Tim Harcourt, a JW Nevile Fellow in Economics at UNSW Sydney and former chief economist of the Australian Trade Commission (Austrade), said that Vietnam’s economy is surging, on track to become the newest tiger in Asia, going on to delineate the steps he thinks are required for Vietnam to become a more attractive destination for foreign investment.
Vietnam’s recent growth story has coincided with its opening to the world
While making my TV show, “The Airport Economist”, I have visited over 60 economies in the past six years. And one that has always stood out to me was the enchanting land of Vietnam, one of the emerging ‘second generation’ tiger economies of Asia.
Vietnam, with its young and vibrant population, is the newest poster child for attracting foreign investment, and has been developing the much needed infrastructure that is required to get the economy moving. There is a real buzz on the streets of Ho Chi Minh City – at least from the numerous motorcycles that zoom around.
Why is Vietnam becoming more attractive to foreign investors? Let’s first have a look at ‘the big picture’ in terms of the Vietnamese economy.
Vietnam is considered to be a ‘transition tiger’ economy, moving from a planned economy to one that is more open and market orientated. Despite healthy average growth rates above 6 per cent per annum over the past decade, it is still a lower middle-income country – ranking low on the list of the top 50 global economies in terms of GDP. Inflation and unemployment are both low at just over 2 per cent, but there is still a lot of underemployment and rural poverty outside the bigger towns and cities – where three-fourths of the Vietnamese population still live.
This is reflected in per capita income too, where individuals in rural areas earn half of what their Hanoi-based counterparts make, and only one-third of what they would make working in Ho Chi Minh City.
Since joining the World Trade Organization (WTO) in 2007, Vietnam has become a full-fledged trading nation. The country’s main export destinations are the US, China, and Japan, and it imports the most from the north-eastern Asian economies of China, South Korea, and Japan.
So how did it happen? Let’s take a look at Vietnam’s history.
Vietnam was largely isolated and poor after the end of the American War, but in 1986, the government made a historic breakthrough by initiating a series of market-based reforms known as ‘Doi moi’ or ‘Renewal’. As a result, Vietnam enjoyed one of the fastest rates of economic growth in the world after it joined ASEAN and WTO and established diplomatic relations with all nations, including the US.
Tim Harcourt, a JW Nevile Fellow in Economics at UNSW Sydney and former chief economist of the Australian Trade Commission
It still has its difficulties in terms of infrastructure, and the small task of looking after around 93 million people – Vietnam is the eighth-most populous Asian nation and the world’s 14th – but its economic story in the 21st century has by and large been a good one.
And what makes Vietnam an attractive market today?
First, it shoud be again stressed that Vietnam has a young population and a thriving consumer culture. Unlike Japan, South Korea, and now even China, Vietnam’s demographics are helping to drive a strong youth market for consumer goods and services like higher education.
Second, Vietnamese people living abroad have formed vibrant communities in Australia, Canada, the US, and elsewhere. One famous Vietnamese abroad is the Governor of South Australia, Hieu Van Le, who arrived in Australia 40 years ago and is now residing in the Government House in Adelaide today. A leading academic and successful business figure in his own right, Hieu Van Le leads many South Australian trade missions into Southeast Asia.
Third, Vietnam is a proud trading nation and an important member of ASEAN and APEC. The dissolution of the Trans-Pacific Partnership was a setback, but the Regional Comprehensive Economic Partnership could be a viable alternative, with Vietnam at the forefront.
In conclusion, there are bright lights ahead for Vietnam. The country is opening up its economy but it has a lot of work to do in terms of improving corporate governance, business regulations, and the country’s investment in human capital. Economically, Vietnam has made special efforts to showcase itself as a modern, open, trading nation.