Vietnams Current Development Policies: An Overview Still early days - - PowerPoint PPT Presentation

Vietnam’s Current Development Policies: An Overview

Still early days

Still predominantly rural

10 20 30 40 50 60 70 80 90 1989 1991 1993 1995 1997 1999 2001 2003 2005 Rural population (% ) Agricultural labor force (% )

An impressive export record

Electric app. (*) ($927m) Plastics ($480m) Suitcases & bags ($388m) Ceramics ($274m) Fruits & nuts ($758m) Motorcycles ($261m) Rubber ($1286m) Pepper & other spices ($211m) Rice ($1276m) Coffee ($1217m) Electronics ($1708m) Frozen shrimps ($2123m) Frozen fish ($787m) Coal ($915m) Oil ($8265m) Footware ($3758m) Furniture ($1710m) Garments ($5469m)

10 20 30 40 50 60

• 2

2 4 6 8 10 12 Share in world exports, 2006 (%) Export growth, 2003-06 (%/year)

Investment growing, but still state led

But growth driven by the private sector

32.0% 17.7% 24.2% 41.3% 43.9% 41.1% 2000/1999 2006/2005 FDI Private State

Headcount poverty rates

1993 1998 2002 2004 2006 National 58.1 37.4 28.9 19.5 16.0 Ethnic minorities 86.4 75.2 69.3 60.7 52.3 Mekong Delta 47.1 36.9 23.4 15.9 10.3 Red River Delta 62.7 29.3 22.4 12.1 8.8 Northern Mountains 81.5 64.2 43.9 35.4 30.2 Central Highlands 70.0 52.4 51.8 33.1 28.6 North Central Coast 74.5 48.1 43.9 31.9 29.1 South Central Coast 47.2 34.5 25.2 19.0 12.6 Southeast 37.0 12.2 10.6 5.4 5.8 Urban 25.1 9.2 6.6 3.6 3.9 Rural 66.4 45.5 35.6 25.0 20.4

Population in poverty 2006

Headcount rate % of pop Poor (thousands) National 16.0% 100% 13,616 Ethnic minorities 52.3% 13.5% 6,008 Mekong Delta 10.3% 20.9% 1,832 Red River Delta 8.8% 21.8% 1,633 Northern Mountains 30.2% 14.3% 3,675 Central Highlands 28.6% 5.6% 1,363 North Central Coast 29.1% 12.9% 3,195 South Central Coast 12.6% 8.6% 922 Southeast 5.8% 15.9% 785 Urban 3.9% 26.7% 886 Rural 20.4% 73.3% 12,725

Vietnam’s income distribution

Rural poverty

• Rural poverty reduction most closely associated

with non-farm employment

– Non-farm employment most closely associated with access to education – Building roads in poor provinces may not increase agricultural productivity, but does give access to NFE

• Agricultural labor productivity most closely

linked to access to size farm and use of improved technologies

– Chronic underinvestment in agricultural research, but existing research agencies have not performed well. – Agricultural extension services top down and unresponsive

Social policy is regressive

15% 15% 21% 12% 8% 24% 16% 15% 14% 4% 23% 22% 21% 29% 24% 18% 35% 45% 47% 68% 2% 1% 7%

2%

11%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Social Welfare Education Assistance Health assistance Social Insurance Pensions Social Insurance in work

Poorest 2nd 3rd 4th Richest

Households finance basic services

0.0 1.0 2.0 3.0 4.0 5.0 6.0 V i e t n a m C h i n a T h a i l a n d M a l a y s i a Private Public

Households unable to meet health costs

Income Quintile % households Bottom quintile 25 Second 17 Third 15 Fourth 12 Top quintile 9

Industrial and Trade Policy

• Significant removal of barriers for both FDI and domestic

private investors, but new barriers to competition are raised

• Investment-led industrial strategy
• Import-substitution trade strategy
• SOEs as the engine of growth
• Results:

– Dualist economy – Inefficient SOE sector – Private sector is small and difficult to grow

Share of State and Non-State Owned Industry

0% 10% 20% 30% 40% 50% 60% 70% 80% 1 9 9 5 1 9 9 6 1 9 9 7 1 9 9 8 1 9 9 9 2 2 1 2 2 2 3 2 4 2 5 2 6 ( P r e l ) Share (percentage) Non-state State

Annual Business Registration 1995-2007

10 20 30 40 50 60 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07F Businesses ('000)

Enterprise Law implemented

Industrial Production Value by Sectors (2006)

30% 38% 32%

Private (23.9%) FDI (18.8%) State (9.1%)

