Economic miracle

The story of Vietnam’s economic miracle and its transformation into becoming one of the fast-growing powerhouses in the ASEAN region is worth telling.

In an article for the World Economic Forum, Peter Vanham who is an executive editor at Fortune narrated how Vietnam became one of the poorest economies in the world when the 20-year war ended in 1975, how the growth under the government’s subsequent five-year central plans was anemic and how by the mid-80s, per capita GDP was stuck between $200 and $300.

But then, things changed when in 1986, the government introduced “Doi Moi,” a series of economic and political reforms and steered the country into becoming a socialist-oriented market economy.

Written in 2018, the article noted how Vietnam became one of the stars of the emerging markets universe, with its economic growth of six to seven percent rivaling that of China, and its exports worth as much as the total value of its GDP.

Vanham cited reports from analysts from the World Bank and the think-tank Brookings which said that Vietnam’s economic rise can be explained by three factors. First, it embraced trade liberalization with gusto; second, it complemented external liberalization with deregulation and lower cost of doing business; and third, it invested heavily in human and physical capital predominantly through public investments.

In 1986, the country created its first law on foreign investments that enabled foreign companies to enter. Since then, the law has been revised a number of times mainly to adopt a more pro-investor approach while aiming to reduce administrative bureaucracy and better facilitate the entry of foreign investments, the article explained.

Vietnam’s efforts did not go unnoticed so that from 104th place in 2007 in the World Bank’s Ease of Doing Business rankings, it rose to 68th place in 2017 and in the World Economic Forum’s Global Competitiveness Report, it improved its position to 55th in 2017 from 77th place in 2006.

The country, the report said, invested a lot in its human capital and infrastructure, making large public investments in primary education, ensured cheap mass access to the internet, among others. These investments paid off so that armed with the necessary infrastructure and with market-friendly policies in place, Vietnam became a hub for foreign investments and manufacturing in Southeast Asia.

Japanese and Korean electronic companies like Samsung, LG, Olympus and Pioneer, and countless European and American apparel makers set up shops in the country.

Economic growth followed such that since 2010, its GDP growth has been at least five percent per year, peaking at 6.8 percent in 2017. Its GDP rose by more than ten times, from $230 in 1985 to $2,343 in 2017. Corrected for purchasing power, it stood even higher at over $6,000, Vanham wrote.

Meanwhile, a report from Asia Briefing revealed that the country registered a 5.05 percent GDP growth in 2023. From January to March 2024, its GDP grew by 5.66 percent, marking the highest expansion for the three-month period since 2020.

For 2024, the IMF has forecast that Vietnam’s economy could potentially reach $469.7 billion, which would see it maintain its position as the fifth largest economy in Southeast Asia.

It said that the influx of foreign investments came from 62 countries and territories, with Singapore emerging as the leading investor during the first quarter with its total registered capital amounting to over $2.55 billion, marking an increase of 51.3 percent. This was followed by Hong Kong with $1.05 billion or a substantial growth of 2.3 times compared to the previous year.

In the second quarter of 2024, Vietnam’s GDP increased by 6.93 percent year-on-year, boosted by robust exports which grew by 12.5 percent and with the agriculture sector continuing to rise at 3.34 percent, tradingeconomic.com reported.

The government targets the economy to grow around six to 6.5 percent this year while the IMF projects a growth of 5.8 percent, citing strong overseas demand and resilient foreign investment.

The World Bank, in a recent report, pointed out that Vietnam’s shift from a centrally planned to a market economy transformed it from being one of the poorest in the world into a lower middle-income country in one generation and one of the most dynamic emerging countries in the East Asia region.

It said that GDP per capita increased six-fold in less than 40 years to almost $3,700 and that poverty rates declined to 4.2 percent in 2022 from 14 percent in 2010.

But equally impressive is the fact that its universal health coverage index is at 73 percent which is even higher than regional and global averages, with 87 percent of the population covered by the national health insurance scheme. Its human capital index is 0.69 percent out of a maximum of one, the highest among lower middle-income economies.

As of 2019, 99.4 percent of the population used electricity as their main source of lighting, up from just 14 percent in 1993. Access to clean water in rural areas also improved to 51 percent in 2020 from 17 percent in 1993, the WB added.

The Philippines meanwhile continues to be a laggard.

In its 2024 World Competitiveness Report, the IMD placed the Philippines 52nd out of 67 economies it ranked all over the world, the same ranking in the previous year. It said that while the Philippines ranked high in terms of employment (10th), tax policy (15th) and domestic economy (27th), the country was less competitive in terms of business legislation at 60th spot, basic infrastructure at 62nd and education at 63rd. Among Asia-Pacific’s 14 economies, it ranked at 13th, unchanged for five consecutive years.

Maybe we can learn a thing or two from Vietnam’s experience.

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