nationals in the US sector was 148,000. This number, however, greatly
understates the actual number of Vietnamese employed as a result of the
US presence in Vietnam. Based on estimates of average US sector wage
rates and US piaster expenditures on Vietnamese labor, the total number
1. The assumption regarding security conditions is made for analytic
purposes and is not meant to be an estimate.
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of Vietnamese whose employment was dependent on the US presence at
the end of 1969 would amount to roughly 250,000. J Combining these
job losses with the natural growth in the labor force, the number seeking
new employment during the next five years would be 1,250,000.
7. In addition to this demand for employment, a certain number
of refugees also will be seeking employment during the next five years.
There were roughly 500,000 refugees on the records of the Ministry of
Social Welfare throughout 1970, and a case load of this magnitude will
likely continue at least through most of 1971. Based on surveys of average
refugee family size and an assumption that only heads of households will
seek employment, there will be roughly 100,000 refugees looking for work
either on the farms or in the cities sometime during the 1971-75 time frame.
The addition of these people to the ranks of the unemployed would raise
the minimum figure for required new jobs to at least 1,350,000.
Job Availability -- the Non-Agricultural Sector
8. If the government of South Vietnam (GVN) maintains its troop
strength at a constant level, some of the unemployed undoubtedly will be
called into service to replace the dead and disabled. Assuming that security
conditions improve, the average annual number of dead and disabled could
drop somewhat below the 1970 rate, or to perhaps 20,000 men per year.
Thus, employment in the armed forces would absorb about 100,000 men
(net) during 1971-75, leaving a need for new jobs for 1,250,000.
9. Even under the most optimistic assumptions, the private
non-agriculturtti sectors of the economy could expand employment
opportunities by no more than 300,000 jobs during 1971-75. By
comparison, it is estimated that total existing employment in manufacturing,
construction, and utilities in 1970 amounted to a maximum of 400,000.
It is hazardous to project the rate of growth of employment in these
branches of industry on past performance because of the heavy dependence
of manufacturing or. imports and the large impact of US building activities
on the construction industry. Nevertheless, it seems possible that under
favorable conditions employment in these three branches during the next
five years could grow at a rate equal to the 10% average annual rate of
increase in employment recorded during the past decade. J With no initial
drop in construction employment following US withdrawal, such a growth
rate would result in the addition of about 240,000 worlke-rs to the force
during 1971-75.
2. For methodology, see Appendix A.
3. Increases in output and employment greater than the 10% annual rate
would imply unexpected increases in foreign investment.
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10. The prospects for net growth in the tertiary sector - commerce,
transportation, and services - are generally bleak. It is, of course, this sector
that will be hardest hit by Vietnamization. Outside of this, however, some
expansion will probably occur because of growth in the Vietnamese
secondary sector. Assuming that every four new jobs in the secondary sector
creates one new job in the tertiary sector, about 60,000 jobs from this
demand will become available in the tertiary sector. J
111. A total increase in non-agricultural employment of 300,000 during
the next five years would be potentially capable of absorbing the labor,
primarily located in the cities, which will be released from the US sector.
This is. an optimistic estimate, however, and a much smaller. growth
of non-agricultural private employment - 150,000 - seems equally
plausible; These alternative projections are shown in Table 1. The residuals
in the table represent the quantity of labor which must depend upon work
opportunities in agriculture.
The Role of Agriculture
1.2. Because agriculture is by far the largest sector in the South
Vietnamese economy, it might be expected to absorb the largest share of
available manpower in South Vietnam. The question is whether it can absorb
a million or more workers - roughly equivalent to the natural growth in
the total labor force - in the next five years. Here the assumption that
rural security will continue to improve is crucial. With improved security,
depressed plantation and forestry activities can be rebuilt or expanded,
abandoned agricultural land resettled, and investment in land improvements
accelerated.
13. A relatively small amount of labor could be expected to find
jobs on plantations and in fishing during 1971-75. Employment on
plantations, which at its peak in the early 1960s amounted to roughly
60,000, has declined steadily in recent years because of the war and
accompanying insecurity. At the present time, there are only an estimated
15,000 workers on plantations. If security continues to improve, plantation
employment might return to its prewar peak by 1975, which would make
some 45,000 new jobs available. In addition, Vietnam's bountiful - but
largely unexploited - forests could be developed into a major industry.
Estimates on the number of workers who could be absorbed in exploitation
4. Tertiary employment would also be stimulated by expansion of
agriculture. The ratio of expansion, however, would be considerably less
than the one to four estimated for industry, and the magnitude of jobs
created would be small enough to be considered included in the quantities
of agricultural employment discussed below.
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South Vietnam: Employment Projections
1971-75
A,
B W
Number seeking employment
Growth in labor force
1,000
1,000
Unemployment in the US sector
250
250
Refugees seeking jobs
100
100
Total
1,350
1,350
Non-agricultural job
opportunities
Troop replacements
100
100
Non-agricultural private sector
150
300
Total
250
400
Residual
1,100
950
a. Assuming a 5% annual growth of employment in
manufacturing, construction, and utilities.
b. Assuming a 10% growth in the above sectors.
of the forests during the next five years range from 25,000 to 100,000,
depending on the level of investment, with 50,000 an attainable figure.
