More data for Vietnam



• High GDP = High Inflation, the need maintain interest rate and FDI investment means cost of living will increase.
• Corruption is a major problem and infrastructure, roads and traffics needs much improvement
• The next Asian Economic Tiger and destined to become a developed country in 2050
• Abundance of natural resources and a well educated/motivated work force.
• Increasingly accommodative attitudes toward foreign and domestic investment and entrepreneurs
• Hopefully the wealth will spread among the upper and middle class
• I applaud the country success because of the Doi Moi policy considering the fact the country had a 30 year US embargo.

Vietnam’s emerging economy

Evaluation of growth and development strategies in Vietnam

There are two strategies to evaluating a nation’s growth:

1. Aid & trade: This area deals with how a domestic economy interacts with the global economy and whether it can expect to receive aid from other nations, and how they are as trading partners.

• It seems that this is the area in which applies to Vietnam the most as the Vietnamese government depends heavily on exports and foreign investment.

2. Market-led and interventionist strategies

• Although the government is communist, the government is moving towards free trade.

Here are some components:

International Monetary Fund: The IMF is an international organization of 184 member countries. It was established to: promote international monetary cooperation; exchange rate stability and orderly exchange arrangements; to foster economic growth and high levels of employment; and to provide temporary financial assistance to countries to help ease balance of payments adjustment.

• Mentioned in previous posts.

The World Bank: The World Bank is not a “bank” in the common sense. It is one of the United Nations’ specialized agencies, and is made up of 184 member countries. These countries are jointly responsible for how the institution is financed and how its money is spent.

• The State Bank of Vietnam and the World Bank has signed a credit agreement for the World Bank’s biggest ever loan to Vietnam, also the first from its International Bank for Reconstruction and Development.

Other international organizations: The Food and Agriculture Organization of the United Nations, UNICEF and WHO.

• In Vietnam, FAO began operations in 1978. At first, Vietnam faced considerable hardships caused by food deficit, isolation from the world and limited channels to development assistance. Therefore, FAO’s priorities were to restore development and to help the Government in rebuilding institutions and capacity in agriculture.
• UNICEF embarked on its nation-wide programme of cooperation in Viet Nam right after the reunification of the country in 1975 and supported the Government in its quest to improve the lives and wellbeing of Vietnamese children since then. Over the last three decades, UNICEF’s work in Viet Nam has evolved from emergency and reconstruction to longer-term development, focusing on education, health and nutrition, and water and sanitation.

Private sector bank: Make loans to developing countries at commercial rates of interest

• At Sacombank, one of Vietnam’s private commercial lenders, profits shot up 50% last year.
• Catering to individual depositors and small-business borrowers, private lenders have powered much of the industry’s recent growth.
• While foreign banks gear up and local private banks seek partners, Vietnam’s state-run banks are also adapting. With foreign banks entering the market and Vietnam’s biggest banks cleaning up their acts, the smallest private banks are likely to feel the squeeze.

Non-governmental organizations: In recent years, one of the biggest growth industries in developing economies has been that of the NGOs – the non-governmental organisations. They undoubtedly do a very fine job (in most cases) but they can become almost a de facto government and exercise huge influence.

• Child Rights Working Group, Climate Change Working Group, Ethnic Minorities Working Group, Water Supply & Sanitation Working Groups and Information and Communication Technologies for Development Working Group are some NGOs stationed in Vietnam.
• For example Information and Communication Technologies for Development Working Group helps to provide an opportunity for development organisations to expand practical ICT knowledge and helps to increase the awareness, integration and adoption of free open source software tools by NGOs, thus helping to reduce licensing costs, software piracy, virus and copyright issues.

Multinational corporations: Company which possesses and controls means of production or services outside the country in which it was established

• MNCs work in Vietnam however MNCs pay Vietnamese workers much less than they would in America. This is partly due to the higher productivity in America (due to technology), making comparisons difficult.

