Vietnamese economy: a look back at 35 years of reform

Thursday, 2021-01-14 10:51:45
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Vietnam has recorded significant economic achievements after 35 years of reform.
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NDO - Vietnam began its Doi Moi reform and international integration as a backward and closed economy 35 years ago. Today it has become a middle-income country with a dynamic and highly open market economy recording relatively high and inclusive growth, ensuring that all benefit from the fruits of growth.

Notable economic achievements

During the Doi Moi reform, Vietnam has emerged as a bright spot in the region and the world with numerous noteworthy achievements. The economy has not only grown in size, but its quality has also improved, with the standards of living significantly enhanced.

In the early years of Doi Moi (1986-1990), annual GDP growth averaged at only 4.4%, but the figure increased to 7% during the 1996-2000 period. Since the start of the term of the 12th Congress, with the government’s aggressive actions and determination, Vietnam has gradually renewed its growth model and improved the quality of growth. Such efforts resulted in the average GDP growth of 6.8% during the 2016-2019 period. In 2020 Vietnam managed to register a growth rate of nearly 3% despite the tremendous negative impacts of the Covid-19 pandemic, making it one of the few economies with positive growth in the world.

The size of the economy had grown substantially to about US$262 billion in 2019, an 18-fold increase compared with 1986 when Vietnam began the Doi Moi reform, while the income per capita reached US$2,800, standing among the middle-income countries. Labour productivity also rose from an annual average of 4.3% during the 2011-2015 period to 5.8% during the 2026-2020 period. The contribution of total factor productivity in the past five years was estimated at 45.2%, compared with the target of 30-35%.

Macroeconomic stability has been maintained as inflation fell from three-digit figures during the early years of Doi Moi to around 4% during the 2016-2020 period. Credit has seen strong growth, becoming an important channel to provide capital to production and business activities. The foreign currency market was managed in a flexible manner, with the dollarisation of the economy subsiding over the years, foreign reserves increasing sharply, and public confidence in the domestic currency bolstered.

The economic structure is shifting in a positive direction, with greater shares of industry and services, which have become the main growth drivers, while the proportion of agriculture is declining. The structure within sectors has also changed in keeping with the development level of the economy.

In addition to state-owned enterprises and foreign-invested companies, the domestic private sector has been growing strongly, as seen in the rapid growth in the number of enterprises and registered capital. The start-up movement has spread widely with many effective business models. Attention has also been given to creating highly skilled human resources, capable of applying advanced technology to economic development.

The national infrastructure system has been greatly modernised, especially transport infrastructure and in major cities. The government apparatus has effectively fulfilled its role as a business enabler, with enormous efforts to remove many cumbersome administrative procedures and create a favourable business climate so that all economic sectors can take part in socio-economic development.

Domestic consumption and investment continue to be two important pillars of the economy. Total retail and services revenues have grown continually, averaging 12.8% during the 2011-2014 period. With the development of technology, the retail market is shifting from traditional to modern channels. Retailers have quickly adapted to changes in consumers’ behaviour and taste, with online shopping increasingly favoured. The mobilisation of resources for development investment has been promoted, with total development investment increasing by 10.6% on average during the 2011-2020 period.

Capital from the state budget and mobilised through issuing government bonds, mainly spent on key socio-economic infrastructure projects, account for 20.8% of total social investment, while investment from the non-state sector increased rapidly from 36% in 2010 to 46% ten years later. Many private enterprises have taken part in major projects, helping to enhance their competitiveness. Foreign direct investment has increased sharply with many large-scale high-tech projects, bringing with them plenty of opportunities for business cooperation and technology transfer for the domestic sector.

The domestic business climate has been improved and national competitiveness enhanced. The freedom and equality in doing business and access to business opportunities have been improved. The government continues to step up administrative reform and eliminate unnecessary business conditions.

Vietnam’s global ranking for the ease of doing business increased from 88 in 2020 to 70 in 2019. According to the 2019 Global Competitiveness Report by the World Economic Forum, Vietnam ranked 67th among 141 countries and territories, up 10 positions compared with a year earlier.

Increasing resilience to shocks

The first significant milestone in Vietnam’s process of economic opening and international integration was its access to the World Trade Organisation in 2007, since then Vietnam has actively negotiated and signed many bilateral and multilateral free trade agreements. Most recently, Vietnam signed the EU-Vietnam Free Trade Agreement and the Regional Comprehensive Economic Partnership, which is expected to help Vietnam maintain export as one of its main growth drivers.

International economic integration has strongly bolstered Vietnam’s international trade. From a country with a large trade deficit, Vietnam has managed to reach a trade balance, and even register a trade surplus. The fact that Vietnam has inked free trade deals with major economies in different geographical regions has helped the country diversify its external economic relations, thus reducing reliance on a single market.

Vietnam is currently exporting its goods to more than 200 countries and territories and is one of the ten most open economies in the world, with the ratio of trade to GDP increasing from 136% in 2010 to approximately 200% in 2019. Despite the impact of Covid-19, Vietnam still posted a record trade surplus of US$20.1 billion in the first 11 months of 2020.

The world in the early 21st century has seen many rapid changes and international relations are becoming increasingly complicated and unclear. The Covid-19 pandemic, climate change, extreme weather and severe natural disasters in 2020 have reinforced the above trend.

With such uncertainties, no rigid and standard systems of solutions can be effective to the country’s socio-economic management. Being aware of this, the Party and State have determined that better mechanisms are needed to increase economic resilience to shocks.

Vietnam has proactively built a modern economic structure, created the foundation and room for macroeconomic policy implementation, gradually mastered advanced production technology, improved the position of enterprises and the economy in global value chains, and diversified markets and trade partners.

It can be seen that with each challenge faced, the Vietnamese economy can teach itself, test the effect of policies on life, the relationship between theory and reality in order to learn a lesson for the next stage. The culture of learning from macroeconomic policy implementation will help Vietnam to always be prepared for new uncertain circumstances.