Vietnam 3rd Decade

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Vietnam: Moving Toward The 3 rd Decade of

TransitionAnd Development

Pham Chi LanHanoi- Jan. 07th, 2010


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The first comprehensive reform initiatives orDoi Moi were officially introduced inVietnam in late 1986.

Doi Moi initially focused on transforming theeconomy from a centrally planned to a

market mechanism with 3 major contents:Develop a market oriented mechanismDevelop a multi-sectoral economyOpen up the economy


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Bold reform policies and measures wereintroduced from late 1980s to early1990s, and brought about fundamentalchanges in Vietnams economic system.As result in mid-1990s Vietnam get rid of

the crisis prolonged during 1970s-1980s.The first decade of reform ended when

the financial crisis broken in SoutheastAsia, and Vietnam hesitated to introducefurther reform policies needed.


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4

When entering the 21st century the

reform program was aligned toVietnams blueprint for development the Comprehensive Poverty Reductionand Growth Strategy (CPRGS).CPRGS has 3 pillars: completing the

transition to a market economy,making development inclusive, and

building modern governance.


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New reform measures were introduced in early2000s. Vietnams economy gradually recovered. In

Jan 2007 Vietnam became a member of WTO butwith NME status. The second decade of reform & development endedwhen the global financial crises broken. Vietnam getrid of a low income country status but economicgrowth slowing down. Serious constraints, weaknessand imbalance in economic structures are widelyrecognized. Bold reforms needed in the 3rd decade.


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Economic performance sinceDoi Moi has been

impressive Annual GDP growth was 8.2 % during the 1990s,

7.5 % during 2001-2005, 8.47% in 2007, 6.23%in 2008, and 5,32% in 2009.

Per capita income increased from USD100 to1,200 within 2 decades

Dramatic increase in industrial development andchange in economic structure from agricultureto industries and services


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Remarkable increase in job creation

Impressive poverty reduction Private sector developed and became a

driving force for economic development

Foreign direct investment (FDI) became amajor sector and an engine for growth Vietnams economy gradually integrates

into the region and the world


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3 . 3 . 3 .3 .

1 .

10 . 1 0 . 10 .

6 .

3 .

10 . 1 1 .1 2 .

0 .

8 .

7 .

8 . 8 .

7 .

5 .

0

2

4

6

8

1 0

1 2

1 4

B n h q u n 2 0 0 1 -20 0 5 2 00 6 2 0 0 7 2 0 0 8 6 th a n g 2 00 9

N n g , l m , n g n g h i pC n g n g h i p - x y d n gX y d n g D c h v G D

Industrial development and GDP

growth

8


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Structure of economic sectors (%)

9


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Model for growth in Vietnam sofar

Institutional reforms = liberation of resourcesand booming:

+ Exploiting natural resources (minerals, land)

+Untied laborers: mobilizing huge labor force at lowcosts and poor quality

+Booming of private sector : fast expansion inquantity but low productivity and low

competitiveness+Opening up the economy: export what available to

the world and get what most needed (capital)


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and resultGrowth has been high,

easy to gain new records, but Low quality, efficiency

and competitivenessWeak business sectorInconsistent

institutional reforms

Slow improvement of macro management and governancePoor control on

distribution of benefitsExhausted natural

resources, environment pollution

Inappropriate

investment in fundamental base for development (infrastructure, humanresource)

Imbalances ininternational integration process


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Motivation for growth : quantitative achievementsPillars for growth : capital, natural resources, state-owned

enterprises (SOEs)Accept high costs for growth ( prolonged budget deficit at5% of GDP, high & increased ICOR)Growth rates have been high but not sustainable

Serious structural problems, especially in marketmechanism, infrastructure, human resource, businesssectors, and capacity for development managementWidening gaps between Vietnam and neighboringcountries in real economic growth and income


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GDP, CPI and trade balance, 2005-2010

0

2

4

6

8

10

12

14

16

18

20

0

5

10

15

20

25

GDP Nhp siu CPI

GDP 8.44 8.23 8.46 6.23 5

Nhp siu 4.31 5.06 14.2 18.03 10

CPI 8.29 7.48 8.3 19.9 6

2005 2006 2007 2008 2009


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Domestic saving and investment (%of GDP)


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ICOR and TFP changes, 1990-2007

- 2- 1012

34567

1 9

9 0

1 9

9 1

1 9

9 2

1 9

9 3

1 9

9 4

1 9

9 5

1 9

9 6

1 9

9 7

1 9

9 8

1 9

9 9

2 0

0 0

2 0

0 1

2 0

0 2

2 0

0 3

2 0

0 4

2 0

0 5

2 0

0 6

2 0

0 7

I C O R

T FP chang


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Gaps between growth rates of outputand value added of the industry (%, at

1994 price)

