Vietnam is a country in transition, steadily dismantling a monolithic centralised ‘command’ economy entirely made up of state monopolies protected by subsidies and tariff barriers.
Some industries have already been exposed to the chill wind of competition. For example, Vinacoal, the state company exploiting the country’s vast coal reserves, now competes successfully in the open market following the removal of subsidies. After a painful period of restructuring, involving a massive ‘shake-out’ of labour, exports are now buoyant.
The government has implemented a programme of ‘equitisation’, a form of privatisation akin to a management ‘buy-out’, and is encouraging other state companies to seek foreign investment through shareholding.
A small stock market has been established in Ho Chi Minh City trading shares within a limited band of price variation.
Progress in breaking up the state monopolies is slow for a number of reasons, notably the reluctance of managers to lose the security of state control, the massive investment needed to enable aging industries to compete and an understandable government reluctance to exacerbate an already high rate of unemployment.
Growth has been high and reasonably steady over the last decade, and inflation has been brought under control. The Vietnamese Dong is a closed currency, pegged to the US dollar. The government has strongly resisted calls to float the Dong, but the State Bank is slowly implementing measures to free up the banking system in preparation for monetary reform.
Accurate economic date is hard to obtain. The official figure of income per head, currently estimated at around $300 US, is almost certainly understated due to the extensive ‘moonlighting’, and a thriving black economy. Smuggling on a massive scale, mostly between Vietnam and China, distorts import and export figures.
Informed guesswork suggests that between a quarter and a third of Vietnamese ‘imports’ may be entering the country illegally across its long, porous border with its mighty neighbour.
The border police are working hard, and have had some notable successes, but the length and terrain of the border makes effective control very difficult.
Vietnam continues to rely heavily upon agriculture. Most farming is at subsistence level and labour intensive – although 70% of the population still works in agriculture, the sector contributed only 25% of GDP in 1999, down 40% in 1991. Industrial growth has averaged 13% over the same period.
GDP overall is rising rapidly, $23bn US in 1999 to $32bn US in 2001, and during the same period GDP per capita rose $300 US to $403 US, a 34% increase. At the same time, inflation dropped 4.3% to 2.4%.
Two major challenges
However, although rapid growth is undeniably raising standards of living at all levels, there is mounting concern about wealth distribution. The income of the wealthiest sector of the population is now eight times greater than that of the poorest, and the gap is widening. Furthermore, the speed of development is outpacing regulatory measures and procedures, opening the way for widespread corruption and fraud.
These two issues are probably the greatest challenge to the continuing success of ‘doi moi’. The government is well aware of the scale of the problem, and is working hard to overhaul the personal and corporate tax structure and make revenue collection more efficient.
The complexity of the procedures has made large-scale VAT fraud difficult to detect – they are being simplified. Each individual civil servant, local authority official, manager of a state company and Party member is now obliged to make an annual declaration of his or her income and assets.
Looking to the future
Vietnam is fully committed to ‘doi moi’ and the development of a socialist system. We have recently become members of the Asian free trade group, and are applying for to join the WTO. We recognise that our transition will not be easy: tariff barriers begin to drop in 2004, and some of our less efficient industries will suffer badly. Nevertheless, we are confident that we can overcome the challenges that face us now and in the next few years