Stretching across the heart of South-east Asia, the Socialist Republic of Vietnam has risen to become one of the region’s greatest economic success stories, after witnessing a remarkable post-war economic recovery. The nation’s vast coastline, rolling highlands, dense jungle and abundance of natural resources have helped to bolster its rapid industrial development, while ongoing economic liberalisation and government initiatives to privatise or restructure a number of state-owned enterprises (SOEs) have had a major impact on FDI.
Since the economic and political reforms known as Doi Moi were launched in 1986, the country has transformed itself from one of the world’s poorest into a lower-middle-income success story. Vietnam has simultaneously witnessed sharp improvements in its macroeconomic fundamentals: since 1989 per capita GDP has grown more than 20-fold, while annual GDP growth has not fallen below 5% since 1999 and averaged 6.4% a year in the 2000s. The country’s strong, if somewhat volatile, performance in recent decades is largely a result of ongoing liberalisation, rising investment and surging exports, which are expected to keep growth on a strong upwards trajectory in 2017.
An S-shaped country curving down the eastern part of the Indochina peninsula, Vietnam boasts a combined 3260 km of coastline, as well as a 1281-km land border with China in the north, a 2130-km border with Laos in the east and a 1228-km border with Cambodia in the south-east. Roughly three-quarters of its territory is covered by mountains and tropical forest, while the majority of the population lives in its flatlands, including the two “rice bowls” of the northern Red River and southern Mekong River deltas. Vietnam’s location is a major advantage. After the Mediterranean, the South China Sea is the world’s second-busiest shipping lane, accounting for roughly 25% of global traffic and serving as a key shipping lane linking the Pacific and Indian oceans. Vietnam is also rich in natural resources, including sizeable maritime fishing grounds, an estimated 270m tonnes of crude oil reserves, 36bn cu metres of natural gas, up to 8bn tonnes of coal, 10,000 MW of hydropower potential, and mineral resources including bauxite, iron ore, copper, gold, granite, marble and clay.
Spanning some 1650 km from north to south, Vietnam is both a temperate and tropical country, and its climate is heavily influenced by the region’s seasonal monsoons. The nation’s northern half is generally cooler and dry between November and April, while the entire country is hot and rainy between May and October, with temperatures ranging from 17°C in January to 29°C in June.
The country is quite densely populated and had a population of around 95.3m in 2016. According to estimates from the Foreign Investment Agency (FIA), the nation’s populace is expected to expand to 100m as early as 2020, with an annual growth rate of 1.2%. An estimated 33.6% of the population of Vietnam resides in urban metro areas, and the country is quite young, with the median age of citizens at just 30.1 years. Home to 7.3m residents, Ho Chi Minh City in the nation’s south is the largest city in the country, while northern capital city Hanoi had 3.62m residents as of 2015, followed by Can Tho and Hai Phong, with just over 1m residents each. The newly rising city of Da Nang is catching up, however, with a population approaching 1m, according to estimates.
Vietnamese is the official, state-recognised language in the country, although English is increasingly favoured as a second language among locals. Other popular second languages include French and Khmer. Vietnam’s currency is the dong, which traded at VND22,722:$1 as of the end of 2016.
Archaeologists have uncovered evidence of human settlement in Vietnam dating back over 500,000 years. Incipient agricultural activity is thought to have begun as early as 20,000 years ago, under the Hoa Binh culture – though the region’s neolithic development, with its cultivation of rice, being generally dated to around 7000 BC and attributed to the Bac Son.
In the 2nd century BC Chinese invaders conquered the country, marking the beginning of about 1000 years of Chinese rule. Although much of this period was characterised by successive struggles for independence, the country also developed as a key port of call between China and India, and Vietnam witnessed an influx of international traders and visitors, bringing with them new scientific, medical and agricultural knowledge. This knowledge transfer led to the establishment of rice paddy cultivation, which remains the cornerstone of Vietnamese agriculture today.