The number of fishermen increased at an average annual rate of 5.8% from
1961-70 from 191,000 to 317,000. If this rate were maintained through
1975, the number of fishermen would increase by roughly 100,000 during
1971-75. Thus plantations, forestry, and fishing combined could create up
to 200,000 jobs.
14. A major portion of total employment opportunities could develop
in the rest of Vietnam's agricultural sector. The land area cultivated in South
Vietnam in 1969 (2,415,500 hectares) was 7.6% below the area cultivated
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in 1964 (2,613,530 hectares). J If security continues to improve, the area
cultivated in 1975 could equal the area cultivated in 1964. A proportional
increase in agricultural employment on cultivated area - estimated at 3.7
million persons in 1969 - would mean another 280,000 new jobs. The
remaining labor supply needed to be absorbed by agriculture is
only 470,000-620,000. This would require about a 13% to 17% increase
in employment in this sector over five years, or an average annual increase
of 2.4% to 3.1%. For the given area, output per hectare would have to
rise at an equivalent rate.
15. The labor-to-land ratio in South Vietnam is roughly 1.5 workers
per hectare. J This is a low ratio compared with some intensively developed
Asian agricultural sectors such as are found in South Korea (2.0 workers
per hectare in 1968) and Taiwan (2.4 workers per hectare in 1968), where
output per worker is higher than in Vietnam. Moreover, according;to some
observers, the movement of rural population to urban areas caused by war,
mobilization, and new economic opportunities has resulted in shortages of
farm labor in some areas of South Vietnam. It would appear, therefore,
that considerable additional labor could potentially be absorbed by
Vietnamese agriculture.
16. In general, the experience of Asian agriculture demonstrates that
an increase in labor per hectare by itself tends to raise output per hectare,
but much less than proportionately. Increases in other inputs (such as water,
fertilizer, or farm equipment) are needed to prevent a decline in or to
increase output per worker. Technology is improving, however, and
improvements in the next few years should provide the basis for a substantial
increase in output per hectare, which in turn will permit increased
employment without loss of labor productivity.
17. The required growth in output per hectare could be accomplished
in part by expanded use of new rice strains, which tend to increase rice
yields substantially and at the same time provide opportunities for
absorption of additional labor. J An estimated 500,000 hectares (or
almost one-fourth of total rice land) was planted with IR-5 and IR-8 seeds
in 1970, and the expanded output from this area (where yields run 4-6
tons per hectare compared with about 2.3 tons per hectare for all of
Vietnam) is primarily responsible for Vietnam's approaching self-sufficiency
3. Cultivated area refers to land used for field crops; plantation area is
treated separately. Although some hectares in South Vietnam are double
cropped, each cultivated hectare is counted only once in this memorandum.
6. See Appendix B.
7. Although the. new technology requires less labor per ton of rice
produced, it can absorb more labor per hectare.
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in rice for the first time since 1964. Even without additional areas being
planted with the new seeds, indications are that more intensive and
knowledgeable cultivation of the areas already using the new strains can
make significant increases in Vietnam's aggregate rice yields. In the face
of little future demand for rice in the world market, once Vietnam's
production equals domestic consumption needs the major impact of the
increased productivity of the new rice will be in permitting rice land to
be then converted to the production of other crops. For instance, increasing
aggregate yields per planting of rice land from 2.3 to 3.0 tons per hectare
would imply freeing some 250,000 hectares for new crops in 1975.
Cultivation of more labor intensive and higher yielding products, such as
vegetables, undoubtedly could occur. This, however, would involve changes
in relative prices and government policies and would entail changes in
income distribution within agriculture. Throughout agricultural sectors,
there also exist opportunities for improving irrigation and expanding double
cropping in order to increase output per hectare. Finally, the land reform
program currently under way could result in increased investment in land
development and improved production methods because former tenants will
have available for investment purposes a portion of their income formerly
spent on rent and used outside agriculture by landlords.
18. In view of these factors, which indicate an increase in value of
output per hectare, it is likely that under conditions of improved security
and increased inputs, output per hectare in South Vietnam could increase
during the next five years at least as fast as output per hectare has grown
in other Asian countries in the past. Prior to the application of new rice
strains, output per hectare of field crops in other Asian countries had been
increasing at a rate more than double the rate of growth of yields in South
Vietnam prior to 1965. J An annual increase in value of output per hectare
of 2.4% during the next five years seems well within reach. Such a growth
in yields would permit the absorption on presently cultivated area of an
8. In the 1956-68 period, for example, agricultural output per hectare
(even prior to the dramatic impact of the new rice strains) increased at
average annual rates of 3.4% in Taiwan, 1.5% in South Korea, 1.5% in
the Philippines, 2.6% in Thailand, and 2.3% in Japan. The Vietnamese value
of output per hectare declined during 1965-69 as a result of the increased
level of military activity throughout the country, but the value of output
per hectare had been increasing at an average annual rate of 176 during
the previous five years. As security improved, in 1970, the value of output
per hectare apparently regained the 1964 level. The 1969 yields (tons per
hectare) of Vietnamese rice lands show virtually no increase over the yields
experienced 10 years previously. The increase in the value of output per
hectare of all field crops during the first half of the decade was therefore
due entirely to improvements in output of products other than rice.
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average of about 100,000 farm laborers annually during 1971-75 without
a decline in output per worker. J
19. Taken together, these assumptions indicate that field crops,
forestry, fishing, and plantations should be fully capable of providing job
opportunities for a million new workers during 1971-75. Furthermore, there
is a good possibility that agriculture could absorb even higher levels of labor.
