Vietnam's economic development:
Opportunities and challenges towards the integration tendency
Prof.,Dr. Nguyen Thi Ngoc Huyen and Prof.,Dr. Bui Anh Tuan
National Economics University, Hanoi, Vietnam
Abstract
Thanks to the comprehensive economic reform, the transformation from a
centrally planned economy into a market economy and the implementation of open
door policies, Vietnam has gained remarkable achievements in economic
development. In the period 1991 - 2003, annual economic growth rate is 7.46%, per
capita income (in US$) increases more than three times, economic structure shifts
towards reducing the share of agriculture and increasing the share of industry and
service. Foreign trade and investment have increasingly influenced economic
development. These achievements, however, have yet to meet the requirements of
development, and yet to correspond to the national potentiality and great opportunities
brought by globalization.
In order to fulfill the ambitious and ultimate goals defined in the Socioeconomic Development Strategy for 2001 - 2010 period, the Vietnamese Government
should control the integration process to take more advantages of opportunities
brought by
globalization process and reduce the cost for internal and external
challenges. Fundamental policies that should be put in priority are: (1) Develop
enterprises towards abolishing the monopoly of state owned enterprises; expand and
strengthen the relationship between distributors, manufacturers, and suppliers in the
value chain; (2) Give incentives to shift investment preference from import substitute
industries to export oriented ones; (3) Promote production factor markets; (4) Broaden
foreign trade and actively integrate into the world's economy; and (5) Modernize the
state administration process.
This paper will focus on (i) evaluating the economic change of Vietnam
towards the integration tendency and (ii) analyzing fundamental policies of the
Government to cope with challenges.
1. Vietnam's economic development towards the integration tendency
In 13 years since the realization of comprehensive economic reform focusing
on
liberalization, stabilization, institution transformation, structure reform and
opening to the world economy, Vietnam has gained miraculous economic
achievements with annual GDP growth rate of 7.46%, the reduction of inflation from
three digits to one digit, the increase of aggregated social investment to 35.9% GDP,
and the expansion and diversification of foreign trade.
High economic growth rate leads to a notable increase in Vietnam's per capita
income from 140 US$ in 1990 to 483 USD in 2003. Poverty rate, according to
international standard, decreases sharply from more than 70% in 1990 to 32% in
2003. Vietnam has reached the international millennium development goal to reduce
by half of the poverty rate in the period between 1990-2015. Annual natural
population growth rate decreases from 2.3% to 1.4%. Average life span rises from 65
years to 69 years.
Together with economic growth, Vietnam economy has witnessed a
fundamental change in its structure. In 1990, agriculture contributed 38.74% to GDP,
industry: 22.67%, and service: 38.59%. Thirteen years later, the role of agricultural
sector in the economy is reduced sharply while that of industry and service sectors
increases correspondingly. In 2003, the share of added value of agriculture in GDP is
21.8%, industry: 39.97% and service: 38.23% (See table 1), and contribution to GDP
growth is 9.67%, 53.31% and 37.02% respectively.
The move of activities from agricultural sector to other sectors has caused a
reduction of labor in the agricultural sector (59.04% of the total labor in the economy
in 2003 compared with 73% in 1990). Strong development of the industry, expansion
of the service and diversification of branches in agriculture have created a number of
jobs (around 1.2 - 1.5 millions), resulting in a downward trend in unemployment rate
in both urban and rural areas.
From a less developed country that used to have serious shortage in all kinds
of commodities, Vietnam is now assessed as a rapidly developing economy. Domestic
production has met most of domestic manufacturing and consumption demand.
Export is increasing. People's life has been remarkably improved. The followings will
focus on the development of some specific sectors considered in correspondence with
the impacts of policies.
1.1. Agriculture.
Agricultural reform is the most significant to the cause of economic
development and poverty reduction of Vietnam - a country with 75% population and
90% the poor living in rural area. From a country that was always short of food and
had to import 0.5 – 1 million tons of food to meet the people's demand annually,
Vietnam has become a food exporter. It is now the world's second biggest rice
exporter, right behind Thailand.
Food grain production development, agricultural restructuring towards
developing high-value industrial and fruit trees like coffee, rubber, cashew, litchi,
longan, etc, as well as strong development of agriculture, including domestic animals,
fowls and forestry have been paid special attention in Vietnam. Vietnam now is the
world’s biggest peppercorn exporter, and the third biggest coffee and rubber exporter
(see table 2).
Determining factors for the development of agricultural sector are: (1)
Realization of land allocation to farmers and transformation of agricultural
cooperatives and state-owned farms into household enterprises, making the
agricultural sector most privatized in Vietnam economy, in which state economy
accounts for 3%, (2) Increase of proportion of capital and labor force in inputs (87%
added value), (3) Development of irrigation and adequate provision of inputs for
agriculture like machines, insecticide, and chemical fertilizer (4) Application of
advanced biology achievements to diversify products, raise productivities and product
quality, and (5) Trade liberalization and export promotion.
1.2. Insdustry
Rapid
industrialization,
together
with
high
economic
growth
and
macroeconomic stabilization, is seen as the most miraculous economic achievement
of Vietnam. In the period of 1991- 2003, annual growth rate of the industrial sector is
more than 10%. Both of the state and non- state sectors have put priority on the
expansion of size and innovation of equipments and technology in a number of
industries like electricity, mine, petroleum, cement, steel, chemical, electronics,
mechanics, garment and textile, sugar, and agricultural product processing, etc. In
general, Vietnam's industry has so far met domestic manufacturing and consumption
demand (see table 3). Some products are competitive in international market like
garments and wooden goods (see table 4).