Commodity agreements: Buffer stock system: Buffer stock schemes are operated by a central authority and aim to stabilise prices and protect producers from sudden shifts in demand and supply. Cartelc arrangement: Involve the formation of a single selling organisation to restrict output of individual members through the issuing of quotas

• Vietnam to join world rubber cartel – Vietnam will join the International Tripartite Rubber Council in 2010, which accounts for 80 percent of the world’s natural rubber production.

Conclusion:

It seems that the government’s strength is export-led growth and foreign direct investment. However because of cheap labor, MNCs are taking advantage of it and are paying Vietnamese workers much less hopefully with economic development, more and more Vietnamese will be better educated and more productive leading to a higher wage by such MNCs. NGOs such as those directed towards economic development of the country are stationed in Vietnam, providing new technology and new methods to increase efficiency. This will definitely help Vietnam move forward as a country. The private sector bank has helped increase profits as it has targetted small companies, helping not only the rich but also the poor and lessening the gap between the rich and the poor. However Vietnam has taken a lot of loans and hopefully through the development process it will be able to pay back these loans without too many opportunity costs. Overall I believe that Vietnam in few decades will become a major player in export-led trade and FDI has been helping the country improve internally. However the economic recession will negatively affect the country however its relatively strong economy will come out of this and become successful once again.

FDI helping Vietnam internally:

Vietnam’s strategies to achieve growth

Below is a list of different types of strategies to achieve growth, and how they apply to Vietnam:

Harrod-Domar growth model: The Harold-Domar Model suggests that an economy’s growth rate depends on the productivity of investment and the level of saving. This means that if a country wants to increase its growth-rate, it should seek to increase its savings ratio and the amount of labor and capital.

• Gross National Savings = 29% (percent of Gross National Income)
• Net National Savings = 21% (percent of Gross National Income)
• Adjusted Net Savings = 14% (percent of Gross National Income)
• Savings make up a good proportion of the income which means that the country will continue expanding.
• Furthermore investors see Vietnam as a great potential for investing into and investments are rising at a steady pace.

Types of aid: Developing countries can grow with the help of aid. The three main types of aid include humanitarian, either country to country or through a major organization, granted  to combat a natural disaster; bilateral, a loan given from one country to another; and multilateral, when different countries give money to one  organization, like the IMF, which determines how to distrubute the aid. Aid should try to overcome a low savings ratio, reduce dependency on private investment and reduce foreign exchange outflows.

• The World Bank’s assistance program of foreign aid to Vietnam has three objectives: to support Vietnam’s transition to a market economy, to enhance equitable and sustainable development, and to promote good governance. From 1993 through 2004, Vietnam received pledges of 29 billion US dollars of Official Development Assistance, of which about 14 billion US dollars, or 49 percent, has been disbursed. In 2004 international donors pledged ODA of 2.25 billion US dollars, of which 1.65 billion US dollars was disbursed. Three donors accounted for 80 percent of disbursements in 2004: Japan, the World Bank, and the Asian Development Bank. During the period 2006–10, Vietnam hopes to receive 14 billion US dollars–15 billion US dollars of ODA.

Export-led growth or outward-orientated strategies: Export-led growth help countries increase competition, improve their terms of trade, attain economies of scale, increase investment,  improve income distribution equality, increase employment and helps to expose the country to new technologies and more contemporary information by competing on an international market.

• Vietnam’s GDP is 76.8% made of exported goods (in 2007).

Import substitution or inward-oriented strategies: The protection of jobs and the promotion of growth might be best served by concentrating on producing import substitutes.

Commercial loans: Commercial loans are loans from banks and other financial organisations, usually in the developed world. Many developing countries saw borrowing as a way for them to fund development.

• Vietnam is not seeking an International Monetary Fund loan program to deal with pressures from economic overheating. Previously it has but in 2008 Vietnam is not applying for a loan from the IMF.

Fair trade organization: In recent years, multinational power has grown and put pressure on farmers and other producers in the developing world, resulting in falling incomes. Leading to the growth of fairtrade organisations who guarantee farmers and producers a ‘fair’ price for the goods they produce. This means a price that covers their production costs and allows a surplus that they can reinvest in their business and that can sustain a ‘reasonable’ standard of living. This creates a degree of stability of prices and allows development to take place at a more measured and consistent pace.

