Overview of Vietnamese economy (Part 2)

The beginning period of renovation cause (1986-1991)

The meetings of the Politburo and of the 5th Party Central Committee from July to December 1986 all concentrated on compiling and approving the Political Report to submit to the 6th National Congress.

The Congress pointed out the mistakes and shortcomings in the socio-economic guidelines. These included subjectivism in approaches, voluntarism, simple and mean actions.

The 6th National Congress set forth the renovation guidelines. First, the economic thinking was renovated: recognizing a multi-sector economy; abolishing the economic management regime based on central plans and subsidy, constructing a new mechanism compatible with the objective rules and the development level of the economy; fully and correctly applying the commodity-currency relationship; production must be connected with the market and must protect the legitimate interests of laborers.

The Congress put a special emphasis on improving and enhancing the effectiveness of external economics.

In building a new management system, a big reform in the State apparatus was carried out (to clearly differentiate the State’s administrative-economic function from the function of production and business control).

On April 5, 1988, the Politburo launched Resolution 10-NQ/TW on the reform of agricultural management (called Contractual system 10). Families of the cooperative members became economic entities. They had absolute right to their land and the yield they produced. Apart from the contract-based land and other contracts signed with the cooperatives, they were then allowed to actively produce and do business under various forms that used to be impossible. The Resolution signaled a turning point in agricultural development in Việt Nam.

In March 1989, the 6th Plenum of the 6th Party Central Committee released a resolution on 12 major policies designed to strengthen the renovation process with an emphasis on the most important issues of adjusting economic management, concentrating on the key targets of three economic programs (agricultural production, consumer goods, and exports), consistently conducting the policy of a multi-sector economy, developing all production capacities, strongly shifting to business accounting and focusing on the market, considering it the basis and the object of the planning.

The break out of a serious crisis

When the two resolutions were adopted, the socio-economic situation of the country improved. In 1990, the inflation rate slumped to 67.4%; agriculture production underwent a sudden mutation: the food yield reached 17.5 million tons (1987), 19.5 million (1988) and 20.5 million (1989).

From 1989, for the first time, Việt Nam exported food in her foreign trade, unlike the colonial period when over 1 million tons of rice were transported overseas annually. Vietnam exported 1.5 million tons every year. Until 1988, Vietnam still had to import 450,000 tons of rice. By 1999, Vietnam had exported over 4 million tons of rice, becoming the second biggest exporter, after Thailand that exported 7.4 million tons in 2002. In 2005, Việt Nam exported over 5 million tons of rice.

After five years of implementing the renovation launched by the 6th Party Congress, some first important success was achieved. In June 1991, the 7th Party Congress was held, approving the Political program for national construction in the transitional period to socialism and the Strategy for socio-economic stability and development to 2000.

The Strategy for socio-economic stability and development to 2000 was to “get over the crisis, stabilize the socio-economic situation, try to get out of the status of a poor, under-developed country, improve people’s lives, strengthen national defense and security, create favorable conditions for the country to develop at a faster pace in the early 21st century, make a double increase in GDP compared with 1990.”

In realizing this strategy, within five years (1991-1995), Việt Nam gained increases of 8.2% in GDP, of 13.3% in industry, of 4.5% in agriculture, and of 20% in export turnover with a reduction in inflation from 67.1% in 1991 to 12.7% in 1995, creating over 1 million jobs every year.

The period of industrialization and modernization

In July 1996, the 8th National Party Congress was held, summing up 10 years of implementing the renovation policy and discussing solutions to bring the country into the period of industrialization and modernization.

The Congress pointed out that: “Our country has overcome the socio-economic crisis, but there still exist many shortcomings. The task set for the first stage of the transitional period, which is to prepare fundamental premises for industrialization, has basically been fulfilled, enabling us to move on to a new stage that is, to promote the cause of national industrialization and modernization. The target of the industrialization and modernization cause is to build our country into an industrial nation with a modern technical foundation, a proper economic structure, a progressive production relation compatible with the development level of the production force, a decent spiritual and material life, a firm national defense and security, wealthy people, a powerful country, and an equal and civilized society. From now to 2020, we must make every effort to turn our country into an industrial nation.”