There are a number of fundamental policies affecting the development of
industrial sector, namely (1) State- owned enterprises reform that mainly aims at the
equitization of more than 75% of over 12,000 state owned enterprises, the
corporatization of the remaining state owned enterprises that the state holds 100%
capital and the construction of strong state agglomerates. (2) Encouragement of
foreign direct investment. (3) Promotion of private enterprises. (4) Opening of foreign
trade to increase the export of industrial goods and import of materials and machines
(5) Import substitution (6) Protection for domestic goods through tariff, the state's
incentives and direct support. The effective protection rate of tariff imposed on tea is
243%, garments: 183%, motor and automobile: 146%, refined sugar: 111%, and
plastic: 109%.
Recent policies on industrial development are a debating issue in Vietnam.
The monopoly of state owned enterprises and foreign invested companies, weak
competitiveness of import substitute industries, and high cost of the restructuring have
been challenging Vietnam in its process of fulfilling integration commitments.
1.3. Service
Market oriented economic reform has pushed up the expansion of the service
sector. The service sector's annual growth rate is 7% in the period of 1991- 2003.
Trade, hospitality, restaurant, tourism, and road transportation experience a rapid
development. In recent years, scientific and technological, educational and training
sectors have had high growth rate, manifesting the government's priorities and efforts
in promoting human resource, science and technology.
The service sector's growth rate, even increasing in recent years, is still lower
than that of the first half of 1990s (see table 1). Despite some industries that have high
technological content and added value, and that significantly influence the
strengthening of competitiveness of the economy as well as enterprises, fields like
finance, banking, insurance, telecommunication, air transportation, sea transportation,
manufacturing support service and consulting service, etc, are slowly developed. Real
estate business is out of control. This situation results from (1) Uncompleted
institutions for service markets (2) Protection and incentive policies for state owned
enterprises (3) Low openness for foreign investors.
1.4. Foreign trade and investment.
Before 1990, Vietnam's foreign trade relations focused on the former socialist
countries. The open door policy started a new phase of relations between Vietnam and
the world. The ratio of import- export to GDP increased from 53% in 1991 to 115% in
2003, manifesting Vietnam's open trade. Vietnam has so far had foreign trade
relations with more than 160 countries. Joining ASEAN free trade area (AFTA) in
1996, Vietnam committed to abolish most tariff and non-tariff barriers imposed on
goods from ASEAN within a decade. Vietnam is determined to join WTO in 2005
and unilaterally implementing trade reform with the support of IMF, the World Bank,
and other members of aiding country community.
The policy on open foreign trade has pushed up Vietnam's economic growth in
a number of ways. First, export has become an important part of the national
economy. In 2003, export revenue reached 19.88 billion US$ (see table 5). In the
period of 1991- 2003, annual export revenue growth rate was 18.7%, this was 2.5
times compared with GDP growth rate. Added value generated in the export sector
contributed 11% to GDP. Second, imports went up rapidly, providing domestic
market with machines, equipments, materials and fuel for manufacturing industries as
well as consumer goods. Third, domestic market is not completely protected, forcing
enterprises to face with foreign competitors, putting pressure on raising productivity,
and encouraging restructuring to make products that satisfy both domestic and
international demand. A number of Vietnamese goods that are competitive in terms of
price and quality are favored in the world market like agricultural products (rice,
coffee, aquatic products), industrial goods and handicrafts (garment, wooden ware,
plastic, and electric wire and cable, etc). Fourth, illegal speculation is reduced and
flexible response to external shock is strengthened.
Thanks to incentive policies on foreign direct investment, up to the end of
2003, Vietnam has attracted 4,324 foreign direct investment projects with the total
registered capital of 40.8 billion US$. Foreign capital plays a significant role in
Vietnam's economic development. For instance, in 2003, foreign direct investment
capital made up 16.77% of the aggregated social investment capital. Foreign invested
economy contributed 14% to GDP (see table 6). Moreover, foreign investment has
boosted trade, created jobs, encouraged transferring of advanced technology and
management skills and learning. In 2003, export revenue of the foreign invested
sector was 10 billion US$, increasing by 27% compared with that of 2002 meanwhile
domestic sector's export revenue was 9.9 billion US$, increasing by 11.7% (see table
7). Up to 2003, around 90% technology transfer contracts have been made in FDI
sector. This sector has also created 665,000 jobs, and indirectly created jobs for
millions of labors. The facts show that foreign invested joint venture is of the most
efficient way to catch up with developed countries in a relatively short period of time.
Trade and investment liberalization has enhanced economic restructuring,
domestic enterprise reform and satisfied people's needs with multiple options to
access diversified, high quality, low price, and convenient goods and services. The
role of the state in the economy has rapidly changed towards constructing
environment and regulating the economy mainly by indirect tools.
2.
Challenges
to
Vietnam's
economic
development
in
the
international integration tendency and fundamental policies.
2.1. Challenges
The above-mentioned analysis is reliable enough to define the role of
international integration as one of the key factors determining the development of
Vietnam's economy. However, in a rapid globalization process, Vietnam is
confronting severe challenges rising from international environment and inherent
weaknesses of a transformation economy.
§
Competition in international market
Vietnamese commodities, when accessing to international market, have to
compete with those from more developed countries. In a backward agricultural
economy that is characterized by the exploitation of natural resources, raw materials
and non - processed agricultural products are making a large proportion in Vietnam's
exports (57% in 2003). A rise in proportion of industrial goods and handicrafts is
mainly focused on processed and assembled goods that have low added value due to
advantage in low labor cost. High added value exports made up a small proportion.
Structure of Vietnam’s key exports does not much differ from those coming from
China and ASEAN, but they lack specialty and service that cause low competitiveness
due to rapidly increasing cost.
§
Competition in the domestic market
In the domestic market, Vietnam has to face with a lot of problems rising from
the liberalization of economic sectors in the committed integration process. Many
industrial and agricultural products are less competitive compared with those
imported from EU, US, Japan, China and ASEAN. For instance, the price of some
domestically produced goods is higher than international price: garment 15%, steel
25%, paper 27%, urea 31%, sugar 40%, and soda 63%. Pressure of competition put on
key services like finance and bank, post and telecommunication, and information
technology is even heavier. Thousands of state owned and private enterprises existing
under import substitute and protection policies will hardly remain in this competition.