For instance, if output per hectare of field crops grew at 5% instead of
the 2.4% assumed in the analysis above, some 1-1/2 million could
potentially be absorbed in the agricultural sector. 10 And at worst,
agriculture could absorb the additional labor supply with some slight decline
in output per capita.
The Total Employment Situation
20. South Vietnam's agriculture thus seems capable of absorbing
nearly all the increase in the labor supply in 1971-75, without a decline
in productivity. If the .ion-agricultural sector also grows rapidly, South
Vietnam should not have an unemployment problem. If non-agricultural
growth is slow, however, substantial overall unemployment and
underemployment could develop unless the government pursues policies
strongly favoring agricultural expansion and diversification. Moreover, even
if agricultural yields rise rapidly, slow development of the non-agricultural
sector will make the problem of local unemployment difficult to resolve.
This problem will be greatest in those areas where the US presence has
been pronounced. In Danang, for example, about 40% to 50% of the city's
wage earners work either directly for Americans or for Vietnamese firms
servicing US activities. It is conceivable that, with no expansion in the
industrial sector, even high productivity and large returns in agriculture
9. This rough calculation was based on the assumption that the number
of workers employed in the production of field crops in 1969 (3.7 million)
would increase at an average annual rate of 2.4% through 1975.
10. Employment of one million additional agricultural workers with no
decline in labor productivity requires a 4.6% annual increase in total
agricultural output. Assuming rice production is expanded only to the point
of self-sufficiency, the remainder of the agricultural sector must
consequently grow at about 6% per year. Alternatively, employment of 1.5
million additional workers (and incidentally, production of about $100
million in agricultural goods potentially available for export in 1975)
requires 6.6% growth per year in total output and annual expansion of
about 10.6% in non-rice agricultural production. Agricultural experts
familiar with Vietnam believe both that rice self-sufficiency can be reached
long before 1975 and -that non-rice output could be expected to grow at
an average annual rate of no less than 6% during 1971-75.
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would not necessarily result in the movement of unemployed labor from
the cities back to rural areas. In such areas, employment strategy may have
to be aimed at economic growth in both industry and agriculture.
II. Balance of Trade
Imports
21. South Vietnamese imports increased rapidly beginning in 1965
as the United States sought to ease the burden of the war on the economy.
The expanded war brought two basic problems. First, the large increase
in both GVN aid US war-related spending without a corresponding increase
in taxation resulted in greatly increased purchasing power. Second, potential
domestic production was lost owing to war damage, insecurity, and labor
shortages caused by increased government manpower requirements.
Therefore, increasing imports was a means both to avoid runaway inflation
by satisfying increased demand and to maintain the level of consumption
by making up for war-related losses in production.
22. During the next five years, imports will continue to be viewed
as an anti-inflationary tool, but the level of imports also will be a crucial
factor in determining South Vietnam's rate of economic growth. To a certain
extent imports can be reduced by replacing foreign products with domestic
products in the Vietnamese market. But at the same time expansion of
agricultural and industrial production will require more imports of :.,w
materials, intermediate goods, and fuels. Moreover, imports of finished goods
could not be sharply reduced without a reduction in real domestic ir:;omes.
domestic production for imports. In this projection, for example, it is
of $811 million, on the other hand, is based on less success in substituting
will be satisfied by domestic production in 1975. The high import projection
by category, that South Vietnam could reasonably expect to achieve by
1975. For instance, this projection assumes, among other things, that a
fertilizer plant now under consideration will be operating at 50% of its
planned capacity by 1975 and that all cement consumption in Vietnam
$529. million, assumes the greatest degree Of 'import substitution, category
seven major categories of imported goods. High and low estimates were
made for each category and these were summed to give high and low
projections for total imports (see Figures 1 and 2). Because the two totals
represent the sum of all the high and low component estimates, neither
appears a likely outcome. Instead, these are intended more to serve as upper
and lower limits on a range of possible import levels that may be consistent
with constant per, capita real incomes and productivity. The low projection,
23. Projections of total imports for 1975 were obtained by projecting
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SOUTH VIETNAM IMPORTS
L.ow Projections for 1975
Million
US Dollars
800
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SOUTH VIETNAM IMPORTS
High ,Projections for 1975
Million
US Dollars
11
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assumed chat there will be no domestic fertilizes production by 1975 and
that the country will not be self-sufficient in cement. 11
24. In both projections the largest single category in 1975 is imports
of raw m:;cerials and semi-finished goods processed by the industrial sector.
An analysis of South Vietnam's imports and industrial production since
1963 shows that industrial output depends heavily on imports and that
this dependence has increased surprisingly little over time. Because of the
variety of uses of many imported commodities and the fact that some
categories of imports i: ?e not delineated clearly, it is impossible to isolate
all those imports that went into industrial production specifically.
Nevertheless two major categories of imports -- raw materials
and semi-finished goods - probably were channeled almost exclusively into
industry. In 1963, 28% of the value of industrial output 12 consisted of
imported raw materials and semi-finished goods; by 1969 this share had
risen to only 30%. Based on the rough calculated coefficients and assuming
industrial growth rates of 5% and 10% per year, imports of raw materials
and semi- u,_!ished goods -. some $167 million in 1969 - would range from
$224 million in 1975 for the low rate to $296 million for the higher rate.
