Vietnam s Current Development Policies: An Overview
Still early days
Still predominantly rural 90 80 70 60 50 40 30 20 10 0 Rural population (%) Agricultural labor force (%) 1989 1991 1993 1995 1997 1999 2001 2003 2005
An impressive export record 60 Electric app. (*) ($927m) Coal ($915m) Export growth, 2003-06 (%/year) Plastics ($480m) 50 40 30 Electronics ($1708m) 20 10 0 Motorcycles ($261m) Furniture ($1710m) Oil ($8265m) Fruits & nuts ($758m) Ceramics ($274m) Frozen fish ($787m) Garments ($5469m) Suitcases & bags ($388m) Footware ($3758m) Coffee ($1217m) Pepper & other spices ($211m) Frozen shrimps ($2123m) Rubber ($1286m) Rice ($1276m) -2 0 2 4 6 8 10 12 Share in world exports, 2006 (%)
Investment growing, but still state led
But growth driven by the private sector FDI 43.9% 41.1% Private 24.2% 41.3% State 32.0% 17.7% 2000/1999 2006/2005
Headcount poverty rates 1993 1998 2002 2004 2006 National 58.1 37.4 28.9 19.5 16.0 Urban 25.1 9.2 6.6 3.6 3.9 Rural 66.4 45.5 35.6 25.0 20.4 Ethnic minorities 86.4 75.2 69.3 60.7 52.3 Mekong Delta 47.1 36.9 23.4 15.9 10.3 Red River Delta 62.7 29.3 22.4 12.1 8.8 Northern Mountains 81.5 64.2 43.9 35.4 30.2 Central Highlands 70.0 52.4 51.8 33.1 28.6 North Central Coast 74.5 48.1 43.9 31.9 29.1 South Central Coast 47.2 34.5 25.2 19.0 12.6 Southeast 37.0 12.2 10.6 5.4 5.8
Population in poverty 2006 Headcount rate % of pop Poor (thousands) National 16.0% 100% 13,616 Urban 3.9% 26.7% 886 Rural 20.4% 73.3% 12,725 Ethnic minorities 52.3% 13.5% 6,008 Mekong Delta 10.3% 20.9% 1,832 Red River Delta 8.8% 21.8% 1,633 Northern Mountains 30.2% 14.3% 3,675 Central Highlands 28.6% 5.6% 1,363 North Central Coast 29.1% 12.9% 3,195 South Central Coast 12.6% 8.6% 922 Southeast 5.8% 15.9% 785
Vietnam s income distribution
Rural poverty Rural poverty reduction most closely associated with non-farm employment Non-farm employment most closely associated with access to education Building roads in poor provinces may not increase agricultural productivity, but does give access to NFE Agricultural labor productivity most closely linked to access to size farm and use of improved technologies Chronic underinvestment in agricultural research, but existing research agencies have not performed well. Agricultural extension services top down and unresponsive
Social policy is regressive 2% Social Insurance in work 1% 4% 24% 68% Social Insurance Pensions 2% 8% 14% 29% 47% Health assistance 7% 11% 15% 21% 45% Education Assistance 15% 12% 16% 22% 35% Social Welfare 15% 21% 24% 23% 18% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Poorest 2nd 3rd 4th Richest
Households finance basic services 6.0 5.0 4.0 3.0 2.0 1.0 0.0 Private Public Vietnam China Thailand Malaysia
Households unable to meet health costs Income Quintile % households Bottom quintile 25 Second 17 Third 15 Fourth 12 Top quintile 9
Industrial and Trade Policy Significant removal of barriers for both FDI and domestic private investors, but new barriers to competition are raised Investment-led industrial strategy Import-substitution trade strategy SOEs as the engine of growth Results: Dualist economy Inefficient SOE sector Private sector is small and difficult to grow
Share of State and Non-State Owned Industry 80% 70% 60% 50% 40% 30% 20% 10% Share (percentage) 0% 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 (Prel) Non-state State
Annual Business Registration 1995-2007 Businesses ('000) 60 50 Enterprise Law implemented 40 30 20 10 0 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07F
Industrial Production Value by Sectors (2006) 32% 30% 38% Private (23.9%) FDI (18.8%) State (9.1%) Note: Figures in parentheses are the annual growth rates
Competitiveness Rankings of Vietnam and Comparator Countries Doing Business WEF Competitiveness 2009 2008 2008 2007 Vietnam 92 87 68 64 Korea 23 22 11 23 Malaysia 20 25 21 19 Thailand 13 19 28 28 Taiwan 61 58 14 13 Indonesia 129 127 54 54 Philippines 140 136 71 75
Industrial Structure by Ownership in 2005 State Non- State Foreign Total Hanoi region 29.3% 28.2% 42.5% 100% HCMC region 24.5% 22.8% 52.7% 100% Central Vietnam 44.3% 36.4% 19.3% 100% Other regions 54.1% 37.1% 8.9% 100%
Comparison of ICOR Period GDP Growth (%/year) Gross Investment/ GDP (%/year) ICOR South Korea 1961-80 7.9 23.3 3.0 Taiwan 1961-80 9.7 26.2 2.7 Indonesia 1981-95 6.9 25.7 3.7 Malaysia 1981-95 7.2 32.9 4.6 Thailand 1981-95 8.1 33.3 4.1 China 2001-06 9.7 38.8 4.0 Vietnam 2001-06 7.6 33.5 4.4
Education: A System Under Strain thousands 1600 1400 1200 1000 800 600 400 200 0 Growth of University Activity in Vietnam University Enrollments Teach ers 1990 1995 2000 2005 Source: Vietnam s Statistical Yearbooks.