Decreased profit, loss, bankruptcy and unemployment - inevitable consequence of the
structuring following the commitments to access international organizations,
especially WTO, may cause unfocused economic, political and social effects.
When Vietnam join WTO, foreign companies may promote their exports to
Vietnam, instead of investment, because import substitute polices lose their effects
and Vietnam’s investment environment is less competitive than other regional
countries.
Potential opportunity costs imposed by globalization can be a reason for some
stakeholders to obstruct Vietnam’s integration process (see table 8). Challenges of
integration, however, emerge from not only external environment but also the national
economy's weaknesses, requiring all economic institutes to be transformed to adapt to
rapid development of trade relations, investment and technology transfer.
§
Enterprise system
Vietnamese enterprises are still very weak and have low competitiveness.
According to the global economic forum, in 2003 Vietnam's growth competitiveness
ranks 60 among 102 countries, and its enterprises' competitiveness ranks 50 among
101 countries (see table 9). Apart from nearly 4,290 state owned and 4,300 foreign
invested enterprises there are only 140,000 private enterprises operating under the law
of enterprises. Ratio of people to enterprises is 1/400. Generally, enterprises have
small size. Close to 47% state owned enterprises have legal capital of less than
300,000 US$. Average legal capital of private enterprises is 80,000 US$. In general,
Vietnamese enterprises are at low development level in terms of technology,
management capacity and labor expertise. Capital mobilization capability is low,
especially for middle and long-term capital. Most enterprises have yet to get
appropriate business strategies to expand themselves in the international market. High
monopoly of state owned enterprises, discrimination between state owned and nonstate enterprises, and slow implementation of state owned enterprise reform have been
obstructing the improvement in investment and business process.
A big weakness of Vietnamese enterprises is loose linkage among them and with the
rest of the economy in value chains: input suppliers - intermediaries manufacturers -
finished product manufacturers - distributors, to make high added value. Prices of
agricultural products are down seasonally because they are not timely distributed,
meanwhile processing factories, lacking production materials, have to outsource at
high prices. More than 90% steel is produced by material imported, resulting in heavy
dependence on the world price. 80 cent in every 1 US$ of garment exports is spent on
imported materials or accessories. Limited linkage is one of the main reasons why
added value growth rate is lower than output value growth rate in industrial and
agricultural sectors (see table 10). The Government's efforts to set up clusters in
which state corporations and foreign companies are key actors have yet to get good
results.
§
Physical infrastructure system
This system, even remarkably improved recently, still restrains competitiveness. The
infrastructure network has not been developed nationwide, limiting a large number of
rural and minor ethnics people to access to market economy and international
integration opportunities.
The prices of some infrastructure services in Vietnam are higher than those in
regional countries and tend to increase (like electricity and water), negatively
affecting low - cost - based competitiveness of Vietnam. The dual prices for domestic
and foreign customers have yet to be completely settled. Construction of a developed
infrastructure is a big challenge to Vietnam, which requires external support through
FDI and ODA.
§
Science and technology
Technological level of most industries is more backward compared with
regional countries. Most enterprises are at the stage of technological absorbing
through importing machines and equipments. Technological and knowledge content
in Vietnamese goods is low, products are mainly based on capital and labor. In 2003,
capital contributed 52.7% to economic growth, labor 19.8%, and total production
factors 28,2%. Scientific and technological market, both supply and demand, is infant.
80% budget for scientific research and technology is from the State, opposite to the
situation of developed countries. Large state corporations that have adequate
resources for research and technological applications are not put under pressure of
innovation due to incentives in the protection regime. Domestic private enterprises
need to innovate their technology, but they are in affordable. Capacity of technology
transfer from foreign sector to domestic sector is low due to incomplete policies on
attracting transnational corporations in hi - tech industries, limited capability of
Vietnamese labors to absorb transferred technology, and weak linkage between
domestic and foreign enterprises, especially backward linkage. Organization model of
R&D agencies does not encourage the relation between them and users – enterprises.
§
Human resource
Vietnam has abundant human resource (of close to 40 million people), but
proportion of skilled labors is still very low (21% of the total labor force). In the labor
market, therefore, there exists a paradox: labor supply is high, meanwhile enterprises
are lacking skilled labors, especially technical workers, marketing, designing and
financial specialists, and business administrators. Productivity is low. For example,
productivity in the garment sector is as high as 2/3 of that in China, and increases
more slowly than wage rises. In recent years, wages increase 9% annually while labor
productivity increases fewer than 7%, lessening Vietnam's advantage in low labor
cost. This results from the gaps between vocational training size and economic
development requirements, between training activities and the labor market demand,
and from the lack of a relevant mechanism to encourage learning and attracting talents
in business sector.
§
Credit and Banking
The Vietnamese credit and banking market has revealed some weaknesses.
Financial depth is low, around 67% GDP. Capability of capital mobilization and
lending of commercial banks is low, credit quality is not high and most of the credits
are short-term credit. The credit market is relatively monopolistic; state commercial
banks make up 67% total mobilized capital and 80% credit market. State owned
enterprises, to some extent, are monopolistic customers of commercial banks, making
up 80% credit balance but contributing just 38.9% GDP. The banking system
restructuring is not as rapid as it is expected. Interest rate of VND is at a relatively
high rate (8 - 14% annually) and tends to rise due to the impact of consumer price
index increase. Ratio of bad debt in commercial bank is high, about 6%. If counted by
international indicators, this number can be higher (3 times) and the settlement
heavily depends on state owned enterprise reform process. The financial market is
less developed despite of the establishment of non - banking financial institutions like
financial companies, insurance companies, leasing companies and investment fund.
The security market is too small and has yet to be an efficient channel for capital
mobilization for the economy.
§
Business support services
Business support services like management consulting services, legal
consulting, investment consulting, information provision, and marketing, etc, have not
developed to meet enterprises' demand. Business support services have been paid
attention and developed only since the introduction of the law of enterprises, and now,
they contribute just 1% GDP. High cost of business support services limits the
accessibility of small and medium enterprises.
