Vietnam Economy: An
overview
Vietnam is a densely-populated, developing
country that in the last 30 years has had to recover from the ravages of war,
the loss of financial support from the old Soviet Bloc, and the rigidities of a
centrally-planned economy. After many years of protracted wars, political
isolation and economic stagnation, Vietnam is now rapidly getting integrated
with the global economic and political mainstream. Since 1986, Vietnam
has embarked upon a policy of “Doi Moi” (Economic Renovation) to introduce market
economy. In a liberal investment climate, investors from all parts of the
world are evincing ever-growing interest in Vietnam.
Vietnam’s annual GDP growth has been 8-9.5% over the decade
till 1997. However due to the Asian economic crisis, the growth came down
to 5.8% in 1998, 4.7% in 1999, after which it again started showing up,
registering 6.7% in 2000, 7% in 2002, 7.7% in 2004, 8% in 2006 and 8.5% in
2007. Industrial growth has averaged 12-14% over the past decade or so.
The 10th Party Congress held in 2005 formulated the following key economic
targets for the 2006-2010 Five Year Socio-Economic Development Plan.
GDP growth rate: from 7.5% to 8% p.a of which:
- Agriculture, forestry & fishery:
3% to 3.2% p.a.
- Industry & construction
9.5% to 10.2% p.a.
- Services
7.7% to 8.2% p.a.
Industrial output growth
rate:
- Agriculture, forestry & fishery
4.5% p.a.
- Industry & construction
15.2% to 15.5% p.a.
- Services
11% to 11.5% p.a.
Export turnover growth rate:
16% p.a.
Economic structure by
2010:
- Agriculture, forestry & fishery
15% to 16% GDP
- Industry & construction
43% to 44% GDP
- Services
40% to 41% GDP
Vietnamese authorities have reaffirmed their commitment to
economic liberalization and international integration. They have moved to
implement the structural reforms needed to modernize the economy and to produce
more competitive, export-driven industries. Vietnam's membership in the ASEAN
Free Trade Area (AFTA) and entry into force of the US-Vietnam Bilateral Trade
Agreement in December 2001 have led to even more rapid changes in Vietnam's
trade and economic regime. Vietnam joined the WTO in January 2007, following
over a decade long negotiation process. This should provide an important boost
to the economy and should help to ensure the continuation of liberalizing
reforms. Among other benefits, accession allows Vietnam to take advantage of
the phase-out of the Agreement on Textiles and Clothing, which eliminated
quotas on textiles and clothing for WTO partners on 1 January 2005. Deep
poverty, defined as a percent of the population living under $1 per day, has
declined significantly and is now smaller than that of China, India, and the Philippines.
Vietnam is working to create jobs to meet the challenge of a labor force that
is growing by more than one million people every year. Vietnam is targeting an
economic growth rate of 7.5-8% during the next five years.
Vietnam’s economy is significantly agricultural. The
Red River basin in the North and the Mekong Delta in the South are the
principal agricultural regions and their main agricultural products include
rice, pepper, jute, rubber, sugarcane, coffee, tea, groundnut and tobacco.
As a result of major reforms introduced in the agricultural sector with
enforcement of the contract quota system, coupled with more direct investment,
tax incentives, and higher purchase price of food by the State, there has been
a significant boost in total food grain production since 1988.
One impact of rapid industrial growth of Vietnam has been
that agricultural land is being converted into industrial parks, which reflects
the changing economic structure: agriculture’s share of GDP declined to 20.4%
in 2006 from 24.5% in 2000. (The industry and services sectors contributed more
than 90% of total GDP growth in 2007.) Production of tea, coffee, and natural
rubber has driven the strong export performance in agriculture sector. Strong
external demand also underpinned growth in the fisheries subsector.
Currently Vietnam is the largest producer and exporter of pepper in the world,
the second largest exporter of rice (after Thailand), coffee (after Brazil) and
cashew nuts (after India), the fourth largest of rubber and seventh largest of
tea. The Government is placing increasing emphasis on cash crops with
export potential and on building of agro-based industries. With a view to
encouraging farmers to make long term investments and increasing production, a
new land law was adopted at the National Assembly Session in July 1993, wherein
rights of farmers to exchange, transfer, rent and inherit allotted land have
been recognised. Some further modifications have been made in the tax
structure of the transfer of land to ensure better revenue collection by the
local and central governments arising due to the same. The land, however,
continues to belong to the State in accordance with the constitution of the
Socialist Republic of Vietnam.