Gross Tertiary Enrollment Ratio in 2005 (%) South Korea 91 Taiwan 82 Thailand 43 Malaysia 32 China 21 Indonesia Vietnam 17 16 India 11 Source: Asian Development Bank, Online Development Database.
Lack of University-Based Research Source: Scientific Citation Index Expanded
High-Tech as a Percentage of Manufactured Exports 70 60 50 40 1997 2003 30 20 10 0 India Vietnam Indonesia China Thailand Korea, Rep. Singapore Malaysia
Share of population growth versus expenditure, Greater Ho Chi Minh City (2005) 70% 60% 58.8% 57.2% 50% 40% 30% 20% 10% 9.8% 0% Share of Population Growth Share of Net Contribution to National Revenue (Non Oil) Share of National Expenditure
Costs to Export India Thailand 864 848 South Korea 780 Vietnam 701 Indonesia 546 Malaysia 481 Hong Kong Singapore China 335 382 425
Strategic Trade Routes: Asia to Europe
Financial sector liberalization Moving from administration-based to market-based financial systems. Since 6/2002, interest rate has been liberalized (but undercut by the base rate, civil code, agreement within the Vietnam Bankers Association, and interventions of SBV) Credit line was eliminated in 1998, but target credit growth rates are still set by SBV Directed credits via VDB are off-budget mechanisms to channel resources to SOEs with little transparency Moving to a pegged float exchange rate regime but FX and XR are tightly controlled Capital account is half-way liberalized
Financial sector deregulation Moving from a closed to a competitive financial system. Gradual reduction of administrative and legal barriers to entry, expansion, and diversification of new FIs Competition increases dramatically, but there seem too many banks: 4 in 1991 to 51 in 1997 and 80 now 2006, the market share of five SOCBs was nearly 70% of total deposits and 65% of outstanding credit SOE conglomerates open, acquire, and cross-share banks and non-bank FIs [Disappointing] Equitization of SOCBs Increase the participation of foreign FIs
Financial sector stabilization Financial sector stabilization is to ensure the long-term soundness of the financial system. Restructuring SOCBs to prepare for IPOs Bad debt resolution: 4 AMCs with total VND120 billion charter capital (or 0.5% total NPLs in 2000) Recapitalization: VND15 trillion in charter capital to SOCBs during 2001 2005 (excl. VBSP & VDB) Poor risk management and accounting standards
Regulation and Supervision Weak regulatory and supervisory system Lack of credible and timely information for regulation Weak SBV technical capacity to determine bank soundness and systemic risk Fragmented supervision (e.g., SBV and SSC) Vietnam s quick liberalization and deregulation is risky in the absence of: Macroeconomic stability Effectiveness financial sector supervision Transparent regulation and credible enforcement.
Effective States Vietnam s most important reforms consisted of a change and reduction in the role of the state (e.g., agriculture, enterprise law) Effective states develop human resources systems that promote officials on the basis of skills and potential rather than personal connections. Effective states have the ability: Build and enforce the rule of law Maintain macro stability Improve the economy s efficiency Have zero tolerance for corruption at all levels.
Vietnam s Governance Indicators (1996 vs. 2006)
Comparison of the number of hours firms spend finalizing taxes Vietnam 1050 China 872 Indonesia 576 South Korea India 290 264 Malaysia 190 Thailand Hong Kong 80 104 Singapore 30