How Vietnam Became An Economic Miracle?

Summary

Vietnam's remarkable economic transformation since the 1986 doi moi reforms is highlighted, showcasing its shift from a war-torn, impoverished nation to a leading exporter with a four-fold GDP per capita increase. Key factors include trade liberalization, investment in human capital, and an emerging middle class. However, challenges such as automation, potential tariffs, and rapid aging of the population pose threats to its continued growth.

Takeaways

• 📈 Vietnam's GDP per capita has increased from $95 in 1990 to over $2,700, despite a 25% population growth.
• 💡 Post-Vietnam War economic infrastructure was severely damaged, leading to a period of poverty and communism-driven stagnation.
• 🛠️ The 1986 'Doi Moi' reforms marked a shift from a planned economy to one open to international trade, starting with agricultural reforms.
• 🌾 Agricultural reforms allowed individual farming for profit, leading to a significant boost in agricultural production.
• 📉 The dong was devalued, and state-owned enterprises were reduced to encourage private businesses and stabilize the economy.
• 🔼 Vietnam's export growth has been remarkable, tripling in the last decade and accounting for over 100% of GDP.
• 🏭 Foreign investment, particularly from companies like Apple, Samsung, and Nike, has been attracted by Vietnam's economic policies.
• 🔄 Vietnam's export similarity index with China is high, indicating a strong overlap in export sectors, making it an attractive substitute for foreign investors.
• 📚 Investment in human capital has been significant, with Vietnam ranking high in international testing and improving its human capital index.
• 🌐 Vietnam has aggressively pursued trade liberalization, signing numerous free trade agreements to boost its economy.
• 👥 The country has a high participation rate in the workforce, with a notable increase in women's participation, indicating broader economic opportunities.
• 🚫 Despite progress, Vietnam faces challenges such as automation threatening its cheap labor advantage, a rapidly aging population, and potential trade disputes.

Q & A

What was Vietnam's GDP per capita in 1990 and how much did it increase by in 30 years?

In 1990, Vietnam's GDP per capita was 95, and over the course of 30 years, it increased to over 2,700.

How did Vietnam's population change during the 30-year period mentioned in the script?

Vietnam's population grew by a quarter during the 30-year period.

What was the impact of the doi moi reforms on Vietnam's economy?

The doi moi reforms in 1986 were a game changer for Vietnam's economy, focusing on dismantling a planned economy and opening up to international trade, which led to a broad-based economic transformation.

How did the reforms affect the agricultural sector in Vietnam?

The reforms moved away from collectivization towards individual farming for profit, where farmers were free to set their own prices and keep any profits, leading to a dramatic improvement in agricultural production.

What was the significance of the enterprise law introduced in 2000 in Vietnam?

The enterprise law of 2000 encouraged the registration of new household enterprises, transitioning them from the informal sector to the formal one and promoting private businesses.

How has Vietnam's export sector evolved over the last decade according to the script?

Vietnam's exports have tripled over the last decade, accounting for over a hundred percent of GDP, with the country becoming a leading exporter in the region.

What is the role of Samsung in Vietnam's export economy?

Samsung alone accounts for almost a quarter of Vietnam's exports, highlighting the company's significant impact on the country's export economy.

Why has Vietnam become an attractive destination for foreign investors?

Vietnam has become attractive due to its commitment to free trade, investment in human capital, an emerging middle class, and its position as a relatively cheaper manufacturing base.

What challenges does Vietnam face in maintaining its export-oriented success?

Challenges include increasing automation, the threat of tariffs, and having one of the fastest aging populations globally, which could affect its development path.

How has Vietnam's human capital investment contributed to its economic growth?

Vietnam's investment in human capital, as evidenced by high rankings in international testing and an increased human capital index, has helped create a skilled workforce that contributes to its economic growth.

What is the significance of Vietnam's high participation rate of women in the workplace?

The high participation rate of women in Vietnam's workforce, which is over a quarter more than the global average, indicates broader-based economic opportunities and reflects the increased prevalence of women in the workplace.

