Vietnam - Economy
Vietnam's economy is hamstrung by weak credit growth and consumer demand that has forced 113,000 businesses to close since 2011, when inflation soared to over 20 percent and foreign investors delivered only a sixth of the $64 billion pledged. Policymakers have acted effectively to rein in inflation but have been too slow, or reluctant, to implement the sweeping structural changes needed to revive what was a promising ``tiger'' economy now growing at its slowest pace in 13 years, and put Vietnam back on foreign investors' radar.
Following economic stagnation after reunification from 1975 to 1985, the 1986 Sixth Party Congress approved broad economic reforms (known as "Doi Moi," or "renovation") that introduced market reforms, opened up the country for foreign investment, and dramatically improved Vietnam's business climate. Vietnam became one of the fastest-growing economies in the world, averaging around 8% annual gross domestic product (GDP) growth from 1990 to 1997 and 6.5% from 1998-2003. GDP grew more than 8% annually from 2004 to 2007, slowed to 5.3% growth in 2009, recovered to 6.8% in 2010, and reached 5.8% over the first 9 months of 2011. Viewed over time, foreign trade and foreign direct investment (FDI) have improved significantly, although new registered FDI has started to trend downward. The average annual foreign investment commitment rose sharply after foreign investment was authorized in 1988, although the global economic crisis affected FDI in 2009.
In the first 9 months of 2011, disbursed FDI capital totaled $9.1 billion, up 1% compared to the same period in 2010. Registered FDI (including new and additional capital) was $8.88 billion in the first 9 months of 2011, a fall of about 30% compared to the same period of 2010. From 1990 to 2011, agricultural production nearly doubled, transforming Vietnam from a net food importer to the world's second-largest exporter of rice. In the first 9 months of 2011, Vietnamís exports ($70 billion) were up by 23% compared to the same period in 2010. Vietnamís imports ($76.87 billion) were up by 27% from the same period in 2010, and the country was still running a structural trade deficit, reaching $6.87 billion in the first 9 months of 2011.
The shift away from a centrally planned economy to a more market-oriented economic model has improved the quality of life for many Vietnamese. Per capita income rose from $220 in 1994 to $1,168 in 2010. Year-on-year inflation, however, increased to 18.2% in the first 9 months of 2011, up from 8.6% in the same period of 2010. The Vietnamese Government was unable to reach its 2011 Consumer Price Index (CPI) target of 7%. The Vietnamese savings rate is about 25% of GDP. Official unemployment remains low, but does not reflect employment trends in the unofficial economy, which comprises over 70% of the total workforce. Unemployment was 2.2% in the first 9 months of 2011--a slight decline from 2.8% in 2010--with urban unemployment being higher (3.5% in the first 9 months of 2011, 4.4% in 2010) than rural (1.2% the first 9 months of 2011, 2.3% in 2010).
The Vietnamese Government still holds a tight rein over major sectors of the economy through large state-owned economic groups and enterprises. The government has plans to reform key sectors and partially privatize state-owned enterprises, but implementation has been gradual and the state sector still accounts for approximately 40% of GDP. Greater emphasis on private sector development is critical for job creation. In 2011, the Vietnamese Government proposed a strategy for restructuring the economy by 2015. The three pillars of the proposed strategy are improving public investment; reforming state-owned enterprises; and restructuring finance markets, focusing on the banking system.
The 2001 entry-into-force of the Bilateral Trade Agreement (BTA) between the U.S. and Vietnam was a significant milestone for Vietnam's economy and for normalization of U.S.-Vietnam relations. Bilateral trade between the United States and Vietnam has expanded dramatically, rising from $2.97 billion in 2002 to $18.6 billion in 2010. The U.S. is Vietnam's second-largest trade partner overall (after China).
Implementation of the BTA, which includes provisions on trade in goods and services, enforcement of intellectual property rights, protection for investments, and transparency, fundamentally changed Vietnam's trade regime and helped it accede to the World Trade Organization (WTO) in 2007.
Vietnam was granted permanent normal trade relations (PNTR) status by the United States in December 2006. To meet the obligations of WTO membership, Vietnam revised nearly all of its trade and investment laws and guiding regulations and opened up large sectors of its economy to foreign investors and exporters.
A U.S.-Vietnam Trade and Investment Framework Agreement (TIFA), a bridge to future economic cooperation, was signed in 2007 during President Nguyen Minh Triet's visit to the United States. The first TIFA Council occurred in December 2007 in Washington, and there have been frequent TIFA meetings and dialogues since then. During Prime Minister Nguyen Tan Dung's June 2008 visit, the United States and Vietnam committed to undertake Bilateral Investment Treaty (BIT) negotiations. Three rounds of talks were completed, but BIT talks have not resumed since Vietnam and the United States began negotiations on free trade in 2010.
As in the rest of Asia, farms in Vietnam tend to be very small, and are usually less than one hectare (2.5 acres) each. Rice and other farm outputs are quite profitable, on a per-kilogram basis, but the total income from these small operations is increasingly insufficient to cover daily household needs. Off-farm income is necessary, and growing in importance. Due to its high productivity, Vietnam is currently a net exporter of agricultural products. Besides rice, key exports are coffee (robusta), pepper (spice), cashews, tea, rubber, wood products, and fisheries products. In 2010, Vietnam was ranked 17 among all suppliers of food and agricultural products to the United States, a strong indicator of Vietnamís growing importance as a global supplier of key agricultural commodities. Agriculture's share of economic output has declined, falling as a share of GDP from 42% in 1989 to 21% in 2010, as production in other sectors of the economy has risen.
Vietnam's industrial production has also grown. Industry and construction contributed 41% of GDP in 2010, up from 27.3% in 1985. Subsidies have been cut, though state enterprises still receive priority access to resources, including land and capital. The government is also continuing the slow process of "equitizing" a significant number of smaller state enterprises--transforming state enterprises into shareholding companies and distributing a portion of the shares to management, workers, and private foreign and domestic investors. However, to date the government continues to maintain control of the largest and most important companies.
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