Vietnam: Economy

Following economic stagnation after reunification from 1975 to 1985, the 1986 Sixth Party Congress approved broad economic reforms (known as "Doi Moi" or renovation) that introduced market reforms, opened up the country for foreign investment, 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, slowing slightly to 6.2% in 2008 and 5.3% in 2009, and then recovering to 6.78% in 2010. Viewed over time, foreign trade and foreign direct investment (FDI) have improved significantly. The average annual foreign investment commitment has risen sharply since foreign investment was authorized in 1988, although the global economic crisis affected FDI in 2009. In 2010, disbursed FDI capital totaled $11.0 billion, up 10% compared to 2009. Registered FDI (including new and additional capital) was $18.6 billion in 2010, a fall of about 20% compared to 2009. In 2010, actual disbursed FDI was $11 billion and registered FDI was $18.6 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. In 2010, Vietnam’s exports ($71.6 billion) were up by 25%. Vietnam’s imports ($84 billion) were up by 22% from 2009, and the country was still running a structural trade deficit, reaching $12.4 billion in 2010.

The shift away from a centrally planned economy to a more market-oriented economic model has improved the quality of life for many Vietnamese. Per capita income rose from $220 in 1994 to $1,168 in 2010. Year-on-year inflation increased to 11.75% in 2010 from 6.52% in 2009. Experts doubt that the Vietnamese Government can reach its 2011 Consumer Price Index (CPI) target of 7%, given that inflation has remained above target for 4 straight months and April CPI was more than 9%. The average Vietnamese savings rate is about 25% of GDP. Unemployment remains low, but has been rising in recent years. Unemployment was 2.88% in 2010--a slight decline from 2.9% in 2009, but up from 2.4% in 2008--with urban unemployment being higher (4.43% in 2010) than rural (2.27% in 2010).

The Vietnamese Government still holds a tight rein over major sectors of the economy through large state-owned economic groups and enterprises. 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 $17.9 billion in 2010. The U.S. is Vietnam's second-largest trade partner overall (after China).

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 accede to the World Trade Organization (WTO) in 2007.

Vietnam was granted unconditional normal trade relations (NTR) status by the United States in December 2006. To meet the obligations of WTO membership, Vietnam revised nearly all of its trade and investment laws and guiding regulations and opened up large sectors of its economy to foreign investors and exporters.

A U.S.-Vietnam Trade and Investment Framework Agreement (TIFA), a bridge to future economic cooperation, was signed in 2007 during President Triet's visit to the United States. The first TIFA Council occurred in December 2007 in Washington, and there have been five TIFA meetings since then. During Prime Minister Dung's June 2008 visit, the United States and Vietnam committed to undertake Bilateral Investment Treaty (BIT) negotiations, and have completed three rounds of talks since then.

Agriculture and Industry
As in the rest of Asia, farms in Vietnam tend to be very small, and are usually less than one hectare (2.5 acres) each. Rice and other farm outputs are quite profitable, on a per-kilogram basis, but the total income from these small operations is increasingly insufficient to cover daily household needs. Off-farm income is necessary, and growing in importance. Due to its high productivity, Vietnam is currently a net exporter of agricultural products. Besides rice, key exports are coffee (robusta), pepper (spice), cashews, tea, rubber, wood products, and fisheries products. In 2010, Vietnam was ranked 17 among all suppliers of food and agricultural products to the United States, a strong indicator of Vietnam’s growing importance as a global supplier of key agricultural commodities. Agriculture's share of economic output has declined, falling as a share of GDP from 42% in 1989 to 21% in 2010, as production in other sectors of the economy has risen.

Vietnam's industrial production has also grown. Industry and construction contributed 41% of GDP in 2010, up from 27.3% in 1985. Subsidies have been cut, though state enterprises still receive priority access to resources, including land and capital. The government is also continuing the slow process of "equitizing" a significant number of smaller state enterprises--transforming state enterprises into shareholding companies and distributing a portion of the shares to management, workers, and private foreign and domestic investors. However, to date the government continues to maintain control of the largest and most important companies.

Trade and Balance of Payments
To compensate for drastic cuts in Soviet-bloc support after 1989, Vietnam liberalized trade, devalued its currency 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. In November 2010, Vietnam officially joined the Trans-Pacific Partnership (TPP).

As a result of these reforms, exports expanded significantly, growing by as much as 20%-30% in some years. Exports accounted for about 70% of GDP in 2010. Imports have also grown rapidly, and Vietnam has maintained a structural trade deficit, reaching $12.4 billion in 2010. Vietnam's total external debt, amounting to 39% of GDP in 2009, was estimated at around $27.93 billion.

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