0.002.00

4.00

6.00

8.00

10.0012.00

14.00

16.00

18.00

20.00

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

GR GO of Industry GR VA of Industry Gap


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Backward export structure

0.0%

0.1%

0.2%

0.3%

0.4%

0.5%

0.6%

0.7%

0.8%

1997 1998 1999 2000 2001 2002 2003 2004 2005 200

Processed GoodsSemi-processed GoodsUnprocessed GoodsServicesTOTAL

Source: UNComTrade, WTO (2008)

World Export MarketShare (current USD)


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Cost of Doing Business in Vietnam,2008

Ranking, 2008 (of 181 countries)

Source: World Bank Report, Doing Business (2008)

Favorable Unfavorable

Vietnams per capita GDP rank: 70th

Median Ranking,East Asia and Pacific

Especially in land ownership in rural areas significantproblems remain


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S i n g a

p o r e

J a p a

n

S o u t h

K o r e a

T a i w a

n

M a l a y

s i a B r

a z i l

I n d i a

T h a i l

a n d

S r i L

a n k a

P h i l i p

p i n e s

I n d o n

e s i a

C h i n a

V i e t n a

m R u

s s i a

C a m b

o d i a

B a n g

l a d e s

h L a

o s

P a k i s

t a n

Voice and Accountability

Political StabilityGovernment EffectivenessRegulatory QualityRule of LawControl of Corruption

Governance Indicators of VN & selectedcountries

Note: Sorted left to right by decreasing average value across all indicators. The zero horizontal line corresponds to the median countrys average value across all indicators.Source: World Bank (2008)

Worst

country in theworld

Index of Governan

ceQuality,2007

Bestcountryin theworld

S d f hi VN &


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Speeds of catching up - VN &neighbors

0%

20%

40%

60%

80%

100%

1 9 5 0

1 9 5 5

1 9 6 0

1 9 6 5

1 9 7 0

1 9 7 5

1 9 8 0

1 9 8 5

1 9 9 0

1 9 9 5

2 0 0 0

2 0 0 5

Japan

Taiwan

S. Korea

Malaysia

Thailand

Indonesia

Philippines

Vietnam

Per capita real income relative to US(Measured by the 1990 international Geary-Khamis dollars)

Sources: Angus Maddison, The World Economy: A Millennium Perspective , OECD Development Centre, 2001; the CentralBank of the Republic of China; and IMF International Financial Statistics (for updating 1998-2006).


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Economic growth 1991-2011Vietnam, China and India

Annual GDP Growth Rate, 1991-2011

0

2

4

6

8

10

12

14

16

1 9 9 1

1 9 9 2

1 9 9 3

1 9 9 4

1 9 9 5

1 9 9 6

1 9 9 7

1 9 9 8

1 9 9 9

2 0 0 0

2 0 0 1

2 0 0 2

2 0 0 3

2 0 0 4

2 0 0 5

2 0 0 6

2 0 0 7

2 0 0 8

2 0 0 9

2 0 1 0

2 0 1 1

%

China Vietnam India

Forecast


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Per capita GDP growth from over $200Vietnam, China and Indonesia

Years from achieving $200Source: WDI

0

200

400

600

800

1000

1200

1400

Y 0 Y 2 Y 4 Y 6 Y 8 Y 1 0

Y 1 2

Y 1 4

Y 1 6

Y 1 8

Y 2 0

Y 2 2

Y 2 4

Y 2 6

Y 2 8

Y 3 0

Y 3 2

Y 3 4

Y 3 6

Y 3 8

G D P l e v e

l i n y e a r

0

Vi etnam I ndonesi a Chi na

Trung Quc: 1983-2009

Vietnam: 1988-2009

Indonesia: 1968-2008


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$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

$40,000

$45,000

0% 2% 4% 6% 8% 10% 12

Prosperity performanceof Vietnam and selected countriesPPP-adjusted GDP per Capita, 2007

Growth of Real GDP per Capita (PPP-adjusted), CAGR, 2003-2007Source: EIU (2008) , authors calculations

Ireland

USA

Hungary

China

Taiwan

Greece

Pakistan

Portugal

Switzerland

Czech Republic

Slovakia

Germany Finland

Iceland

Sweden

Spain

UK

NetherlandsAustria

France

Russia

Saudi Arabia

TurkeyThailand

Chile

Singapore

Croatia

Philippines

Slovenia

Bahrain

Canada

Italy

Australia

Japan

Korea

Mexico

New Zealand

Brazil

IndiaIndonesia

Argentina

Hong Kong

Israel

Malaysia

South Africa

Poland

Romania

Lithuania Latvia

Estonia

Colombia Vietnam

Costa Rica

Egypt

Nigeria Bangladesh

Sri Lanka

Cambodia


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Vietnams new era

Vietnam is entering a new era todevelop from (low) middle income tohigher income country and to catchup

From middle income to high incomerequires 3 transitions:

- From diversification tospecialization- From accumulation to creation

- From basic skill to advanced skill


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STAGE ONE

Simplemanufacturingunder foreign

guidance

STAGE TWO

Havesupporting

industries, butstill under

foreignguidance

STAGE

THREE Technology &management

mastered, canproduce highquality goods

STAGE FOUR

Full capability ininnovation and

product designas global leader

Vietna

m

Thailand,Malaysia

Korea, Taiwan

Japan, US, EU

Agglomeration

Creativity

Glass ceiling for ASEAN countries

(Middle income trap)

Catching up process (drawn by KenichiOhno, VDF)Initial FDI

absorption

Internalizingparts and

componentsTechnologyabsorption

Internalizingskills and

technology

Internalizinginnovation


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Vietnams newchallenges

AFTA, ASEAN plus, WTO, FTAs large inflows of China, ASEAN and other imported products maychallenge VNs industrial base and industrializationprogram

Vietnams wage becoming too high for labor-intensive industries, but technology too low forknowledge-intensive industries hard to move tohigher position in regional / intl value chain.

Vietnam needs a wise industrialization strategy toincrease internal value in manufacturing andefficiently participate in global production network


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Reforms so far have been insufficient for Vietnam totake off. Vietnam needs a new reform strategy - a set of

interrelated policy changes, institutional structures, andrigorous implementation mechanisms.

Sufficient market mechanism is most needed to createconducive environment for business development

Need to enhance the role of the State to facilitate thedevelopment, promote innovations and manage risks

The next several years will determine whether Vietnamwill follow the experience of Asian dragons or not

Factors with strong impacts on


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Factors with strong impacts onVietnams economy today and in

future

NEW THINKING AND DEVELOPMENTMODEL

Multilateral &WTOcommitments

Bilateral &regionalcommitments(East Asia,major partners)

BRIC and intlshocks(prices, crisis)

VNs reformand policyresponse

Realeconomy(investment,infrastructur

e, industryrowth

Macroeconomicstability(inflation,

BOP)

HRD, socialdevelopment&environment

Institution (legislative &regulatorysystem,enforcement)

VNsECONOMY

29

Str teg for Vietn ms


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Strategy for Vietnamseconomic development 2011-

2020 Objectives :- Avoid middle income trap (catching up

and narrowing income gap)

- Safety: social stability, sustainabledevelopment / environment protection, andsafety of financial system

New model for growth and developmentneeded


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Breakthrough: Economicrestructure

Two key issues:- Strengthen conditions for taking off andlong term growth: institution, humanresource & infrastructure

- Shift to new model for growth in which:(1) allocation of resources must base on

market principles (no monopoly or

privileges)(2) focus on quality, efficiency of growth

and higher value in intl production chain


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Some suggested areas

Institutional breakthrough:+ Reforms of SOEs and large state economic

groups

+ Develop land and real estate market+ Administrative reform

Structural breakthrough:

+ Structure of economic regions (provinces)+ Supporting industry development

+ Two hightech industrial zones

+ Tourist clusters


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Eliminatingtrade andinvestmentbarriers withinthe region

Simplifying andharmonizingcross-border regulationsand paperwork

Coordinatinganti-monopolyand fair competitionpolicies

Harmonizingenvironmentalstandards

Harmonizingproduct safety standards

Establishingreciprocalconsumer protection laws

Openinggovernment procurement within the region

Improving regionaltransportation infrastructure

Creating an efficientenergy network

Enhancing regionalcommunications and connectivity

Linking financial markets

Opening themovement of students for higher education

Harmonizingadministrativerequirements for businesses

Facilitating cross-border cluster upgrading , e.g.

Tourism Agribusiness Transport &

Logistics Business

services

Creating aregional marketingprogram

Sharing best practices ingovernmentoperations

Creating regionalinstitutions

Disputeresolutionmechanisms

Regionaldevelopmentbank

Developing aregionalnegotiatingposition withinternationalorganizations

Factor Factor (Input)(Input)ConditionsConditions

Factor Factor (Input)(Input)ConditionsConditions

RegionalStrategy &Governance

RegionalStrategy &Governance

Context for Context for StrategyStrategyand Rivalryand Rivalry

Context for Context for StrategyStrategyand Rivalryand Rivalry

Related andSupportingIndustries

Related andSupportingIndustries

DemandDemand

ConditionsConditions

DemandDemand

ConditionsConditions

coordination

among neighbors to enhancing productivityMacroeconomic

Competitiveness

Macroeconomic

Competitiveness

Coordinatingprograms toimprove public safety

Coordinatingmacro-economic policies


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Utilize VNs location in the heartof a dynamic region


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with vigorous exchange of ideas

d i i l i


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and strong intra regional investmentflows


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Thank you very much

for your attention!

[email protected]

Documents

Vietnam 3rd Decade