• Vietnam has become a member of the WTO (150th member) and is slowly tuning into the idea of free trade.
• Some farmers – particularly rice exporters – should gain from WTO membership. But livestock farmers will face tough competition from Europe, the US and Australia – and few are well-prepared.
• Vietnam’s largest manufacturing export earner is the garment sector, but WTO membership will make little immediate difference to most companies.
• Overall free trade will eventually help boost exports for Vietnam.

Micro-credit schemes: Microcredit schemes are schemes that lend small amounts to the poor in a developing country. The loans may be as low as $1, but they are directly targeted at the needs of those people and reflect the circumstances they operate in. These loans are often offered by NGO’s.

• Fifty women gathered in Cam Nghia commune, Cam Lo District, in June 2002 to each receive approximately $170 USD in micro-credit loans, thereby launching a revolving micro-credit lending program sponsored by PeaceTrees Vietnam and the Quang Tri Province Women’s Union.
• This program provides small, 5-year loans to support family-based economic production; for example, to purchase livestock or agricultural supplies for income-earning ventures.

Foreign direct investment: Foreign direct investment is mainly undertaken through multinational corporations (MNCs). An MNC is a firm that has productive capacity in a number of countries. The profit and income flows that they generate are part of the foreign capital flows moving between countries. It will boost the rate of economic growth, inject money into the local economy, provide training and education for employees and will contribute to tax revenue.

• Vietnam has been quite sucessful in attracting FDI inflows.
• The flow of  FDI in Vietnam, a member of the World Trade Organization since 2007, has increased steadily over the past few years. In 2008, the amount of actually disbursed capital soared to 11.5 billion US dollars, up 43.2 percent compared with 2007.
• Vietnam relies heavily on FDI. The foreign-invested sector created more than 200,000 jobs in 2008 and employs 1.4 million people, according to the FIA.
• However due to the economic slowdown, FDI has reduced in 2009.

Sustainable development: Sustainable development is development which will not have a detrimental effect on future generations and which involves measures to limit the use of non-renewable resources. Policies such as targeting aid to projects that helped improve the environment, research into environmentally friendly farming method and promote programmes that help reduce population growth.

• ILDEX Vietnam 2010 is ready to offer technology and business solutions for Vietnam’s livestock, dairy, meat-processing, and aquaculture industries.

Conclusion:

Overall I believe that Vietnam’s strateties to achieve growth will help Vietnam grow. Vietnamese governmnet is not relying too much on aid in order to grow since they have a strong economy. Vietnam is investing in new technology and this will help the infrastucture of the economy. Microcredit is helping the citizens in rural area. The strongest part of the Vietnamese economy is its export-oreientated growth and foreign direct investment as Vietnamese has great potential. Vietnam’s move towards free trade will benefit Vietnam and help it to increase its efficiency in order to compete in the global market.

Evidence that Vietnam has growth (GDP):

Barriers to growth for Vietnam

Poverty in Vietnam:

Vietnam’s strong economic performance (with an average 7.5% gross domestic product [GDP] growth per annum in 1991–20001) has contributed to a remarkable decline in income poverty from 58% in 1993 to 22% in 2005.

Institutional and political factors:

Tax system in Vietnam:

• Vietnam is a socialist country and as such subscribes to the Marxist belief that a heavy progressive income tax should be applied to all income, individual and corporate. As a result of this heavy hand of government in conjunction with many years of economic sanctions.
• In recent years however, the country has tried to exercise a policy called Doi Moi (new life) and as such has made much stronger headway toward a more liberal system of taxation. In fact the incredibly high rates of taxation have changed substantially over the years and are now almost in line with taxes in western countries.
• There are ways to reduce the tax load in Vietnam especially for the entrepreneur and businessperson who wishes to build a business in the country.

Lack of property rights in Vietnam:

• The property rights index measures the degree to which a countrys laws protect private property rights, and the degree to which its government enforces those laws. A higher number is favourable. Vietnam has a value of 10 (considered to be very low developed countries such as Hong Kong and Singapore have a value of 90).
• People are not encouraged to have private property and this hinders the development of the country immensely.