Outlines

00:00

📈 Economic Transformation of Vietnam

This paragraph outlines Vietnam's remarkable economic growth since 1990, highlighting its GDP per capita increase from $95 to over $2,700. Despite a population increase, the country experienced a significant reduction in poverty and has become a leading exporter, with Samsung accounting for a quarter of its exports. The script delves into Vietnam's post-Vietnam War economic challenges and the 1986 'Doi Moi' reforms, which transitioned the country from a planned economy to an open market system, focusing initially on agriculture and later expanding to other sectors. The reforms led to the stabilization of the Vietnamese currency, the dong, and the reduction of state-owned enterprises, fostering private businesses and contributing to the country's economic rise.

05:02

🌐 Vietnam's Global Trade Integration

The second paragraph discusses Vietnam's strategy to become an export powerhouse, emphasizing its export similarity index with China and the shared export sectors that have contributed to its economic awakening. The script explains Vietnam's aggressive pursuit of trade liberalization through various pro-trade agreements, starting with the 1987 Foreign Investment Law, leading to its membership in ASEAN and the World Trade Organization. The paragraph also highlights Vietnam's investment in human capital, its high PISA scores, and the increasing productivity of its population, as well as the potential impact of an emerging middle class and high female workforce participation on its economy.

10:02

🚀 Challenges and Future Prospects for Vietnam

The final paragraph addresses the challenges Vietnam faces in sustaining its economic growth, including the threat of automation to its comparative advantage in cheap labor and the stark divide between the formal and informal economy. It also touches on the issue of foreign direct investment being somewhat separate from the local economy and the negative attention Vietnam has received for its trade surplus with the U.S. The paragraph further discusses the demographic challenge of an aging population, which is growing faster than in other countries, and the need for Vietnam to manage this transition effectively. The script concludes by reflecting on Vietnam's progress and questioning whether it can continue its export-oriented success and follow the development path of other nations.

Keywords

💡GDP per capita

GDP per capita stands for Gross Domestic Product per capita, which is a measure of a country's economic output per person. It is a key indicator of a nation's standard of living. In the video, Vietnam's GDP per capita is highlighted as having grown significantly from 1990, indicating the country's economic progress over the past 30 years.

💡Poverty rate

The poverty rate refers to the percentage of a population living below a certain income level, which is often adjusted for cost of living. The video mentions a dramatic drop in Vietnam's poverty rate from 60% to less than 5%, showcasing the country's economic development and its impact on the lives of its citizens.

💡Exports

Exports are goods or services produced in one country and sold to another. The video emphasizes Vietnam's growth as a leading exporter, with a significant increase in exports contributing to its economic rise, and mentions that Samsung alone accounts for a quarter of these exports.

💡Economic development

Economic development refers to the process of improving a country's economic well-being, often through increased production and income. The video's theme revolves around Vietnam's economic development, highlighting its transformation from a war-torn country to an economic success story.

💡Doi Moi

Doi Moi, meaning 'renovation' in Vietnamese, refers to the economic and political reforms initiated in 1986 that marked a shift from a centrally planned economy to a more market-oriented one. The video explains how these reforms were pivotal in Vietnam's economic turnaround.

💡State-owned enterprises

State-owned enterprises are businesses owned and operated by the government. The video discusses how Vietnam reduced the number of these enterprises through restructuring, sell-offs, and mergers as part of its economic reforms.

💡Private businesses

Private businesses are companies owned by individuals or groups rather than the state. The video mentions the encouragement of private businesses in Vietnam as part of the economic reforms, contributing to the diversification of the economy.

💡Trade liberalization

Trade liberalization refers to the reduction of barriers to international trade, such as tariffs and quotas. The video outlines Vietnam's aggressive pursuit of trade liberalization through various free trade agreements, which has been instrumental in its economic growth.

💡Human capital

Human capital refers to the skills, knowledge, and health of a population, which contribute to productivity and economic growth. The video highlights Vietnam's investment in its human capital, as evidenced by its high rankings in international testing and improvements in the Human Capital Index.

