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Growth and Development in Vietnam
A Level Economics 2017
The State shall guarantee and
promote the People’s right to
mastery; to recognize, respect,
protect, and guarantee human
rights and citizens’ rights; and
to pursue the goal of a
prosperous people and a
strong, democratic, equitable,
and civilized country, in which
all people enjoy an abundant,
free, and happy life and are
given conditions for their
comprehensive development.
Article 3 of the 2013
Constitution of the Socialist
Republic of Vietnam
Vietnam’s Growth/Development Model
• Đoi Moi reforms (renovation) launched in 1986 – aimed
to create a socialist-oriented market economy
• Vietnam has made a transition from low to middle-
income country – the $1.90-a-day extreme poverty rate
fell from 50 percent in the early 1990s to 3 percent today
• Per capita income in Vietnam has gone from around $100
in the 1980s to about $2,100 in 2015, PPP is >$5,000
• Vietnam remains a one-party socialist state run by the
Communist Party but embracing free-market policies
• Strongly export-oriented – free trade deals with South
Korea, TPP signatory, EU FTA due in 2018, TTP signatory
• Growth model built on heavy inward investment and
rapid transition away from farming and low value textiles
Fastest growing countries in 2016
10.3%
8.07%
7.98%
7.62%
7.48%
7.17%
6.99%
6.92%
6.64%
6.59%
6.5%
6.49%
6.4%
6.1%
6.03%
0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0%
Iraq
Myanmar
Côte d'Ivoire
India
Lao P.D.R.
Tanzania
Cambodia
Bangladesh
Senegal
China
Djibouti
Ethiopia
Philippines
Vietnam
Bhutan
GDP growth compared to previous year
Real Economic Growth Rates
0
2
4
6
8
10
12
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Annual % change in real national output (GDP), Source: IMF
China Gross domestic product, constant prices
Vietnam Gross domestic product, constant prices
Progress in raising GNI per capita (PPP)
HDI Progress
HDI Progress
Can Vietnam be the next China?
Is Vietnam following the Chinese model?
• China’s ”authoritarian capitalist model of development” – a
hybrid form of capitalism
• Builds on earlier, state-centered Asian models of
development such as in South Korea and Taiwan
1. Emphasis on gradual reforms rather than shock therapy
2. 5 year plans to set priorities / send signals – establish a
blueprint for development and changes in growth drivers
3. Control of the exchange rate / capital controls
4. Government ownership/control of strategic industries
5. Heavy investment in primary education
6. Focus on cutting extreme poverty / rural/urban divide
7. Favourable environment for inward foreign investment
8. Special Economic Zones / export driven growth
Is Vietnam different from China?
• A socialist-oriented “market economy”
• Country has maintained more of their pre—communist
traditions / cultures
• Higher ratio of domestic consumption / GDP
• More willing to operate a floating currency
• Significantly higher export/GDP ratio
• Strong connections with the United States (biggest
export partner + military ties)
• Suggestions of deeper entrepreneurial culture
• Slower than China to privatize state-owned businesses
Growth Drivers
Inward FDI Trade surplus
Rising per
capita incomes
Emerging
middle class of
consumers
Favourable
demographics
Increasing
factor
productivity
Investment in
tourism
State
investment in
infrastructure
Rapid
urbanization
Key Drivers of Growth in Vietnam
Capital Investment (% of GDP)
0
10
20
30
40
50
60
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Gross Investment at constant prices as % of GDP, Source: IMF
China Total investment Vietnam Total investment
Vietnam has large infrastructure needs – capital investment probably has to rise
to 30-35% of GDP but this will require an increase in the national savings rate
FDI into the Vietnamese Economy
Two examples:
LG Display in Hai
Phong ($1.5 billion),
Samsung R&D Centre
($300 million)
Human Capital
Health Spending (% of GDP)
Vietnam: Urbanization from 2005 to 2015
27.28% 27.89% 28.5% 29.13% 29.76% 30.39% 31.03% 31.67% 32.31% 32.95% 33.59%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Share of total population
Vietnam: Demographics
Vietnam is the world’s 13th most populous country, with a population of over
90 million people with a median age of 30.
