Growing Up Fast

  7 min 40 sec to read
Growing Up Fast

How strategic leadership transformed Vietnam into an economic success story.

BY Rajendra Prasad Koirala

Vietnam was a purely agrarian and subsistence-based village economy until the mid-19th century when France began to colonise the country. However, the French purposely developed the regions differently, reserving the north for manufacturing and the south for agricultural production. The expansion of exports — coal from the North, rice from the South — and the import of French products boosted internal commerce, even though the scheme accentuated regional divisions. The north and south chose communist and capitalist economic doctrines, respectively, when they were politically split in 1954. Vietnam's economy was severely stressed as a result of the devastations of the Second Indochina War from 1954 to 1975. Vietnam lost 1.5 million soldiers and civilians, and over a million people fled the country, including tens of thousands of professionals, academics, technicians, and skilled workers, which made the situation worse throughout the country. The united Vietnam had a planned economy from 1976 until 1986. The government's 2nd Five-Year Plan (1976–1981) set astronomically high targets for the annual growth of industry, agriculture, and national income, aiming to integrate the north and the south. However, the plan's objectives were not met, and the economy continued to be dominated by small-scale production, low labour productivity, unemployment, material and technological shortfalls, as well as a lack of food and consumer goods. The 3rd Five-Year Plan (1981–1985) had more constrained objectives, with a focus on the growth of industry and agriculture, representing a compromise between ideological and practical considerations. Decentralising planning and enhancing the managerial abilities of government officials were the key priorities of the plan. A political and economic regeneration effort, known as Doi Moi, was initiated in Vietnam in 1986. It encompassed measures aimed at facilitating the transition from a centrally planned economy to a form of market socialism called a ‘socialist-oriented market economy’. 

Doi Moi encouraged the establishment of private companies involved in consumer product manufacturing and attracted foreign investment, particularly in the form of foreign-owned businesses. It combined economic planning with free-market incentives. By the late 1990s, the success of Doi Moi's reforms in the corporate and agricultural sectors became evident. The economy was growing at a rate exceeding 7% annually, over 30,000 private firms had been established, and the poverty rate had decreased significantly. The Vietnamese economy's growth is indeed an inspiring narrative. It has been experiencing rapid expansion, surpassing the assessments of international institutions such as the International Monetary Fund, World Bank, and Asian Development Bank. In 2022, the economy achieved an impressive growth rate of 8.02%, the fastest since 1997. This remarkable performance can be attributed to the country's effective management of the Covid-19 pandemic and increasing global recognition, positioning it as one of the fastest-growing economies in Asia. Several factors have contributed to this growth. First, Vietnam has shown a strong commitment to liberalisation reforms since 1986 when it implemented the ‘Doi Moi’ reforms, aimed at establishing a socialist-oriented market economy. These reforms emphasised the importance of private ownership, particularly in the industrial sector, and recognised private land rights in agriculture. The impact of these reforms has been highly positive, leading to a significant increase in GDP per capita, which rose from under $300 in 1986 to $3746 in 2021, more than tenfold growth. Vietnam's success in implementing the ‘Doi Moi’ policy has made it a notable example of how economic liberalisation can drive growth and improve living standards for its people. Vietnam has continuously pursued deregulation and introduced necessary reforms to support its economic growth. Between 2000 and 2022, the country achieved an average GDP growth rate of around seven percent, demonstrating its resilience and ability to adapt to changing circumstances. Even during the pandemic period, Vietnam maintained a growth rate of approximately three percent. The country's ability to navigate through challenging times underscores its resilience. The 13th National Congress of the Communist Party of Vietnam acknowledged that some goals of modernisation and industrialisation had not been fully achieved, reflecting the ongoing efforts of policymakers to drive further economic development. These continuous efforts highlight the government's commitment to achieving its targets and sustaining robust economic growth. Second, the attempts to improve production in both the industrial and agricultural sectors, as well as boosting exports, yielded positive results in 2020. The industrial and construction sectors grew by 7.78%. The service sectors expanded by 9.99%, while the agricultural sector experienced a growth of 3.36%. Exports increased by 10.6%, amounting to approximately $371.85 billion. Retail sales also witnessed a rise of 19.8%. The manufacturing and services sectors emerged as the primary drivers of economic growth, highlighting the success of these endeavours. These strong performance indicators in key sectors reflect the ongoing positive trajectory of the Vietnamese economy. Third, maintaining low inflation has also played a crucial role in Vietnam's economic growth. In 2022, the inflation rate stood at around four percent, a figure effectively managed by the government and relevant agencies. The government implemented flexible measures, such as controlling market liquidity and employing fiscal policies that included tax exemptions or reductions for essential and strategic commodities, to keep inflation in check. Fourth, attracting sufficient foreign direct investment (FDI) has also been a factor in Vietnam's strong economic growth. The changes to the regulatory framework for FDI, such as simplifying administrative procedures and implementing digital public services, have created a more efficient and appealing environment for foreign investment. The country's political stability and favourable business environment have also played a significant role in attracting FDI. According to the Ministry of Planning, Vietnam attracted a total of $27.72 billion in FDI by December 2022. Singapore, South Korea and Japan were the top source countries for FDI in 2022. Fifth, Vietnam's focus on digitisation for facilitating business operations is an important factor contributing to the country's economic growth. The 13th National Congress of the Vietnamese Communist Party has decided that the digital economy would constitute approximately 20% of the GDP by 2025. The Vietnamese government introduced the 2025-2030 national digital transformation program and identified eight priority areas for digital innovation, including healthcare, education, finance, energy, logistics, industrial manufacturing, and agriculture. Since July 2022, 25 essential public services, such as citizen ID card reissuance, identity card issuance, registration for permanent or temporary residence, and passport issuance, have been digitised. A survey conducted by the Vietnam Chamber of Commerce and Industry on digital transformation in Vietnamese enterprises revealed that industrial companies in Vietnam recognise the significance of digitisation. Some companies have already adopted digital technology to enhance internal management, logistics, production, marketing, and financial transactions. Sixth, there has been a 19.8% increase in retail sales of goods and services, reflecting a rise in domestic consumption and the per capita income. Domestic consumption has emerged as a significant driver of economic growth. In November 2022, the National Assembly set a GDP growth target of 6.5% for 2023 and provided guidelines to achieve it. The resolution emphasised closely monitoring market developments, promptly identifying risks, and implementing feasible solutions, including financial and monetary policies, to stabilise the macroeconomy, control inflation, and support economic recovery.

