This article was first published on EConsider. EConsider is the Association of Malaysian Economics Undergraduates (AMEU) Research’s economic newsletter, with the stated aim of bringing economic and academic knowledge to the students.
Disclaimer: Warwick ASEAN Conference would like to clarify that all opinions expressed in this article are the authors’ and editors’ own.
BY RYAN BW LEE
In East Asian cultures, the Tiger has consistently been a symbol of awe and admiration, of strength and stability, power and prestige.
For their rapid economic growth, development and industrialisation, the Tiger lent its name to four East Asian economies, Singapore, Hong Kong, Taiwan and the Republic of Korea, as tribute to their meteoric rise. In between the mid-1950s and the 1990s, the Tiger Economies boomed with long periods of socio-economic development that was lauded with eventual “Developed Economies” status.
A tiger for the 21st Century: Why Vietnam?
The Economist noted that Vietnam, with a population of more than 90 million and a young median age of 30.4 years, has the second fastest economic growth rate per person, after only China, since the 1990s. An estimated 30 million Vietnamese people were lifted out of poverty in a span of 20 years between 1985 and 2005 (Development Progress, 2014) as result of market-orientated reforms and trade liberalisation. Keep in mind that this is a country that was in a state of constant war between 1940 and 1989 against the Japanese, the French, the Allied Forces, China and the Khmer Rouge government of Cambodia. Should Vietnam maintain a GDP growth rate of over 7%, it will be set on the same growth trajectory of original Tiger economies, South Korea and Taiwan (Fuller, 2016).
The government has an ambition of building a modern, industrialised economy. What catches the eye about Vietnam is its government’s clear policy-objectives, its preparations for the future and how it is taking advantage of its disposition (Development Progress, 2014).
Strategically located with a land and sea border to China, Vietnam is, in the words of The Economist, “sitting on China’s doorstep as companies hunt for low-cost alternatives”. In the 1990s, Vietnam vastly simplified its trade rules, putting itself ahead of the rest of Southeast Asia as a safety net for companies falling out with China. Since, major cities and regions have specialised in varied economies- the North is competing with China for manufacturing contracts, Danang is pursuing tech while Ho Chi Minh City is constructing industrial parks and has a bustling start-up scene (Economist.com, 2017). Trade now accounts for 150% of Vietnam’s national output, higher than any other country at its income level (NguyenDieu, 2017).
From 2015 PISA international tests on 15 year-olds’ ability in reading, maths and science, Vietnam’s students emerged 12th in the world and 6th in Asia (behind the 4 Tiger economies). This is attributed to the country’s high investment, 6.3% of its public I spending, in education; focusing on ensuring higher enrolment and achievements. Regardless of the shortcomings of PISA indicators (such as looking solely at a pool of ‘school-going’ 15 year olds and the allowance of countries to choose their areas and schools to undertake the testing) (Sands, 2017), it still indicates a level of prowess in technical subjects, even if it is concentrated in a select pool of a few tens of thousands.
Pundits are also betting on this as a basis for why Vietnam will be able to beat the ‘techno-pessimism’ surrounding the beliefs that developing, manufacturing-based countries will lose out when production becomes more automated. The argument goes that production may become automated, but Man is still needed to regulate and control the process (Economist.com, 2017). This is where Vietnamese can deliver a value-add.
Youths confident in Maths and Science, the core groundings of computer science, in an economy diverse and known to deliver as an ideal destination in the race to the bottom- Vietnam is quietly positioning itself to be a global tech and start-up hub at the bottom line.
Eddie Thai, a partner in 500 Startups’ Vietnam fund, estimates that there are about 14,000 tech companies in Vietnam at the moment and 3,000 of them are start-ups with about another 1,000 coming online every year. There is a calling, as the Vietnamese government put in 2016, to make the country a ‘start-up nation’ (Abudheen K., 2017).
What happens next?
Infrastructure and transport projects are expected to continue connecting different regional economies and tourism destinations (which currently contribute 9.3% of Vietnam’s GDP). Should China’s One Belt, One Road materialise and take off, Vietnam stands as a potential gateway and entrepôt for trade with the rest of Southeast Asia.
However, Vietnam’s impressive growth comes with a price. Having more than doubled its GDP in the last eight years, Vietnam is now deemed a middle-income country, meaning it no longer qualifies for most concessionary funding from the World Bank.
Before 2010, the average repayment period for loans was from 30 to 40 years, with borrowing costs of between 0.7% and 0.8% per year and a grace period. The terms became stricter as Vietnam grew more affluent, and from 2011 to 2015 the interest rate rose to 2% repayable over 10 to 20 years. With the withdrawal of concessionary terms, interest rate on existing loans are pushes up to 3.5% with half the repayment period (Kim and Nguyen, 2017).