24.5 23.6
21.8
19.1
18.1 18.3 19
20
21
22.2
24.2
26.4
28.5
30.4
32.6
0
5
10
15
20
25
30
35
Medianageinyears
Vietnam – an increasingly open economy
Trade for Vietnam accounts for roughly 180% of national output,
more than any other country at its level of per-capita GDP.
Rapid Growth of trade for Vietnam
-5
0
5
10
15
20
25
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Annual % change in volume of exports and imports of goods/services
Vietnam Volume of Imports of goods Vietnam Volume of exports of goods
Vietnam - Manufacturing Competitiveness
• Ranked 18th/40 countries for manufacturing by
Deloitte in 2016, forecast 12th by 2020
• Labour costs per hour: $1.96/hour
• Labour productivity: $8,935.90 GDP/person
• Manufacturing exports (2014) $107.9bn
equivalent to 72% of total Vietnamese exports
• Vietnam’s geographical location favours regional
supply chain integration (proximity matters a lot
in trade!)
Manufacturing Competitiveness Ranking
Regional Manufacturing Clusters
Vietnam’s Goods Export Structure
Pattern of Vietnamese Goods Exports
The Rapid Growth of Tourism
Tourism is a key part of their growth strategy
Vietnam: Most important export partners in 2015
21.2%
13.3%
8.4%
5.5%
4.1%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
United States China Japan South Korea Germany
Shareintotalexport
Vietnam’s Current Account
• Current account surplus adds to AD
• Strong net inflows of remittances
from Vietnam’s diaspora
• High levels of FDI into Vietnam help
explain negative investment income
• Strong trade surplus in goods – the
result of export oriented growth
Official currency (managed float) and black market exchange rate!
Short & Long Run Barriers to Growth in Vietnam
Vietnam remains a small economy!
0.00
5,000.00
10,000.00
15,000.00
20,000.00
25,000.00
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Value of annual GDP, PPP adjusted
China Gross domestic product based on purchasing-power-parity (PPP) valuation of country GDP
Vietnam Gross domestic product based on purchasing-power-parity (PPP) valuation of country GDP
Environmental Challenges
Barriers to Doing Business (WEF)
Dual economy – low productivity farming
Vietnam
South China Sea Tensions
Vulnerability to climate change
Exposure to slowdown in US, China, Japan
and South Korea
Under-developed land and capital markets
Robotics & future of manufacturing
Low productivity agriculture (a clear dual
economy)
Over-reliance on FDI (Mexican Effect)
De-globalisation / rising protectionism
Middle Income Trap
Middle Income Trap
Growth rates may slow
significantly before a nation
transitions to high income
• Productivity slowdown
• Limits to factor input
driven economic growth
• Institutional reforms take
too long
• Demographics start to bite
• Higher inflation and
financial instability
• Countries fail to move to
productivity and
innovation driven growth
• High inequality can
dampen domestic
consumption / internal
growth and hamper
innovation & investment
Growth and Development in Vietnam
A Level Economics 2017
Economic Growth and Development in Vietnam
Key Macro Data
Latest annual GDP
Growth (%)
6.7%
GDP or GNI per capita
(US $, PPP)
$6,558
Inflation (%) 4.6%
Unemployment rate
(% of labour force)
2.2%
Fiscal balance
(% of GDP)
-5.5%
Govt debt (% of GDP) 58.3%
Yield on 10-Yr Govt
Bonds (Per Cent)
Investment
(% of GDP)
28%
Gross national savings (%
of GDP)
Background Information
Currency unit Dong
Exchange rate system
Semi-
Fixed
Policy interest rate 6.5%
Member of a Regional
Trade Agreement
ASEAN
& TPP
WTO Member
Joined
2007
