Reform and Industrialization in Vietnam Le Dang Doanh PhD Member of - PowerPoint PPT Presentation

Reform and Industrialization in Vietnam Le Dang Doanh PhD Member of the UN Committee for Development Policy ECONOMIC SOCIETY OF TANZANIA ANNUAL CONGRESS INDUSTRIALIZATION FOR INCLUSIVE DEVELOPMENT IN TANZANIA Dar es Salaam, 7 December 2018

The Soviet-Style Central Planning Economy - The central planning economy in Vietnam has been applied during the time of war until 1975 as an appropriate mean for this period, as Vietnam had to mobilize all resources for the fight but it has been continued after the national reunification and was clearly inappropriate. Emphasizing State-owned economy, restriction the private sector, lacking incentives for farmer, inefficient public investment were the main causes for negative growth rate. - The extend and scope of the central planning was not comprehensive ( only 105 indicators and 338 products and services). - Vietnam has early recognized the weaknesses of the model of central planning economy and started to elaborate a reform concept and applied experiences from other East European socialist countries since 1971 but hasn’t reached sufficient results. - Industrialization by investing into state-owned enterprises, aiming to build an autarkic economic structure, emphasizing heavy industries. The attempt was highly inefficient, costly on time and money.

Socialist Reconstruction: Ownership Structure in North Vietnam, 1957-1975 (%) Source: Tran Van Tho (2000) Year Socialist sector Private State owned Cooperatives Total sector 18.1 17.9 0.2 71.9 1957 66.4 37.8 28.6 33.6 1960 90.0 44.6 45.4 10.0 1965 91.4 40.3 51.1 8.6 1970 1975 91.6 51.7 39.9 8.4

Socialist Reconstruction in South Vietnam: Ownership Structure in Reunited Vietnam, 1976-1985 (%) Source: Tran Van Tho (2000) Year State-owned sector Non-state sector 1976 27.7 72.3 1980 19.8 80.2 1985 28.0 72.0 1990 31.8 68.2 1995 40.2 59.8

Unsuccessful Attempt of Central Planning and Collectivization Sectoral GDP Growth Rates chain-linked index, base year 1975 Year Total GDP Agriculture Industries Services 1977 105.3 100.7 113.2 104.9 1978 101.1 93.6 107.5 109.0 1979 98.2 103.3 95.4 92.4 1980 96.4 105.6 88.7 87.8 1981 102.3 104.3 99.9 100.7 Source: Dang Phong (ed.), Vietnam’s Economic History 1975 -2000.

Combination between grass-root initiatives and renovation at the top level • The long fight of Vietnam emphasized the importance of initiatives at the grass-root level. • Grass-root experiments in agriculture in 1960s and 1980s provided practical experiences for new political decision at the Political Bureau. • “Fence -breaking movement in the SOEs leaded to acceptance of market elements in planning.

The “ Doi Moi ” Process started in 1986 but strongly implemented… • The collapse of the Soviet Union in 1990 has pressed Vietnam for reform. • Limited “shock - therapy” in 1989: price liberalization, introduction of positive interest rate, canceling the dual price-system, compulsory procurement of agrarian products to low prices and stable supplying of foods according to coupons in urban regions. Immediate increase of rice production, export the very first 300000 tons of rice in 1989. Liberalization of crop trading for the private sector. • The market incentives system could unfold the dynamism, creativeness and the saving of Vietnamese people. • Financial autonomy and “hard budget constraints” for the SOEs. Some thousand small SOEs have been merged or dissolved in the period between 1990-92.

1986 Start of the “Đổ i m ớ i ” 1992 Textile-Agreement Vietnam ’ s Integration Process with EU 1993 AFTA, ASEAN Free Trade Agreement 1995 Start the negotiation to join WTO Framework Agreement with EU 2001 Bilateral Trade Agreement with US 2004 Agreement on Market Opening with EU 2005 Free Trade Agreement China- ASEAN WTO-membership 2007 FTA Korea-ASEAN 2008 FTA Vietnam-Japan - ASEAN- FTA ASEAN-Australia-New 2009 Zealand FTA India - ASEAN 2011 2010- Vietnam-EU; Vietnam- Chile FTAs; TPP

Diversifying International Relations and Seeking Geopolitical Balance

Integration’s Process in Asia -Pacific APEC (FTAAP?) REGIONAL CEP CPTPP ASEAN Chile Indonesia Singapore Cambodia Peru Brunei Laos Philippines Vietnam Myanmar Thailand ? Malaysia Canada Mexico China India Australia Japan New Zealand Korea Hong Kong China Russia Chinese Taipei Papua New Guinea 10

World Bank forecast for Vietnam by implementing CPTPP

Forecast for Products and Services

(ASC) (AEC) (ASCC) ASEAN Peace, Prosperity, People Regional Regional Market Production Ref. Think ASEAN, by P. Kotler, H. Kartajaya, H.D. Huan 13

A review of Vietnam industrial policy • Before 1989: Soviet-Style central planning economy. The collapse of the Soviet Union deprived Vietnam huge material assistance and financial credit. Vietnam had to reform and diversify its international economic relations. • 1989-2000: Market reform - a more diversified industrial structure and integrated economy • Imported private sector by FDI with strong incentives. • SOE - high cost and not competitive internationally • Some selective industrial policy – the car manufacturing, motorbike industry, textile and garment (with some limited success) ….

