Vietnam is a country with rich natural resources and a well educated (literacy rate is over 90%), diligent population of 80.4 million. Since 1986 the ruling Communist Party of Vietnam has committed itself to economic reform, or “Doi Moi” (New Changes) a move from a centrally planned economy to a multi-sectoral one based on open market principles, and thus opened the door to foreign investment.
The Government has abolished price control, devalued the Dong, legalised private ownership, freed the private sector, withdrawn support from a number of loss making state enterprises, opened up the country for foreign investment and has begun to introduce a modern legal framework and pursued monetary and fiscal policies. These reforms were introduced in an attempt to double Vietnam’s GDP and to becoming an industrialised nation by 2020. The pace of reforms has been slow, but must be looked at in context that Vietnam has only been open to the west for less than 20 years. Its growth has therefore been remarkable.
Vietnam is a country in transition, steadily dismantling a monolithic centralised ‘command’ economy entirely made up of state monopolies protected by subsidies and tariff barriers. Some industries have already been exposed to the chill wind of competition. For example, Vinacoal, the state company exploiting the country’s vast coal reserves, now competes successfully in the open market following the removal of subsidies. After a painful period of restructuring involving a massive ‘shake-out’ of labour, exports are now buoyant.
Until recently, most of Vietnam’s economy was based on it’s agriculture, mainly it’s rice. Even during French colonial rule, agriculture was important, although other crops were added for export such as coffee, tea, and rubber, among other things.
It wasn’t until 1954 when Vietnam was divided that the national economy was actively developed, for each government of course. The Communist North was a very centralized planned economy, while the South was pretty much a free-market economy with little government involvement.
When Vietnam was reunited in 1976, the North began expanding it’s plan throughout the country. After they redeveloped their economic plan in 1986 to support a mixed economy (one that can function privately or with state control), Vietnam’s economy has taken off.
During the 1990’s, their economy increased on average 8.6 percent a year and in spite of such economic growth, Vietnam’s per capita income hasn’t taken off but has remained at an annual low of $320. Vietnam realizes that it cannot do it on its own, it needs outside backing and investments to further advance in today’s society. Industrialization is extremely important as is training and knowledge of various basic areas in modern society – banking knowledge, technology, and science to name a few.
The government has implemented a programme of ‘equitization’, a form of privatization akin to a management ‘buy-out’, and is encouraging other state companies to seek foreign investment through shareholding.
A small stock market has been established in Ho Chi Minh City trading shares within a limited band of price variation.
Progress in breaking up the state monopolies is slow for a number of reasons, notably the reluctance of managers to lose the security of state control, the massive investment needed to enable aging industries to compete and an understandable government reluctance to exacerbate an already high rate of unemployment.
Growth has been high and reasonably steady over the last decade, and inflation has been brought under control. The Vietnamese Dong is a closed currency, pegged to the US dollar. The government has strongly resisted calls to float the Dong, but the State Bank is slowly implementing measures to free up the banking system in preparation for monetary reform.
Accurate economic date is hard to obtain. The official figure of income per head, currently estimated at around $300 US, is almost certainly understated due to the extensive ‘moonlighting’, and a thriving black economy. Smuggling on a massive scale, mostly between Vietnam and China, distorts import and export figures. Informed guesswork suggests that between a quarter and a third of Vietnamese ‘imports’ may be entering the country illegally across its long, porous border with its mighty neighbour.
The border police are working hard, and have had some notable successes, but the length and terrain of the border makes effective control very difficult.
Vietnam continues to rely heavily upon agriculture. Most farming is at subsistence level and labour intensive – although 70% of the population still works in agriculture, the sector contributed only 25% of GDP in 1999, down from 40% in 1991. Industrial growth has averaged 13% over the same period.
However, although rapid growth is undeniably raising standards of living at all levels, there is mounting concern about wealth distribution. The income of the wealthiest sector of the population is now eight times greater than that of the poorest, and the gap is widening. Furthermore, the speed of development is outpacing regulatory measures and procedures, opening the way for widespread corruption and fraud.
These two issues are probably the greatest challenge to the continuing success of ‘doi moi’. The government is well aware of the scale of the problem, and is working hard to overhaul the personal and corporate tax structure and make revenue collection more efficient.
The complexity of the procedures has made large-scale VAT fraud difficult to detect – they are being simplified. Each individual civil servant, local authority official, manager of a state company and Party member is now obliged to make an annual declaration of his or her income and assets.
Vietnam is fully committed to ‘doi moi’ and the development of a socialist system.
It has recently become a member of the Asian free trade group, and is applying to join the WTO.