The hopeful Vietnam
The small South East Asian country is a fervent and foreign investment-prone economy
Similarly to a giant snake Vietnam runs along the South China Sea, divided in two parts by the 17th parallel, the quintessential symbol of the Cold War. Symbol and border diving Vietnam between North and South. The War, the symbols and the events of that epoch appear far away and the Vietnamese youth, in a country where almost one third of the population is under 15, is only remained of them through the presence of numerous museums and mausoleums. Vietnam has incredibly emerged out of the ashes of those days, consolidating a unification that, by the end of the 1975 conflict, appeared more as a hazard than a possibility. Currently, Vietnam appears to be a dynamic territory energised by tourism and industrial development, functioning services and a powerful trade apparatus well as by all the people coming from the United Sates, Europe, Russia, Japan and China, populating the beaches of Phu Quoc, the majestic Southern island, and the offices of Ho Chi Minh City and Hanoi.
According to official estimates, in 2017 alone, Hanoi was visited by 6.5 million tourists; a 23% increase compared to 2016. Even in-country migrations were considerable, with 25 million Vietnamese pouring in the streets of the capital. The economic revenue for Hanoi has been estimated around $5 billion dollars.
Descending towards the Col Des Nuages, geographically diving the country between North and South, Hue, the ‘Vietnamese Tokyo’, stands out. Home to the last imperial dynasty, Hue’s incredible citadel attracted four million visitors over the last year, with more than half of them coming from outside national borders. As a glance at Danang, Vietnam’s third largest city, suggests, tourism and investments go hand in hand. Around Da Nang’s Southern border vast tracts of the beach garnishing the city have been ‘colonised’ by residential condominiums and touristic infrastructures. Large golf parks, resorts and playgrounds appear to be relentlessly constructed. A new Hi-Teck Park, offering incentives to tech investors also dominates the area. Benefits to its investors are significant: no rent is to be paid during the settling period and a fiscal bonus of four years transitioning to a 10% tax for the following 15 years is also granted. Further, over the following nine years a 50% tax reduction on profits can also be obtained while ‘must-have’ externally produced goods can be imported duty-free. Finally, for investments above $130 million dollars, the ‘10% tax bonus’ can be extended for up to thirty years. Da Nang makes no exception, attracting foreign investors normally populating larger urban centres. Over the last year, Ho Chi Minh City’s ‘special zone’ alone attracted over $800 million dollars of investments and currently expects to reach the same target in 2018.
At the end of the 2000s, an OCSE Report (2009) highlighted “the bright results obtained by Vietnam over the last two decades, starting from the reformist policies of Doi Moi, in creating a legal framework able to stimulate investments, including foreign direct investments, and strengthen the private-sector to sustain economic growth and improve people’s wealth. Starting from a substantial closure to domestic and foreign private investments – continues the OCSE’s report – Vietnam is currently one of the most interesting economies vis-à-vis private investments”. Yet the Report admits some challenges: “the process of economic reform is yet to be completed with still several challenges laying on the horizon in terms of promoting entrepreneurship and boosting economic and social progress”. Other issues are also mentioned: “easing investment procedures, refining communication, improving inter-governmental coordination, reforming land markets to facilitate SMEs’ access, imposing sanctions on intellectual property violations, reducing taxes and easing fiscal regimes”.
Almost ten years later, a World Bank enquiry (2017) highlights further positive results: “the economic and political reforms adopted by Doi Moi at the beginning of 1986 have fostered rapid economic growth and development processes, lifting Vietnam out of poverty and transforming the country into a lower middle-income economy”. The central tenet of this transformation has been economic growth: “Since 1990, Vietnam’s GDP has grown at one of the fastest pace in the world, averaging a 6.4% annual growth in the early 2000s. Despite global economic troubles, Vietnam’s economy has remained resilient. Forecasts remain positive, following a 6% GDP growth in 2016, sustained by a strong elastic internal demand and export-oriented industries”. GDP growth reached 6,8% in 2017 and it is expected to break the 7% threshold in 2018.
Finally, the World Bank believes that “Vietnamese economic growth has been equal, drastically reducing poverty while significantly improving societal wellbeing”. In 1993, highlights the WB, over half of the population lived with less than $1,90 dollars a day. Nowadays, extreme poverty is estimated to be at 3%, while the amount of people living under the national poverty line is estimated to be 13,5% compared to 60% in 1993. Overall, more than 40 million people have been lifted out of poverty over the last two decades. “Services, claims the WB, have improved: 99% of the population currently accesses electricity as a source of light as compared to 14% twenty years ago. More that 67% of rural inhabitants uses health structures and more than 61% drink clean water”. Even the educational system, including universities, appears to have greatly improved.
Yet, worrying elements are still present, considering that the increase in the productivity of labour will not be able to deliver the growth that Vietnam expects. Fiscal imbalances still need to be corrected, the quality of financial assets addressed and the several issues arising from rapid urban development managed.
Even if these problems appear to be clear in the mind of Vietnamese’s policy makers, the challenge of achieving the targets of the Socio-Economic Development Strategy (SEDS) remains to be completed, urgently demanding to deal with themes such as structural reforms, environmental sustainability, social equity and macroeconomic stability.
SEDS points at three areas of change: promoting knowledge transfers for industrial and technological development; improving market institutions; and boosting infrastructures. According to the new 2016-2020 Socio-Economic Development Plan (SEDP), the pace of current progresses needs to be accelerated if the expected level of Vietnamese economic development is to be achieved.
For further information about Generali's presence in Vietnam visit the section about the activities of the Group in Asia.