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ECONOMY REPORT - VIET NAM Botschaft in Berlin
www.apecsec.org.sg/member/memberecreport/viet.html
The Vietnamese economy has made significant progress during the
implementation of "The Strategy on Stabilization and Socioeconomic
Development up to the Year 2000". The economy grew by an annual average of
8 percent from 1991 to 1998. Inflation declined from 67 percent in 1990 to less
than 10 percent in 1998 and declined further to 0.1 percent in 1999.
The economy’s growth momentum, however, slowed down in 1999 with gross
domestic product (GDP) registering a less than 5 percent increase. A more
favorable economic situation is foreseen as GDP grew by more than 6 percent
in the first half of 2000. The 2000 inflation rate is seen to reach nearly 0-1
percent.
GROSS DOMESTIC PRODUCT
In 1999, GDP grew by 4.8 percent, the lowest increase in the last decade. From
1991 to 1998, GDP grew by an annual average of 8 percent. The economy’s
growth, however, has been declining in recent years: 9.5 percent in 1995, 9.3
percent in 1996, 8.2 percent in 1997, 5.8 percent in 1998 and 4.8 percent in
1999.
Agriculture, which employs two-thirds of the labor force and contributes 25
percent of GDP, is one of the major sources of growth. Agriculture’s
value-added increased by 5.2 percent in 1999, higher than the 4.3 percent and
3.5 percent growth recorded in 1997 and 1998, respectively. Food production
reached 34.3 million tons in 1999, up by 2.5 million tons from the 1998
production level. Rice exports amounted to about 4.5 million tons in 1999.
The industry and construction sector, which accounts for one-third of GDP,
faced difficulties due to low efficiency and competitiveness. Industrial gross
output increased by 10.4 percent in 1999, with output by the public sector
increasing by 12.5 percent and that by the private/business sector by 18.8
percent. Output from foreign-direct investment projects, which account for one
third of total industrial production, grew by 6.1 percent in 1999.
The services sector exhibited continuing declines in growth rates in the last two
years due to the influence of factor prices. Retail sales value of goods and
services of the domestic sector in 1999 reached VND194, 500 billion, an
increase of 5.1 percent in real terms.
For the first half of 2000, GDP has grown by 6.2 percent with industry growing
by more than 14 percent; international trade by 27 percent, and transportation
by 10 percent.
In view of the low competitiveness and low foreign direct investments (FDI),
Viet Nam’s National Assembly recently approved a new revised law on FDI while
the government has made equitization policies for state-owned enterprises. On
1 July, the country opened its first center for securities transactions.
INFLATION
Inflation, as expressed by the domestic consumer price index, slowed down to
0.1 percent in 1999 and -0.5 percent in the first half of 2000.
POPULATION, LABOR FORCE, AND EMPLOYMENT
During the last ten years, Viet Nam has been highly successful in keeping the
population growth rate to a minimum, with the average annual growth rate at
only 1.7 percent. The projected population growth rate in 2000 is at 1.53
percent.
Poverty by food security standards now only affects 10 to 11 percent of the
population and is projected to go down to 5 percent by 2005.
The number of urban unemployed and rural underemployed have increased due
to reduced production and number of businesses. Furthermore, more than one
million youths entered the labor force in 1999.
By the latest survey, the unemployment rate in the urban area in 1999 is 7.4
percent, while rural unemployment, evaluated through time-use rate, is about
70 percent.
TRADE ACCOUNT
Exports in 1999 reached almost $11.5 billion, a 23.1 percent increase compared
to 1998. Export value in the first half of 2000 amounted to US$6.427 billion, a
26.2 percent increase. Meanwhile, exports from the FDI sector increased by
56.8 percent due to the hike in export prices of crude oil (85 percent), higher
export volumes for garments, textiles, shoes and electronics. Export prices for
coal, rice and coffee, however, were on a downward trend. Imports in the first
half of 2000 reached US$7.154 billion, a 33.8 percent increase compared with
the previous year.
Exports for the year 2000 are estimated to reach US$13.5 billion while, imports
are expected to reach US$14.5 billion, leaving a negative trade balance of US$1
billion.
EXTERNAL INVESTMENT
By the end of 1999, Viet Nam had issued licenses to more than 2,500 FDI
projects with a total capital of $35 billion, and disbursements of more than $15
billion. This has significantly contributed to the efficiency and competitiveness
of the economy. At present, FDI projects produce about 12 percent of GDP and
35 percent of domestic industrial production output.
Foreign direct investment inflows in the first half of 2000 fell 35 percent to
US$520 million against the same period last year. In the year 2000, the National
Assembly approved a revised Law on Foreign Direct Investment, with
amendments on: foreign currency, taxes and import duty, land-use rights and
mortgage of land-use rights, management of joint venture companies, and
approvals and licensing. Moreover, on 20 July 2000, the first Securities Trading
Center in Ho Chi Minh City was opened.
Through various conferences, multilateral donors have committed to assist Viet
Nam through a US$15 billion-package, of which the three largest donors, Japan,
the World Bank and the Asian Development Bank, account for 70 percent of the
total committed capital. Meanwhile, official development assistance (ODA)
disbursement has improved, reaching US$6 billion though still slower than
planned. These ODA projects focused on improvement of the legal framework,
human resource training, improvement of economic and social infrastructure
and the promotion of development of economic sectors.
EXCHANGE RATE
With the devaluation of regional currencies from 30 to 80 percent since 1997,
the government has continued to implement foreign exchange controls, export
and-import controls and control of commercial credit for imports, in order to
avoid debt shocks. The government also controlled foreign borrowings,
including government and private borrowings, as these affect the debt service
capacity of the country.
As a result of negotiations with the Paris Club and the London Club and strict
control of borrowings and debt services, the total debt is estimated to reach
about US$10 billion (excluding Russian debt in transferable rubles, which are
under negotiations).
POLICIES
Facing continuous decline in economic growth, the government issued a series
of new policies in order to mobilize internal and foreign resources effectively.
They aim to:
Focus on agricultural and rural development, where 76 percent of the
population lives and one-third of GDP is produced, and at the same time
to favorably facilitate all economic sectors to invest into production and
business development;
Expand markets by promoting domestic demand and improving exports’
efficiency and to create to new markets;
Address urgent needs in financial, monetary, and banking sectors in
order to improve the effectiveness of the banking activities;
Reorganize and renovate the SOEs targets: reduction of total SOEs by
3000 units in the year 2003 and by 2000 units in the year 2005;
Implement poverty alleviation programs particularly job generation; and
Continue to implement administrative reform and to improve capacity in
governance and execution.
OUTLOOK
Economic growth in 2000 is expected to be from 6 to 6.5 percent, and to be 7
percent for 2001-2005, of which:
2000 2001–2005
GDP 6–7 percent 7 percent
Agriculture 3.5–4 percent 3.5 percent
Industry and construction 9–9.5 percent 9.5 percent
Service 4–5.5 percent 6 percent
Industrial output 14.5 percent 12 percent
Agricultural output 4–4.5 percent 4 percent
The regional economic recovery is expected to be slow and complicated. Viet
Nam has to contend with fierce. competition in the international and regional
markets. While some of Viet Nam’s export products such as crude oil fetched
high export prices, the export price of rice and other agricultural commodities
continue to decline. Further, some products cannot compete with their foreign
counterparts. The prices of some of the locally produced commodities in Viet
Nam are twice as much as their imported counterparts. However, as part of it
commitment under the ASEAN Free Trade Area, Viet Nam has to reduce its
tariffs to between 0 and 5 percent by 2006.
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