Politics in Vietnam:

• Vietnam remains a communist country. All political organizations are led by the Vietnamese Community Party.
• Although this serves as a barrier as the country does not follow a the idea of a free market, the country is placing economic development as a priority and not considering following the communist agenda strictly. Vietnma is slowly removing this barrier but it will take time.

Corruption in Vietnam:

• Corruption is high in Vietnam and this serves as a huge hindarance to economic development.

Infrastructure in Vietnam:

• After the war, Vietnam’s infrastructure was very poor, however the infrastructure is steadily improving.
• Railway length is around 2,700 kilometers, however the tracks are in need of improvement.
• Vietnam has around 93,500 kilometers of highways of which 25% are paved and need vast improvement.

International trade barriers:

Dependence on primary products:

• Vietnam exports coal, crude, petroleum, peanuts, rice, rubber, tea and handcrafted bamboo.
• Vietnam’s imports are refined petroleum products, medicines, machinery, military supplies, vehicles.
• This shows that Vietnam produces mainly primary products and this focus on primary products is a hindrance to economic development.

International financial barriers – indebtness

Year — amount of debt (external)

2003 — $14,100,000,000

2004 — $14,690,000,000

2005 — $16,550,000,000

2006 — $20,160,000,000

2007 — $21,860,000,000

2008 — $21,830,000,000

2009 — $23,090,000,000

• Vietnam’s debt is increasing every year however there is slight improvement on the change of percent and it will slowly cease be a hindrance to economic development.

Social and cultural factors in Vietnam:

Religion:

• The government restricts several religious ceremonies.
• For example in 2003 authorities detained many of the leaders of the banned Unified Buddhist Church of Vietnam (UBCV) after they held an organizational meeting without government permission in Binh Dinh Province.
• Government continues to restrict significantly those organized activities of religious groups that it regarded to be at variance with state laws and policies or a challenge to Party authority.
• The constitutional right of freedom of belief and religion is interpreted and enforced unevenly. Some people enjoy more freedom in practicing religion than others.

Gender issues:

• In many areas, Viet Nam’s gender equality indicators fare relatively well within the Asia and Pacific region, including access to education and health care services and economic participation rates. The country also has higher-than-average female representation in national legislative positions (e.g., 23% female members in the National Assembly).
• In spite of the positive elements, gender gaps persist in many other situations. For example, women are working longer hours than men for less pay. Studies show that women and girls in Vietnam shoulder much of the country’s economic burden, with those in the rural areas working an average of 18 hours a day. Women living in the rural areas perform about 60% of the total agricultural workload yet earn only 72% of the average salary earned by their male counterparts.

Conclusion:

Overall I believe that Vietnam has a lot of problems to deal with but it is undergoing changes. For example the government is in the process of drafting and passing theLaw on Gender Equality. Vietnam’s GDP is growing at an incredible pace and the government is looking forward to developing the economy and has placed this as the country’s priority.

Introduction to barriers to growth

Poverty cycle: 

Institutional and political factors:

• Ineffective taxation structure: There maybe many physical problems such as accessing rural areas.
• Lack of property rights: This can prevent economic development which is often based on ownership of the factors of production so that they can be traded.
• Political instability: Development becomes very difficult if the country has a volatile political structure and it is important for businesses to grow.
• Corruption: This can serve as a hindrance to overseas firms who look to invest in a developing country.
• Unequal distribution of income
• Formal and informal markets: In the developed world most activity takes place in formal markets – organised markets where money is exchanged. However, in the developing world much of the economic activity takes place in informal markets. No money is exchanged and economic activity goes unrecorded.
• Lack of infrastructure: A good social structure is important for countries.