The government directed efforts towards expediting key transport infrastructure projects, including urban railway projects, highways, and ring roads. Simultaneously, obstacles are being addressed to operationalize large-scale power projects such as Tybin 2, Nissan 2, Duyan Haitu, and Van Fong 1. Considering these factors, the prospects for economic growth in 2023 appear promising. The target set by the National Assembly is likely to be achieved, despite global uncertainties stemming from power rivalries in the South China Sea, East Sea, and the Russia-Ukraine conflict. Three expert groups have predicted Vietnam's economic growth in 2023 to be 6.5% or higher. Singapore-based United Overseas Bank (UOB) maintained its forecast for Vietnam's GDP growth in 2023 at 6.6%, in line with the official forecast of 6.5%. The ASEAN+3 Macroeconomic Research Office (AMRO) raised its estimate for Vietnam's 2023 GDP growth to 6.8%. Standard Chartered indicated that Vietnam's economy would expand by 7.2% in 2023. The State Bank of Vietnam stated its intention to implement flexible monetary policy to maintain the inflation rate at 4.5% in 2023, aiming to stabilise the currency and foreign exchange markets. If the inflation rate remains around 5%, the target for economic growth is achievable. However, the global recession may pose a significant challenge to Vietnam's economic growth, similar to other countries. To sustain economic growth in the long run, Vietnam needs to further boost the four drivers: investment, availability of critical technologies, a sufficient skilled labour force, and infrastructure development with improved connectivity to markets. Inflation must be kept under control, and efforts should be made to diversify exports. Additionally, Vietnam must ensure the availability of a young and skilled labour force, requiring suitable policies for population growth. As the digitisation of the system progresses, the threat to cybersecurity necessitates increased attention, as influence operations from external sources have the potential to cause significant harm. Suitable precautionary measures should be taken, and the government needs to counter such narratives by disseminating its version effectively. The leadership of Vietnam stands as a shining example of how vision-driven leaders can profoundly transform the nation's economy.

(Koirala is a PhD scholar. He can be reached for comments at [email protected])

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