Corporate tax rate (Per
Cent)
20%
Competitiveness rank 56th
Corruption Perception
Ranking
113rd
Ease of Doing Business
Ranking
82nd
External Debt
(% of GDP)
Aspects of Development
Latest HDI ranking 115th
Income inequality HDI
ranking
Gender inequality HDI
ranking
71st
% of population living in
extreme poverty
Life Expectancy at birth
(years)
73M /
77F
Gini coefficient (Latest
published estimate)
0.36
Inward FDI (% of GDP) 5.2%
Remittances (% of GDP)
Aid (% of GDP)
Contextual Background on Vietnamese Economy
Economic Structure
Share of GDP by value added (% of GDP)
Primary: 17%
Industrial: 33%
Services: 50%
Main export industries (+ major firms)
Textiles, apparel
Mobile phones (20% of exports in 2016)
Television screens, tourism
Key drivers of economic growth
13th most populous country, with a population of
over 90 million people with a median age of 29
High inward investment + rapid productivity gains
Emerging middle class – driving consumption
Development and Growth Issues / Policies
3 factors limiting development progress
Inefficient state-owned enterprises
Fragile banking system, fast-growth of debt
Environmental challenges
3 policies used to improve the supply-side
Privatisation of state-enterprises
Continued high spending on education & health
Public Private Partnerships for infrastructure I
Long term challenges facing this country
Avoiding the middle income trap
Raising productivity in the farm sector
Vulnerability to the effects of climate change

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Economic Growth and Development in Vietnam

  • 1. Growth and Development in Vietnam A Level Economics 2017
  • 2. The State shall guarantee and promote the People’s right to mastery; to recognize, respect, protect, and guarantee human rights and citizens’ rights; and to pursue the goal of a prosperous people and a strong, democratic, equitable, and civilized country, in which all people enjoy an abundant, free, and happy life and are given conditions for their comprehensive development. Article 3 of the 2013 Constitution of the Socialist Republic of Vietnam
  • 3. Vietnam’s Growth/Development Model • Đoi Moi reforms (renovation) launched in 1986 – aimed to create a socialist-oriented market economy • Vietnam has made a transition from low to middle- income country – the $1.90-a-day extreme poverty rate fell from 50 percent in the early 1990s to 3 percent today • Per capita income in Vietnam has gone from around $100 in the 1980s to about $2,100 in 2015, PPP is >$5,000 • Vietnam remains a one-party socialist state run by the Communist Party but embracing free-market policies • Strongly export-oriented – free trade deals with South Korea, TPP signatory, EU FTA due in 2018, TTP signatory • Growth model built on heavy inward investment and rapid transition away from farming and low value textiles
  • 4. Fastest growing countries in 2016 10.3% 8.07% 7.98% 7.62% 7.48% 7.17% 6.99% 6.92% 6.64% 6.59% 6.5% 6.49% 6.4% 6.1% 6.03% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% Iraq Myanmar Côte d'Ivoire India Lao P.D.R. Tanzania Cambodia Bangladesh Senegal China Djibouti Ethiopia Philippines Vietnam Bhutan GDP growth compared to previous year
  • 5. Real Economic Growth Rates 0 2 4 6 8 10 12 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Annual % change in real national output (GDP), Source: IMF China Gross domestic product, constant prices Vietnam Gross domestic product, constant prices
  • 6. Progress in raising GNI per capita (PPP)
  • 7.
  • 10. Can Vietnam be the next China?