Vietnam is considered by investors as the second most
attractive destination in the region after China. During the first seven month
of 2008, Vietnam has licensed US$45.49 billion worth of registered FDI capital.
Of the pledged sum, 654 new foreign-invested projects registered US$43.7
billion and 188 existing projects added US$788 million to their operation.
Total trade turnover in the first seven month of 2008 is US$ 88.77 billion but
the cumulative deficit for the first seven months of 2008 was $15 billion.
Economic growth, however, has recently slowed from the high
rates recorded in recent years. According to the Vietnamese govt sources, real
GDP grew by 5.6% year on year in the second quarter of 2008, the slowest pace
of growth since 2000. This is also a result of a deliberate policy to
reduce the growth of domestic credit, which in turn is intended to tame
inflation. During the first seven months of 2008, the CPI has increased by
19.78 per cent. Agriculture (including forestry and fisheries) has grown 3% in
the first half of 2007, up slightly from 2.8% in the first half of 2007.
The overall industrial sector posted growth of 7% in the first half, down from
9.9% in the first half of 2007. The main cause of the slowdown is the sharp
drop in construction. Manufacturing, however, has held up well, posting growth
of 11.4% in the first half. The services sector has also maintained
momentum, with growth standing at 7.6% in the first half. Although GDP
growth has moderated, industrial output continues to expand rapidly, rising by
16.5% in the first half of 2008.
Vietnam’s economic relations have greatly diversified and
its economic exchange with the neighbouring ASEAN countries, the US, the EC,
Japan, South Korea, Australia and Singapore have been expanding at a rapid
pace. A number of foreign banks have been given licence to open branches
in Vietnam and many have already started operations in Hanoi and Ho Chi Minh
City. Singapore, Taiwan, Japan and South Korea are the leading foreign
investors in Vietnam.
Trade has been a key element in Vietnam's economic growth.
During the period of 2001-2007, total export revenue increased by 17.5% per
year. Both the composition and quality of exports have improved significantly.
The proportion of industrial products has risen considerably. Total imports
have increased by 18.8% per year. Export revenue reached US$520 per capita.
Exports reached US$ 61.6 billion in 2008, an increase of more than 25% compared
to 2007. However, due to considerable importation of plants, equipment and
materials used for the industrialization and modernization process and for
foreign investment projects, the trade deficit has increased over the past
three years. Trade relations with foreign countries, especially other countries
in the region, have expanded.
The growth of the private sector has been a significant
feature of Viet Nam’s economic development over the past decade. The non-state
sector accounted for more than half of GDP in 2007. Preliminary estimates show
that private businesses generated almost 90% of the 7.5 million jobs created
during the 5 years to 2005. Most of the 1.6 million new jobs Viet Nam needs to
create annually in 2006–2010 are expected to come from the private sector.
However, shortages of skilled labor have become apparent. The industrial park
and export processing zone authority for Ho Chi Minh City has stated that the
city’s vocational schools can only supply about 15% of the 500,000 workers that
the city’s industry will likely need through 2010.
In the policy arena, the Government outlined in May 2006 a
strategy for banking reforms. The State Bank of Viet Nam is to be converted
into a modern central bank with a mandate (and capacity) to manage monetary
policy and supervise financial institutions. State-owned commercial banks are
to be restructured in an effort to improve their performance, and are to be
“equitized,” or partly privatized, by 2010. Prime Minister Dung in December
2006 approved a list of state firms to be equitized during 2007–2010, including
major ones such as Viet Nam Airlines, the Viet Nam Foreign Trade Bank
(Vietcombank) etc. Several domestic banks also took major international banks
as strategic partners. Two foreign banks, HSBC and Standard Chartered, received
permission in September 2008 to incorporate locally as 100% foreign-owned
enterprises. The move lifts restrictions on the banks' ability to open
branches, limits that have effectively prevented them from marketing
aggressively to local clients. It is also consistent with the agreement Vietnam
inked with the World Trade Organization ahead of its accession in early 2007.
The securities market expanded beyond expectations in last
few years. A law on securities and securities markets was approved, and came
into force in January 2007. The number of listed companies has risen
exponentially, and total market capitalization increased by almost 20 times
from 2005 levels. However, since 2007 the stock market has been facing
difficulties and is still in slumps. The Ho Chi Minh City Stock Exchange
index has plummeted over the past nine months from a recent high of around 1100
points in mid-October 2007 to below 500 at the moment. The earlier phase of
stock market boom also encouraged more state-owned enterprises (SOEs) to issue
shares to investors. Subsidiaries of several major SOEs in areas such as
hydropower made successful initial public share offerings.
