Vietnam, a model for the developing world
Vietnam in the coming decade should make a full transition to a market economy but this has not stopped its communist government from making major gains over the past two decades.
The country’s credit outlook last week was raised to positive by Moody’s Investors Service.
Its credit rating has been to “Ba3” – only three levels below investment grade with further upgrades likely.
Although North and South Vietnam were
unified under the communist regime in 1976, the country’s rapid social and economic transformation began a decade later when the government introduced its Doi Moi programme or change to new or reforms.
The 1986 reforms came at a time when, faced with severe famine and a failing Soviet-style command economy, the government began to experiment with market mechanisms and carried out an “egalitarian” distribution of communal land to farmers.
Following the restoration of normal relations with the United States in December 2001, Vietnam’s exports to the US doubled in 2002 and 2003 and the country joined the World Trade Organisation (WTO) in January this year.
Economic growth averaged 9% a year in the five years to 1997, the year of the Asian economic crisis.
The growth rate slowed to 6.8% annually in the subsequent eight-year period to 2004 and has since returned to around 8%.
“Vietnam is one of the best performing developing economies in the world,” the World Bank affiliate, the International Development Association, says.
“When the World Bank re-engaged with Vietnam in 1993,” it says, “income per capita was US$170. Today it is US$620 and by 2010, it could reach US$1,000.”
Average income levels in Vietnam in 1993 were less than 20% of the level in Papua New Guinea at the time, but PNG’s poor performance since then has meant that Vietnam has moved ahead with the margin likely to widen during the rest of this decade.
The numbers of people living in abject poverty has dropped from 70% to less than 20% and there is now a smaller proportion of people having to survive on less than US$1 a day than in China, India or the Philippines.
Klaus Rohland, who is due to leave his World Bank post in Hanoi this month to take up his new position as ‘country director’ for the Russian Federation, says in an online video interview that 35-year-old Vietnamese employees in his office all faced the reality of hunger in the 1980s.
“Their children now don’t know hunger. They are well fed. They have access to health care. They are well educated and there’s a general sense of optimism because of that,” he said.
In its country strategy and programme for Vietnam, the Asian Development Bank said that the Vietnamese government was aiming to reduce poverty levels by half to around 10% by 2010.
At the time, it intends exiting from its “low income” country status by attaining a per capita income of US$1,050 to US$1,100.
Part of the reason for strong economic growth since the mid-1980s is a strong inflow of foreign direct investment from American and other multinational companies.
The US is, in fact, the third largest investor after Taiwan and Singapore.
Approval for foreign investment projects by the government last year amounted to US$10 billion, a leap of almost 50% from 2005.
This included a commitment by semiconductor giant Intel to build a US$1 billion plant in Ho Chi Minh City, formerly known as Saigon.
Only as recently as 1993, private sector investment was negligible.
In recent years, it has made up around 50% of total investments.
A shift from collecting farming to industrial farming has enabled the country to move from a situation of being a significant rice importer to become the world’ second largest exporter.
The IDA says that “electricity, once a luxury, is now commonplace”.
Clean water is more accessible.
The country is expected to achieve by 2015 most of the ambitious Millennium Development Goals set by the United Nations.
The share of agriculture in gross domestic product has fallen from 25% to 20% between 2000 and 2006, by which time industry was contributing 48.1% and services 38.1%.
Vietnam covers a total area of 329,560 sq km – about 30% less than PNG.
It has a population of 84 million and GDP on a purchase price parity basis is estimated at US$259 billion or a per capita equivalent of US$3,100.
However, GDP based on the official exchange rate is estimated at US$48.3 billion, the per capita equivalent of US$620.
To keep growth at high levels, the government is planning to raise total investments to 40% of GDP and to generate a
14-16% annual increase in export earnings.
Power generating capacity is anticipated to double from around 13,000 megawatts at present to just over 26,000MW in 2010.
Under the communist style regimes that are becoming a dim memory, the government’s role was critical and domineering.
Now the Vietnamese government intends keeping a steady hand on government spending, aiming to keep its national budget at around 22% of GDP, according to the ADB.
And it will be the private sector and foreign investors that provide the forward momentum for the economy.
By Brian Gomez - The National (.pg) - March 24, 2007.
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