  • 11. Is Vietnam following the Chinese model? • China’s ”authoritarian capitalist model of development” – a hybrid form of capitalism • Builds on earlier, state-centered Asian models of development such as in South Korea and Taiwan 1. Emphasis on gradual reforms rather than shock therapy 2. 5 year plans to set priorities / send signals – establish a blueprint for development and changes in growth drivers 3. Control of the exchange rate / capital controls 4. Government ownership/control of strategic industries 5. Heavy investment in primary education 6. Focus on cutting extreme poverty / rural/urban divide 7. Favourable environment for inward foreign investment 8. Special Economic Zones / export driven growth
  • 12. Is Vietnam different from China? • A socialist-oriented “market economy” • Country has maintained more of their pre—communist traditions / cultures • Higher ratio of domestic consumption / GDP • More willing to operate a floating currency • Significantly higher export/GDP ratio • Strong connections with the United States (biggest export partner + military ties) • Suggestions of deeper entrepreneurial culture • Slower than China to privatize state-owned businesses
  • 13. Growth Drivers Inward FDI Trade surplus Rising per capita incomes Emerging middle class of consumers Favourable demographics Increasing factor productivity Investment in tourism State investment in infrastructure Rapid urbanization Key Drivers of Growth in Vietnam
  • 14. Capital Investment (% of GDP) 0 10 20 30 40 50 60 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Gross Investment at constant prices as % of GDP, Source: IMF China Total investment Vietnam Total investment Vietnam has large infrastructure needs – capital investment probably has to rise to 30-35% of GDP but this will require an increase in the national savings rate
  • 15. FDI into the Vietnamese Economy Two examples: LG Display in Hai Phong ($1.5 billion), Samsung R&D Centre ($300 million)
  • 18. Vietnam: Urbanization from 2005 to 2015 27.28% 27.89% 28.5% 29.13% 29.76% 30.39% 31.03% 31.67% 32.31% 32.95% 33.59% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Share of total population
  • 19. Vietnam: Demographics Vietnam is the world’s 13th most populous country, with a population of over 90 million people with a median age of 30. 24.5 23.6 21.8 19.1 18.1 18.3 19 20 21 22.2 24.2 26.4 28.5 30.4 32.6 0 5 10 15 20 25 30 35 Medianageinyears
  • 20. Vietnam – an increasingly open economy Trade for Vietnam accounts for roughly 180% of national output, more than any other country at its level of per-capita GDP.
  • 21. Rapid Growth of trade for Vietnam -5 0 5 10 15 20 25 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Annual % change in volume of exports and imports of goods/services Vietnam Volume of Imports of goods Vietnam Volume of exports of goods
  • 22. Vietnam - Manufacturing Competitiveness • Ranked 18th/40 countries for manufacturing by Deloitte in 2016, forecast 12th by 2020 • Labour costs per hour: $1.96/hour • Labour productivity: $8,935.90 GDP/person • Manufacturing exports (2014) $107.9bn equivalent to 72% of total Vietnamese exports • Vietnam’s geographical location favours regional supply chain integration (proximity matters a lot in trade!)
  • 26. Pattern of Vietnamese Goods Exports
  • 27. The Rapid Growth of Tourism Tourism is a key part of their growth strategy
  • 28.
  • 29. Vietnam: Most important export partners in 2015 21.2% 13.3% 8.4% 5.5% 4.1% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% United States China Japan South Korea Germany Shareintotalexport
  • 30. Vietnam’s Current Account • Current account surplus adds to AD • Strong net inflows of remittances from Vietnam’s diaspora • High levels of FDI into Vietnam help explain negative investment income • Strong trade surplus in goods – the result of export oriented growth
  • 31. Official currency (managed float) and black market exchange rate!