25. Other imports required for domestic production - investment
goods, agricultural inputs, petroleum, and construction goods -- also will
have to increase if the Vietnamese economy is to grow. Imports of
investment goods and petroleum are presumed to grow at least as fast as
industrial production. 13 Projections of imports of agricultural inputs are
calculated according to a 7.5% yearly increase from the 1969 level less
the estimated amount of fertilizer South Vietnam will be able to produce
for itself by 1975. These projections are consistent with t -chnical estimates
of increases in fertilizer consumption in Vietnam. Imports of construction
rnat,srials probably could be reduced somewhat assuming that requirements
fo:' galvanized steel sheets for roofing, the major item in this category, will
b,: reduced as war damage diminishes and refugee resettlement is completed.
The estimated requirements for imports in these four categories in 1975
range from $215 million (Figure 1) to $301 million (Figure 2), compared
with $217 million in 1969.
26. Since it appears that imports of almost all categories of goods
discussed above will increase- by 1975, South Vietnam's ability to reduce
11. For methodology used to estimate imports in 1975 for each of the
seven major categories of goods, see Appendix C.
12. For methodology used to calculate the value of industrial production,
see Appendix D.
13. Imports of investment goods move erratically f'roul year to year because
of the impact of particular investment projects. Over several years, however,
they should reflect the trend in industrial production,
12
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its total import bill will primarily depend on how much it can reduce
imports of foodstuffs and consumer goods. The growth of food imports
from 1963 to 1969 was greater than that of any other category of goods,
increasing from $61 million in 1963 to $191 million in 1969. Food imports
reached a high of $265 million in 1968, year of peak rice imports
(in value terms). Imports of consumer goods uiwti grow rapidly, from $49
million in 1963 to $145 million in 1969. Together, imports of foot cuffs
and consumer goods accounted for 47%%o of total imports in 1969.
27. By 1975, increased Vietnamese agricultural production probably
will permit a reduction in food imports. Rice self-sufficiency should be
reached before 1973; and this development, coupled with increased output
of other products, should reduce requirements for food imports to between
$25 million and $75 million by 1975. Increased industrial production in
South Vietnam will permit some substitution of domestic items for
consumer good imports, but the extent to which these imports are reduced
depends greatly on the strength of inflationary pressures, tax and exchange
rate policies, and the political situation through 1975. It seems 1-kely that
consumer goods imports in 1975 will be no higher than the 1959 level
of $145 million and no lower than the 1960-65 average of $63 million.
28. The low projection, for total imports, would result in a sharp
reduction in imports per capita from $40 in 1969 to $25 in 1975, not
much above the 1963 level of about $20. In the high projection, imports
increase slightly in the aggregate, but remain substantially constant in per
capita terms.
29. The underlying assumptions of the projections in Figures 1 and
2 are that the Vietnamese will about maintain their present per capita real
income levels. To suggest some of the effects of greater import restriction,
we have allocated imports within an annual ceiling of $400 million
during 1972-75 (see Appendix E) -- slightly less than $20 per capita.
30. There are, of course, many possible ways a $400 million import
ceiling could affect the economy. We assume priority would be given to
agricultural development because of that sector's low import content and
high ability to absorb labor. In such a program, the $400 million import
ceiling could permit the expansion of imported agricultural inputs necessary
for rapid growth in agriculture. This expansion would probably allow
significant. reduction in food imports over the period without declines in
the per capita food supply. Even so, the remaining foreign exchange would
not be adequate to continue the current rates of industrial growth. Rough
calculations in this illustrative case show that an annual industrial growth
rate of less than 2-1 /2% (compared to 1% during 1963-69) would result.
Such a gr';-wth rate would support some increase in availabslity of
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domestically produced consumer manufactures, but this output would be
fa more than offset by reductions In consumer Imports, Only Items
considered to be highly necessary, such as kerosene for cookjng, could be'
Imported, and the total quantity of industrial consumer goods nvatiable on
the Vietnamese market could be reduced by up to 20'/,, Moretwer, as
indicated urlier, considerable local unC.nploymcnt could develop,
ixt;2rts
31. Even should South Vietnam ntrrnagc by 1975 to reduce imports
to or b~ilow our low est;mated $529 million, It still would have an enormous
trade deficit. Exports, which amounted to only $12 million in 1969, j/
probably wi"l not increase to more than about $100 million by 1975 and
could Increase to as little as about $30 million (Figure 3). l5 Tl'. world
demand for rice and rubber, South Vietnam's major exports In L hC past,
is uncertain, and, in the case of rubber, the production problems may also
limit the volume of exports. Fishing and forest products could become
SOUTH VIETNAM EXPORTS
Million
US Dollnro
200 r
14. Valance of p ymcnts data show total exports in 1969 amounting to
$33 million. Exports of domestically produced Items amounted to $12
m11116it, and the remainder were re-exports, mainly petroleum and scrap
Iron.
15. For detailed discusslon of export prospects. see Appendix F
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Increasingly important exports but will be limited by supply conditions
through 1975. In both the high and low projections, exports of all other
commodities are estimated to return to the 1963 level of about $7 million.