Vietnam was liberated from China by Ngo Ouyen in 938, but the arrival of Europeans in 1516 marked the beginning of new struggles. French colonial forces invaded Vietnam in 1858, and the country became part of French Indochina in 1887. Although the nation declared independence after the Second World War, the French continued to rule until their decisive defeat by communist forces under Ho Chi Minh, in 1954. That year, the Geneva Accords split the country into the Democratic Republic of Vietnam in the North and the Republic of Vietnam in the South.
US economic and military aid to South Vietnam rose rapidly in the following years as the US government sought to curb the spread of communism in Asia, leading to protracted occupation in which 2.7m American soldiers served alongside the South Vietnamese Army against the southern communist guerrilla army, the Viet Cong. Following a decade of anti-war demonstrations in the US and several key political victories for the North Vietnamese and the Viet Cong, US forces began to be withdrawn in 1973.
In 1975 North Vietnamese forces unified the country under a single-party socialist republic framework, a political system that remains in place to this day. After reunification, Vietnam recorded marginal economic growth over the following decade, due in part to a mass exodus of South Vietnamese businesspeople, conservatism in the leadership, and suspended diplomatic and trade ties between Vietnam and the US, which did not normalise until 1995. However, key reforms in public health paved the way for a longer-term recovery and, later, economic growth.
Vietnam is a socialist republic defined by single-party socialist framework. A president serves as head of state, elected by the National Assembly through an indirect system. President Tran Dai Quang has been the head of state since April 2016, succeeding Truong Tan Sang after the 2016 National Assembly of the Communist Party of Vietnam (CPV). The National Assembly has 496 members, elected by popular vote to serve a four-year term. President Quang was elected for a five-year term by the Parliament. Nguyen Xuan Phuc has assumed the role of prime minister in Vietnam, succeeding Nguyen Tan Dung.
The prime minister and chief of justice are both appointed by the president and must be approved by the National Assembly. The ministers are appointed by the prime minister and also approved by the National Assembly. Nguyen Phu Trong has been the general secretary of the CPV since January 2011, after being re-elected at the 12th National Congress in 2016. Trong is the head of the party’s secretariat and of the Politburo, which remains to this day the highest decision-making body in the country. The next national election is scheduled for 2021.
Turning to a more local perspective, the provinces and municipalities of Vietnam are legislated by the People’s Council. Representatives on this body are elected by the population via a direct system. The People’s Council elects the membership and a People’s Committee, consisting of a chairman and its commissioners, for a five-year term.
In 1986 the CPV launched the Doi Moi open door policy, which emphasised economic liberalisation and established the structural reforms necessary to modernise the economy, increase the country’s competitiveness and bolster exports. GDP growth has soared in the years since, rising from 2.79% in 1986 to achieve a high of 9.54% in 1995, before moderating to average of 6.4% annually between 2003 and 2013, according to World Bank figures. Per capita GDP in current US dollars expanded during the same period, rising from $97.16 in 1989 to $2111 in 2015.
Vietnam has also achieved several of the UN’s Millennium Development Goals ahead of schedule. Indeed, many social indicators have substantially improved, and the number of people living in extreme poverty dropped from about 50% of the population in the 1990s to 3% by 2012.
While the country was adversely affected by the global financial crisis, its economy was quite resilient, with GDP growth declining from 7.13% in 2007 to 5.4% in 2009. However, the economy’s brief decline during this period has also been attributed to the peaking of the nation’s demographic dividend – a spike in the growth of the labour force – which, according to the World Bank, was responsible for much of the nation’s growth up to that point. The economy remained resilient in the face of global volatility, and GDP rebounded to 6.42% and 6.24% in 2010 and 2011. Runaway growth drove inflation to 22.16% by July 2011, the highest level in Asia, with GDP growth sliding to 5.25% in 2012 and 5.42% in 2013 as a result of measures to promote macroeconomic stability.
Economic expansion gathered pace again in recent years, and in 2014 GDP growth reached 5.98%, outpacing government targets of 5.8%. Vietnam’s economy continued to exceed expectations in 2015, with the Ministry of Planning and Investment (MPI) reporting that GDP growth reached 6.28% during the first half of the year, up from earlier estimates of 6.11%. The economy continued to strengthen in 2015 before moderating in the first half of 2016 by 5.5%, thanks to a severe draught that directly affected agricultural production and thus also industrial growth.