  • 32. Short & Long Run Barriers to Growth in Vietnam
  • 33. Vietnam remains a small economy! 0.00 5,000.00 10,000.00 15,000.00 20,000.00 25,000.00 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Value of annual GDP, PPP adjusted China Gross domestic product based on purchasing-power-parity (PPP) valuation of country GDP Vietnam Gross domestic product based on purchasing-power-parity (PPP) valuation of country GDP
  • 35. Barriers to Doing Business (WEF)
  • 36. Dual economy – low productivity farming Vietnam
  • 37. South China Sea Tensions
  • 38. Vulnerability to climate change Exposure to slowdown in US, China, Japan and South Korea Under-developed land and capital markets Robotics & future of manufacturing Low productivity agriculture (a clear dual economy) Over-reliance on FDI (Mexican Effect) De-globalisation / rising protectionism
  • 39. Middle Income Trap Middle Income Trap Growth rates may slow significantly before a nation transitions to high income • Productivity slowdown • Limits to factor input driven economic growth • Institutional reforms take too long • Demographics start to bite • Higher inflation and financial instability • Countries fail to move to productivity and innovation driven growth • High inequality can dampen domestic consumption / internal growth and hamper innovation & investment
  • 40. Growth and Development in Vietnam A Level Economics 2017
  • 41. Economic Growth and Development in Vietnam Key Macro Data Latest annual GDP Growth (%) 6.7% GDP or GNI per capita (US $, PPP) $6,558 Inflation (%) 4.6% Unemployment rate (% of labour force) 2.2% Fiscal balance (% of GDP) -5.5% Govt debt (% of GDP) 58.3% Yield on 10-Yr Govt Bonds (Per Cent) Investment (% of GDP) 28% Gross national savings (% of GDP) Background Information Currency unit Dong Exchange rate system Semi- Fixed Policy interest rate 6.5% Member of a Regional Trade Agreement ASEAN & TPP WTO Member Joined 2007 Corporate tax rate (Per Cent) 20% Competitiveness rank 56th Corruption Perception Ranking 113rd Ease of Doing Business Ranking 82nd External Debt (% of GDP) Aspects of Development Latest HDI ranking 115th Income inequality HDI ranking Gender inequality HDI ranking 71st % of population living in extreme poverty Life Expectancy at birth (years) 73M / 77F Gini coefficient (Latest published estimate) 0.36 Inward FDI (% of GDP) 5.2% Remittances (% of GDP) Aid (% of GDP)
  • 42. Contextual Background on Vietnamese Economy Economic Structure Share of GDP by value added (% of GDP) Primary: 17% Industrial: 33% Services: 50% Main export industries (+ major firms) Textiles, apparel Mobile phones (20% of exports in 2016) Television screens, tourism Key drivers of economic growth 13th most populous country, with a population of over 90 million people with a median age of 29 High inward investment + rapid productivity gains Emerging middle class – driving consumption Development and Growth Issues / Policies 3 factors limiting development progress Inefficient state-owned enterprises Fragile banking system, fast-growth of debt Environmental challenges 3 policies used to improve the supply-side Privatisation of state-enterprises Continued high spending on education & health Public Private Partnerships for infrastructure I Long term challenges facing this country Avoiding the middle income trap Raising productivity in the farm sector Vulnerability to the effects of climate change

Editor's Notes

  1. Vietnam is an economy in transition, transforming from a state-dominated, centrally planned system into one increasingly driven by market forces and owned by the private sector
  2. Vietnam was the only lower-middle-income member in TPP Vietnam is a country of 90 million people, the 14th most populous on the planet. Vietnam’s location on the easternmost edge of the Indochinese peninsula makes it a vital link between East, Southeast, and South Asia. Vietnam has been ranked among the five countries likely to be most affected by climate change / changing weather patterns and natural disasters – over 1% of GDP is lost every year to extreme weather events such as floods and droughts
  3. Doi-Moi (pronounced Dough-Moy)
  4. A booming economy has produced all the typical imbalances of rapid development – wide-scale corruption, income inequality and growing disparities between urban and rural areas, as well as the kinh majority and numerous ethnic minorities
  5. Can Vietnam continue to achieve gains in real per capita incomes similar to the Chinese path? Vietnam’s growth pattern shows striking similarities with China’s development a decade ago.  Vietnam has become China’s manufacturing outsourcing hub of choice One Belt One Road initiative will increase flow of Chinese goods into Vietnam but also help Vietnam with burgeoning electronics sector
  6. Viet Nam’s HDI value for 2015 is 0.683— which put the country in the medium human development category—positioning it at 115 out of 188 countries and territories. Its per capita GDP growth since 1990 has been among the fastest in the world, surpassed only by China.