32, If South Vietnam is to achieve even it ntodieratc rate of economic
growth it clxarly will tired considerable help. The United States currently
Is financing aimooit all of South Victnam's imports. Under the most
optimistic assumptions regarding the level of imports and exports in 1975,
South Vietnam still will require over $400 million In foreign exchange from
foreign sources to maintain per capita real inc'.)mcs at present levels. The
deficit could amount to nearly $800 million if little is done to hold down
imports. Pri'ratc foreigA icivestmt+nt is unlikely to be a significant sot:rce
of funds during the next several years, An end to hostilities and the
continuation of a non-Communist government would be sufficient to attract
some inv stors, but large-scale Investment almost certainly will not be
forthcoming unless the government eliminates ,,any of Its bureaucratic and
discriminatory practices against foreign businessmen and offers real
incentives to inv!st. Official foreign aid will be needed to fill the foreign
exchange gap, and the United States will continue to be the major provider.
Japan is the only other large potential source of foreign aid, and there
are no indications that the Japanese Intend to provide sizable amounts of
money to South Vietnam within the next five years.
111. Overall Economic Relationships
33, Employment levels and the foreign trade balance are determined
by a great many interacting forces, and particular results can be obtained
in different ways. Perhaps the crucial determinant is the security situation.
Improvements in GVN control will permit the expansion of cultivated area,
construction of major industrial complexes, and a significantly improved
capability for internal distribution of goods - all conditions with obvious
importance for employment and foreign trade. GVN monetary, fiscal, and
exchange rate policies will affect price relationships and thus will influence
the demand for imports, the development of domestic export and import
substitution industries, and the movement of labor between the cities and
the countryside. Finally. the political strength of the GVN will determine
how far authorities can go in displacing popular consumer imports with
greater imports of investment materials and equipment.
34. The main economic constraint on South Vietnam's development
will be the supply of foreign exchange. In thcshort term, opportunities for
substituting domestic production for imports are not large, except in the
case of foods. Over several years. however, such possibilities become much
greater and the government consequently has much wider policy choices.
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35, 't'herefore, there are many possible time-paths for achieving
specific foreign trade and employment levels five years from now, Domestic
growth mJSht be concentrated on specific sectors whose products would
constitute significant import substitution. Thus, importing of large quantities
of investment goods would take place in the initial period, followed in
time by lower levels of imported finished goods and somewhat higher levels
of imported raw materials: Alternatively, full-employment strategy might
be centered on wide-based export growth with little attempt to reduce Wall
levels of imports, but rather with the aim of financing the foreign goods
with exchange earnings from higher export soles.
Conclusions
36. Growth of agriculture will largely determine the employment
situation in South Vietnam and the trade balance in the next few years.
During 1971-75 an estimated 1.4 million new jobs wi;,l be needed to employ
new labor-force entrants, as well as refugees and workers whose jobs arc
dependent on the US presence in Vietnam. Most of this labor could be
ab;orbcd in agriculture, plantations, fishing, and forestry without a drop
in per capita output. The rapid increase in agricultural yields that will be
required sears achi-.vablc in view of performance in other Asian countries
and recent Vietnamese experience. Rapid expan,lon of non-agricultural
employment is a more uncertain matter because it would require increased
imports, which South Vietnam may not be able to obtain. Even with
substantial increases in agricultural output, slow growth in
the non-agricultural sector could result in substantial local unemployment.
37. During the next live years, the major economic constraint on the
growth of industry - which is heavily dependent upon imported l4fputs -
probably will be the supply of foreign exchange. The agriculturm~ sector
(including forestry and fishing), although requiring some imgortcd inputs,
could provide large savings of foreign exchange - possibly as much as $250
n.tllion in 1975, given optimistic assumptions about imports and exports
of foodstufta and imports of agricultural inputs. Increased industrial
production could also replace certain imports of finished anti intermediate
goods. Ncv;crthelcss, if Vietnam is to experience continued economic /growth
and no significant decline in per capirn real income, the most optimistic
estimates concerning import substitution and export promotion still leave
the GVN with a trade deficit of over 3400 million in 1975, most of which
would have to be financed by the United States.
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APPENDIX A
Employment Dependent
on the US Picscnco
Vietnamese employment resulting from the US presence In South
Vietnam consists of direct and derived components, Direct employment
includes the Vietnamese performing services or producing goods consumed
by the United States, Those directly employed would include, for example,
both the Vietnamese paid directly by a US unit or Individual as well as
the Vietnamese employed in a business under contract to a US organization.
Derived employment, on the other hand, consists of those jobs created as
it result of the spending by the Vietnamese directly employed by the United
States, This would include, for example, those working to provide goods
and services to Vietnamese employed in a company contracting to a US
organization.
Direct Employment
At the end of 1969, recorded employment of Vietnamese nationals
in the US sector was 148,000. Tltis, however, greatly understates the actual
number of Vietnamese employed by Americans. Excluded, for example,
are laborers hired on a temporary basis and private employees of military
and civilian personnel. In order to estimate all direct employment, total
US piaster spending on labor services in 1969 was calculated - employing
two different methodologies - and divided by a calculated average annual
wage figure.
In 1969 the United states spent a total of about 45 billion plasters
in South Vietnam. Since most US organizations depend primarily on US
supply systems for their material support, it is assumed that the major
portion of US piaster expenditures - probably between 75% and 90m -
consists of wages, Using this percentage range, total US piaster spending
on labor would have amounted to 3440 billion piasters in 1969.