International trade barriers:

Dependence on primary production leads to:

• Terms of trade have deteriorated over time: Since the developing countries depend on primary, their prices are cheaper and thus have to export more and more.
• Low income elasticity of demand for primary products: As real world incomes have grown, the demand for primary products has increased less than proportionately.
• Protectionism in international trade:

International financial barriers – indebtedness:

The countries have to face

• Increased interest rates
• Increased value of the dollar, so the country has to sell more exports in order to pay back the debt in dollars
• The recession in the developed world means that the devloped countries import less from developing countries. Decline in real value of commodities.

Affects the developing world in the following ways:

• Net capital inflows reduced
• Net outflows of income
• Debt increases in multiples
• Debt-export ratio rises
• Debt of GDP ratio raises

How to solve the the debtness:

• Increase the GDP faster than the debt factor.
• If the currency is maintained and controlled by the government, the government can look to devalue their currency.
• Build investors confidence (to combat capital flight = when firms or individuals speculate on the prospect of earning a higher return abroad)

Social and cultural factors:

Social and cultural factors act as barriers to growth and development:

• Religion
• Culture
• Tradition
• Gender issues

Vietnam’s four elements of economic growth

Natural resources: land, minerals, fuels, climate; their quantity and quality

Human resources: the supply of labour and the quality of labour

Physical capital and technological resource: machines, factories, roads; their quantity and quality

Institutional factors: this includes the banking system, the legal system and important factors like a good health care system

Vietnam’s geographical location:

Natural Resources:

• Vietnam’s natural resources include phosphates, coal, manganese, bauxite, chromate, offshore oil and gas deposits, forests, hydropower
• The land is approximately 331,688 km² in area. The land is mostly composed of hills and dense forests. Only about 20% of the land is level land. Because of the differences in latitude, the climate temperature varies from place to place. Temperatures may vary from 5°C to 37°C. The winter season is mostly dry however Vietnam also has rainy and summer seasons.
• Vietnam is a relatively new member in the oil industry but has quickly become one of the largest oil exporter.
• Only about 20.14% of the land is arable. 6.93% of the land is occupied by crops while the other 72.93% is composed of other things. And since Vietnam’s culture is based on wet rice cultivation, this poses some problems as the majority of the land cannot be used for farming.
• Vietnam is susceptible to typhoons, with excessive flooding and this reduces both the quality and quantity of the natural resources.

Human Resources:

• There are about 86,967,524 people in the country. Most of the population is between the ages of 14 and 65 (the working age group). The median age is about 27.4 years. There is a lot of physical/human labour/resources. There is a 90.3% literacy rate. This means that human resources are not only in plentiful but the quality of human resources are very good as most receive some education.
• About 15% of the people live below the poverty line and this is a huge hindrance.

Physical Capital and Technological Resources:

• Transportation: Most people travel on bicycles and motorcycles. However Vietnam also has marine transportation. It has 17,000 km of navigable waterways which plays a role in the extensive network of rivers in Vietnam. The train transportation system has been directed by the Japanese. Vietnam sent some 100 operators to learn high speed train technology from Japan. Now it has train route with about 26 stations.
• Most of the economy is devoted to the agricultural sector and it is a export-driven economy.
• Vietnam, after war, was recovering its economy and is now aiming towards improving its technology factor. In 2002, Vietnam created a software association with Japanese trade organization in order to improve its technological factors.

Institutional Factors:

• In 2008, it had a public debt of about 48.8% of the GDP. The bank has a central bank discount rate of 10.25%. The lending rate is about 15.78% and Vietnam has an inflation rate of about 23.1% (on consumer prices).
• The health care system of Vietnam is mainly driven by the public sector. However the private sector has been growing steadily since the reform in 1989. The public sector looks at the inpatient care where as the private sector is mainly for outpatient care. National health system has strengthened the health care system. Although the health care system is strong, it is inadequate in poverty striken areas (especially in mountainous regions). It has a successful child health care system (a successful imunization program). However total health care expenditure is only about a small portion of the GDP. Furthermore Vietnam is looking towards improving the quality of the health care system and it needs to have more trained staff.

• Education is mandatory (and free) until the age of 11 but after that some families are unable to afford education.
• Vietnam’s education system is under a reform to improve the quality of education and the human resources.