In general, in a risky business environment, many enterprises have short-term
goals and aim to set relations with the state system for incentive, preference or
priority rather than focusing on their own competitiveness and long-term business
strategies. As a result, the economy develops unhealthily basing on unsustainable
growth factors and has low growth competitiveness.
§
Macroeconomic environment
Vietnam’s macroeconomic stability indicators are assessed to be high (see
table 9). However, it has some signs of instability, shown as follows:
The state budget revenue, even accounting for 21- 22% GDP, is still limited.
The state expenditure on wages increase, debt payment, and irregular expenditure
rises radically while the budget revenue is not stable. The state budget surplus is high,
5.0% GDP in 2003 (see table 11) .
The state investment capital balance, especially capital invested in big
projects, is tense, while debt of projects is rising and has yet to be solved. Up to now,
outstanding debt in the fundamental construction sector is 11,000 billion VND,
accounting for 25% total investment capital from the state budget and more than 50%
state budget capital for fundamental construction in 2003. Losses in the state
investment, as reported in mass media, make up 30% due to weaknesses in planning,
allocation, supervision, and assessment. The increase of the state credits, especially
those given to state owned enterprises, not only restrains resources for private
investment, but also distorts interest rate and the credit market. A number of capital
invested in protected and poorly competitive industries like garment, iron and steel,
sugar can, etc, makes some troubles, especially in the acceleration of integration
process.
In 2003, trade deficit was 13.1% GDP and this is the highest level in the last 5
years. In the first half of 2004, consumer price index increases 7.2%, higher than
projection for 2004. Price of essential materials and consumer goods goes up
radically, obstructing production and business activities, slowing down investment in
construction, and negatively effecting people’s real income.
§
Public institutions
Despite of great endeavor of the State, the institution reform in Vietnam is
carried out very slowly. The legal system is inadequate, asynchronous, not detailed,
inconsistent, and not close to the reality so that it is hard to be realized. There lack
fundamental laws of a market economy like law of competition and law of intellectual
copyright. Some laws are irrelevant with the market economy. Domestic legal system
is not completely consistent with international commitments and WTO rules. A
number of legal documents are not timely and consistently issued, obstructing the
implementation of law.
Administration reform is not thorough. The administration apparatus is slowly
innovated, ineffective and inefficient. The corruption and the abuse of public rights
for private benefit of a part of state officials are handled slowly. Presently, the
administration apparatus is considered as the weakest and most slowly changed part,
and the biggest cause obstructing the progress of Vietnam's comprehensive reform.
2.2. Fundamental policies
The above mentioned analysis proves that it is time for Vietnam to move
driving forces of the economy from import substitute, preferential industries,
protection mechanism and state owned enterprises to a liberalized competitive
environment, a knowledge and high technology based economy while still taking
advantages of low labor cost. Vietnam has to rapidly promote competitive advantages
through stabilization of macroeconomic environment, modernization of public
institutions, enhancement of initiatives, improvement of business environment, and
sophistication of enterprises' strategies and operations. These are prerequisite for the
promotion of export and attraction of domestic and foreign investment.
In order to obtain these goals, the Government of Vietnam should be
determined to implement the following policies:
§
Accelerate state owned enterprises transformation for the purification of
the
state economy, abolish monopoly and protection of state owned enterprise (SOE)
Following equitization process set in SOE reform program. Equitize large and
efficient SOEs. Sell shares widely to enterprises' insiders and outsiders. Speed up the
equitization of state corporations in electricity, post and telecommunication, chemical,
metallurgy, banking and insurance sectors. Minimize proportion of SOEs in the
economy.
Accelerate the transformation of SOEs in which the State holds 100% share
into one-member limited companies, ensure the real independence and responsibility
of these companies. Remove subsidy for SOEs through incentive credit, debt
relaxation, debt forgiveness, and loss compensation. Purify corporate finance, settle
bad debt and redundant employees.
Prevent the transformation from state monopoly into enterprise monopoly.
Strengthening the control and regulation of super profit of state corporations that have
dominant market shares. Gradually form state agglomerates to avoid SOE monopoly.
Minimize the formation of new SOEs. Develop SOEs only in industries and
locations that other economic sectors are unable or unwilling to participate in.
§
Promote domestic private economy
The facts show that this sector has greatest potential for development,
acceleration of growth rate, and enhancement of economic efficiency and
competitiveness. In order to exploit these potentials, the State should create an equal
play-ground for the private sector, remove discrimination against the private
economy, especially in market access, land rent, and credit channels, abolish
unnecessary permits that are irrelevant with the market economy, settle the
irresponsibility of some organizations and individuals that obstruct enterprises'
performance, actively implement private enterprise supporting programs, and develop
business-support infrastructure and services.
§
Improve foreign investment environment
Despite great endeavor of the government in recent years, Vietnam'
environment for FDI is less attractive than regional countries. In order to raise FDI
inflows, Vietnam has to improve its investment environment towards equality,
transparency, consistence, foreseeability, attractiveness and competitiveness. Expand
investment forms and fields for foreign companies compatible with WTO
commitments in market opening. Settle the inconsistence in policy making and
implementation, bureaucracy of administration apparatus, remove obstacles for FDI
enterprises; adjust the law towards creating an equal playground for all economic
sectors but still pursuing commitments in FDI encouragement. Strictly follow the
procedure for information taking from enterprises that are regulated by forthcoming
legal documents before issuance, prevent incomplete implementation and negative
effects on the business investment environment.
In order to improve business environment, create a unified legal framework
and playground for all economic sectors and institutionalize Vietnam's commitments
to international integration, the Vietnamese Government should issue Competition
Law, Unified Enterprise Law applied for all forms of enterprises and Common
Investment Law applied for both domestic and foreign investment.
