The Vietnamese Economy: One Of Asia's Strongest

Includes: VNM
by: Reid K.

By Reid Kirchenbauer

One of the few communist countries in the world, Vietnam is an interesting case example of how a communist controlled economy is slowly being converted into an economy with greater roles given to private businesses.

Realizing that a state controlled economy would no longer be effective in riding the ASEAN region's wave of growth, the Vietnamese government has been taking many steps in ensuring that there is a smooth transfer of control from the state owned enterprises into the hands of the private business owners. It has not been easy.

A brief on the history of the Vietnamese economy would have to cover the fact that the nation has gone through extremely high growth. Like many of the communist countries, it slowly lost the momentum it had and ultimately failed to achieve the planned sustainable growth that it had hoped to realize.

In 2013, the country had a nominal GDP per capita of $1,902 which was a far cry of the prediction made in a report by Goldman Sachs - in the report it was specified that the Vietnamese economy would be the 35th largest economy in the world with a nominal GDP per capita of $4,357 by 2020.

The Most Capitalist, Communist Country on Earth

At the moment, Vietnam is well in the way of becoming more integrated into the global economy with almost all of its enterprises being small and medium enterprises. A leading rice exporter and one of the more attractive destinations for foreign investment in Southeast Asia, Vietnam has a growing economy that is mainly relying on the large FDI it is receiving.

With such unstable performance of the economy, foreign and local business owners are now hoping for a more focused approach by the Vietnam's reshuffled communist party to bring the state controlled economy up to par with global standards.

Even though the Vietnam economy may have lost some of the hype that it has had over the years, it is still not entirely gone. Still one of the few rising stars in Southeast Asia, Vietnam has a lot of potential especially considering the fact that most of the economy is still controlled by state owned enterprises.

Many economists and analysts believe that the privatization of its economy will lead to the sustainable growth that has eluded Vietnam thus far.

Inefficient State Owned Enterprises: An Obstacle to Growth

With global markets in shambles at the moment, Vietnam has something else that it has to deal with - something entirely unnecessary. According to experts, it is its main obstacle of growth. The majority of the Vietnamese market is still dominated by state owned enterprises that are extremely inefficient in doing business even though the country has tried to moving away from that system.

The behavior seen here is a bit similar to China's with the leaders of Vietnam not too keen on relinquishing their control over commerce, even though it has been proven that privately operated companies are more efficient and profitable.

It seems like the rest of the world notices this trend in Vietnam as well, with a lot of international involvement to help change the role its government plays in the economy.

A US led trade agreement, Trans Pacific Partnership (TPP) has a provision that requires less direct government involvement in the domestic economy. A direct benefit of being included in the 12 countries for TPP is the expectations from foreign investors that the Vietnamese market will be a more predictable and fairer place to invest in, which would lead to higher FDI for the country.

An executive director positioned at the American Chamber of Commerce in Vietnam commented that it was very urgent that the government "is more of a referee in the economy than a player."

With greater FDI and reforms to its domestic market, Vietnam is looking for a sustained growth with its GDP forecast between 6.5% and 7% for the next five years. The latest recorded official number was 6.7%.