💡Middle class

The middle class is a socio-economic group that falls between the working class and the upper class. The video discusses the emergence of a middle class in Vietnam, which is expected to drive further economic growth and consumption.

💡Aging population

An aging population refers to a demographic trend where the proportion of older individuals in a population increases. The video points out that Vietnam has one of the fastest aging populations globally, which presents challenges for its future economic development.

Highlights

Vietnam's GDP per capita has increased from $95 in 1990 to over $2,700, despite a population growth of a quarter.

The country experienced a four-fold increase in GDP per capita, with a significant drop in poverty rates from 60% to less than 5%.

Samsung accounts for nearly a quarter of Vietnam's exports, highlighting the nation's economic reliance on a single company.

Vietnam's economy has become a model for economic development, with significant gains across various indicators.

The country was one of the poorest in the world post-Vietnam War, with an economy based on communist five-year plans and collectivized agriculture.

The 1986 doi moi reforms marked a pivotal shift from a planned economy to an open market system, focusing initially on agriculture.

Agricultural reforms led to individual farming for profit, significantly boosting agricultural production.

Vietnam's currency, the dong, was devalued, and state-owned enterprises were scaled down to stabilize the economy.

The country encouraged private businesses and transitioned informal sector enterprises to the formal economy.

Vietnam's export growth has been exponential, with exports accounting for over 100% of GDP.

The country has become a leading exporter, particularly in clothing and electronics, attracting major global brands.

Vietnam's export similarity index with China is high, indicating a strong overlap in export sectors.

The country has pursued aggressive trade liberalization, signing numerous free trade agreements.

Vietnam has invested heavily in human capital, outperforming many developed economies in international testing.

The nation has a high participation rate, with a significant number of women in the workforce, indicating broader economic opportunities.

Vietnam faces challenges such as automation, which threatens its comparative advantage in cheap labor.

The country has a rapidly aging population, which could impact its demographic dividend and economic growth.

Vietnam's success has been built on reforms, free trade, investment in human capital, and an emerging middle class.

The country's future economic development may be hindered by automation, tariffs, and an aging population.

Transcripts

this is a chart of vietnam's gdp per

capita

since 1990. over the course of 30 years

it went from 95 to over 2

700 despite its population growing by a

quarter

even after accounting for inflation and

local purchasing power

vietnam experienced a four-fold increase

over this same period

the poverty rate has dropped from 60 to

less than five

with the nation becoming a leading

exporter and interestingly

samsung alone accounts for almost a

quarter of the country's exports

as a result vietnam's economy has become

the poster child for economic

development

making massive gains on almost every

indicator

though how did this previously war-torn

country turn it all around

in the space of 30 years being the only

major southeast asian economy to avoid a

recession in 2020.