§
Promote backward and forward linkages between enterprises though
clusters
In order to create high added value based on the reduction of intermediate
costs in the value chain (manufacturing and distribution), Vietnam should settle the
separation between industries through clusters. A cluster is a group of suppliers,
manufactures, distributors, infrastructure and institutions that have interdependent
relations in the creation of a product brought to end consumers. Core enterprises in
the value chain are usually leading manufactures and distributors that have advantages
in production capacity, technological base, investment capital or market relations
Clusters in Vietnam can be divided in to three groups: FDI driven, domestic
private enterprise driven and SOEs driven. Vietnam should promote FDI and
domestic private driven clusters, and at the same time, take advantages of leading
SOEs through incentives, not administrative tools like local content requirements.
Besides, the state support is very important to raise the capability of Vietnamese
suppliers who are mostly small and medium enterprises and to help them establish
forward linkage with leading manufacturers and distributors.
§
Develop production factor markets
Up to now, the goods and service markets are relatively developed meanwhile
production factor markets like capital, real estate, telecommunication, labor, scientific
and technological markets are still infant, limiting the accessibility to resources of
economic actors. An urgent task of the Government, therefore, is to make policies on
pushing dynamic and orderly development of markets.
Real estate market: Implement the Law of Land (amended, 2004). Meet
enterprises' demand on land for business activities.
Capital market: Enhance the capital market through banking system, expand
and enhance the efficiency of the security market and other financial tools. Establish
the Bank for Social Policies, boost the restructuring and operation innovation of
commercial banks to be relevant with market mechanism, create a consistent and
transparent legal framework to enhance banks in all economic sectors in business, fair
competition, and meeting capital and banking service demand of enterprises and
people. Expand the participation of foreign banks in capital and banking service
market. Follow pilot equitization plan with the participation of foreign banks for two
state owned commercial banks, namely the Bank for Foreign Trade of Vietnam and
the Bank for Housing in the Cuu Long River Delta.
Scientific and technological market: Improve institutions of a market economy
towards creating an equal business environment, preventing monopoly, reducing
protection, and putting competition pressure on enterprises so that they have to
innovate technology to raise their competitiveness. Encourage foreign invested
companies to invest in technology innovation and transfer. Develop venture capital
companies and scientific and technological enterprises participated by foreign
partners. Encourage scientific and technological organizations to participate in official
transactions in the market. Innovate operation forms of R&D organizations towards
changing from subsidy and administrative management mechanism to market
mechanism. Support small and medium enterprises in investment in technology
innovation.
Labor market: Enhance the examination of the implementation of the Labor
Law, ensure right interest of employees and employers. Promote transactions to create
exchange between labor supply and demand. Discourage appointment and recruitment
based on relations. Strengthen training for workers, specialists and managers.
Boost the state investment in the construction of infrastructure in rural and
minority group areas. Encourage domestic private enterprises and foreign investors to
offer infrastructure goods and services.
§
Pursue open door policy and active economic integration, promote the
preparation for WTO accession.
Boost the realization of incentive measures to shift investment priority from
import substitute to export oriented industries. Pursue export-oriented strategy based
on low labor cost in some industries like agricultural products, garment and textile.
Raise incentive measures for export oriented and high added value industries like
agricultural product processing, electronics, electric equipment, and information
technology. Settle obstacles in the implementation of policies like incentive interest
rate, tax exemption, quota allocation, tariff procedures, banking payment mechanism,
export bonus and support. Operate Fund for export credit support, export credit
guarantee, support in information, and exhibitions. Constructs mechanism for export
insurance, especially for agricultural products, and export bonus based on exports'
added value. Develop open economic zones and trade information centers. Promote
FDI incentives as a measure to promote export.
Follow (on time or prior to) bilateral and multilateral commitments, especially
those in the framework of AFTA, Vietnam - US bilateral trade agreement, WTO, and
international financial organizations for reducing integration cost and enhancing long
term private investment of domestic and foreign companies in the industries that
Vietnam has competitive advantages
Set agenda for the reduction of tariff and non-tariff measures. Information of
the agenda should be given to enterprises and people so that domestic and foreign
inventors can decide where and how to invest. Protection reduction agenda should be
focused on least competitive industries to limit investment in the sectors that are not
competitive in long term.
Actively deal with barriers imposed by developed countries as well as the
removal of quota on garment of WTO members from 2005.
Together with promoting export, Vietnam should analyze carefully import
demand to have solutions to reduce import surplus while fulfilling tariff reduction
commitments and removing non-tariff barriers in CEPT/AFTA framework at higher
level.
Actively prepare for WTO accession, promote negotiation and rearrange
production and business activities to raise the efficiency and competitiveness.
§
Maintain macro economic stability
Check the capability of state budget revenue in order to collect right and
sufficiently for the state budget, prevent fraudulent, tax evasion, generate budget
income to compensate budget revenue lost by tariff reduction commitments. Enhance
inspection, solve breakdown in budget expenditure. Restrain over- expenditure in a
possible limit.
Control balance of payment and import surplus. Strengthen the role of the
State Bank in money circulation, purify the capital market and control inflation. Set a
rational interest rate for VND, prevent from negative effects on development
investment.
Observe the world market price, ensure the national reserve, actively interfere
by appropriate measures to stabilize the market price, deal with speculation in price
increase or monopoly linkage for price increase.
§
Strengthen the state administration reform
The strengthening of state management capability should be starting from
policy making process. Building a powerful database system, using modern
quantitative tools and consultation to research into international and domestic
environment, forecasting, determination of policy options and selection of optimal
policy are essential to have appropriate policies, to ensure feasibility through specific
resources towards long run economic development tendency and rational agenda.
Knowing experiences of countries that have similar socio-economic conditions is very
necessary for Vietnam when determining its own way in a sharply internationalized
environment. Besides, participants in policy making process, especially those are
directly affected by policies, have to be diversified.
In the current condition, the construction of institutions for enterprises and
markets like capital, labor, real estate, science and technology, and service is an
urgent task. New laws must be consistent with the reform and integration process.
