Rise of Vietnamese Economy - Case Study Example

Rise of Viet se Economy The economic reforms in Vietnam came into existence in the year1986, after 20 years of introduction to the doi moi. It is due to these renovations of the economic reforms that Vietnam has managed to achieve unprecedented growth in its socio-economic standing, making it the fastest growing economy in the region. The figures also reveal that the economic growth of Vietnam had been quite drastic with its average annual growth being 7.3% in the period 1990 to 2004, while the GDP rose 5.7% in the same period (Anh, Hong and Thang). The economic structure adopted by Vietnam represented an increased contribution from the two major sectors: services and industry, while the share from the agriculture side declined. Moreover the major transformation Vietnam experienced was the poverty reduction. With its sharp poverty reduction strategies, the country managed to achieve rapid growth, where the poverty figures fell from 80% in year 1986 to nearly 29% in the year 2002. The economic achievements of Vietnam are attributed to a variety of factors and economic transitions undertaken. In view of its economic-policy Vietnam emphasized on the globalization process. This can be seen in the year 1980s when the country started to advocate economic integration resulting in the declaration of Law in Foreign Investment in the year 1987. Later a lot of bilateral agreements as well as the multilateral trade agreements were also signed continuing on the notion of economic integration. In the year 1995 Vietnam joined ASEAN, then in 1998 became the member of APEC and later in 2001 joined ASEM (Asia and Europe Meeting). Opening up to the global economy also made Vietnam to be in a trade agreement with the US known to be the Vietnam-US bilateral trade agreement. In January 2007, Vietnam also became the member of the WTO. Apart from the open trade policy adopted by Vietnam, other factors have also led to its robust economic rise. Among all these factors the foreign direct investment (FDI) has been the major contributor that has led Vietnam to increase its capital and serving as the major attribute to integrate its economy to the economy of the world ( Leproux and Brooks). 1. Role of Foreign Direct Investment Since its economic reforms in 1986, Vietnam has encouraged foreign direct investment (FDI) in the country. Under the first law on foreign investment in 1987, it was clearly stated that Vietnam encourages and welcomes foreign organizations as well as foreign nationals to invest technology and capital in Vietnam. The figures show that since 1987 up to 2005 Vietnam has issued 7,279 licenses that nearly total to a registered capital of USD 66 billion (Hoang). Much of the growth in the Vietnam’s economy is due to the inflows of FDI as the FDI companies have contributed majorly in increasing the GDP by 13.3%, resulting into 35% industrial output, 25% to state revenues and 25% to exports (Doanh). Due to the increase in the FDIs the industrial sector of the country has been established the most, with major industries being gas, telecommunications, gas exploitation, electronics and others. The rate of output from industrial FDIs is much greater than those from other industries. Moreover with the introduction of the FDIs the employment rate has also increased since the capital intensive industries have employed skilled labor force employing nearly 730,000 labors in year 2006. Through the FDI projects there has been an increase in the state budgets thus allowing for a more stabilized macroeconomics for the country. 2. Other Macroeconomic Indicators The rise in the average GDP in Vietnam has been exponential. In the year 2008 the recorder average GDP for the country was USD 1,074, it is with this growth that Vietnam was excluded from the list of low income countries and was added into the group of lower-middle income countries. Vietnam is still committed to increase its per capita GDP in order to be included into the medium-to-high income countries group. Although the major contribution to the GDP is from the industrial sector, and contributions from the agriculture sector are on a decline, still Vietnam has managed to reduce poverty in the region significantly. According to the CIA World Factbooks, the population below poverty line in Vietnam in 1998 was 37% however it has declined to be only 10.6% in year 2010. The government of Vietnam is constantly meeting this challenge of creating jobs for the population which grows by over one million in a year. The number of exports has also increased in the country accounting for 58.6% of the GDP in the year 2009. 3. Agreement to the World Trade Organization Joining the World Trade Organization in 2007 opened up many new prospects for the Vietnam’s economy. This was a major step in the global economic integration which brought many new opportunities as well as challenges and had a significant impact on the Vietnam’s economy. It was because of the accession that the rate of GDP was maintained constant even in the periods of financial and global crisis. This accession to the WTO also helped Vietnam in negotiating with the regional investors and to enter into bilateral trade and investment agreements thus allowing further attraction of FDI to the country. 4. Trade Partners Vietnam’s major trading partners today include USA, Singapore, China, Thailand, Australia, Hong Kong, Malaysia, UK, Germany and Japan. The trade with the Asian economies is about 80% of the total trade of Vietnam. The bilateral trade agreement between USA and Vietnam in 2001 increased exports to US significantly. This trade increased from USD 2.1 billion in year 2002 to USD 15.4 billion by the year 2009. This increase in trading relationships between USA and Vietnam made it the second largest trade partner after China. The trade relations between China and Vietnam have great importance with respect to the economic success of the country. Vietnam’s major imports are from China. The bilateral agreements between Vietnam and European Union also turned out to be quite successful for the region as it allowed to eliminate the quotas on imports thus resulting in a more feasible trade relationship. The rise of the Vietnam’s economy had been possible since the promulgation of it Law on Foreign Investment which had allowed the inflow of FDI in the country, thus strengthening and stabilizing its macroeconomic factors significantly. Moreover the opening up of the economy and access to the foreign markets has also played a major role in making an impact on the economy of Vietnam. In order to continue grow its economy, the country needs to further develop its economic reforms in relation to the economic management. The high achievements of Vietnam previously have contributed to economic growth significantly thus, it needs to be maintained. Also to maintain a steady growth Vietnam has to continue to attract FDIs to the country and to do that has to establish its infrastructure, create a skilled labor force, engage in bilateral trade agreements, by establishing the government’s macroeconomic management improve its public administration reforms, improve the business environment providing more investment opportunities and ensuring better social welfare. Apart from China, Vietnam is the only country that had experienced the fastest growing economy in the Southeast Asian Region. Works Cited Leproux, Vittorio and Douglas H. Brooks. Viet Nam: Foreign Direct Investment and Postcrisis Regional Integration. ERD Working Paper No. 56. Philipines: Asian Development Bank, 2004. Anh, Nugyen Thi Tue, et al. "The Impacts of Foreign Direct Investment on the Economic Growth in Vietnam." 2006. Bremmer, Ian. "Rise of Veitnam." 2010. Dixon, Chris. "The role of the foreign business service sector as an interface between the Vietnamese economy and the international system." The Global Policy Institute (n.d.): 1-4. Doanh, Le Dang. "Foreign Direct Investment in Viet Nam: Results, Achievements, Challenges and Prospect ." International Monetary Fund Conference on Foreign Direct Investment. Hanoi, 2002. Hoang, Thu Thi. "Determinants of Foreign Direct Investment in Vietnam." International Colloqium on Asian Business. Bangkok, 2008. 1-7. Read More