to answer this we need to take a look at

what happened to vietnam's economy

after the war no economic video on

vietnam's meteoric rise can avoid

the vietnam war or the american war as

they call it in hanoi

this frames the whole context of where

the country is today

and most importantly how it got here by

1975

the nation's economic infrastructure had

been destroyed

by war and at that stage you would be

forgiven for thinking that vietnam's

economy

would take off in the post-war period

like so many other economies had done

before

unfortunately for vietnam though the

country was one of the poorest

on the planet with communist five-year

plans fixed pricing

and a focus on collectivised agriculture

not exactly spurring

a great economic awakening for a long

period moscow was vietnam's largest

trading partner with the fully fledged

communist nation

joining comic-con not to be confused

with a convention hall filled with

superheroes

comic-con or the council for mutual

economic assistance was basically an

economic organization

to facilitate trade amongst like-minded

communist nations

like cuba or east germany however by the

mid-80s

vietnam's stagnant economy was barely

scraping by

it had become clear that full-blown

communism wasn't living up to the

expectations and so a new plan

was launched one which would prove

fundamental to vietnam's economic rise

why doi moy was a game changer putting

my horrendous pronunciation to one side

the 1986 doi moy reforms or renovation

was a broad-based economic

transformation focused on dismantling a

planned economy

and opening up a closed system to

international trade

the original focus was on agriculture

and this makes perfect sense

considering a staggering 70 of the

workforce

worked in the fields despite the nation

still being a significant recipient of

food aid

the reforms moved away from

collectivization and towards

individual farming for a profit where

farmers were free to set their own price

and keep any profits which quickly led

to a dramatic improvement in

agricultural production

however the reforms didn't stop at

agriculture as stabilizing the economy

took center stage the vietnamese

currency the dong

was devalued and budget deficits were

brought into line

at the same time inefficient government

monopolies or state-owned enterprises

were scaled down

from over 12 000 in 1989 to less than

600 in 2016

through multiple rounds of restructuring

sell-offs and mergers

this all went hand in hand with reforms

to encourage private businesses

all the way down to the household level

fast forwarding to the year 2000

a new enterprise law encouraged

registration of these new household

enterprises

from the informal sector to the formal

one now

it's important to see this process as

one built up over time

as a transformation as opposed to a

single event which enabled employment in

agriculture and state-owned enterprises

to decline

as private employment took off from

virtually zero

a key outcome of this whole process of

reform has been the seemingly

unstoppable rise

of vietnam's exports which as this graph

shows

basically tripled over the last decade

with exports accounting for over a

hundred percent of gdp

something which can occur before you

balance exports

against a nation's imports the

exponential rise in exports

has seen the likes of apple samsung and

nike set up shop in the southeast asian

nation

becoming the region's largest exporter

of clothing and the second largest

exporter of electronics

after singapore though how exactly did

vietnam

go from one of the poorest economies on

the planet to an exporting rising star

economists often state that vietnam's

exporting prowess

is a result of a shift in global

production away from

china and whilst this trend is true it

doesn't tell us why

vietnam why not any of the other

seemingly competing nations

on china's doorstep an oversimplified

answer to this

would be that foreign investors are

incorporating vietnam into their china

plus one strategy as they've come to

realize that their so-called global

supply chain

is largely china-centric and hence

vulnerable to unpredictable scenarios

whether that be trade wars or the great

decoupling

of the us and china this is usually

topped off with a statement about firms

seeking to combat rising costs

after all average manufacturing wages

have tripled in the world's second

largest economy over the last decade

whilst vietnam's remains a fraction of

the price

but whilst this is all true it's well

just a bit cut and paced

so what are the key factors to vietnam's

economic awakening

a great way to look at why vietnam is

such a good substitute for china

is to consider the export similarity

index

this index allows us to measure how much

overlap there is

between two countries exports going from

zero to 100

the higher the percentage the greater

the export similarity

as such a high score implies it will be

relatively easier for the substitute

country to pick up the exports of the

country being compared

so in a comparison of asian countries to

china on this index

vietnam ranks first why may this be the

case

well if we look at the top 10 exports of

both countries

they share seven of ten sectors

including electrical machinery

computers clothing and furniture so

the fact that both countries have had

great years for exports defying the

global downturn

is less of a surprise as we mentioned in

our why

china avoided recession video the global

change to home working has created a

search for new computers

electricals and furniture which just

like china has been

great news for vietnam as exports grew

by over 10

in q3 alone but the similarity in

exports alone

whilst important to understanding the

trend still doesn't explain the full

why as mentioned earlier vietnam's

reform process which started back in the

mid-80s was a gradual one

if you go through the legislation over

the years trade liberalization

stands out as a key theme and the

vietnamese have pursued this

aggressively

if you were to consider a timeline of

pro-trade agreements one of the first

things vietnam did was

to create the foreign investment law in

1987.