With cheap financing coming to a trickle, Bloomberg Markets predicts that Vietnam will have to turn to its bond markets. About 70% of Vietnam’s USD13.2 billion are currently onshore. Expanding local-currency debt can sustain the country in the medium-term. However, foreign investors anticipate further debt issuance offshore to come (Kim and Nguyen, 2017). An indication of maturity, this presents new challenges in control and value of money supply for the government to adapt to achieve its goal of modern, industrial economy status.
With great economic growth and the government’s fondness of neoliberalism, Vietnam’s level of economic inequality is growing, especially marginalising ethnic minorities and those in rural areas (World Bank, 2013). This is not a problem specific to Vietnam but faced by many across the world. The Vietnamese government is undertaking specialised public projects to improve access to infrastructure and facilities to allow each person to improve their livelihoods- education, health care, roads, and entrepreneurship (World Bank, 2013). The foundations are present, what remains is the government’s political will to safeguard communities on the fringe of Vietnam’s mainstream economy.
Not a continent-sized economy like China or India, Vietnam’s blend of stable central government, clear policy objectives and the far-sighted public investments is a model achievable by developing states. Should Vietnam be able to adapt to the demands of the modern global economy while effectively managing the diverse interests of its citizens, Asia might wake up to a new type of Tiger in the next two decades. Hungrier and more ruthless than its predecessors.
Abudheen K., S. (2017). Focus on impacting human lives rather than trying to be a unicorn, says Eddie Thai of 500 Startups Vietnam. [online] e27. Available at: https://e27.co/focus-impacting-human-lives-rather-trying-unicorn-says-eddie-thai-500-startups-vietnam-20170621/ [Accessed 30 Sep. 2017].
Development Progress. (2014). Vietnam Case Study Summary. [online] Available at: https://www.odi.org/sites/odi.org.uk/files/resource-documents/11555.pdf” [Accessed 30 Sep. 2017].
Economist.com. (2017). The Other Asian Tiger. [online] Available at: https://www.economist.com/news/leaders/21703368-vietnams-success-merits-closer-look-other-asian-tiger [Accessed 30 Sep. 2017].
Fuller, E. (2016). Vietnam Poised To Be Asia’s Next Economic Tiger. [online] Forbes.com. Available at: https://www.forbes.com/sites/edfuller/2016/09/07/vietnam-poised-to-be-asias-next-economic-tiger/2/ [Accessed 30 Sep. 2017].
Kim, N. and Nguyen, G. (2017). Vietnam Learns Becoming a Tiger Economy Comes With a Cost. [online] Bloomberg.com. Available at: https://www.bloomberg.com/news/articles/2017-08-06/vietnam-s-success-comes-with-a-price-cheap-financing-is-over [Accessed 30 Sep. 2017].
NguyenDieu, T. (2017). Vietnam Rejoins Club of 6%-GDP-Growth Nations as Exports Surge. [online] Bloomberg.com. Available at: https://www.bloomberg.com/news/articles/2017-06-29/vietnam-s-economy-expands-at-faster-pace-in-second-quarter [Accessed 30 Sep. 2017].
Nunis, V. (2016). Could Vietnam become the next Silicon Valley?. [online] BBC News. Available at: http://www.bbc.co.uk/news/business-35227626 [Accessed 30 Sep. 2017].
Sands, G. (2017). Are The PISA Education Results Rigged?. [online] Forbes.com. Available at: https://www.forbes.com/sites/realspin/2017/01/04/are-the-pisa-education-results-rigged/ [Accessed 30 Sep. 2017].
Thang, B. (2017). >After the War: 25 Years of Development in Vietnam. [online] Nira. Available at: http://www.nira.or.jp/past/publ/review/2000spring/06thang.pdf” [Accessed 30 Sep. 2017].
World Bank (2017). Vietnam Poverty Report. [online] Centre for International Economics, Canberra and Sydney. Available at: http://siteresources.worldbank.org/INTVIETNAM/Resources/Vietnam-Poverty-Analysis.pdf [Accessed 30 Sep. 2017].
World Bank. (2013). Poverty Reduction in Vietnam: Remarkable Progress, Emerging Challenges. [online] Available at: http://www.worldbank.org/en/news/feature/2013/01/24/poverty-reduction-in-vietnam-remarkable-progress-emerging-challenges [Accessed 30 Sep. 2017].