Some general information about Vietnam:

GDP: $90.7 billion dollars

GDP per capita: $2,600

GDP (real growth rate): 6.2%

Export driven economy and it was even 68% of GDP in 2007

Gini coefficient:

Conclusion:

The global financial crisis, however, will restrain Vietnam’s ability to create jobs. It will further increase poverty. As global growth sharply drops in 2009, Vietnam’s export-oriented economy – exports were 68% of GDP in 2007 – will suffer from lower exports, higher unemployment and corporate bankruptcies, and decreased foreign investment.

Canwest files for bankruptcy

Canwest has put its entire newspaper division under bankruptcy protection as it seeks a buyer. The company say it has filed for a creditor protection as it plans for a reconstruction plan. It owns 10 dailies and 26 community newspapers.

Opportunity cost for government:

• Could have used for health care
• Used for unemployment benefits
• Could have financially supported a growing industry rather than an inefficient and failing one
• Could have used it for public constructions

Benefits of such an action:

• Saving jobs of the people involved in the industry
• Less structural unemployment (journalists and newspaper writers). Finding jobs for these would be difficult as their skill (involved in newspapers) has become undesirable. Funding their families will become a huge obligation for the government. (structural unemployment poses more of a problem because workers must seek jobs elsewhere or must develop the skills demanded. The process is full of pain and frustration, and may lead to negative impacts on society)
• Allowing the company to change its methods and become competitive once again
• Other industries connected with this one will face difficulties, will cause a spiral of losses

Unemployment graph:

The decrease in demand means that there is decrease in output (labor-wise and quantity-wise too). Price level drops could signal deflationary spiral.

China’s growth rate

China’s growth expectation and current state

• China is aiming at a growth rate of 8%
• During recession China’s growth rate was at 6.1%
• It is expected that China’s growth rate could go into double figures
• Stimulus plan to further stimulate the manufacturing sector
• Fastest growth since 2004
• Prices are also rising
• PMI (Purchasing Managers’ Index) rose to 56.1 from a 55.7 in January 2010.
• 4 trillion yuan to stimulate the public infrastructure projects
• Expansion in China has risen the concern that there could be inflation taking place.
• Rising cost of raw materials such as oil and steel
• China’s analysts  say that China’s over capacity and China’s ability to spend money well, will keep a cap on inflation
• 3rd largest economy

Problems with setting such a high goal:

• Overheating the economy
• Increasing dependence of the world economy on China’s growth
• In an economic bubble
• Export dependent so will effect all other nations
• Domestic problems will occur
• Holds a lot of foreign reserves
• Market

India and sugar

Sugar prices have doubled over the last 15 months. A severe shortfall in production is forcing India to import massive amounts of sugar at a time when the world market prices are at a 28-year high. The government has placed the blame on poor monsoon and the “cyclical nature of the sugar industry”, factors that the government states are beyond its control. However, a year ago, it was actually subsidising sugar exports. (From 2006 onwards, India started exporting sugar.)

Furthermore the government modified sugar cane control regulations in December 2007. This allowed for the direct production of ethanol from sugar cane juice by sugar companies without any quantitative restrictions. It was predicted that there would be a short-fall of sugar but the government continued to subsidize this firm.

The quantity of sugar-cane grew over the last few years. There was a sharp dip of 12 per cent in acreage for the crop processed in 2008-09 on the back of a smaller dip the previous year. To make things worse, the cane production itself fell by around 20 per cent, indicating that in addition to lower acreage under cane plantation, there was also a lower yield in 2008-09 .

This exacerbated the sugar shortage; even though cane production that year saw only a 20 per cent drop from the previous season, sugar production tanked 43 per cent.  India’s current sugar consumption is between 20-22 million tonnes, and this level was exceeded in 2006-07 and 2007-08. World market had higher prices than India and the exporters were happy. In 2007, world market prices started to fall. But the central government continued to push exports by providing a subsidy to exporters in the period April 2007 to Sept 2008.

In early 2009, India began importing sugar. India may have to import 1/4th of the sugar required for 2009 to 2010.