Economics, Politics and Infrastructure of Vietnam

This section provides you with recent information on Vietnam’s economic performance, economic prospects, trade and investments, politics and international relations and infrastructure.

Economic performance

Being a centrally planned economy since its inception, Vietnam managed to gradually to move towards a mixed economy paradigm. The severe financial problems that the country experienced during the end of the 1970’s and beginning of the 1980’s, prompted the country to initiate a comprehensive set of reforms, formally known as Doi Moi, with the ultimate goal of achieving a socialist oriented market economy. Particularly, focusing in the development of agriculture and industrial production, the reforms proved a success, especially the decade after the 1997 Asian crisis, leading to a substantial export led growth (Van Arcadie and Mallon, 2004). Currently, Vietnam is considered a lower middle income country having the 47th largest economy in the world in terms of nominal gross domestic product and the 36th largest in the word in terms of purchasing power parity (World Bank, 2018). Services contribute the 41.3% of the nominal GDP, followed by industry with 32.7%, while the share of agriculture is limited at 15.9% in 2017 (CIA Factbook). Household consumption is the main growth engine followed by government consumption and investments. Exports, increased in 2017 above 40% in US dollar terms, and imports by around 34% (ICT Trademap, 2018). The significant increase in exporting activities, investment, and buoyant private consumption were the main drivers for the acceleration of growth from 6.2% in 2016 to 6.8% in 2017 (ADO, 2018). The main exports of Vietnam are electrical machinery such as mobile phones and footwear. The USA, China and several EU countries, such as the Netherlands and Germany along with neighboring countries, such as South Korea and Japan, are the main export partners. Electronic equipment, plastic, mineral fuels and oil; and iron ore and scrap are important imports, coming mainly from China, Japan and South Korea. The trade surplus, in 2017, remained stable to around the same level as in 2016, namely representing 2.9% of the country’s GDP. Inflation levels increased to 4.4% in 2017 from 2.7% in 2016 and there are concerns over more inflationary pressures due to increasing wage growth (World Bank, 2018).

Economic outlook

In regard to Vietnam’s future prospects the Economist Intelligence Unit is forecasting comparatively high growth rates for the period 2018-2022, driven by the ability of the country to attract FDI’s, but in the same time it argues that the historic height achieved in 2017 would be difficult to achieve again, due to the  possible slowdown of the Chinese economy. Similar projections are made also by the Asian Development Bank, which forecasts a 7.1% growth for 2018 and 6.8% for 2019, pinpointing an increasing skill gap that could pose as an obstacle in the further absorb of FDI’s and the economy as a whole (ADO, 2018). More specifically, the World Economic Forum Global Competitiveness Report also underlines the importance, for Vietnam to invest in higher education, since both domestic and international companies identify that the lack of an educated workforce constitutes an important obstacle for entrepreneurship. Of course, as in the case of other Asian countries and especially of China, the withdrawal of the USA from the Trans-Pacific Partnership (TPP) and the increasing potential of full scale global trade war, there is a high possibility of negative future impact on the Vietnamese economy.

Key indicators
Population

92.7 million (2017)

Capital

Hanoi

Currency

Vietnamese Dong (VND)

Time zone

UTC +7

GDP at market prices

72,368 US$ billion (2018)

GDP per capita

6,900 US$ (2018)

Real GDP growth rate

6.8% (2018)

Doing Business In Index*

68 of 190 (2017)

Corruption Index**

107 out of 180 (2017)

Source: WorldBank (2018)
* doingbusiness.org
** transparency.org

Trade and investments

The rapid development of Vietnam during the last decades has generated a vibrant and highly diversified product market. The main Vietnamese exports concern machinery and equipment, such telephones, followed by footwear products and clothing apparel or accessories. Agricultural exports represent nearly 8.5% of total exporting value, constituting an important source of income for the country. Among those, the export of products of fisheries and aquaculture is the most important covering almost ¼ of total exporting agricultural value, mainly concerning exports of frozen or fresh shrimps and prawns and fish such as pangasius. Other significant agricultural exports are coffee, spices, cashews nuts, and fresh fruits. The USA is the biggest export market, in terms of value, for the Vietnamese products, representing almost 22% of total value (ICT Trademap, 2016). Other important trading partners are China with around 12.5%, Japan with 8.2% and South Korea with nearly 6.5% of total export value. The sum of exports to EU markets in 2016 has reached approximately the 16% of the total exporting value of Vietnam. As of January 2016 the EU and Vietnam agreed on the text of a new Free Trade agreement (FTA). The agreement for the free trade deal includes the elimination of nearly all tariffs, including import duties According to the World Bank’s Doing Business 2018, Vietnam ranks 68th in a total of 190 countries surveyed around the world; an impressive regional feat surpassed only from Malaysia (24th) and Thailand (26th).

Politics and international relations

The Socialist Republic of Vietnam is a one-party socialist republic ruled by the Communist Party of Vietnam. The President of Vietnam is head of state and the Prime Minister of Vietnam is the head of the government. The government and the President of Vietnam carry out the executive power. Legislative power is vested upon the National Assembly of Vietnam. The judiciary power is independent from the executive branch. The current Constitution of Vietnam was adopted by the parliament on 15 April 1992 and it has since been amended one time. The centralization of political power by the government has brought stability over the past forty years. This certainly is one of the main factors, driving the large foreign investment inflows to Vietnam. Corruption is one of the major political and investor concerns, but according to Transparency International there is some improvement during the last years, with the country reaching the 107th place among the 180 countries surveyed in the Corruption Perception Index of 2017. Vietnam is a member of ASEAN Free Trade Area (AFTA) since 1996, member of Asia Pacific Economic Cooperation (APEC) since 1998 and a member of WTO since 2007. At present, the country holds membership of 63 international organizations and maintains diplomatic relationships with 186 nations. It is a member of the UN Security Council, ECOSOC, UNDP, UNFPA and has relations with the multi-credit organizations World Bank (WB), International Monetary Fund (IMF), and the Asian Development Bank (ADB).

Infrastructure

Vietnam occupies a coastline of 3,260 km stretching from the mouth of Song Ka Long River in the borders with China, to the borders with Cambodia in Chhak Kep Bay and 42,000 km inland waterways. In total there are 224 river ports with 8,800 landing stages and 55 seaports, but only a fraction of those them could be considered as large enough to accommodate the growing needs of the Vietnamese economy. The most important seaports of the country are Saigon Port in the south of the country, Hai Phong Port in the north and the central Da Nang Port. In 2011, Vietnam finalized the construction of its first deep water container terminal, namely the Tan Cang-Cai Mep International Terminal (TCIT). However, the construction of another deep-see port, the Van Phong Port, has been discontinued due to the inability of the authorities to raise the needed amounts of capital. In regard to infrastructure, the World Economic Forum Global Competitiveness Report 2017 ranked Vietnam 79th out of 144 countries, pinpointing the need of investments in this area. In overall competitiveness, Vietnam achieves to rank in the 55th place. Its strengths are its significant market size (domestic and export), the efficiency of the labour market and the quality of the primary education. On the other hand, the low quality of higher education, the lack of business sophistication and the institutional framework are posing as the major barriers for Vietnam’s future. Its long coastline along with its growth model, which relies heavily on mining, natural resources and air pollution, have contributed in making the country prone to the hazards of climate change, forcing the Vietnamese government to take initiatives to support sustainable and environmental-friendly ventures and policies (IMF, 2018).

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