A review of Vietnam industrial policy (continued) • Since 2000: international integration combined with domestic reform. • Bilateral Trade Agreement Vietnam-USA (2001), WTO (2007) • Enterprise Law 1999 and amended 2005 encouraging the private sector, Investment law 2005 • WTO accession in 2007 changed the rules for industrial policy: • Before: Export subsidies, tariff and non-tariff barriers to trade, compulsory localization, credit subsidies … • Now: Focus on supply-side support. Domestic industry must be competitive on the Vietnamese market.

A review of Vietnam industrial policy (continued) • Policies for FDI • Special Economic Zones (EZ) since 1991 (EPZ, IZ …): 325 EZs with 95.000 ha land. • Tax holidays and other privileges (land rent reduction) – to be reduced after WTO accession • End of export subsidies • But WTO accession greatly increased attractiveness for FDI • HCMC: EPZ now only for high value products, no more garment • Two Hi-Tech Parks to attract knowledge-intensive FDI, integrated concept incl. university linkages etc.; limited success as for now • Poor spillover effect on technological upgrading (no evidence) • Licensing & localization strategies: • Automobile industry: Licenses for 11 carmakers + Localization policy to encourage local content → Unlikely to succeed (economies of scale, too many producers for a limited domestic market, supply-side constraints) • Motorbike industry: Low-tech, large market. Successful localization, industry gaining regional market share

GDP Growth Rate of Regional Economies

Target and Vision • Aiming to establish a “basically industrialized and modernized economy” in 2020, to reach a GDP/capita of 3000 USD/capita. • In 2050 to reach the level of “an advanced economy” with GDP/capita by 10.000 USD. • Vietnam needs to conduct fundamental reforms in institution, applying meritocracy, developing democracy and human rights, restructuring its economy, enhancing science and technology.

World Bank : Different scenarios for Vietnam 2035

Economic Structure and Projection: Vietnam continues the industrialization by trade liberalization Share in Total Employment (%) Share in GDP (%) Agriculture Industry + Mining Services Agriculture Industry + Mining Services 1990 73% 11% 16% 34.6 23.2 42.2 2000 68.2% 12.1% 19.6% 24.8 34.8 40.4 2013 48.8% 22.7% 28.5% 17.6 38.6 43.9 2025 32.1% 30.9% 36.9% 12.4% 39.9% 47.7% 2035 25.1% 37.2% 37.7% 8.9% 41.3% 49.8%

FDI share over 70% of total Export

Slow Changes in Economic Structure

Structure of the Economy: slow growth of industry 1995 2001 2002 2003 2004 2005 2006 2007 2008 GDP (current prices) 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 Agriculture, Forestry & 27.18 23.24 23.03 22.54 21.81 20.97 20.40 20.34 22.10 fishery Industry and construction 28.76 38.13 38.49 39.47 40.21 41.02 41.54 41.48 39.73 Manufacturing 14.99 19.78 20.58 20.45 20.34 20.63 21.25 21.26 21.10 Services 44.06 38.63 38.48 37.99 37.98 38.01 38.06 38.18 38.17 Agriculture - Products : paddy rice, corn, potatoes, rubber, soybeans, coffee, tea, bananas, sugar; poultry, pigs; fish Aquaculture, particularly shrimp and catfish farming, Industries : food processing, garments, shoes, machine-building, mining, cement, chemical fertilizer, glass, tires, oil, coal, steel, paper

Major Economic Indicators, Viet Nam, 2006-2009, % Item 2006 2007 2008 2009 GDP Growth 8.229% 8.48% 6.152 % 5.32 US$ 71.13 Billion NA GDP (Current Prices, US US$ 60.933 Billion US$ 89.829 Billion Dollars) GDP Per Capita (PPP), US$ 2,357.02 US$ 2,602.48 US$ 2,783.75 US Dollars Inflation (End of Year 6.99% 12.631 % 19.891 % 6 -7 % Change %) Unemployment Rate 2.40% 2.00% 4.30% Budget Balance (% of GDP) -7.3 -3.8 -6.9 -5.1 Current Account Balance -0.269 % -9.83 % -9.384 % -11.5% (% GDP) http://www.economywatch.com/economic-statistics/country/Vietnam/