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Viet Nam

Viet Nam at a glance

After more than 25 years of the ‘Doi Moi’ process, Viet Nam has become one of the countries recording a relatively high economic growth rate despite the difficulties of global and regional economic volatility. Along with its integration into the WTO, economic policy reforms progressively increased the international integration through trade, investment inflows and labor exports. Viet Nam’s trade turnover to GDP ratio increased to 160 percent from 46 percent in 1991. Real GDP per capita grew at rates of roughly 6 percent per annum during 1990-2011, moving Viet Nam to the category of a lower middle-income country, according to the World Bank classification. Viet Nam GNI per capita was estimated at $1260 in 2011.

International economic integration accelerated with high inflow of foreign investment. Political and social stability was maintained; traditional culture was revitalized; environment and infrastructure were improved and the forest coverage rate increased. The economic structure evolved towards service and the industrial sector, while the proportion of the agriculture sector in total GDP decreased from 24.5% in 2000 to 20% in 2011 . Growth was also pro-poor in the sense that the proportion of the population living on less than $1.25 per day declined from 64% in 1993 to about 13% in 2008. According to the Viet Nam Living Standards Survey for 2010, about 14% of the population was living under the national poverty line in 2010. Similarly, undernourishment declined from about 47% of the population in 1990-92, to barely 9% in 2010-12. This was accompanied by an equally sharp decline in the proportion of underweight children under 5 years old, from 37% in 1993 to about 20% in 2008. In this process, people’s welfare has improved significantly. Food availability and national level food security was achieved along with good performance in overall poverty reduction. Rural development, especially in rural infrastructure development, showed good performance, and agricultural export accelerated continuously.

Despite this excellent progress, Viet Nam still faces serious obstacles. Even if it is classified as a middle-income country, income of the vast majority of Viet Nam population – especially in rural areas – is far below middle-income levels. Data from the Viet Nam Household Living Standards Survey for 2010 (the most recent nationally representative data available) shows that only households in the highest quintile have per capita income exceeding the World Bank’s lower middle-income threshold ($ 1026 per person per year). In rural areas, the proportion of the population with per capita income higher than $1026 is likely to be even smaller. In terms of international poverty lines, nearly 40% of the population continues to live on less than $2.00 per day, being vulnerable to economic downturns.

After a rapid development period, economic growth has slowed in recent years. The GDP growth rate in the period of 2000-2007 remained at 7-8%/year, but reduced to 5-6%/year in 2008-2011. Factors contributing to the previous economic growth are likely to become less important. The existing economic structure and development model cannot create momentum to sustain further growth.

With regards to agriculture and rural development, nearly 70% of the population is still classified as rural, and rural incomes are still far below urban, despite rapid agricultural growth together with fast GDP growth and rise in agricultural exports (especially in terms of rice, coffee, catfish). This is leading to a slow exodus of the rural population to the cities. The Viet Nam Living Standards Survey shows that at every income quintile, per-capita income in urban areas is almost double than in rural areas. Poverty rates are also much higher in rural than in urban areas. Secondly, even though the country as a whole is a net rice exporter, the vast majority of the population is net buyer of rice, including also households in the Mekong Delta. Thirdly, Viet Nam is remarkably subject to natural disasters, which are likely to intensify as climate change accelerates. Consequently, Viet Nam shows a typical characteristic of a dual economy. On the one hand, the majority of the population is low income and lives in rural areas. On the other hand, it is a fast growing economy along with industrialization and urbanization.

In general, the industrialization strategy reveals some shortcomings. For instance, very high priorities were put on heavy industries such as mining, cement, exploration of petrol, utilizing large amounts of energy and natural resources, and causing environmental pollution, while light industries and services were neglected, such as food processing technology, sectors producing input materials for agriculture, goods and services for rural areas conducive to competitiveness, employment generation, and agro-business or industries.

The unemployment and underemployment rates in rural areas remain relative high of 1.6% and 3.56% (in comparison with 2.29% and 2.96% in the whole country, respectively). Moreover, child labor is also a problem. According to the nation-wide labor survey in 2006, child labor in agricultural sector is 82.8%. Working in agriculture is considered to involve high risk to children’s health and well-being, including reducing time attending school and for studies. In addition, the regional economic structure also reveals serious shortcomings. Too much investment was injected into the infrastructure and business development of two major growth poles around Hanoi and Ho Chi Minh City. While in contrast, other provinces, especially rural and mountainous areas were given very low opportunities to attract investment. This caused a large gap in terms of infrastructure and services among regions, and an over-concentration of infrastructure and services in the two major cities (housing, transportation, clean water, health care).

Development strategy has shown a bias for State-owned enterprises, which accounted for 45-60% of public investment during 2000-2005 and 35-45% during 2005-2010 . However, this sector performed poorly. Meanwhile, the domestic private sector, particularly small and medium enterprises working in agriculture and the rural sector, did not receive appropriate support though they made important contribution to the national socio-economic development process.

Administrative reform was slow, the state management system was cumbersome and inefficient, and corruption persisted. The reform of the legal system was slow to catch up with the practical demand of the people. Slow formulation and poor implementation of policies hindered socio-economic development performances. Decentralization did not reach down to the level of the grass-root units, business organizations, and village communes. At the grass-root level, the role of the community was not promoted, leading to continued dependency on public allocation and distribution and lack of self-reliance and continued dependence on government subsidies, especially for the poor and vulnerable people.