ECONOMY
Economic stagnation marked the period after reunification from 1975 to 1985. In 1986, the Sixth Party Congress approved a broad economic reform package called "Doi Moi" (renovation) that introduced market reforms and dramatically improved Vietnam's business climate. Vietnam became one of the fastest-growing economies in the world, averaging around 8% annual gross domestic product (GDP) growth from 1990 to 1997 and 6.5% from 1998-2003. From 2004 to 2007, GDP grew over 8% annually. Foreign trade and foreign direct investment have improved significantly. Average annual foreign investment commitment has risen sharply since foreign investment was authorized in 1988, and in 2007 Vietnam licensed $17.86 billion in foreign direct investment. Actual investment in that year totaled $4.60 billion. From 1990 to 2005, agricultural production nearly doubled, transforming Vietnam from a net food importer to the world's second-largest exporter of rice. Exports in 2007 were a historic $48.39 billion, but Vietnam's need for capital goods, construction materials, refined fuel, and primary material for exports meant that it ran a trade deficit of $12.4 billion.
The shift away from a centrally planned economy to a more market-oriented economic model improved the quality of life for many Vietnamese. Per capita income rose from $220 in 1994 to $832 in 2007. Inflation in 2007 was 7.3% but was in the double digits and approaching 30% year-on-year by August 2008. The average Vietnamese savings rate is about 30%. Urban unemployment has been rising in recent years, and rural unemployment, estimated to be between 25% and 35% during non-harvest periods, is significant.
The Vietnamese Government still holds a tight rein over major sectors of the economy through large state-owned enterprises and the banking system. The government has plans to reform key sectors and partially privatize state-owned enterprises, but implementation has been gradual and the state sector still accounts for approximately 40% of GDP. Greater emphasis on private sector development is critical for job creation.
The 2001 entry-into-force of the Bilateral Trade Agreement (BTA) between the U.S. and Vietnam was a significant milestone for Vietnam's economy and for normalization of U.S.-Vietnam relations. Bilateral trade between the United States and Vietnam has expanded dramatically, rising from $2.91 billion in 2002 to $12.5 billion in 2007.
Implementation of the BTA, which includes provisions on trade in goods and services, enforcement of intellectual property rights, protection for investments, and transparency, fundamentally changed Vietnam’s trade regime and helped it prepare to accede to the World Trade Organization (WTO). Following the conclusion of bilateral negotiations with interested WTO members and completion of multilateral negotiations in 2006, the WTO General Council approved the terms for Vietnam's membership on November 7, 2006. Vietnam formally acceded to the WTO as its 150th member on January 11, 2007.
Vietnam was granted unconditional normal trade relations (NTR) status by the United States through a Presidential Proclamation signed by President Bush on December 29, 2006. On January 11, 2007, the United States removed the application of quotas on textile and apparel imports from Vietnam consistent with the terms of our WTO bilateral market access agreement and treatment provided to other WTO members. To meet the obligations of WTO membership, Vietnam revised nearly all of its trade and investment laws and guiding regulations. As a result, foreign investors and those seeking to sell goods and services to the increasingly affluent Vietnamese population will benefit from the improved legislative framework and lower trade barriers. Local firms that have heretofore enjoyed a range of protections, meanwhile, will experience increased competition. In 2006, the Government of Vietnam reasserted its goal of becoming a middle-income country by 2010. That would entail raising the average per capita income to at least $1,000 from the 2007 average of $832. Economic analysts, including those at the World Bank, believe that this goal is attainable.
A U.S.-Vietnam Trade and Investment Framework Agreement (TIFA), a bridge to future economic cooperation, was signed in June 2007 during President Triet's visit to the United States. The first TIFA Council occurred on December 17, 2007 in Washington. During Prime Minister Dung's June 2008 visit, the United States and Vietnam committed to undertake Bilateral Investment Treaty (BIT) negotiations.
Agriculture
and Industry
Land reform, de-collectivization, and the opening of the agricultural sector to market forces converted Vietnam from a country facing chronic food shortages in the early 1980s to the second-largest rice exporter in the world. Besides rice, key exports are coffee, tea, rubber, and fisheries products. Agriculture's share of economic output has declined, falling as a share of GDP from 42% in 1989 to 20.25% in 2007, as production in other sectors of the economy has risen.
Paralleling its efforts to increase agricultural output, Vietnam's industrial production has grown. Industry and construction contributed 41.6% of GDP in 2007, up from 27.3% in 1985.
Vietnam has successfully increased exports of manufactured goods, especially labor-intensive manufactures, such as textiles and apparel and footwear. Subsidies have been cut to some inefficient state enterprises. The government is also in the process of "equitizing" (e.g., transforming state enterprises into shareholding companies and distributing a portion of the shares to management, workers, and private foreign and domestic investors) a significant number of state enterprises. However, to date the government continues to maintain control of the largest and most important companies. Despite reforms, the state share of GDP has remained relatively constant since 2000, at 38-39%.
Trade
and Balance of Payments
From the late 1970s until the 1990s, Vietnam was heavily dependent on the Soviet Union and its allies for trade and economic assistance. To compensate for drastic cuts in Soviet-bloc support after 1989, Vietnam liberalized trade, devalued its exchange rate to increase exports, and embarked on a policy of regional and international economic re-integration. Vietnam has demonstrated its commitment to trade liberalization in recent years, and integration with the world economy has become one of the cornerstones of its reform program. Vietnam has locked in its intention to create a more competitive and open economy by committing to several comprehensive international trade agreements, including the Association of Southeast Asian Nations (ASEAN) Free Trade Area (AFTA) and the U.S.-Vietnam Bilateral Trade Agreement (BTA). Vietnam's accession to the World Trade Organization further integrated Vietnam into the global economy.
As a result of these reforms, exports expanded significantly, growing by as much as 20%-30% in some years. In 2007, exports accounted for 68% of GDP. Imports have also grown rapidly, and Vietnam has a significant trade deficit ($12.4 billion in 2007). Vietnam's total external debt, amounting to 27% of GDP in 2007, was estimated at around $19.3 billion.
Economy
GDP (2007): $71.4 billion.
Real growth rate (2007): 8.5%.
Per capita income (2007): $832.
Inflation rate (May 2008): 25%.
External debt (2007): 27% of GDP, $19.3 billion.
Natural resources: Coal, crude oil, zinc, copper, silver, gold, manganese, iron.
Agriculture, forestry, and fisheries (20.25% of GDP, 2007): Principal products--rice, maize, sweet potato, peanut, soya bean, cotton, coffee, cashews. Cultivated land--12.2 million hectares. Land use--21% arable; 28% forest and woodland; 51% other.
Industry and construction (41.62% of GDP, 2007): Principal types--mining and quarrying, manufacturing, electricity, gas, water supply, cement, phosphate, and steel.
Services (38.13% of GDP, 2007): Principal types--tourism, wholesale and retail, repair of vehicles and personal goods, hotel and restaurant, transport storage, telecommunications.
Trade (2007): Exports--$48.39 billion. Principal exports--crude oil, garments/textiles, footwear, fishery products, wood products, rice (second-largest exporter in world), sea products, coffee, rubber, handicrafts. Major export partners--U.S., EU, Japan, China, Singapore, Australia, Taiwan, and Germany. Imports--$60.8 billion. Principal imports--machinery, oil and gas, garment materials, iron and steel, transport-related equipment. Major import partners--China, Japan, Singapore, Taiwan, South Korea, Hong Kong, and Thailand. Exports to U.S. (2007)--$10.6 billion. Imports from U.S. (2007) $1.9 billion.