US piaster spending on labor also was estimated by separating out
of total US plaster spending those items most closely identified with labor
costs. These arc given for 1969 in the accompanying tabulz?ion.
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Billion
Piasters
4.5
23.4
Labor 14.8
Contract servicos 3.9
Construction labor 4.7
Tota' 27.9
To this total of 27.9 billion plasters was added 75% of personal
accommodation spending (5.2 billion plasters) and 75% of Revolutionary
Development (RD) cadre spending (3.0 billion plaster), which yields .] total
of 36.1 billion plasters for US plaster spending on labor. Thus the range
for US piaster spending on labor - based on two separate methodologies -
Is from 34 billion piasters to 40 billion piasters. The midpoint, or 37 billion
piasters, which is approximately the figure calculated by the second
methodology, was selected for the cstilnite of US plaster spending on labor.
In order to calculate an average wage rate for the US sector, the total
number of Vietnamese employed In the US sector was separated into four
groups . ccording to the survey of job skills of Vietnamese employees in
the US sector compiled by the Manpower Information Staff of the US
t:mbassy In Saigon. An average 1968 wage, Including family benrfits,
bonuses, and overtime pay, taken from Vietnamese Compensation Structures
published by USAID, Saigon, Was assigned to each group as shown in the
accompanying tabulation.
Special forces
MACV
Operations and maintenance
and assistance in kind
Skill
Percent of
Recorded US
Eraplayment
Total Average
Monthly Wage
in 1968
(Piasters)
Professional and technical
6.4
35,696
clerical
13.3
18,461
Skilled and semi-skilled
41.1
11,261
Unskilled
39.2
6,218
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It was assumed that these wage rates also applied to the non- recorded
workers. The resulting average monthly wage would be 11,806 plasters, or
it total of 141,672 piasters for 1968. This figure was Inflated by 30% to
allow for wage Increases during 1969. In 1969, therefore, the average annual
witge is estimated as roughly 185,000 piasters.
The total US wage bill of 37 billion plasters calculated above was
divided by 185,000 plasters. This calculation results In an estimate of
200,000 direct employees in 1969.
Derived_-H-111 ployment
Data on the number of jobs resulting' from spending by those
Vietnamese directly employed by the United States are not available. It
is possible, however, to make a rough estimate based on consumption data.
Increased US spending in South Vietnam has resulted in comparatively little
increased domestic production of goods but sizable increases in services
performed. Roughly 20% of Vietnamese private consumption is spent for
services. Therefore, about one-fifth of Increases in income due to new
employment In the US sector would translate into demand for services which
would be met by Increased domestic use of labor. The income derived from
this new employment in the services sccw also would lead to Increased
demand for services. After six cycles of Income - about one year at the
apparent income velocity in South Vietnam - the derived increase in
services would be 0.25. Thus total employment dependent on the US sector
would be the 200,000 directly employed plus 25% of those directly
employed, or a grand total of 250,000 persons.
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API'RND1X 13
Labor-to-Land Ratio
According to official GVN estimates, South Vietnam's agricultural
labor force (excluding plantations and fishing) numbered 4.0 million in 1960
and 3,8 million in 1966 - the only two years for which official ,,stimates
available. These figures, however, are very rough, as Indicated by the
fact that the 4.0 million figure for 1960 Is a revision of an earlier GVN
?tr,finnate of 5.5 million. Moreover, the loss of only 200,000 persons fiom
the agricultural labor force between 1900 and 1966 implied by the official
estimates seems somewhat small in view of the lar,;;c number of refugees
in South Vietnam as well as the known large-scale movement of rural
inhabitants to urban areas in search of greater security or better jobs.
Assuming, however, that the 3.8 million figure for 1966 is roughly correct,
adjustments must be made for recent years. In view of GVN mobilization
and the continued generation of ref;.gees and migration to urban areas,
It is likely that at least 100,000 pe sons left agricultural employment in
both 1967 and 1968. A reverse flow oegan during 1969 as security improved
in many areas of the country, and although this flow cannot be quantified
accurately, it is possible that roughly 100,000 persons rejoined the
agricultural labor force in 1969. There'ore, by very rough measurement,
there probably were ab mat 3.7 million in the agricultural labor force by
1970.
According to the Vietnamese Agricultural Economics and Statistics
Service, a total of 2,838,200 hectares was cultivated in 1969. Included in
this figure. however, are 122,700 hectares of plantation land and an
unknown number of hectares that were double counted because they yielded
a second crop of ri;x. In earlier years, about 270,000 hectares were double
counted. Because of t{ a introduction of miracle rice, which generally enables
the farmer to grow two crops. it is assumed that at least 300,000 hectares
were counted twice in the 1969 estimate of cultivated area. A more accurate
.;tirnatz of the area cultivated in 1969, therefore, would be about 2,415,500
hectares. Using this estimate rand the 3.7 millio'i agricultural labor force
figure mentioned above, the ratio of labor to land is 1.5.
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APPENDIX C
Import Projections
Raw and Semi-Finished Materials
This category consists of materials used in the manufacture of
consumer goods. Detailed analysis of industrial production indicates that
these imported materials consistently totaled about 30% of the value of
industrial output in real terms from 1963 to 1969. If the industrial sector
grows at an annual rate of 5% and the import ratio remains at about 30%,
some $224 million of imports will be required in 1975. Should industry
expand at 10% annually, then imports of about $296 million will be needed.
