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Vietnam - Economy

Vietnam on 27 December 2020 reported economic growth of 2.91 percent for this year, the slowest rate in more than 30 years as the country battled the COVID-19 pandemic. The communist state has long been among Asias fastest-growing economies and this years figure marked a sharp fall from last years GDP growth of 7 percent. However, Vietnams performance looks rosy in the context of a global recession triggered by the pandemic and officials hailed it as a huge success.

While many countries have suffered from high infection and mortality rates, Vietnam population 96 million has recorded fewer than 1,500 novel coronavirus cases and only 35 deaths. Mass quarantines, extensive contact-tracing and strict controls on movement have allowed the country to keep factories largely open and get people back to work swiftly. The official figures beat the IMFs forecast of 2.4 percent growth for Vietnam. The IMF had predicted a global contraction of 4.4 percent.

The World Bank said that Vietnam might enjoy more success next year. Looking ahead, Vietnams prospects appear positive as the economy is projected to grow by about 6.8 percent in 2021 and thereafter stabilize at around 6.5 percent, the bank said in a recent report. Vietnam is to strive for economic growth of 6.5 percent next year, a goal that would exceed its official target of 6 percent growth, according to a post on the governments Web site, which cited Vietnamese Prime Minister Nguyen Xuan Phuc during a conference with local officials.

The Trans-Pacific Partnership requires members to adopt strong labor provisions, including freedom of association, allowances for collective bargaining and zero tolerance for child and forced labor. US lawmakers have stressed that Vietnam should not be granted TPP membership until it makes significant labor and human rights reforms. Vietnam has shown no signs of compromising on this. Vietnam has never wanted to make changes regarding the right to establish independent trade unions.

Vietnam's graduation from the Poverty Reduction and Growth Trust (PRGT) was a positive signal for the international markets and investors. Although Vietnam attained most of the targets set by the Millennium Development Goals and become a lower middle-income country, concessional loans were still necessary for Vietnam to maintain economic achievements in a sustainable manner.

Given unfavorable developments in global commodity prices and financial markets, Vietnams economy continued its growth trends for the first 9 months of 2015 in all sectors. GDP growth in the first 3 quarter was estimated at 6.5%, which is the highest level in 5 years, with the most contribution from industry sector (processing and manufacturing). During the first nine months, inflation continued to be well contained at the lowest level over the previous 10 years. Macro-economic stability was strengthened. Interest rate was managed in line withinflation and macroeconomic developments; which helped stabilize VND value, and foreignexchange market.

Government policies introduced during 2014 and early 2015 have proven their efficiency in supporting businesses to overcome economic difficulties, paving the way for Vietnam to conclude the development targets set out for 2015. Restructuring of the banking system and NPLs resolution have been conducted in accordance with the set roadmap which created positive effects, contributing to the stability of the financial system and macroeconomic conditions. The Vietnamese government pledged to continue the restructuring of important sectors to support a wealthy and sustainable development of Vietnam.

In 2012, Prime Minister Nguyen Tan Dung signed a decision that laid out a national strategy for science and technology. It projected that by 2020, the value of high-tech products and applications should make up 45 percent of Vietnams gross domestic product. In recent years the country succeeded in drawing big names like Microsoft, Samsung, and Intel. All three are making Vietnam a major link in their global manufacturing networks. Thats a sign that Vietnam has some desirable traits to help it develop a tech sector. Investors are drawn to this nation of 90 million people because of low wages, its location near China and key shipping lanes, its emphasis on consensus and teamwork, and its entrepreneurial work ethic.

Vietnam's economy was 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.

One of the main culprits is inefficient, opaque spending by State Owned Enterprises, or SOEs, which account for nearly 40 percent of Vietnam's GDP. SOE leaders, largely entrenched Party insiders, resist the reform agenda and have deep and powerful connections to current and past top leaders.

By 2010 economic uncertainty had increased the pressure on the Vietnamese authorities. Long focused on growth, the government shifted towards stabilising an economy facing a complicated mix of challenges including a struggling currency and trade deficit as well as increasingly high prices. Vietnam's inflation was among the highest in the world and even official media said the number of strikes was soaring as workers struggled to cope. A credit squeeze aimed at taming accelerating prices ramped up the cost of borrowing, hitting small businesses. Public distress over the economy was bubbling to the surface. The prime minister and the minister of public security did not want any voice of dissent coming out in this critical period.

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, Vietnams exports ($70 billion) were up by 23% compared to the same period in 2010. Vietnams 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 Vietnams 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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Page last modified: 08-01-2021 13:58:04 ZULU