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Agriculture does not have capital to develop
The agriculture sector makes up 70% of the population and uses more than 72% of the labour force, but it only uses 17% of the total outstanding loans of credit institutions. Farmers now have few opportunities to access official credit sources.
Poor financial sources for agriculture
In 2003-2007, Vietnam spent VND113tril on agriculture, 8.7% of the state’s total investments. This could meet only 17% of the capital demand of the agricultural sector. The state’s protection of the agricultural sector was just 4% of total agricultural productivity value ($260mil), while the allowed level under Vietnam’s WTO commitments is 10% ($650mil).
The spending on agricultural encouragement was 0.13% of GDP, while the figure is 4% in other countries. The foreign direct investment (FDI) in agriculture just accounted for 3% of total FDI. Being a sector with low profitability, high cost and high risks (natural calamities, epidemics), agriculture does not really attract investments.
By the end of June 2008, the total value of outstanding loans given to farmers and the agricultural sector from Agribank, credit funds and the Bank for Social Purposes, had reached VND181,500bil, equal to 17% of credit institutions’ total outstanding loans.
As of August 1, 2008, the rural area of Hanoi city had 1.2mil people, or 35% of the total population of Hanoi, but it accounted for only 2.6% of total outstanding loans of credit institutions in the locality.
Tam Nong project may become unfeasible due to lack of capital
Currently, the rural financial market can access diversified capital sources from the state budget, soft loans to fund projects, preferential loans for poor households. However, to date, there has been no official statistics about the total investment capital in the agricultural sector, and the capital demand from every locality.
Tran Dinh Dinh, former General Director of the Vietnam Bank for Agriculture and Rural Development (Agribank), said that in order to implement the plan on industrialising and modernising agriculture and rural areas, it is necessary to determine the total amount of capital needed. If there is no exact figure about investment capital, banks will not be able to arrange enough capital, and if there is no capital, the Tam Nong (agriculture, farmers and rural development) project will be unfeasible.
There are many reasons that rural areas have difficulty accessing financial sources. First, the accumulation level of the agricultural sector proves to be very low. According to the Ministry of Agriculture and Rural Development, every person in rural areas can save VND800,000 a year – a very low amount for re-investment or production expansion.
Second, the high risks in lending to farmers have been making financial institutions hesitate to provide loans for the agricultural sector.
Moreover, it has been exceedingly difficult to mobilise capital in recent days. Credit funds that mainly serve rural areas, like other banks, have found it hard to mobilise capital in the market. Depositors have withdrawn money from credit funds to make deposits at urban banks to enjoy higher interest rates.
Huynh Thi Bich Diep, Deputy Director of Agribank Tan Binh branch in HCM City, said that it is really difficult to arrange capital for rural development in Vietnam’s WTO period. She said that the rural financial and credit market, which has been weak, will be more fragile in the WTO period.
VNN
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