TOPICS: Vietnam: A new ‘Asian tiger’
Vietnam became the 150th member of the World Trade Organization (WTO) on 11 January 2007. It is already one of the most open and fast growing economies: ‘trade openness’ was 132 per cent in 2005 while average annual GDP growth during 2000-05 was 7.5 per cent. Vietnam’s per capita gross national income reached $620 in 2004. Merchandise exports were worth $26.5 billion in 2004. Vietnam’s share of world trade stood at 1.04 per cent in 2005, while poverty is expected to fall to 18 per cent in 2006. Average life expectancy is 70 years and adult literacy rate, 90 per cent.
For a state that underwent one of the worst conflicts of the 20th century, Vietnam’s economic performance is remarkable. Embroiled in a drawn-out war with the US during the 1960s-70s, it is one of the most successful development stories today.
Under its communist regime, the nation has made enviable progress in reducing poverty, fostering human development and sustaining industrialisation. Vietnam has ample lessons for other developing countries. Two factors clearly stand out in Vietnam’s economic success: political leadership and right mix of economic policies.
After the fall of Saigon in 1975, the country’s decade-long rigid experiment with socialism led to sub-optimal growth. The state repressed political freedoms and stifled entrepreneurship. All this changed when the country began to experiment with economic reform policies (known as doi moi or ‘renovations’) in 1986. Prosperity in neighbouring China, Malaysia, Singapore, Taiwan and Thailand compelled policy-makers to examine a decade of economic mismanagement. Amidst the ‘flying geese’ in the region, Vietnam exemplified a ‘sitting duck’. Erstwhile South Vietnam’s experience with capitalism proved critical in laying the foundations of a modern market economy. The political leadership arrived at a consensus on economic policies to emulate the ‘East Asian miracle’ in its vicinity.
As reforms deepened, the country became a manufacturing hub as investors began to shift economic activities to take advantage of lower production costs. Its export processing zones produce a range of goods from garments to light manufactures. Owing to rapid innovation and upgrading in the field of IT, the share of high technology exports now accounts for 6 per cent of total manufactured goods. Vietnam did a trade of $7 billion in 2006.
Vietnam’s struggle for developing a market economy is far from over. Hundreds of firms are struggling to withstand competition; the banking sector is weak and corruption is prevalent. In the absence of backward linkages, gains from rapid industrialisation could be lost as a growing labour force may outstrip job creation. Excessive dependence on foreign capital and technology could discourage local innovation. In recent years, bird flu has afflicted South East Asia and Vietnam has become a prime victim. However, with rapid growth, catching up with the ‘Asian tigers’ is no longer a dream.