In the 1996-2000 period, GDP increased by an average of 6.94%, agriculture saw an annual increase of 1 million tons, industry rose by an average of 13.5%, gross domestic product increased two times in comparison with 1990.

In addition, despite the devastating natural disasters in the years 2000 and 2001, the socio-economic development tempo still increased by 7% and 6.8% respectively.

In April 2001, the 9th National Party Congress was held, in which the Resolution on strategic targets in socio-economic development to the year 2010 was passed. The targets included: “To bring our country out of the underdeveloped situation, considerably improve the people’s material, cultural, spiritual lives, lay the foundation for our country to become a modern industrial one by the year 2020. Human resource, scientific-technological capability, infrastructure, economic, military, and security potentials are reinforced; the socialist-oriented market economy is basically formed; Việt Nam’s status in the international arena is hightened.”

For five years (2001-2005), the targets of the socio-economic development set by the 9th Party Congress were achieved: GDP growth rate increased by years (approximately 7.5%); macro economy stabilized; major relations and balances in the economy (accumulation-consumption, budget receipts and expenses) significantly improved; GDP mobilized for State budget over-fulfilled; total investment capital rapidly increased; many important projects put into operation.

Economic structure continued to be shifted to modernization and industrialization. By 2005, proportion of industry and construction was 41%, agro-forestry-fishery: 20.5%, and services: 38.5%. External economy was improved: total export turnover accounted for 50% of GDP.

Vietnam’s renovation cause has been carried out for nearly 20 years. During this period, the country has obtained many considerable achievements in different aspects, improving the country’s situation and people’s life.

* Vietnam has got out of its crisis, the economic growth rate constantly increases by years:

-          Agro-forestry-fishery sector has risen up by 5.5% per year on average; food production increased fast from 19.5 million tons in 1988 to 21.7 million in 1991, 32.1 million in 2001 and 39.2 million in 2005. After 19 years, the country produced 20 million tons of food to feed nearly 84 million people and 5 million tons of rice for national reserve. Việt Nam ranks second in exporting rice, cashew nut and coffee, fourth in rubber and first in cashew nuts;

-          Industry and construction have continuously gained a high growth rate. The production structure, product quality and competitiveness have been improved; industrial production value has gone up by 15% per year and the surplus value by 10%. Some products can compete on domestic and foreign markets;

-          Services have been developed in scope, branches and market. Their efficiency has been raised, attracting the participation of different economic sectors. The sector’s production value has increased by over 7.5% per year. In 2005, the surplus value reached 8.5%, higher than GDP (8.4%);

* Economic structure has been actively shifted to industrialization and modernization; production compatible to market;

-          Agro-forestry-fishery’s proportion was reduced from 46.3% in 1988 to 20.9% in 2005;

-          Proportion of industry and construction rose rapidly and constantly from 21.6% in 1988 to 41% in 2005. For the first time, in 2005, 20 million tons of crude oil were exploited. Processing industry accounts for 80% of the industrial yield;

-          Proportion of the service sector went up from 33.1% in 1988 to 38.1% in 2005. Tourism, post and telecommunication, banking, finance and currency, legal consultancy have developed fast;

-          Labor structure has been changed. Labor force in agro-forestry-fishery decreased from 73% in 1990 to 56.8% in 2000 but increased from 12.1% to 17.9% and from 19.7% to 25.3% in the same duration in industry-construction and services respectively. The number of trained laborers also rose from 20% in 2000 to 25% in 2005;

* The guideline to develop a multi-sector economy has been carried out effectively; potential of different economic sectors have been brought into play:

-          State-run economy has been restructured; the management method renewed to improve business quality and efficiency; key branches and fields of the economy focused. In 1990, the number of State-run enterprises was 12,084. After ten years of restructuring (1995-2005), there remained 2,980 enterprises with 100% of State capital and 670 joint-stock companies in which the State holds 51% of the charter capital. In 2005, State-run enterprises contributed 38.5% GDP and about 50% of the total State budget;

-          Non-State economy has developed quick. By the early 2006, Việt Nam had 170,000 non-State enterprises. In 2005, this sector accounted for 46% GDP, in which cooperative economy contributed 87% and private economy 38%;

-          FDI economy, with a high growth rate, has become an important component of the national economy. Per capita FDI in Việt Nam is higher than in China and India (according to the Sun Times in Hong Kong, 28-29 April 2006). FDI is the important bridge to the world in the fields of technological transfer and international exchange. In 2005 only, this sector contributed 15.5% GDP, over 7.5% of the total State budget, over 17.1% of the total social investment capital, over 23% of export turnover (excluding oil and gas), achieving over 35% of the industrial production value and attracting over 900,00 direct laborers and millions of indirect employees;

* Socialist-oriented market economy has been formed and macro economy stabilized:

-          Over the past 20 years, the system of laws, policies and regime of a socialist-oriented market economy have been set up. Operations of different kinds of enterprises in the multi-sector economy and the State management apparatus have been renovated. The State has gradually separated the State management function over economy from the business function of enterprises, shifting from direct intervention into the economy and enterprises’ activities to indirect intervention through laws, plans, regimes, policies and other macro regulating instruments;

-          Fundamental kinds of markets have been developed and controlled properly under a new mechanism. The commodity market has developed in a large scale and at high rate. The markets of services, labor, science and technology, and fixed asset have been formed;

-          The economy’s macro balances have been stabilized, creating a favorable environment and conditions for economic development;

-          Financial potential has been strengthened, budget collection increased by 18% per year and the average expense for development investment reached about 30% of the total budget expenditure. The commodity-currency is proper, ensuring primary goods for production and life. The average increase of consumption prices increases is lower than the growth of GDP.

* International and regional integration and external economy have achieved considerable results:

-          Vietnam has joined the ASEAN, fulfilling her commitments on AFTA;

-          In 1990, bilateral trade agreements were signed with many countries;

-          The Vietnam -EU Trade Agreement was signed in 1995;

-          In 1998, Vietnam was one of the initiators and first members of APEC;

-          In 2001, the Vietnam -US Trade Agreement made;

-          By 2005, Vietnam  established commercial relations with 221 countries and territories;

-          In November 2006, Vietnam became a full member of WTO;

-          Export and import have increased rapidly in scope and rate. The total export turnover reached US$ 25 billion in 2005 against US$ 1 billion per year before 1986;

-          In the period 2000-2005, import increased by 19% annually; excess of imports over exports is now US$ 4 billion per year.

* Soundly developing economy and dealing with social issues, so the life of the majority of people has been improved:

-          The relationship between economic growth and cultural development has been effectively dealt with; social progress and equality realized; opportunities for development broadened to different economic sectors and social strata; citizen’s creativity and initiative raised;

-          Job generation and poverty reduction has achieved promising results, surpassing the millennium development targets set by the UN. During 2000-2005, 7.5 million jobs were created. By 2005, unemployment in urban areas remained 5.3%. The proportion of time spent by peasants on farm work in rural areas reached 80%. Poverty rate was reduced from 50% in 1990 to 7% in 2005 (the criteria for poverty has been raised from US$ 1/person/day to US$ 2/person/day).

Economic structure and growth after 20 years of renovation (1986-2006)

GDP growth rate and structure (%)

Per capita GDP (in US$)

Human development index increased from 0.498 in 1990 to 0.688 in 2002. In 2005, Việt Nam ranked 112 among 177 surveyed countries.