Note: Figures in parentheses are the annual growth rates

Competitiveness Rankings of Vietnam and Comparator Countries

Doing Business WEF Competitiveness 2009 2008 2008 2007 Vietnam 92 87 68 64 Korea 23 22 11 23 Malaysia 20 25 21 19 Thailand 13 19 28 28 Taiwan 61 58 14 13 Indonesia 129 127 54 54 Philippines 140 136 71 75

Industrial S tructure by Ownership in 2005

State Non- State Foreign Total Hanoi region 29.3% 28.2% 42.5% 100% HCMC region 24.5% 22.8% 52.7% 100% Central Vietnam 44.3% 36.4% 19.3% 100% Other regions 54.1% 37.1% 8.9% 100%

Comparison of ICOR

Period GDP Growth (%/year) Gross Investment/ GDP (%/year) ICOR

South Korea 1961-80 7.9 23.3 3.0 Taiwan 1961-80 9.7 26.2 2.7 Indonesia 1981-95 6.9 25.7 3.7 Malaysia 1981-95 7.2 32.9 4.6 Thailand 1981-95 8.1 33.3 4.1 China 2001-06 9.7 38.8 4.0 Vietnam 2001-06 7.6 33.5 4.4

Education: A System Under Strain

200 400 600 800 1000 1200 1400 1600 1990 1995 2000 2005 thousands

Growth of University Activity in Vietnam

University Enrollments T eachers

Source: Vietnam’s Statistical Yearbooks.

Gross Tertiary Enrollment Ratio in 2005 (% )

11 16 17 21 32 43 82 91 India Vietnam Indonesia China Malaysia Thailand Taiwan South Korea

Source: Asian Development Bank, Online Development Database.

Lack of University-Based Research

Source: Scientific Citation Index Expanded

High-Tech as a Percentage of Manufactured Exports

10 20 30 40 50 60 70 India Vietnam Indonesia China Thailand Korea, Rep. Singapore Malaysia 1997 2003

S hare of population growth versus expenditure, Greater Ho Chi Minh City (2005)

58.8% 57.2% 9.8% 0% 10% 20% 30% 40% 50% 60% 70% Share of Population Growth Share of Net Contribution to National Revenue (Non‐Oil) Share of National Expenditure

Costs to Export

335 382 425 481 546 701 780 848 864 China Singapore Hong Kong Malaysia Indonesia Vietnam South Korea Thailand India

Strategic Trade Routes: Asia to Europe

Financial sector liberalization

• Moving from administration-based to market-based

financial systems.

– Since 6/2002, interest rate has been liberalized (but undercut by the base rate, civil code, agreement within the Vietnam Bankers Association, and interventions of SBV) – Credit line was eliminated in 1998, but target credit growth rates are still set by SBV – Directed credits via VDB are off-budget mechanisms to channel resources to SOEs with little transparency – Moving to a pegged float exchange rate regime but FX and XR are tightly controlled – Capital account is half-way liberalized

Financial sector deregulation

• Moving from a closed to a competitive financial system.

– Gradual reduction of administrative and legal barriers to entry, expansion, and diversification of new FIs – Competition increases dramatically, but there seem too many banks: 4 in 1991 to 51 in 1997 and 80 now – 2006, the market share of five SOCBs was nearly 70%

• f total deposits and 65% of outstanding credit

– SOE conglomerates open, acquire, and cross-share banks and non-bank FIs – [Disappointing] Equitization of SOCBs – Increase the participation of foreign FIs

Financial sector stabilization

• Financial sector stabilization is to ensure the

long-term soundness of the financial system.

– Restructuring SOCBs to prepare for IPOs – Bad debt resolution: 4 AMCs with total VND120 billion charter capital (or 0.5% total NPLs in 2000) – Recapitalization: VND15 trillion in charter capital to SOCBs during 2001 – 2005 (excl. VBSP & VDB) – Poor risk management and accounting standards

Regulation and Supervision

• Weak regulatory and supervisory system

– Lack of credible and timely information for regulation – Weak SBV technical capacity to determine bank soundness and systemic risk – Fragmented supervision (e.g., SBV and SSC)

• Vietnam’s quick liberalization and deregulation

is risky in the absence of:

– Macroeconomic stability – Effectiveness financial sector supervision – Transparent regulation and credible enforcement.

Effective States

• Vietnam’s most important reforms consisted of a

change and reduction in the role of the state (e.g., agriculture, enterprise law)

• Effective states develop human resources systems

that promote officials on the basis of skills and potential rather than personal connections.

• Effective states have the ability:

– Build and enforce “the rule of law” – Maintain macro stability – Improve the economy’s efficiency – Have zero tolerance for corruption at all levels.

Vietnam’s Governance Indicators (1996 vs. 2006)

Comparison of the number of hours firms spend finalizing taxes

30 80 104 190 264 290 576 872 1050 Singapore Hong Kong Thailand Malaysia India South Korea Indonesia China Vietnam