Home Global Village Learning from Vietnam’s economic experience -I- Dr. Omer Javed

Learning from Vietnam’s economic experience -I- Dr. Omer Javed

Learning from Vietnam’s economic experience -I- Dr. Omer Javed

Dr. Omer Javed |

The PM often advises the people to become the ‘shaheen’ (or eagle) of Iqbal (the national poet), occupying the heights in turn that human beings are destined to take. Well, the eagle that did take off in Vietnam — a country with economic growth rates, over many years now globally second only to China — had one wing that focused on institutional reform, and the other that improved the situation with regard to openness of trade. These two reforms mainly propelled the country from being a low-income country to an emerging economy, with a booming middle class.

One of the poorest countries just approximately three decades ago — with GDP in 1984 at value of $18.1 billion, and per capita income at a mediocre level of $200-300 per year, mainly at the back of a) poor agricultural performance, mismanagement in bureaucracy, c) no private ownership, and d) virtually non-existent entrepreneurial class in the south of the country, Vietnam’s economic fortunes has outshined many in the region and should serve as an example for others like Pakistan, to learn from.

Yet in Vietnam, the telecommunication sector attracted substantial foreign investment and presence of international companies like LG, Samsung, Pioneer and Olympus.

It all started with the Doi Moi economic reforms of 1986, whereby the country a) undertook measures to lower macroeconomic imbalances — mainly the budget deficit and rising inflation levels, and b) sought IMF’s technical assistance to reform the financial sector, so that it could move towards a socialist-oriented market economy — a healthy compromise between complete control of the economy by government and economic liberalisation.

This allowed, in turn, a) the agriculture sector and the public sector enterprises to work freely in a commercial way, and this led to b) the private sector to expand to more than 30,000 private businesses during the next ten years since the start of reforms, and c) the formulation of an FDI law — with multiple revisions since then to move towards a greater pro-investor regime, enabling more foreign companies to enter the country in turn, at the back of mainly a) lowering the role of administrative bureaucracy, and b) creating better pro-investor facilitation- that appropriately facilitated the ever increasing private businesses to engage more openly in international trade.

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Altogether this played an important part in boosting economic growth in the entire 1990s at an average level of seven percent. The main driving force towards this economic success lies with the institutional reforms undertaken in the country to be more and more integrate itself in the world economy. The phenomena of enhanced engagement in international trade lie in Vietnam’s policy to gradually lower both export and import tariffs over time — whereby the applied weighted mean tariff rate on imported manufactured products decreased from close to 18 percent at the start of the millennium to less than 2 percent by the end of 2017.

The above lowering of tariffs resulted at the back of Vietnam entering numerous FTAs (free trade arrangements) with countries including US in 2000, joining WTO in 2007, and ASEAN related ones with China, Japan, Korea and India, and entering the amended TPP (Trans-Pacific Partnership) more recently. Resultantly, the gains for the economy could be seen from the fact that a) in the Global Competitiveness Index, the country rose from 77th position in 2006  to 55th in 2017, b) from being 104th in 2007 in World Bank’s Ease of Doing Business rankings to 68th in 2017 — where the Bank highlighted its improvement in i) enforcement of contracts (an important factor in improvement of economic institutional quality), ii) electricity and credit access, iii) tax collections, and iv) trade.

The PM often advises the people to become the ‘shaheen’ (or eagle) of Iqbal (the national poet), occupying the heights in turn that human beings are destined to take.

An important pillar of this impressive growth that has continued over the years since the 1990s is the focus of government on improving primary education — in particular providing quality universal education to its people. Mainly it was this improvement in the education level of the country that allowed people to participate adequately in the economic opportunities that originated at the back of reforms in internal institutions of the country and in international trade.

Demographically, Vietnam is quite similar to Pakistan, with a high proportion of youth in population — half of its 95 million population below the age of 35 years. That is why it substantially enhanced public investment in education and infrastructure, so as to overall boost the level of human development in the country. Does the PM not the want the same? His speeches and the PTI’s party manifesto sure speaks clear and loud on these lines. So they will have to learn from countries like Vietnam, and that too rapidly given the abysmal level of education and infrastructure (especially the education associated one) in the country.

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Such investments are also needed to attract regional and international firms- especially the technological firms — to invest in Pakistan as they did in Vietnam. These investments are all the more important if Pakistan is to derive optimal gains from the multi-billion dollar investment arrangement it is undertaking with China in the shape of CPEC. Such infrastructural investments are also needed to improve Pakistan’s exports status in terms of textiles, where Vietnam by 2017 had gained the status of becoming the largest regional exporter of clothing.

It is a shame that with the high level of cotton output, the country has not seen the much-needed progression in the value-adding textile exports. During the Musharraf era and beyond, the telecommunication sector was well-trumpeted to be the next big thing in terms of jobs and attracting foreign investment in the country. Yet lack of proper public investments and planning, and inadequate private sector regulation- not to mention the below satisfactory level of instilling creative skills among tech-graduates at the educational institutional level — all added to keeping the sector from taking-off.

An important pillar of this impressive growth that has continued over the years since the 1990s is the focus of government on improving primary education — in particular providing quality universal education to its people.

Yet in Vietnam, the telecommunication sector attracted substantial foreign investment and presence of international companies like LG, Samsung, Pioneer and Olympus. Even in the global supply chain, Vietnam stood at 3.6 percent of the total global exports of office and telecommunication exports in 2017. All of this resulted in economic growth rates of Vietnam hovering between 5-6.8 percent during 2010 to 2017, with per capita income increasing ten folds since 1985- from $230 to $2,343 (which when corrected for purchasing power stood at over $6,000.

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At the same time, the growth has been inclusive and sustainable in nature, along with the fact the gender disparity also decreased; with female employment rate remaining within 10 percent of those of men according to World Bank. At the same time, an important feature of its economy is that its exports stood at almost 99.2 percent of the country’s GDP by end-March 2018 — even more than those of Malaysia, Thailand, Indonesia, and Philippines (in terms of decreasing proportion of exports to GDP ratio). Having said, Vietnam will need to understand that it needs to diversify beyond exports to have greater GDP sustainability going forward.

Notwithstanding, annual exports of Vietnam stood at $226 billion (as against roughly a paltry $20 billion of Pakistan), behind the regional exports leader Thailand by only $17 billion. It is indeed overdue that the government should start learning from success stories like Vietnam, and tries more vigorously to successfully introduce its implementation in policy.

To Be Continued….

Dr. Omer Javed holds PhD in Economics from the University of Barcelona, Spain. A former economist at International Monetary Fund, he is the author of Springer published book (2016), ‘The economic impact of International Monetary Fund programmes: institutional quality, macroeconomic stabilization, and economic growth’. This article was originally appeared in Pakistan Today and has been republished with the author’s permission. The views expressed in this article are author’s own and do not necessarily reflect the editorial policy of Global Village Space.