Administration procedures should be further reformed towards simplification of
administrative procedures, application of "one-door" mechanism, and concrete and
clear regulations on individual responsibilities at work.
Enhance the master program in the state administration reform for the period
2001-2010 to build an administration system operating under the principles of
jurisdiction, effectiveness, efficiency, transparency, responsibility and participation.
Simplify
the
administration
apparatus,
increase
the
state
management
decentralization, raise the right and responsibility of local authorities, improve
working style of administration offices, modernize information system and
management tools. Public information on Vietnam's economic reform.
Develop training for state officials. Reform wages to ensures their lives and
raise their responsibilities. Penalize strictly state institutes and officials that break the
law and obstruct enterprises. Be determined to fight against corruption.
Continue to restructure the state budget and decentralize finance and state
budget. Widen the participation of non-state organizations in public services through
tendering, develop public service market. Support and encourage non-profitable
organizations under the supervision of the State and community.
Build a system for supervision, assessment and management of the
implementation focusing on outputs, service distribution outcomes and impacts to
raise the transparency and responsibilities of administration bodies who are
considered as the weakest and most slowly reformed sector and the biggest obstacles
to Vietnam's comprehensive reform process. Public response plays a significant role
in this system.
Conclusion
Vietnam
has
witnessed
fundamental
changes
during
13
years
of
comprehensive reform towards market and the world economy. High economic
growth rate, macroeconomic stability and perspectives, opportunities to gain high
profit in business, achievements in poverty reduction are the factors attracting
domestic and foreign investment and support of the world community. However, the
Vietnamese Government has realized the need of further changes to fulfill the task to
transform into a market economy, maintain high and stable economic growth rate, and
comprehensively integrate into the world economy. Great domestic and foreign direct
investment inflows to substitute industries result in the development of less
competitive industries while the Government of Vietnam starts to lessen trade barriers
following international commitments. Labour-intensives based export oriented
policies are losing their effects when wages rise faster than labor productivity. Slow
implementation of state owned enterprise reform and slow development of production
factor markets have obstructed non-state enterprises' development. Therefore,
Vietnam has to be more active when opening to the international market, rapidly
transform from import substitute and protection mechanism, preferential industry and
state owned enterprises promotion into a highly competitive environment and
knowledge and high- technology - based export while still taking advantages of low labor - cost - based export activities. The Government plays a great role in this
transformation cause. With further strengthening policies on development of
enterprises, abolishment of monopoly of state owned enterprises, development of
production factor markets, macroeconomic stabilization, acceleration of integration
process, and modernization of public sector, Vietnam will gain higher benefit from
opportunities in the globalization as well as minimize possible costs and reach the
projected goals.
References
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Economic Policy and Poverty Reduction”, IMF, 2001.
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Bank, 2001.
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Kumarian Press,inc, 2002.
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2050”, report of the international workshop on the challeges of globalization,
2003.
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and Technical Publishers, Hanoi, 2001.
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“The Global Competitiveness Report 2003-2004”, Oxford university press.
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2002.
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15. David L. Weimer, Aidan R. Vining, “Policy Analysis – Concepts and Practice”,
Prentice Hall, 1999.
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Growth Strategy”, Hanoi,2003.
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Economic Times, 2002,2003,2004.
18. World Bank, ”The State in a changing world”, Published for the world bank,
Oxford university press, 1997.
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Dynamic World: Transforming Institutions, Growth, and Quality of Life”, Oxford
University Press for the World Bank.
21. World Bank, International Finance Corporation, Planning Ministry, DiÔn ®µn
doanh nghiÖp ViÖt nam 2001,2002,2003.
Table 1: Vietnam: GDP growth rate, inflation, growth rate of sectors, and GDP
structure by sectors in 1990-2003 (%)