Some basic targets of socio-economic development (2006-2010):

GDP growth doubles that of 2000; domestic economic accumulation reaches over 30% of the GDP; annual growth rate stays at least at 7.5-8%; per capita income should be from US$ 1,050 to US$ 1,100; proportion of agriculture-forestry-fishery in GDP should be 15-16%; of industry: 42-43%; of service: 41-42%; social investment capital reaches about 37-38%; GDP mobilization to the budget: 21-22%; agricultural workers should account for only 50% of the work force; population growth rate goes down to 1.1%; the rate of unemployment in urban areas reduces to less than 5%; about 80-85% of working time in rural areas is used; 40% of the population are vocationally trained; junior secondary education is universalized; the rate of malnourished children below 5 years old reduces to 20%; life expectancy attains 72.

Programs and solutions for socio-economic development by 2010

Vietnam’s overall target in the current stage is to maintain a high and sustainable economic growth rate, making the GDP of 2010 double that of 2000 as set in the plans and guidelines.

To that end, Vietnam advocates bringing all of its potential internal strengths (capital, labor, natural resources) into full play, at the same time making use of the external resources. To achieve these targets, Vietnam is concentrating on the following tasks:

-          Creating a favorable environment, a stable and comprehensive legal framework so that domestic and foreign investors are ensured to stay and do long-term business. The Law on Competition and Monopoly Control, Law on Enterprises, Law on Investment Encouragement and Protection applied to enterprises in all economic sectors, inside and outside the country, have been approved by the National Assembly;

-          Further promoting the arrangement, reform, development and efficiency of State-owned enterprises, encouraging the strong development of the non-State economic sectors, enhancing the competitiveness of products, enterprises and the whole economy;

In fact, Vietnam has been accelerating the equitization of State-owned enterprises, including those working in the fields of electricity, metallurgy, mechanism, chemicals, fertilizers, cement, construction, transportation, aviation, telecommunication, banking and insurance. The State will control business monopoly and prerogatives of state-owned enterprises, abolishing improper protectionism incompatible with the roadmap of integration into the world’s economy;

Regarding foreign direct investment, in the coming time, the Government will issue some specific policies and solutions designed to make big changes in attracting foreign investment, especially from the transnationals; steering for important sectors of the national economy, especially high–technologies and resource technologies; diversifying forms of investment, expanding fields that attract investment in compliance with the set international commitment and roadmap;

-          Further promoting the building of a synchronous market economy system and the development of market types;

The capital market, especially the stock market, has been actively expanding so that it can quickly become an effective channel for capital mobilization;

The currency market will continue to be upgraded to increase the competitiveness, creating conditions for all economic sectors to have access to capital sources;

The real estate market will also be expanded and stimulated, facilitating chances for domestic and foreign investors to join.

-          Continuing to actively integrate and effectively carry out the commitments and roadmaps for international economic integration, carefully prepare internal conditions for Vietnam’s accession to the WTO;

To successfully fulfill this task, on the one hand, legal documents should be amended and built in conformity with the integration requirements. On the other, a comprehensive strategy for international economic integration should be mapped out, promoting bilateral and multi-lateral cooperation with important and strategic partners;

-          Concentrating on upgrading the socio-economic infrastructure, especially the telecommunication and IT sectors; completing the 10-year program of administrative reform (2001-2010) towards a clean, solid, efficient and competent administrative apparatus for the benefits of the people and enterprises – a law-managed administrative apparatus of transparency, openness, with the chief purpose of serving. In other words, a fully law-ruled State should be built in Vietnam. 

Vietnam has been and is performing the above-said duties. Let us take three following examples:

Firstly, restructuring the State-owned enterprises: To revitalize state-owned enterprises and enhance their effectiveness of production and business, thus promoting their competitiveness and the regional and international integration, preparing to deal with challenges brought about when Vietnam achieves membership of WTO in 2006 and satisfactorily fulfilling the tasks of an AFTA (Asian Free Trade Area) member in 2006, at the same time, maintaining the key role of state-owned enterprises in the national economy, the Government, in realization of the Resolution of the 9th Plenum of the 9th Party Central Committee, has launched a three-year program of State-run enterprise rearrangement (2002-2005) as follows:

At present, there are 4,722 state-owned enterprises (which used to be 12,000 before 1996), by 2005 the number will have been 1,931 (accounting for 41%), the remaining 2,791 enterprises (59%) will be shared among different owners; 2,053 of which will be equitized with 1,042 enterprises where the State holds most shares (over 50%). The remainder of the 738 enterprises will be integrated, disbanded, merged together, sold, rented and bankrupted.