Investment Goods
In recent years, about 70% of Imported investment goods have been
for the industrial sector. 16 Assuming the continuation of this ratio and
with the amount of capital goods needed by industry increasing in pace
with industrial expansion, an annual 5% growth in the industrial sector
would require a total of some $62 million of imported investment goods
in 1975. Projection of a yearly rate of increase of 10% in industrial
expansion would yield a high import level of about $31 million by 1975.
Agricultural Inputs
Projections of imported agricultural inputs are based upon an estimated
7.5% annual increase in requirement, with alternative assumptions about
domestic fertilizer production capabilities. To the extent that Vietnam can
produce fertilizer, which accounted for more than three-fifths of total
impoi,ts in this category in 1969, from domestic resources, this major import
requirement can be reduced. If by 1975 the fertilizer plant currently being
proposed reached 50% of its planned capacity of 500,000 metric tons,
import requirements could be cut by some $25 million. Importer;
agricultural i puts are thus projected to range from $65 million to $90
million in 1975.
Construction Inputs
The projection for imports of construction goods assumes that the
imported quantity :af iron roofing sheets, which has grown dramatically
16. This excludes the large and unprecedented expenditures on commercial
aircraft In 1969.
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in recent years, will be reduced (concomitant with decreased war damage)
to the average level of imports during 1962-64. With other construction
goods imports ;!:creasing at the rate of 10% from the 1969 level, imports
in this category in 1975 would total about $91 million. If Vietnam
succeeded in domestically producing its total requirement of cement by
1975, as nas been proposed, import requirements for construction go-ads
would be reduced by $11 million, or the value of cement imported in 1969.
A rate of increase of 5% from the 1969 level of construction goods imports,
less cement imports, would amount to a low estimate of $61 million.
Petroleum
Imports of petroleum and related products are estimated to grow at
about 'ciie projected rates of industrial expansion. An annual growth rate
of 5% would result in some $29 million worth of imports in 1975, while
the 10% rate would imply some $39 million in imports. These rates straddle
the actual rate of increase in petroleum imports experienced from 1963
to 1969.
Food Imports
The greatest increase in imports during the 1963-69 period was that
of foodstuffs. If Vietnamese agricultural production increases as anticipated,
food imports should be considerably less in 1975 than in 1969. At a
minimum, domestic production should be ible to replace US rice and
PL-480, Title 11 (refugee relief), imports. With all other imports of food
remaining at the 1968-69 average, some $75 million would be imported
in 1975. With the reliance upon domestic production for all food except
wheat flour and estimated powdered milk requirements, imports in this
category could drop to $25 million in 1975.
Consumer Goods
Vietnamese imports of consumer goods, which were in part used as
a means to control inflation, were greatly increased during the period
1966-69. It is improbable that consumer imports in 197f would be greater
than the 1969 level of $145 million. Increased domestic production of
consumer items should tend to reduce the need for imports. Nevertheless,
considering population increases and consumer acquaintance with a wide
variety of foreign goods, imports of consumer goods will not likely fall
below the average 1960-65 level of $63 million - e,pecially if inflation
remains a major concern by 1975.
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APPENDIX D
Value of Industrial Production
Two sources of data exist for Vietnamese industry: (1) the National
hank of Vietnam national accounts data, and (2) the National Institute
of Statistics (NIS) industrial production indexes and physical production
data. There are serious discrepancies between the two sets of data. The
NIS series is less comprehensive and does not include small firms. It
determines production trends for about 120 products through quarterly
surveys of about 300 firms. The National Bank series employs a survey
of about 400 firms plus the NIS data. It is believed that the National Bank
data are more comprehensive and thus the weights of the industrial
subsectors in the National Bank's index probably are more accurate.
National Bank data, however, are available only for 1963 and 1965, while
the NIS data have been published each year since 1962. In order to construct
a series on the value of industrial production, therefore, the National Bank
data on value of production, by subsector, in 1963 were used as weights
and then increased by the appropriate NIS index of output from 1963
to 1969. The 1969 values of production, by subsector, were then summed,
resulting in a total value of industrial production in constant 1 963 prices.
According to this index, the value of industrial output increased 51 % from
1963 to 1969, or at an average annual rate of 7.1%.
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APPENDIX E
Import Restriction at $400 Million
To assess the impact of a radical reduction in foreign exchange
availability on the Vietnamese economy, we have arbitrarily chosen to
examine a pattern of allocation through 1975 of an amount of imports
not to exceed $400 million per annum.. This illustrative allocation (see
Table 2) holds imports of consumer goods and foods to essential items
and maximizes import substitution. We have assumed that agricultural
development will receive substantial policy support from the GVN and that
the focus of this policy will be crop diversification. Furthermore, we have
assumed that a' pressing foreign exchange constraint would tend to focus
industrial development on import substitution. Within these broader
assumptions we have based our analysis on past import patterns, projections
of demand, and specific industry studies.
Although the quantities of foreign exchange allocated to agricultural
inputs are probably adequate to permit strong growth in this sector, the
low remaining levels of imports .for- non-agricultural production imply
significant constraints on growth of Vietnamese. industry. The extent of
import substitution assumed for such products as sugar, fertilizer, cement,
condensed milk, and glass containers would be difficult to achieve. The
figures. in Table 2 incorporate, for instance, the assumption that all of
Vietnam's sugar, cement, and condensed milk needs -- plus almost half of
its fertilizer requirements - will be met by internal production by 1975.