Year
GDP
Consumer
Growth rate of sectors
GDP structure by sectors
growth price index
rate
Agriculture
Industry Service Agriculture Industry
Service
1990
5.09
67.1
1.00
2.27
10.19
38.74
22,67
38,59
1991
5.96
67.4
2.18
7.71
7.38
40.49
23,79
35,72
1992
8.65
17.5
6.88
12.79
7.58
33.94
27,26
38,80
1993
8.07
5.3
3.28
12.62
8.64
29.89
28,90
41,23
1994
8.84
14.4
3.37
13.39
9.56
27.43
28,87
43,70
1995
9.54
12.7
4.80
13.60
9.83
27.18
28,76
44,06
1996
9.34
4.5
4.40
14.46
8.80
27.76
29,73
42,51
1997
8.14
3.6
4.33
12.62
7.14
25.77
32,08
42,15
1998
5.76
9.0
3.53
8.33
5.08
25.78
32,49
41,73
1999
4.77
6.8
5.23
7.68
2.25
25.43
34,49
40,08
2000
6.79
-0.6
4.63
10.07
5.32
24.53
36,73
38,74
2001
6.89
-0.2
2.98
19.39
6.10
23.25
38,12
38,63
2002
7.04
4.0
4.06
9.44
6.54
22.99
38,55
38,46
2003
7.24
3.0
3.20
10.34
6.57
21.80
39,97
38,23
2005
7.5/year in
<5
4.0
10.4
6.8
20-21
38-39
40-41
<5
4.0 – 4.5
10.0 –
7.0 –
16-17
40-41
42-43
10.5
8.0
Projected 2001- 2005
2010
7-8/ year in
Projected 2001- 2010
Source: Vietnam and the world economy in 2003-2004, Social – Economic Strategy
2001 – 2010, various issues
Table 2: Vietnam: Export of key agricultural products (Million US$)
Commodities
Unit
1990
1995
2000
2001
2002
2003
1. Fishery
- Mil.US$
239
621.4
1475
1778
2023
2217
2. Rice
- 1000ton
1642
1988
3477
3721
3241
3820
- Mil. US$
376
546
668
625
726
719
- 1000ton
90
248
733.9
931.0
719.0
700.0
- Mil. US$
74
560
485
391
322
473
- 1000ton
75.9
138.1
273.4
308.0
449.0
438.0
- Mil. US$
50.0
193.5
170
166
268
383
-1000ton
8.6
19.8
34.2
43.6
62.0
83.6
- Mil. US$
26.0
97.7
128
152
209
282
6. Vegetable
- Mil. US$
52
56
213.1
344.3
201.0
152
7. Pepper
-1000ton
9.0
17.9
37.0
57.0
77.0
74.4
- Mil. US$
15
27
55
91
108
104
3. Coffee
4. Rubber
5. Cashew
Source: Vietnam economy in 2003, various issues
Table 3: Vietnam: Outputs of key industrial products
Products
1. Electricity
Unit
1990
1995
2000
2001
2002
2003
Mil.KWh
8790
14665
26682
30673
35562
41117
2. Coal
Mil. ton
4.60
8.35
11.61
13.40
15.90
18.96
3. Crude oil
-
2.70
7.62
16.29
16.83
16.60
17.69
4. Cement
-
2.53
5.83
13.30
16.07
19.48
23.28
5. Rolled steel
-
0.10
0.47
1.58
1.91
2.43
2.68
6.Chemical
-
0.48
0.93
1.21
1.07
1.18
1.28
-
0.32
0.52
1.21
1.07
1.08
1.36
set
16750
29390
48855
53442
56650
74149
Mil. set
102
171.9
337.0
375.6
439.3
618.6
set
2,254
3,524
13,547
20,394
27,599
40,883
fertilizer
7. Sugar
8. Electric engine
9. Garment
10.Automobile
Source: Vietnam and the world economy in 2003-2004, various issues
Table 4: Vietnam: Key industrial exports
Commodities
1. Crude oil
2. Garment
Unit
1990
1995
2000
2001
2002
2003
- Mil.ton
4705
7652
15423
16732
16879
17169
- Mil.US$
581
1033
3582
3125
3270
3777
Mil.US$
158
850
1892
1975
2752
3630
3. Footwear
Mil.US$
10.5
296
1472
1578
1867
2217
4.Electronics
Mil. US$
29.7
156
789
696
505
686
5.Wooden goods
Mil. US$
35
129
290
331
434
563
6. Handicrafts
Mil. US$
54
102
238
300
331
367
7. Electric wire
Mil. US$
17
64
158
180
184
290
- Mil.ton
1173
2821
3251
4292
6049
7049
-Mil.US$
48
89
93
113
156
180
9. Plastic
Mil. US$
18
32
101
120
150
175
10. Bicycle and
Mil.US$
11
67
116
134
150
155
and
computer
components
and cable
8. Black coal
parts
Source: Ministry of Trade
Table 5: Vietnam: Import and export revenue and growth rate, trade deficit in
1990 -2003
Year
Export
Growth
Import
Growth
Trade
Percentage
(mil.US$)
rate
(mil.US$)
rate
deficit
of trade
(%)
(mil.US$)
deficit (%)
(%)
1990
2404
23.5
2754
7.3
350
14.6
1991
2087
-13.2
2338
-15.1
251
12.0
1992
2581
23.7
2541
8.7
-40
-1.5
1993
2985
15.7
3924
54.4
939
31.4
1994
4054
35.8
5825
48.5
1771
43.7
1995
5449
34.4
8155
40.0
2706
49.7
1996
7256
33.2
11144
36.6
3887
53.6
1997
9185
26.6
11592
4.0
2407
26.2
1998
9360
1.9
11499
-0.8
2139
22.9
1999
11541
23.3
11742
2.1
201
1.7
2000
14483
25.5
15636
33.2
1153
8.0
2001
15.027
3.8
16162
3.4
1135
7.6
2002
16706
11.2
19733
21.7
3027
18.1
2003
19880
19.0
24995
26.7
5115
25.7
Source: General Statistics Office, Ministry of Trade
Table 6: Vietnam: GDP and aggregated social investment structure by economic
sectors
1995
2000
2001
2002
2003
100
100
100
100
100
41.24
38.52
38.40
38.31
38.33
31.56
27.73
27.29
27.15
27.20
Non-State economy
51.89
48.20
47.84
47.79
47.67
Foreign invested economy
6.87
13.27
13.76
13.90
14.00
100
100
100
100
100
GDP structure
State economy
In which, state owned
enterprises
Development
capital structure
investment
State capital
46.07
57.50
58.10
56.20
56.53
In which, state budget
16.23
23.75
24.68
21.97
21.60
State credit and
11.73
18.51
17.14
17.37
17.23
14.11
15.24
16.27
16.86
17.69
Non-state capital
16.65
23.80
23.50
25.30
26.70
Foreign invested capital
37.28
18.70
18.40
18.50
16.77
26.5
32.9
34.0
34.3
35.9
commercial loan
State owned enterprises
Percentage of development
investment to GDP
Source: General Statistics Office, various issues
Table 7: Contribution of domestic and foreign invested
sectors to exports, 1995 - 2003
Exports
of
goods
(US$
1995
2000
2001
2002
2003
5449
1448
1502
1670
1988
3
7
6
0
million)
Exports
of
domestic
3976
7672
8229
8834
9880
of
domestic 72.9
52.9
54.7
52.8
49.7
7
7
6
8
0
1473
6811
6798
7872
1000
sector (US$
million)
Exports
sector (% total
exports)
Exports
of
invested sector
foreign
0
(US$)
Exports
of
