Vietnam has become one of the fastest-growing countries in Asia

IF FOREIGN investment is anything to go by, the nominally communist rulers of Vietnam have made their peace with capitalism. The country raked in foreign direct investment worth more than 8% of GDP last year: even more, proportionally, than China. After its oversized and overheating neighbour, Vietnam also boasts Asia's best-performing economy. It has grown by an average of 7.4% a year over the past decade and is likely to achieve a similar figure this year. Better yet, the boom has lifted many Vietnamese out of poverty. As recently as 1993, the World Bank considered 58% of the population poor. By 2002, that had fallen to 29%. Can Vietnam maintain this remarkable momentum?

So far, its economy has proved unstoppable. Neither last year's outbreak of SARS, a respiratory disease which scared away tourists, nor this year's avian flu epidemic, which hurt poultry farmers, made much of a dent. Even during the Asian financial crisis of the late 1990s, when other countries in the region were plunged into recession, growth in Vietnam never fell below 4.8%.


At first, agricultural reform, which redistributed land from the state to poor farmers, propelled the boom. More recently, export growth, fuelled by cheap, efficient labour and burgeoning foreign investment, has driven the economy. Exports leapt 20% last year. As Do Duc Dinh, a local economist, points out, the money Vietnam earns from this trade—roughly $20 billion last year—now dwarfs the $2 billion-odd it gets each year in hand-outs from foreign donors. Vietnam's exports to America doubled in 2002, after the two countries signed a trade pact, and again in 2003.

Admittedly, as trade with America grows, it has become more controversial. Last year, American catfish farmers, by invoking arcane anti-dumping laws, persuaded their government to impose steep tariffs on imports of Vietnamese catfish. Now American shrimp-fishermen are trying to repeat the same trick. American bureaucrats are also contemplating reducing the amount of garments Vietnam can export to America, as a penalty for allowing Chinese-made clothes to enter America on Vietnam's quota. Even if Vietnam is let off the hook, the quota will from now on only grow by a few percentage points a year. Between 2001 and 2003, by contrast, textile exports to the United States grew from $47m to $2.4 billion.

But Vietnam's diversified exports—it produces commodities, agricultural goods and manufactures—provide insulation against fluctuations in any single product. Its markets are diverse, too: although catfish exports to America fell by a third after the new tariffs were imposed, overall exports of catfish grew, as Vietnamese exporters found new customers in Europe and Australia. Vietnam also hopes to join the World Trade Organisation next year. But even if this deadline slips, it still has its trade pact with America, its membership of AFTA, a South-East Asian free-trade area, and its proximity to China.






Small businesses have also boomed, since the government passed a new law in 2000 making it easier to set them up. By the end of 2002, over 50,000 new companies had sprung up. But as Martin Rama of the World Bank points out, Vietnam has almost no middling private firms between these mom-and-pop ventures and big exporters backed by foreign investors.

Such businesses find it hard to grow because they cannot readily get access to land or capital. About half of bank lending goes to state-owned enterprises, although that share is falling. What is more, even if banks (mostly state-owned themselves) wanted to lend to entrepreneurs, the latter have little collateral to pledge for their loans. In Vietnam, the state owns all the land and grants land-use rights to farmers, businesses and home-owners. Although these are theoretically transferable, banks are fearful that Vietnam's antiquated courts would not enforce their rights. Such fears have precluded a free market for land, further adding to private firms' difficulties. Corruption also weighs heaviest on small businesses: in some provinces, they can be subjected to as many as 15 different bureaucratic inspections each year.

The government, although trying to solve some of these problems, appears addicted to public enterprise. It continues to provide state-owned firms with loans and land—which many of them then rent on at a mark-up to the private sector. It invests with Stakhanovite zeal in impressive but uneconomical facilities, such as oil refineries, steel mills and fertiliser plants.

The net result is a massive misallocation of resources. Vietnam's ratio of investment to economic growth has fallen by roughly a quarter in recent years. To reverse that slide, argues Robert Glofcheski, an economist at the UN Development Programme, the government must revert to the same tactics that made its agricultural reforms so successful: more spending on health and education, further transfers of assets from the public to the private sector and faster deregulation.

Such moves are particularly important if poverty is to be reduced further. Thanks in part to the stunning success of the past decade, tackling poverty has become more difficult. The poor are now concentrated in remote, rural districts populated chiefly by ethnic minorities—just the sort of area least touched by the government's reform programme. Now that industry has replaced agriculture as the main engine of the economy, cities are growing faster than the countryside. Vietnam cannot afford to provide services to the rural poor, or cope with a population influx in the cities, and cosset state-owned firms at the same time—even during a boom.

Way the Go Vietnam!!!!!!!!

Wait until Vietnam gets accepted into the World Trade Organization which is expected by 2005, if Vietnam gets accepted that is.

If they do get in then their products will reach the global market. and Vietnam's economy will probably grow even more.

Sad thing about the Catfish and Shrimp Dumping. Americans are trying to persuade the government to put high duties on Vietnamese catfish and shrimp because Vietnamese seafood is so cheap that these American businesses want to sell their fish and shrimp at a higher price.

Normally under WTO law you can't put high duties on another countries imports but Vietnam is regarded as a non market economy so these Americans can get away with it.

If Vietnam does get into the WTO then they probably can't do this anymore.

Many furniture companies are going to Vietnam since it costs on average about 10% cheaper to make furniture in Vietnam than in China.

Perhaps one day the average Vietnamese parent can raise their children with basic human ggoods and faith in God.

the funny thing is..my dad just moved back to Vietnam for good

A process of de-migration? LOL

When I graduate as an a banker/financial analyst, I would be working for possibly 2-4 years here in Australia then move to Vietnam to manage my family owned manchester and curtain making business in Vietnam. Would love to live in Saigon.

woot you too? i thinking about moving back to vietnam soon too..if i only i can convince my korean gf to go with me..but that is another story

woot you too? i thinking about moving back to vietnam soon too..if i only i can convince my korean gf to go with me..but that is another story

That's called hồi hương (coming home)

oops i doubled posted my bad

I AM PROUD TO BE VIETNAMESE

:loveyou: VIETNAM

Vietnam's about a good 5-10 years behind China currently economics wise. This may actually be a good thing as it may learn from China on how to balance the rural/urban imbalance in standard of living.

The article mentions ethnic minorities. Have there been tensions between the majority and the minorities?

Interesting article btw. Good to see Communist nations taking those steps towards a free market society.

The issue of balancing is still the sticking point between the Vietnamese gov't and foreign investors. The best example is the case of the French partner's pull out of the project of Dung Quat refinery, after disagreeing with the Vietnamese government's plan to build the refinery in Quang Ngai Province, citing it'd make no economic sense since the site is hundreds of kilometers away from the nearest crude oil supplies and extra cost in transportation would be around 30 millions of US dollars anually. The Vietnamese government is still insisting on the site to bring more economic developments to the poorer central region.