At present, there are eighteen State-owned corporations “91” (being arranged and organized under Decree 91 of the Government) and 79 corporations “90” (arranged and organized under Decree 90 of the Government). The 18 state-owned corporations will still be run, whereas, the corporations “90” will be reorganized to become 73 corporations; among 1,476 member companies of big corporations with 100% state fund, only 554 will be kept, the rest will be equitized.

After three years of implementation of this program, the number of 100%-State funded enterprises is now 2,980 and there are 670 joint-stock companies where the State holds over 51% of the charter capital. From the corporations 91, in the fourth quarter of 2005 and the first quarter of 2006, four State-owned economic groups were founded: Post and Telecommunication, Vinashin, Garments, and Coal and Minerals. In fact, the three-year rearrangement program of State enterprises has not met requirements. This program will be further carried out in the years to come in order to release production forces and fully exploit the internal potential of the economy. The main orientation will be to enhance the equitization of State-run enterprises.

Secondly, the issuance of the Law on Corporate bankruptcy, the Law on Monopoly Control and the Law on Anti-dumping will pose great challenges for enterprises, but at the same time create opportunities for all economic sectors to make progress and meet the development demand of the country, thus strengthening their competitiveness in domestic and international markets.

Thirdly, promoting the private sector: In realizing the guidelines of a multi-sector economy, the State has adopted many encouraging policies for the development of the private sector. For the past 10 years, from 1991 to 2003, this sector has made great advances.

According to the statistics by 2000, there were 9,793,878 individual business households throughout the country; 7,656,166 of which were agriculture-based ones outside the cooperatives, and 2,137,713 were non-agricultural. Among the non-agricultural households, 51.89% were engaging in trade and services, 30.28% in industry, 11.63% in transportation, 0.8% in construction, and 5.46% in other activities.

In the private sector, by 1991, there were 132 enterprises. This figure reached 66,780 non-state enterprises by October 31, 2001, in which private enterprises accounted for 58.75%, limited companies 38.68%, stock companies 2.55%, joint ventures 0.01%. In just several years of implementation of the Law on Enterprises, the number of private enterprises went up from 10,000 (1999) to 80,000 (October 2003) and 170,000 in June 2006, with the total registered capital of US$ 10 billion, making up 27% of the social production and utilizing 2 million laborers. The private economic sector (including private enterprises, cooperatives and individual producers) employs nearly 22 million laborers and accounts for 42.5% the GDP.

The 2010 aims and 2020 vision

On 17 August 2004, the Prime Minister promulgated Decision 153/2004/QD-TTg on the issuance of Strategic Orientation for Việt Nam’s Sustainable Development (called Agenda 21 of Vietnamese Government).

This is a strategic framework, outlining big orientations that serve as the legal base for the relevant Ministries, sectors, localities, organizations and individuals. It also shows Vietnam’s commitments to the international community.

Under the Decision, priorities are given to the following economic aspects to ensure sustainable development: maintaining rapid and sustainable economic growth; changing the production-consumption model towards an environment-friendly direction; carrying out “clean industrialization”; aiming at sustainable agriculture and rural development.

Priorities are also given to some social development aspects: focusing on poverty reduction and hunger elimination; promoting social equality and progress; further reducing population growth and generating jobs for laborers; clearly planning the urbanization and relocation; raising education-training quality; increasing health care services; improving working conditions and environment hygiene.