Although agriculture comprised 25% of total economic output in 2000, its contribution fell to 17.4% by 2015, as industry rose to 38.8% to become the country’s second-largest economic sector, after services with 43.7%.
The country’s competitive labour costs have driven key sectors, such as electronics and textiles. Vietnam’s textile industry is still set to become one of the largest contributors to exports, which is targeted to reach $31bn in 2016, a rise lower than the targeted growth of 10% in 2016 according to the Ministry of Industry and Trade. Electronics giants, such as Samsung Electronics, have widely contributed to Vietnam’s economical transformation; global firms have set up major plants in the country, transforming it into a manufacturing hub for electronics goods, including smartphones. Vietnam is now set to rival major regional players, such as Indonesia or China, for supremacy in the textiles and electronics manufacturing segments, with the government increasingly incentivising key segments including automotive, shipbuilding, food processing, steel, petrochemicals and software.
Indeed, the government’s growth strategy has recently returned to liberalisation, following its move to tighten monetary and fiscal control in February 2011. In 2012 the CPV unveiled a three-pillar economic reform programme aimed at restructuring SOEs as well as reforming public investment and the banking sector, and in June 2015 the MPI announced that the state will remove restrictions limiting foreign ownership of some locally listed companies to 49%. According to Decision No. 60/2015/ND-CP, except for some industry conditions, the percentage of foreign ownership is not limited in any enterprise, unless specified. This policy aims to attract foreigners to participate in buying shares in Vietnamese companies and assist with equitisation.
Efforts to privatise or restructure some of the country’s SOEs, which account for 40% of GDP, are also ongoing, although progress on this front has been slower, with former Prime Minister Nguyen Tan Dung announcing in late 2015 that just a handful of SOEs had been privatised that year, out of a planned 289 privatisations. Indeed, the state still retains a dominant share in many sectors, especially with economic groups and corporations. However, to accelerate the equitisation process, the prime minister issued Decision No. 58/2016/QD-TTg regarding classification criteria for SOES and SOE reorganisation between 2016-20 – of which 137 SOEs which are expected to be equitised across numerous sectors.
Boosting foreign trade remains a priority as Vietnam has gradually integrated into the regional and global economy. Vietnam joined the World Trade Organisation in 2007, putting the country on an equal footing in the global trading system. Vietnam has also been a member of the ASEAN bloc since 1995. Vietnam was a founding member of the Asia-Europe Meeting (ASEM) in 1996 and participated in APEC in 1998. In 2015 Vietnam concluded three big trade deals – the bilateral trade agreement with the European Union (EVFTA), the FTA with South Korea, and the FTA with the Eurasian Economic Union. As European and Vietnamese economies complement, the EVFTA, which is expected to come into effect in 2018, will eliminate nearly all Customs duties, including tax on fisheries, pharmaceuticals and chemicals, and is forecast to contribute an additional 8% to Vietnam’s GDP by 2025.
Significant FDI inflows can largely be attributed to the country’s liberalisation efforts. According to a 2016 report published by the US Commercial Service, Vietnam’s registered FDI reached $18.2bn in the five years to 2016. Meanwhile, the Financial Times has reported that Vietnam topped the emerging markets index for greenfield FDI in 2014 and 2015, surpassing 13 other countries in the annual study by fDi Intelligence, the newspaper’s data division.
However, recent growth rates have been stabilising and, in some cases, even declining. For example, in October 2016 the MPI’s FIA reported that the country attracted over $17.61bn in newly registered and expanded FDI, down by 8.7% from 2015. This decline was attributed to the time-consuming licensing procedures required to carry out some power projects, according to Dang Xuan Quang, deputy director of the FIA.
Still, economic growth projections for 2017 remain largely positive, with both the Vietnamese government and the Institute of Chartered Accountants projecting that real GDP growth would reach 6.5% in 2016, before climbing up to 7% in 2017, driven by strong manufacturing and FDI. Vietnam is set to see the highest GDP growth in the region in 2017, while the average forecast for ASEAN was 4.5% in 2016 and 4.7% in 2017.
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