Vietnam’s immense economic voyage

Professor Nguyen Mai

The August Revolution in 1945 was a brilliant milestone in the Vietnamese history as it put an end to the colonial rule in the country, and helped seize national independence and establish the people’s government.

On September 2, 1945 at the Ba Dinh Square in Hanoi ­before nearly one million ­people, President Ho Chi Minh read out the Declaration of ­Independence, giving birth to the Democratic Republic of Vietnam.

Seventy four years have elapsed since then, and Vietnam underwent two wars of resistance, before beginning to develop its economy across the entire nation after 1975.

BEFORE DOI MOI

In the 1975-1990 period, the country faced huge difficulties, including an embargo imposed by a number of western nations. At that time, Vietnam made some mistakes in economic development policies, developing under a centrally-planned subsidised economy whose structure depended on public ownership characterised by the two key economic sectors including the ­­state-owned sector and the ­collective sector. The privately sector was not encouraged to develop.

Consequently, the country faced a serious socio-economic crisis, with galloping ­inflation of triple digits over many years, and as a result people’s lives were very ­difficult.

The economic development history of each nation is often seen with important turning points which can help the country make strategic breakthroughs. In Vietnam, the Party’s pursuit of ­economic renewal based on ­market principles and international integration created that great breakthrough for economic growth. From 1975 and before 1986, a number of reforms were implemented, with many new policies ­promulgated.

In the agricultural sector, the Secretariat of the Party ‘s Central Committee enacted a directive in 1981 regarding improving payments in agricultural co-operatives. This directive initiated a new economic ideology, creating a strong impetus for agricultural production, with the encouragement of household-based economic activities and the renewal of the management model for local agricultural co-operatives.

In the industrial sector, the Party enacted a resolution in 1979 on developing the consumer goods industry and the local industry. Two years later, the government issued two decisions on expanding forms of payments on the job and product as well as bonuses in production units.

In trade and services, the government adjusted its purchasing prices of agricultural and industrial products produced by state-owned factories, while encouraging the individual-based production and business activities with a view to increasing goods supplies in the market.

A number of “price-salary-monetary” reforms were carried out in order to improve macro-economic management. The final reform of this type was launched in October 1985, including an exchange of old banknotes for new ones, a pay rise for factory workers and public officers, and renewal of the system of material prices and consumer goods. However, this reform failed and caused grave socio-economic consequences. Only several months after implementation, the country’s economic situation became worse. The exchange of money pushed up inflation and prices in the market became uncontrolled. Many people lost their deposits at banks because of the massive depreciation.

At the sixth Party Congress in December 1986, the Party openly recognised its mistakes in economic development orientations and policies, and then made a bold and hallmark decision on renewing the economy, known as doi moi, under a market mechanism with international integration.

AFTER DOI MOI

In the 1987-1990 period, Vietnam suffered from a serious socio-economic crisis, with consumer goods distributed via quotas and limited attraction of foreign direct investment (FDI) which was valued at about $1 billion in disbursement.

From there until 1998, the economy began to soar, with an average annual growth rate of 8.6 per cent, higher than an initially expected 5.5 per cent, per year. All targets and plans were exceeded.

However, on July 2, 1997 a regional monetary crisis broke out in Thailand, badly affecting nations across the region. Over the following years, these impacts hit Vietnam, causing a slowdown in economic growth, exports and imports, and FDI attraction.

The country eventually recovered its economy, with an average annual growth rate of 8 per cent, double-digit growth in export-import turnover, and a record FDI attraction of $8 billion in 2008.

But in that same year, the global economic crisis badly affected Vietnam. By 2011, the country’s macro-economic situation became stable and has been that way since, with an average annual growth rate of 7 per cent, while annual disbursement of FDI has increased 7-8 per cent.

Since the beginning of the 1990s, Vietnam achieved a great deal of success.

Specifically, annual economic growth for the 1991-2018 period averaged at 7 per cent, while per capita GDP also increased, from $188 in 1991 to $1,260 in 2011, and $2,587 in 2018, according to the General Statistics Office (GSO).

The country’s trade turnover also hit $5.15 billion in 1991. However, the figure skyrocketed to $480.17 billion last year with a trade surplus of $6.79 billion.

During those years, Vietnam received a huge sum of international capital, including $195 billion worth of disbursed FDI, accounting for 22 per cent of the country’s total development capital.

DEVELOPMENT OF ENTERPRISES

Vietnam’s 30-year transition from a concentrated and subsidised economy to a ­market-based one has resulted in remarkable changes in the development of the country’s enterprises.

The economy used to rely on state-owned enterprises and agricultural and small-scale co-operatives. However, since the Law on Enterprises was enacted in 1999, Vietnam has seen the establishment of about 1.5 million private enterprises, and now there are about 720,000 enterprises in ­operation including 11,000 major ones. Besides that, there have been tens of thousands of foreign-invested enterprises (FIEs).

According to the GSO, in 2018, a record number of 131,275 enterprises were newly established, with total registered capital of VND1.48 trillion ($64.3 billion), up 3.5 per cent in the number of enterprises and 14.1 per cent in capital as compared to 2017.

The average capital of a new enterprises was VND11.3 billion ($491,300), up 10.2 per cent on-year, while the added capital of operating enterprises hit VND2.41 trillion ($104.8 billion). Thus, the total registered capital for the whole economy last year was VND3.89 trillion ($169 billion). Last year also saw about 34,000 enterprises resume operation, up 28.6 per cent on-year.

In the first eight months of 2019, there were 90,500 newly-established enterprises, registered at VND1.15 quadrillion ($50 billion), up 3.5 per cent in the number of enterprises and 31 per cent in capital, on-year.

Over the recent years, along with a rise in enterprises’ scale, thousands of major private businesses, including hundreds of economic groups, have succeeded in implementing huge projects with modern technology, requiring advanced administration, short-time construction, and low costs.

Regarding private-owned enterprises, the resolution of the fifth plenary meeting of the 12th Party Central Committee asserted, “The private economic sector serves as an important driving force for economic development. The state economic sector, the collective economic sector, and the private economic sector are key to the development of the independent and self-reliant economy.”

The resolution has set out a system of ideas and solutions to the development of the private economic sector in a bid to create about two million private enterprises, which will be able to generate 60-65 per cent of the GDP, by 2030.

As for FIEs, overall, they have served as a strong impetus of the economy. FDI ­currently accounts for 20 per cent of the total development ­investment capital, and creates 20 per cent of the GDP, about 50 per cent of industrial output, 72 per cent of total export turnover, and almost four ­million direct jobs as well as millions of service jobs ­including skilful managers, ­engineers, and workers. However, many foreign-invested projects have been factors in issues over the environment, transfer pricing, tax evasion, and labour disputes.

Given the country’s shift to a new development stage and the global investment situation being favourable to Vietnam, the government needs to have an effective and sustainable FDI attraction scheme, which will help the country attain high technologies and services induced by the Fourth Industrial Revolution.

The statistical data has demonstrated the huge achievements of Vietnam’s doi moi reforms and international integration. Today, Vietnam is transforming itself into a new growth model, with innovation considered a key propellant for economic growth, and with the creation of a digital economy that will bring high incomes and a more prosperous future to all people.