foreign 27.0
invested sector
3
47.0
45.2
47.1
50.3
3
4
2
0
(% total exports)
Source: General Statistics Office and Ministry of Trade
Table 8: Vietnam: Potential benefits and costs of international integration
Benefit
•
Cost
Better allocation of resources based on •
Profit decrease, loss, and bankruptcy
competitive advantages. Adjustment of
due to low competitiveness in both
advanced economic structure
domestic and international markets
•
Market expansion, cheaper inputs cost
•
Scale economic advantage and product
differentiation between the rich and the
diversification
poor because some groups are not
•
Benefits
from
competition
•
Employment instability, increase in
benefited by integration
•
enhancement
•
Benefits
Decrease in FDI
investment •
from
Adjustment
diversification and risk sharing
•
Receipt of FDI capital inflows
•
New
opportunities
•
•
for
economic
Negative impacts on the state budget
foreign
due to tariff reduction
•
Dependence on loan and aid
Transfer of technology, management •
Direct
skills and knowledge
international market, loss of control
Human
resource
training
and
impact
from
changes
in
over some resources and industries
development, enhancement of learning, •
Increase in international pressure to
job creation, income generation and
implement economic policies
•
poverty reduction
•
for
restructuring in integration process
development aid
•
cost
Influence from other cultures, loss of
Application of international rules for
national identity
the national policies: decrease of •
Faster destruction of environment
inefficient investment, strengthening of
policy effectiveness, prevention and
settlement of difficulties if necessary,
and activeness in the globalization
process
Source: Adam McCarty, Globalization, integration and Vietnam: Perspective for
2050, Hanoi, 2002, various issues
Table 9: Competitiveness rankings of Vietnam and selected regional countries
in 2003
Competitiveness Rankings
Vietnam China Indone Malaysia Thailand Singapore Philippi
-sia
1.Growth
Competitiveness
Index Rank
Macroeconomic environment
Index Rank
-ne
60
44
72
29
32
6
66
45
25
64
27
26
1
60
Macroeconomic Stability
Subindex Rank
16
4
42
11
1
2
46
Government Waste Subindex
40
35
80
25
34
1
89
Rank
Country Credit Rating Rank
67
34
76
35
41
17
54
61
52
65
34
37
6
85
54
60
88
28
30
7
75
61
50
78
39
45
5
92
73
65
65
20
39
12
56
Innovation Subindex Rank
69
70
74
41
37
15
49
ICT Subindex Rank
82
62
63
32
45
6
67
Technology Transfer
Subindex Rank (out of 77
non-core innovators)
30
47
60
1
4
50
46
62
26
31
8
64
53
42
62
26
31
12
48
Quality of the National
48
44
60
24
32
4
Business
Environment
Index Rank
Source: World Economic Forum: The Global Competitiveness
71
Public Institutions Index
Rank
Contracts and Law Subindex
Rank
Corruption Subindex Rank
Technology Index Rank
2.Bussiness
Competitiveness
Index Rank
Sophistication of Company
Operations and Strategy
Index Rank
12
Report 2003-2004
Table 10: Vietnam: Production outputs and added value growth rate of period
1991 -2003
Year
Industry
Production outputs
Agriculture
Added value
Production
Added value
outputs
1991
10.4
8.5
4.1
2.2
1992
17.1
13.4
7.4
6.9
1993
12.7
11.2
6.5
3.3
1994
13.7
11.9
6.8
3.4
1995
14.5
13.9
5.9
4.8
1996
14.2
13.9
7.7
4.4
1997
13.8
13.1
6.4
4.3
1998
12.5
11.3
4.9
3.5
1999
11.6
9.3
7.4
5.2
2000
17.5
10.8
7.3
4.6
2001
14.6
9.7
4.9
3.0
2002
14.8
9.1
6.5
4.1
2003
16
10.3
4.9
3.2
1991-2003
14.2
11.2
6.2
4.1
(Average)
Source: Vietnam and the world economy in 2003-2004. various issues
Table 11. Vietnam: Key indicators
Indicators
1990
1995
2000
2001
2002
2003
Population (millions)
66.02
72.00
77.64
78.69
79.73
80.67
GDP (% change previous
5.09
9.54
6.79
6.89
7.04
7.24
9.268
17.280
31.335
32.685
140
240
404
415
440
483
(%.
8.3
6.08
6.4
6.3
6.0
5.8
Consumer price index (%
67.1
12.7
-0.6
-0.2
4.0
3.0
Total investment (%GDP)
12.6
26.5
32.9
34.0
34.3
35.9
State
25.2
23.2
20.4
21.6
21.0
21.7
year)
GDP (US$ bn)
GDP per head (US$)
Unemployment
rate
35.085 38.973
urban areas)
change. period-end)
(%GDP)
budget
revenue
State
budget
expenditure
27.8
25.1
23.8
26.9
26.3
27.3
-2.6
-1.9
-4.95
-4.67
-4.96
-5.0
-
2.8
2.0
3.3
4.3
5.0
(%GDP)
Government balance
(% GDP)
Domestic public sector debt
(accumulated. %GDP)
Trade
balance
($US
-350
-2706
-1153
-1133
-3027
-5115
of
($US
2404
5449
14483
15029
16706
19880
(%
23.5
34.4
25.5
3.8
11.2
19.0
Imports of goods ($US
2754
8155
15636
16162
19733
24995
(%
7,3
40.0
33.2
3.4
21.7
26.7
balance
-259
-1868
503
670
-500
-1300
balance
-2.0
-10.8
1.6
2.0
-1.4
-3.3
Total external debt (US$
23.3
25.4
12.8
12.6
13.4
14.3
Total external debt (%GDP)
251
147
40.9
38.5
38.2
36.7
FDI (US$ million)
120
2000
800
1000
1100
1200
gold
400
1379
3030
3400
3700
4600
of
7.5
8.8
10.9
9.7
8.7
9.7
Credit to the economy (%
21.3
52.9
38.1
21.4
22.2
25.0
8125
11015
14514
15084
15368
15612
million)
Exports
goods
million)
Exports
of
goods
change. previous year)
million)
Imports
of
goods
change. previous year)
Current
account
(US$ million)
Current
account
(percent GDP)
billion)
Reserves.
including
(US$ million)
Reserves
(in
weeks
imports)
change. period-end)
Exchange rate (VND:1US$
period-end)
Source: General Statistics Office, WB, IMF, various issues