Regarding the issues of natural resource exploitation and environment protection, such aspects are prioritized as: anti-soil degradation; water environment protection; proper minerals exploitation and utilization; ocean, coastal and island environment conservation; sea resources development; air pollution reduction in urban areas and industrial zones; solid and toxic waste management; preservation of bio-diversification.

Concerning this program, on August 13, 2004, the Prime Minister launched three Decisions 145, 146 and 148/2004/QD-TTg on development in Vietnam’s three main economic zones.

- Orientations for socio-economic development in the Northern Economic Zone by 2010 and the 2020 Vision implemented in eight centrally-administered cities/provinces (Hanoi, Hai Phong, Quang Ninh, Hai duong, Hung Yen, Ha Tay, Vinh Phuc and Bac Ninh) in order to make full use of the potential and advantages brought about by their geological conditions and infrastructures:

The key development targets are: increasing national GDP contributions from 21% in 2005 to 23-24% in 2010 and 28-29% in 2020; raising the export value per capita from US$ 447 per year in 2005 to US$ 1,200 in 2010 and US$ 9,200 in 2020; making an increase in the zone’s budget share from 23% in 2005 to 26.5% in 2010 and 29.5% in 2020; boosting up the rate of technology innovation to reach the average of 20-25% per year; reducing the proportion of poor households to 1.5% in 2010 and less than 0.5% in 2020; lessening the rate of unemployment to 6.5% in 2010; decreasing the natural population growth rate to 1% in 2010 and to less than 0.8% in 2020.

Some development orientations of key sectors and aspects in the Northern Economic Zone: making hi-tech industries, high-quality services (software industry, informatics, automatics) and other key industries; manufacturing automatic equipment, robots, high-quality new materials; developing shipping and mechanic industries. Also, it is high time to build and develop supplementary industries in which the Zone has comparative advantages to raise its products’  added value; spare parts and equipment manufacture for car, motorbike, electric and electronic components, dynamic and electric engines. At the same time, it is necessary to build economic zones, researching and training centers, and other facilities to serve the socio-economic development of the zone.

- Orientations for socio-economic development in the Central Economic Zone consisting of five provinces and cities (Da Nang, Thua Thien-Hue, Quang Nam, Quang Ngai and Binh Dinh) with a view to make full use of the potential, geological location and other comparative advantages of the zone, gradually making the Central Economic Zone one of the most dynamic development zones of the country, thus ensuring the motivation role and promoting the development of Central Vietnam and the Central Highlands:

The construction of the open economic zones in Chu Lai (Quang Nam), Dung Quat (Quang Ngai), Chan May (Thua Thien - Hue), and Nhon Hoi (Binh Dinh) will be planned and promoted so that after 2010 they will have become the economic development centers of the zone.

At the same time, the role of international commercial, service and trading centers of such cities as Da Nang, Quy Nhon, Hue will be enhanced to function as the commerce, service, trade and tourism hubs of the whole Central Việt Nam and the Central Highlands. Several tourism centers will be formed like Da Nang, Quy Nhon, Hue and other surrounding areas.

- The Southern Economic Zone (HCM City, Binh Duong, Ba Ria-Vung Tau, Dong Nai, Tay Ninh, Binh Phuoc, Long An and Tien Giang) is oriented to becoming a dynamic economic zone with a high and sustainable growth rate, heading the national industrialization and modernization, in some important aspects of the economy and in the international economic integration, creating a momentum for the development of the eastern part of South Vietnam.

The key development targets include: increasing the zone’s contribution to the national GDP from 36% currently to 40-41% in 2010 and 43-44% in 2020; building high-quality service, production and social centers to reach international standards and that of the Southeast Asia, meeting the demands of the whole Southern region and of international customers.

In that line, a complex urban area to the northwest of HCM City (including Long An, Tay Ninh and HCM Cirty) will be built; a high-quality training center in Binh Duong, health care, and vocational training centers in Bà Rịa-Vũng Tàu will be developed; highway systems linking HCM City and Vung Tau, Trung Luong, Tay Ninh will be constructed and Long Thanh Airport built.