Vietnam is making moves to improve corporate governance and
market regulation. The maximum foreign ownership in listed companies has been
raised from 30% to 49%. The number of foreign tourists visiting Vietnam was
over 4 million in 2007. Vietnam has signed MOUs/ Agreements with several
countries like Malaysia and Saudi Arabia regarding export of manpower.
VIETNAM'S
ECONOMY IN FIGURES
I. Industrial growth (% increase on 1994 price)
Total
|
By ownership
|
State-owned
|
Private
sector
|
FDI
|
1996
|
14.2
|
11.6
|
11.5
|
21.7
|
1997
|
13.8
|
10.8
|
9.5
|
23.2
|
1998
|
12.5
|
7.7
|
7.5
|
24.4
|
1999
|
11.6
|
5.4
|
10.9
|
21.0
|
2000
|
17.5
|
13.2
|
19.2
|
21.8
|
2001
|
14.6
|
12.7
|
21.5
|
12.6
|
2002
|
14.8
|
12.5
|
18.3
|
15.2
|
2003
|
16.8
|
11.9
|
23.3
|
18.0
|
2004
|
16.6
|
11.9
|
22.3
|
17.4
|
2005
|
17.2
|
8.7
|
24.1
|
20.9
|
2006
|
17.0
|
9.1
|
23.9
|
18.8
|
1997
|
17.1
|
10.3
|
20.9
|
18.2
|
Source: General Statistics Office
II. Export, Import of Vietnam
Billion US Dollar
Source: General Statistics Office, Vietnam
III: Top 10 countries from which Vietnam exported goods in 2008
US Dollars
Top import destinations during 2008
Major
commodities of imports and exports
VIETNAM:
MAJOR EXPORTS – 2008
Million USD
1
|
Crude oil
|
10450
|
2
|
Textile
|
9108
|
3
|
Footwear
|
4697
|
4
|
Seafood
|
4562
|
5
|
Rice
|
2902
|
6
|
Wooden products
|
2779
|
7
|
Electronics, computers
|
2703
|
8
|
Coffee
|
2022
|
9
|
Rubber
|
1597
|
10
|
Coal
|
1444
|
11
|
Electric wires & cables
|
1014
|
12
|
Other
|
19622
|
VIETNAM:
MAJOR IMPORTS 2008
1
|
Machinery and equipment
|
13712
|
2
|
Petroleum
|
10888
|
3
|
Steel
|
6566
|
4
|
Of which: Steel rough
|
1657
|
5
|
Electronics, computers and spare
parts
|
3722
|
6
|
Plastic in primary form
|
2924
|
7
|
Textiles, leather
|
2376
|
8
|
Chemicals
|
1768
|
9
|
Cattle feed and supplies
|
1738
|
10
|
Chemical products
|
1607
|
11
|
Others
|
33442
|
SERVICE EXPORT, IMPORTS IN 2008
|
USD million
|
2008 vs.
2007 (%)
|
Structure
2008 %
|
2007
|
2008
|
Exported services
|
6460
|
7096
|
109.8
|
100.0
|
Air transport
|
1069
|
1322
|
123.7
|
18.6
|
Sea transport
|
810
|
1034
|
127.7
|
14.6
|
Post & communication
|
110
|
80
|
72.7
|
1.2
|
Tourist
|
3750
|
4020
|
107.2
|
56.7
|
Finance
|
332
|
230
|
69.3
|
3.2
|
Insurance
|
65
|
60
|
92.3
|
0.8
|
Governmental service
|
45
|
50
|
111.1
|
0.7
|
Other
|
279
|
300
|
107.5
|
4.2
|
|
|
|
|
|
Imported services
|
7176
|
7915
|
110.3
|
100.0
|
Tourist
|
1220
|
1300
|
106.6
|
16.4
|
Air transport
|
820
|
800
|
97.6
|
10.2
|
Sea transport
|
250
|
300
|
120.0
|
3.8
|
Post & communication
|
47
|
54
|
115.7
|
0.7
|
Finance
|
300
|
230
|
76.7
|
2.9
|
Insurance
|
210
|
150
|
71.4
|
1.9
|
Governmental service
|
40
|
50
|
125.0
|
0.6
|
Other
|
1030
|
850
|
82.5
|
10.7
|
Estimated C.I.F for imports
|
3259
|
4181
|
128.3
|
52.8
|
Source: General Statistics Office
2:15 AM
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