vietnam economy

 

If you want to start up a business in Vietnam, please focus on economy as the targets for your business dealings. With some information below, you will have more and more opportunity to do effective business in Vietnam.

 

   

 

 

 

 1. Economy Overview

Vietnam is a densely populated, developing country in Southeast Asia. In the decade after the 1976 reunification, the economy was in stagnation while the country attempted to recover from three decades of independence wars. In 1986, Vietnam started economic reforms aimed at moving from a planned to a market economy. Dramatic progress has been made in economic development since then, and the country has become one of the fastest growing economies in the world. Traditionally an agrarian society, the agricultural sector, including forestry and fisheries, still employs about 65% of the population, but its contribution to GDP has declined to about 20% in recent years from 40% in the early 1990s. The industrial sector has been growing rapidly, and now accounts for about 40% of GDP, with relatively well-diversified sub sectors including steel, fertilizer, cement and vehicle production, whilst the private sector is now estimated to contribute around 35% of GDP and is rapidly growing, due to the continuing privatization of State Owned Enterprises (SOEs) and positive underlying macroeconomic factors.

Vietnam has continued its efforts of transition towards a market economy through adopting more flexible, market-oriented policies that are aimed at promoting private sector growth, improving the quality of public investment and achieving macroeconomic stability. However, further reforms are needed to achieve long term sustained rapid growth, and emphasis should be put on more prudent macroeconomic policies, improving public sector financial management, accelerating reforms of SOEs and fair and transparent laws and regulations. The private sector will continue to grow as governmental involvement in the management of SOEs and investment decision making in them is reduced.

 

2. Recent economic performance

Vietnam has achieved substantial progress in economic development following the declaration by the Sixth Party Congress, in 1986, of a broad economic reform package called “Doi Moi”, or “renovation”, which dramatically improved Vietnam’s business environment. Vietnam became one of the world’s fastest growing economies, averaging 8.4% annual GDP growth from 2005 to 2007, 6.1% in 2008 and 5.3% in 20094. Vietnam’s inflation rate, which stood at an annual rate of over 300% in 1987 had fallen to 12.6% in 2007 and significantly increased to 23% in 2008. In 2009, as the result of the global economic crisis, basic good prices fell significantly and Vietnam economic growth slowed down leading to the decrease in inflation rate to 6.9%5 . Simultaneously, investment grew three-fold and domestic savings quintupled. Agricultural production doubled, transforming Vietnam from a net food importer to one of the world’s top rice exporters. Foreign trade and Foreign Direct Investment (FDI) increased significantly in 2008 and the shift away from a centrally planned economy to a more market-oriented economic model improved business conditions and quality of life for many Vietnamese. In 2009, due to the global economic crisis, FDI to Vietnam was lower than previous year. From the beginning of the year to 15 December 2009, total FDI capital was US$21.5 billion decreased by 70.0% relative to the same period last year. The registered FDI capital of 839 new licensed projects is US$16.3 billion (decreased by 46.1% in number of project and by 75.4% in capital). The implemented FDI capital is estimated at US$10 billion, decreased by 13.0% compared to 2008. The Bilateral Trade Agreement (BTA) signed between the United States and Vietnam on 13 July 2000 represented a significant milestone for Vietnam’s economy. The BTA provides for the Normal Trade Relations (NTR) status of Vietnamese goods in the US market. In turn, access to the US market will allow Vietnam to accelerate its transformation into a manufacturing based, export-oriented economy

Vietnam’s economic stance following the East Asian recession emphasized macroeconomic stability. Although the Government maintains a tight rein on major sectors of the economy, such as financial services, telecommunications sectors and areas of foreign trade and economic reform, equitization/privatization of SOEs have fallen behind schedule. The Government, however, appears committed to economic liberalization and international integration. Vietnam’s membership of the ASEAN Free Trade Area (AFTA) and entry into the BTA in December 2001 has contributed to this change of pace. Vietnam achieved accession to the World Trade Organization (WTO) in January 2007 to become the 150th WTO member that brings to Vietnam’s business community many opportunities in integrating into the international trade and challenges at the same time.

3. Economic Outcomes

Ultimately, the goal of economic development is a sustained increase in prosperity or the standard of living. Indeed, many economic plans, including the ten-year strategy for Vietnam, which is currently under discussion, also refers to specific goals in terms of the standard of living. Comparing these metrics across countries as is done below, provides a realistic competitiveness benchmark or a relative assessment of how competitive an economy is.

