Vietnam is a Southeast Asian country that has completely transformed itself in last 3 decades. From over 70% of the population working in agriculture in 1985, now the service sector contributes around 42% to the Vietnamese GDP.
Hanoi 2019
Vietnam is an economic miracle that the world has witnessed in the last 30 years. Despite its population growing by a quarter during this time, the standard of living has improved overwhelmingly along with strengthening the economy.
The above graph gives a clear representation of the per capita income of Vietnam from 1986 to 2019. The figures given for the years beyond 2019 are mere estimations. The poverty rate of Vietnam has dropped from over 60% to less than 5% over these years.
Surprisingly, Vietnam was the only major Southeast Asian country to avoid a recession in the 2020 global economic downturn due to the Covid 19 pandemic.
By 1975 the Nation’s economic infrastructure was completely destroyed due to the deadly Vietnam War. The country was a member of the Comecon and hence had fixed pricing strategies. Comecon was an alliance between the communist countries founded by Joseph Stalin in response to the US MarhsMarshallall Plan for the European Countries. Due to this alliance, the USSR was the largest trading partner of Vietnam and by mid 80’s it was realized that full-blown communism will not work for Vietnam. Hence new economic reforms named, DOI MOI were launched in 1986 to help the struggling economy.
NEW REFORMS
The Doi Moi reforms proved fundamental for the economic rise of Vietnam. These reforms were focused on preparing the Command economy of Vietnam for a freer economy. The country had 75% of its workforce employed in the agricultural sector and so the reforms were mainly focused on Agriculture. The renovation plan moved from collectivization, allowing individual farming which led to farmers charging any prove they want for their produced crops. This provided an incentive to farmers to increase production as this would increase their profits as well. Through these reforms, the Vietnamese currency was devalued in an attempt to increase exports, and budget deficits were controlled. The inefficient state-owned monopolies were also cut down facilitated by sell-offs, mergers, and restructuring. The country has 12000 state-owned corporations in 1989, while had only 600 in 2017. This all went hand in hand with encouraging private businesses. All of these reforms caused a decline in employment in agriculture and state-owned enterprise and caused a rise in the private sector of the country. In 198 the country made the Foreign Investment Law that enabled foreign companies to enter the Vietnamese market. In 1994 the US trade embargo on Vietnam was lifted that paved the way for it to join ASEAN free trade area and signing a free trade agreement with the US in 2000. Vietnam is a champion in free-trade-based development economics, as it has signed over a dozen of free trade agreements and is a member of WTO as well.
Vietnam also invested a lot in its human capital which is shown by multiple parameters. It attracts multinationals not only due to the cheap labor but also skilled ones. According to the PISA STANDARD INTERNATIONAL TESTING, Vietnam is ranked 4th for Mathematics, wellhead of the developed economies. This quality of labor has helped Vietnam to capitalize on its free trade agreement.
“VIETNAM” The Exporter
Vietnam is a major exporting economy as it exports goods and services worth over $290 Billion USD. Major corporations like Samsung produce more than 50% of their smartphones in Vietnam. Vietnam is also the region’s largest exporter of clothing and the second-largest exporter of electronics after Singapore. Vietnam has benefitted a lot from the shift in production from China to other countries. Vietnam provides the manufacturers with cheap and skilled labor along with stable government policies that increase investor confidence. The reason behind Vietnam being the number one contender for businesses moving out of China is the similar export base of both countries like clothing, electronics, computers, and furniture. Both nations produce relatively similar products, hence Vietnam becomes an obvious choice for manufacturing giants trying to move out of China.
So, Vietnam has surely made remarkable progress in the last 3 decades, and its reforms of 1986 cannot be understated as they have been the pillars of development for Vietnam to its current state. It would be an oversimplification to say that Vietnam’s success has been built on an exodus from China. The country is very attractive due to its commitment to free trade, investment in human capital, and an emerging middle class. Prospects of heavy tariffs linger upon Vietnam due to its enormous trade surplus which can potentially hinder Vietnam’s roadmap to a developed economy. An aging population and fast-paced automation are some factors that pose a threat to Vietnam. Overall it is correct to state that up till now Vietnam has been a great success for its people and the World on a broader note.
Comments