Such expansion in these industries would be consistent with an estimated
14% overall increase (2.2% annual increase) in the total value of Vietnamese
industrial output from 1969 to 1975, if the remaining industries maintained
the 1969 level. As indicated in Table 2, however, the residual of foreign
exchange left for the rest of industry would force structural changes in
production. The availability of imports of raw and semi-finished industrial
imports would decline from 30% of industrial output to around 25%. If
the required structural changes did not occur, industrial growth would be
reduced further.
Table 2 assumes that consumer imports would be limited to about
$50 million annually, a cut of almost two-thirds from the 1969 level. With
growth of domestic output limited by restrictions on imports of materials,
this drop in consumer goods imports implies a reduction of up to 20%
in the total quantity of industrial consumer goods available on the
Vietnamese market. The resourceful handicraft industry could make up
some but not all of this shortfall. Remaining in the market at approximately
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current levels .would ; be ., such consumer ; items : as, medicines, and' Net ; for
cooking. Removed ; from, the Vietnamese, economy,; or onlyi rac ly: available
and then at. much higher . prices, would ;be , items,such as ' motor .vehicles,
tires and tubes, books, refrigerators, and ;radios
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Table 2
South Vietnam: Illustrative Import Time-Path' a/
Million US $
1972
1973
1974
'i975
Investment goods
38.3
42.5
51.7
61.4
Agricultural
inputs
70
75
80
64
Petroleum
22
22
22
22
Construction
goods
56.3
50.0
45.2
45.2
Food
39.2
28.0
21.0
18.6
Consumer goods
49.1
49.1
49.1
49.1
Raw and semi-finished
125.1
133.4
131.0
139.7
materials
Textiles, beverages, . 55.9 55.9 55.9 55?9
and tobacco
Residual (other 69.2 77.5 75.1 83.8
industries) b/
Total 400 400 400 400
for constant output at the ZeveZ by the above
residuals are 1972, 22%; 1973, 25%; 1974, 25%;
a. Foreign exchange for investment goods isTaZZo-
cated only fovv the expansion of three specific in-
dus%riea and to cover depreciation. The allowance
for consumer goods is limited to those items Zeast
replaceable which are critical to sustaining mini-
mum acceptable living standards (drugs, kerosene,
and medical equipment). Foods such as powdered
milk and wheat flour remain but other items will
be reduced with domestic agricultural growth.
Imports of petroleum, construction goods, and in-
puts to the domestic textile, tobacco, and beverage
industries would remain unchanged or be reduced
when possible to do so without reduction of current
levels of output. Provision is made for increases
in imported agricultural inputs at a rate of 7.5%
per year beginning in 1969, consistent with the
assumptions in Section II. An exception is made,
however, for fertilizer, where imports are reduced
$25 million in 1975 to reflect domestic production
of this commodity.
b. The percentage of raw and semi-finished imports
of the value of output for the "other industries"
category was 30% in 1969. The percentages implied
and 1975, 27%.
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APPENDIX P
Export Projections
The most optimistic of the two export projections in this memorandum
is largely based on a 1969 study by the Joint Development Group (JDG)
titled Export Prospects of Vic'tnwn (Volume 1). This report estimates that
South Vietnam could have a market for 125,000 metric tons of rice within
five years of the end of the war. Most observers now agree that this goal
could be attained by 1975. Assuming that by 1975 the price per ton falls
to about $100 -- the average world price during the late 1950s and early
1960s - the Vietnamese could export $12.5 million worts; of rice by 1975.
Thro JDG report also estimates that in the short term South V :tnam could
produce 70,000 to 80,000 tons of rubber without extensive replanting and
that a foreign market exists for this amount and more. If, as the JDG
assumes, the world market price of rubber levels off during the next few
years at . )out $500 per ton, South Vietnam could expect to export as
much as $40 million worth of rubber. The JDG also projects that exports
of forestry and fishery products could amount to at least $54 million and
$30 million, respectively, by 1980. If exports reach half that level by 197.5,
they would amount to $42 million. Assuming that all other exports return
to the level of 1963, or about $7 million, this estimate of exports would
total to $101.5 million in 1975.
A least optimistic set of assumptions in these same categories supports
the low end of our 1975 export value range. 1 hus, it is possible that there
will be only a very limited market for Vietnamese rice in 1975 and that
rubber production will not recover to earlier levels. Embassy officials in
Saigon have estimated that, with sufficient manpower, reexploitation of
planted areas could boost rubber production to about 45,000 tons, or about
60io, above the 1969 level, but that further increases in output will require
substantial capital investment. Assuming some domestic consumption,
rubber exports might amount to only about $20 million. It also is possible
that because of increased domestic consumption or other factors, exports
of fish and seafood, which amounted to only $150,000 in 1969, will increase
to no more than the peak or $1 million reached in 1966. According to
a recent US Embassy estimate, exports of forestry products, mainly logs
and lumber, could in the short term amount to about $5 million annually
if a lumber concentration yard were established. Under these pessimistic
assumptions, then, total exports in 1975 would amount to $33 million,
assuming that exports other than rice, rubber, fish, and forest products
returned to the 1963 level of $7 million.
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