While the standard of living is a central element of the assessment, it is not a very informative tool to guide policy making. It only describes the combined impact of all the determinants of competitiveness on the quality of life of the average Vietnamese. Policy-relevant insights can be obtained from assessing both economic and non-economic measures of well-being and from decomposing the standard of living into various components such as the mobilization of resources, in particular labour, and how efficiently or productively these resources have been employed in order to achieve a higher standard of living.

 

Standard of Living

Income: GDP per capita

GDP per capita has grown quickly and steadily over the last two decades, yet it is at a low absolute level Vietnam’s average income — real GDP per capita — has grown rapidly since the country launched the Doi Moi Reform, growing at an average annual rate of 5.06 percent between 1986 and 1997 (pre-Asian Financial crisis) and at the higher rate of 5.64 percent between 1997 and 2009 (Figure B.1).

Figure B.1: GROWTH PATTERNS OF VIETNAM’S GDP PER CAPITA 1984-2009

Source: World Development Indicators.

Vietnam stood out as one of the fastest growing economies in the world during this period allowing it to reach the lower middle-income group in 2008 when its per capita income exceeded USD 1,000. And it continues to make significant progress since, despite the recent financial crisis.

While Vietnam’s economic growth over the past two decades has been impressive in relative terms, the per capita GDP (measured using purchasing power parity) of the country remains low compared to other countries. In 2009, Vietnam ranked 113th in the world and it is still among the poorest countries in East Asia (Table 2.1). In addition, Vietnam’s prosperity level lags significantly behind traditional tiger economies such as South Korea and even China’s per-capita GDP is more than twice that of Vietnam’s (Table 2.1).

Figure B.2 : COMPARISON OF GDP PER CAPITA GROWTH, 1990­-2009

Note: GDP per capita growth (CAGR) for Cambodia is for the period 1993 - 2009.

Source: World Development Indicators.

Non-income Measures of Economic well-being

Poverty Reduction

- Significant successes in poverty reduction, however risk of re-impoverishment remains high

Vietnam is recognized as one of the early achievers of the Millennium Development Goals on poverty reduction. . Its poverty rate fell dramatically from 58.1 percent in 1993 to 14.5 percent in 2008 (GSO 2006)1. The country managed to significantly reduce poverty rate in both urban and rural areas. In 2009, despite the slowdown in economic growth, the proportion of poor households continued to decline. This is estimated to remain at 11 percent by the Government’s poverty standards2 . However, it is worthwhile noting that while the country’s successes in poverty reduction are significant, “these results are not really stable, the rate of re-impoverishment remains high” as candidly pointed out by Prime Minister Nguyen Tan Dung in his article written on the occasion of the New Year 2010

Table B.1: COMPARISON OF PER CAPITA INCOME IN 2009

Source: World Development Indicators.

4. Leading industries

Vietnam’s leading industries are oil and gas; textiles and footwear; agriculture and fisheries, banking and construction.

5. Major exports and imports

In 2009, Vietnam’s total exports amounted to US$56.6 billion; decreased by 9.7% against 2008, in which export amount from local sector is US$26.7 billion, and from FDI (including oil) is US$29.9 billion6. Since the BTA between Vietnam and the US came into force in 2001, the US has overtaken the European Union (EU) as Vietnam’s largest trading partner with estimated exports of US$11.2 billion. The Association of Southeast Asian Nations (ASEAN) and Japan rank third and fourth with US$8.5 billion and US$6.2 billion, respectively. The most impressive export increase is to the African market with 8 times increase against in 2008 with estimated amount up to US$1.1 billion.

In contrast, total imports in 2009 are estimated at US$68.8 billion, decreased 14.7% against same period in 2008.7 Imports from China, which has the largest volume with US$16.1 billion, increased by 2.7% compared to the 2008 making China now by far, the largest source of imports into Vietnam. The US, EU, Japan, members of ASEAN, newly industrialized countries (Korea, Taiwan and Hong Kong) and China remain major export markets of Vietnam.

Vietnam is a major exporter of crude oil, marine products, rice, coffee, rubber, tea, garments and footwear. In 2009, garment and crude oil exports were the top earners and footwear and seafood were the second most significant export products, followed by rice, coffee and wooden products. Due to the financial crisis, exports to all major markets have declined, sometimes substantially. Vietnam exporters have been especially active trying to win markets over in Latin America and Middle East8.

Vietnam’s leading imports include petroleum products, steel, motorbikes and fertilizers, with a large proportion of Vietnam’s imports coming in the form of capital goods. Although Vietnam is an exporter of crude oil, imports of petroleum products reached US$6.2 billion in 2009, decreased by 43.8% in quota due to decrease in price but increases 0.6% in volume. Imports of garment and textile material for processing also decreased by 17.8%.

 

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