Vietnam’s SuccessApprox Read Time: 4 min
Vietnam’s success in containing Covid pandemic:
- Within days of China’s announcing the first case of Covid-19, Vietnam urged its 100 million citizens to identify carriers and trace contacts, contacts of contacts etc.
- Rapid isolation of outbreaks has kept Vietnam’s death rate among the four lowest in the world – well under one death per million people.
This allowed Vietnam get its businesses running:
- Containing the pandemic allowed Vietnam to quickly reopen businesses.
- Vietnam is now expected to be the world’s fastest growing economy this year.
- While more than 80 nations have gone to the International Monetary Fund for financial rescues, Vietnam is growing at a 3% annual pace.
- Even more impressively, Vietnam’s growth this year is driven by a record trade surplus (export boost), despite the collapse in global trade.
Vietnam’s development story: Vietnam’s Success
Vietnam has learnt from the “Asian miracles”:
- After World War II the “Asian miracles” – first Japan, then Taiwan and South Korea, most recently China – built themselves into manufacturing export powerhouses, and lifted themselves out of poverty.
- They grew rapidly for five straight decades, driven largely by export manufacturing.
- During their economic booms, export growth averaged close to 20% – nearly double the average for emerging nations at the time.
Vietnam is trying to repeat their success:
- Now, Vietnam is following the same path of Asian miracles, but in a much more difficult age.
- Vietnam has sustained a high pace of export growth for three decades.
- Even as global trade slumped in the 2010s, Vietnam’s exports grew 16% a year, three times the emerging world average.
- Over the last three decades, Vietnam’s average income increased fivefold to $3,000, surpassing countries such as India along the way.
- Even though the times are more difficult:
- Today, the era of rapid globalisation, with growing trade and investment flows, is over.
- Economic growth is slowing worldwide.
- The superpower nations are now more active in watching out for certain practices (like currency manipulation by China etc.) that earlier Asian economies followed on their fast-pace growth path.
- For example, the United States is currently investigating Vietnam for currency manipulation – the same charge that triggered the tariff war with China.
Vietnam has also seen more balanced development:
- Unlike most emerging countries, Vietnam has even managed to balance investment in social welfare with investment in export infrastructure.
- For a country at Vietnam’s stage of development, the share of the population living in poverty is unusually low, and the quality of infrastructure unusually high.
- For instance, the ratio of people living on less than $2 a day has fallen from 60% to less than 5%.
- Meanwhile the government invests heavily (about 8% of GDP) on building projects, including roads and ports.
- Lesson for India:
- The lesson for India is that the perceived tradeoff between economic growth and social equality, which says focus on economic growth will lead to inequality, is a false one.
- Rapid per capita GDP growth is what makes human development possible.
Exporting its way to development:
- Vietnam directs even foreigners’ money (like FDI) towards export manufacturing.
- Over the last five years, foreign direct investment has averaged more than 6% of GDP in Vietnam, the highest rate of any emerging country.
- Most of it goes to factories and related infrastructure, and most of it comes from fellow Asian countries, including South Korea, Japan and China.
Utilizing its skilled but cheaper labour:
- Vietnam has become a favourite destination for export manufacturers leaving China in search of cheaper labour.
- Despite the sharp increase in recent decades, wages are still half those of China, and the workforce is rather well-educated due to heavy spending on schools.
- Skilled labour is helping Vietnam move up the chain in manufacturing, towards the manufacture of increasingly sophisticated goods.
- Tech surpassed clothing and textiles as Vietnam’s leading export in 2015, and accounts for most of its record trade surplus this year.
Pushed for more open trade:
- Even in today’s protectionist era, Vietnam is pushing for more open borders.
- It is a signatory to more than a dozen free trade agreements (FTAs) – including a landmark deal recently signed with the European Union.
Can Vietnam continue its fast growth?
- While Vietnam has seen much progress in the past three decades, the question now is whether it can stay on the miracle path, in an age when growth is slowing worldwide.
Economic factors suggest it can:
- Experts say it is well placed to continue its fast growth path.
- Over the last five years, no country has increased its share of global exports more than Vietnam has.
- Most Vietnamese still live in rural areas, so the economy can continue to grow by shifting workers to urban factory jobs.
The nature of its government could be a problem:
- The long term threat to Vietnam may be autocratic rule. Vietnam’s ruling party has been in power nearly half a century.
- Autocrats can force rapid growth, but with unchecked power, their excesses often derail development, long before the nation emerges from the lower income classes.
Possible steps it could take:
- Transition to democracy:
- The early Asian miracles (Japan, Taiwan and South Korea) started out as autocracies, but transitioned to democracy on their way to prosperity.
- Vietnam might do so too.
- Reform its PSUs:
- The Vietnamese economy today remains largely free of the issues like large government deficits or public debts.
- However, the one problem could be that the state companies (PSUs) that are still owned by the government are huge, and account for nearly a third of economic output.
- These PSUs hold many of the bad loans in the banking system.
- Vietnam would do well by privatising or reforming its bloated state companies.
- There are perils on any development path for any country.
- For example, rising debts across the world that led to financial crises led to the end of sustained growth in Japan, South Korea and Taiwan, and now hang over China as well.
- For now, Vietnam looks like a new age ‘Asian miracle’, exporting its way to prosperity.