  7. Between 1990-2015, Vietnam’s life expectancy at birth increased by 5.4 years, mean years of schooling increased by 4.1 years and expected years of schooling increased by 4.8 years
  8. Vietnam’s young, large and educated population – the literacy rate is 94% – also helps explain the export boom. Manufacturers can establish and run a factory relatively easily, says Tom Nelson of clothing group VF, owner of the Timberland brand
  9. FDI is on track for another record year in 2016 – attracted by low costs, improving infrastructure and skills and a deregulated business environment increasingly open to 100% foreign ownership - large FDI inflows into Vietnam are linked, in part, to a shift in low-wage production from China South Korea was the main source of FDI in 2016. investing over $7 billion in Vietnam Two economies within one country? Domestic businesses not contributing much deeper through the supply chain
  10. In the Programme for International Student Assessment (PISA) study, even though Vietnam had the lowest GDP per capita, the performance of its students exceeded many OECD countries. Vietnam’s mean score in mathematics, for example, was above that of Austria and just below that of Germany. Vietnam’s measured scores were boosted because about one-fourth of Vietnamese students are no longer in school by age 15 and lower-performing students are more likely to have dropped out.
  11. Reflected in lower maternal mortality than for lower middle income countries +
  12. Urbanization generally helps frontier economies become more productive, as cities encourage economies of scale in production and distribution, and firms tend to benefit from knowledge transfers and a larger, more diverse labor pool when they are surrounded by lots of other companies. Urbanisation: Vietnam already has some very large cities (someone quoted 10m in Hanoi - with 8m motorbikes!). 
  13. Trade accounts for roughly 180% of national output, more than any other country at its level of per-person GDP
  14. Vietnam’s exports amounted to $150 billion in 2014 (equivalent to 80 percent of GDP), three- quarters of which were manufactured goods. Most of these exports are powered by FDI, the stock of which now stands at more than $250 billion, sourced from more than 100 countries.
  15. Vietnam is one of the main beneficiaries of the stage of development currently underway in the region, whereby export-oriented manufacturers, especially large North Asian corporate groups, need to find a new, less costly base for their production as factor production costs increase in China.
  16. MITIV - Malaysia, India, Thailand, Indonesia and Vietnam - all these countries have a competitive advantage over China in the manufacture of labour intensive commodity type products like apparel, toys, textiles and basic consumer electronics
  17. Graduation from middle income to high income requires a diverse and sophisticated product mix. Vietnam needs to diversify its trade partners to avoid strong dependency on China High-tech manufactured goods (especially mobile phones and electronics) now represent 30% of total exports, compared with less than 10% in 2010. World’s largest exporter of cashews and black pepper, 2nd largest exporter of coffee and cassava and 3rd largest exporter of rice and fisheries.
  18. Their primary source of tourists is China, where it used to have more significant Russian component Vietnam’s mountains and coastal landscapes make it an attractive tourism destination, a potential that is far from fully tapped.
  19. For Vietnam to succeed in its growth and economic modernization ambitions, its cities need to do more to nurture private enterprise and innovation, support the growth of industrial clusters integrated with global value chains, and attract and agglomerate talent
  20. Vietnam operates a managed floating exchange rate – the external value of the Dong is adjusted daily to a basket of foreign currencies and fluctuating by a maximum of 3% around a trading band with the USD. Many places also accept USD, but the merchant will apply their own XR which tends not to be favourable!
  21. A large part of Vietnam’s protective mangrove forests has been destroyed, while overfishing has seriously depleted the nearshore fisheries, posing threats to livelihoods. Removing natural forests in some upland areas has contributed to more frequent and severe flooding of lower altitude farms and human settlements. Finally, Vietnam is one of the world’s most vulnerable countries to climate change, with adaptation challenges accordingly severe, especially in the Mekong Delta Agriculture already uses 82% of available freshwater in Viet Nam
  22. There are few joint ventures (around 80 percent of FDI in Vietnam is in 100-percent foreign invested companies), and the vertical link between FDI and local companies is weak (only about a quarter of inputs in FDI are purchased in Vietnam, of which a significant proportion is from other foreign-invested companies China is significantly bigger – gives the country more bargaining power with MNCs
  23. Vietnam is an economy in transition, transforming from a state-dominated, centrally planned system into one increasingly driven by market forces and owned by the private sector