this enabled foreign owned companies to

enter into its closed domestic market

in 1994 the us ended its trade embargo

on vietnam

paving the way for it to join the asean

free trade area

in 1995 in 2000 it signed a free trade

agreement with the us

and most importantly perhaps it joined

the world trade organization

in 2007 which dramatically lowered

tariffs to a host of countries

more recently it signed the regional

comprehensive economic partnership

an asian-based free trade agreement

covering a third of the global economy

overall vietnam has signed well over a

dozen free trade agreements

being a bit of a champion when it comes

to free trade-based

development economics to help capitalize

on these free trading opportunities

vietnam has invested a lot in its human

capital

which goes against any preconceptions of

vietnam

just being a magnet for cheap labor

according to the pisa standard

international testing which ranks

countries by the exam scores of their 15

year olds

vietnam outcompetes most developed

economies when it comes to reading and

maths

ranking an impressive fourth for science

and

investment in its population isn't just

something based in the classroom

vietnam's human capital index has

increased from 0.66 to 0.69

since 2010. this means that a child born

today will be

69 percent as productive as he or she

could be

if they enjoyed a complete education and

full health

now a score of 69 may not sound great

but this puts vietnam first amongst

all middle-income nations and for

context the highest score in the world

is 88 which is very much an outlier

achieved by singapore and like so many

other developing economies

vietnam is tipped to benefit from an

emerging middle class

something boosted by the nation's very

high participation rate of 80 percent

compared to only 65 percent incomparable

developing countries

this high rate reflects the increased

prevalence of women in the workplace

at over a quarter more than the global

average an encouraging trend which

points to broader-based economic

opportunities

now all of this is good and well with

vietnam making remarkable progress

over the last three decades but it's

still a far away from achieving its

economic goal

of becoming a high-income country by

2045

so what are vietnam's key challenges

a lot of vietnam's recent success has

been based on positioning itself

as a relatively cheaper manufacturing

base this has provided the jobs

necessary to propel the nation's economy

into middle-income status however

vietnam is still at a relatively early

stage

in this transition this expansion in

jobs is threatened by increasing

automation which is set to erode

vietnam's comparative advantage

in cheap labor creating a headache in

more ways than one

because principally vietnam is still an

agricultural based workforce

with just under forty percent working in

agriculture and less than a quarter

of the workforce possessing an

employment contract this stark subdivide

between the formalized

and informalized economy is a trend

which carries through to foreign direct

investment

a common criticism is that it

facilitates economic dualism

in many cases foreign direct investment

is largely void and separate from the

local economy with the bulk of the

benefits yet to merge

into the domestic market and even

vietnam's success in exports

has started to gather negative attention

particularly

from the us as vietnam has the third

highest trade surplus with the states

after china and mexico the u.s treasury

department put the nation

on a list of top 10 currency

manipulators early in 2020

going on to launch a section 301

investigation which is the exact same

process

they used to place tariffs on billions

of dollars of chinese imports

something which if ever happened to

vietnam could seriously dent any plans

to move export-orientated manufacturing

out of china

to service the us market importantly

when it comes to many developing

countries

a common theme is a young population

which will present a demographic

dividend

and for vietnam over the last 30 years

its population has grown by more than 25

percent

but the country actually has one of the

fastest aging populations

on the planet on current trends its

elderly population which is defined as

those over 65

will double from 7 to 14 by 2035

at which point vietnam will officially

be considered an

age society the pace of this change has

economists worried

being five years faster than singapore

so much so

that japan the world's leading expert in

how to handle an aging population

has set up a knowledge sharing platform

with the world bank to help vietnam

manage this transition which will be a

huge undertaking for a country which is

yet to fully tread the development path

so many of its neighbours have done

before it so overall

we've seen that vietnam has made

remarkable progress

over the last three decades from an

extremely low base

especially when you consider that just

under 40 percent of the population

still work in agriculture the reforms of

1986 onwards

cannot be understated initially in

agriculture and then spreading

throughout the rest of the economy

and society at large it would be an

oversimplification to say

that vietnam's success has been built on

an exodus from china without mentioning

what has made the nation

so appealing which includes its

commitment to free trade

investment in human capital and an

emerging middle class

but there is a very real concern that

vietnam

won't be able to follow the same

development path as so many nations did

before it

due to the challenges of automation

prospects of tariffs and one of the

fastest aging populations

on the planet and now it's over to you

do you think vietnam will continue its

export orientated success

will it be able to follow the same

development model as so many nations

before it

let us know your thoughts in the

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