Three aspects of the U.S.-Vietnam economic partnership:
ONE: STORY OF VIETNAM’S GROWTH
Vietnam’s development over the past 30 years has been remarkable. Economic and political reforms under Đổi Mới, launched in 1986, have spurred rapid economic growth, transforming what was then one of the world’s poorest nations into a lower middle-income country.
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In 1989, Vietnam’s GDP per capita was less than $100
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By 2019, its GDP per capita exceeded $2700
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During that time, more than 45 million people were lifted out of poverty. Poverty rates declined sharply from over 70 percent to below 6 percent
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In 2006, investors decided Vietnam was the new China, and FDI rose rapidly especially in the banking and real estate sectors
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The 2008 financial crisis didn’t affect Vietnam too much. Capital was looking for return and Vietnam was attractive. Export value has been steadily climbing since 2008. Seventy percent of that export value is produced by FDI firms.
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In 2018, as U.S.-China trade tensions heated up, Vietnam was seen as a good alternative for investors, so FDI shot up again. For example, Vietnam exports solar panels made by Chinese companies in Vietnam because the tariff structures are better. But there is a challenge: a lot of that FDI based on the premise of low-cost labor, a problem I’ll come back to in a moment.
TWO: STORY OF COVID-19 IN VIETNAM
The United States and Vietnam both recorded their first cases of COVID-19 in late January 2020. However, even with a 1400-kilometer porous border with China and a population of nearly 100 million, during the next 15 months Vietnam managed to keep its number of total COVID cases to less than 3000, with only 35 deaths.
The IMF hailed Vietnam’s success in containing COVID as a “roadmap for other developing countries.
By contrast, in the same time period the United States suffered more than 32 million infections and more than 570,000 deaths, nearly ten times the number of American lives lost in the Vietnam war.
The key actions took place between March 20 and April 21, 2020. Vietnam adopted a simple strategy: wash hands, wear mask, stay home
DPM Vũ Đức Đam framed the pandemic as an enemy, issuing public service announcements warning that the virus is “threatening the human race” and that “we have entered a war.” Everyone is now a “soldier,” Đam said.
Vietnam mobilized a small army of doctors, nurses, and health care professionals. The country even mobilized artists. Trần Duy Trúc, a 76-year-old painter who had spent his life making propaganda art, turned to designing posters to encourage the public fight against coronavirus. One of his designs included a mother helping her daughter put on a mask while urging people to wash their hands. “Artists can be seen as fighters,” Trúc said, “They have to draw their best pictures to make people understand and help them win against this enemy.” If any country can win a war against a powerful enemy, it is Vietnam.
Given its deep integration with the global economy (Vietnam’s trade to GDP ratio is 200%, the 6th highest in the world), the Vietnamese economy was hit by the COVID-19 pandemic, but it has shown remarkable resilience.
Vietnam’s GDP grew by 2.9 percent in 2020. It was one of the few countries in the world to grow, but the crisis also left a lasting impact on households, with 45 percent of households reporting lower household income in January 2021 than in January 2020.
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Effects of COVID include: 30.8 million unemployed or reduced income. Among the five million unemployed, 1.2 million lost manufacturing jobs; 1.1 million retail jobs were lost, and 740,000 jobs were lost in hotels and catering
Vietnam’s economy is set to grow 6.6 percent in 2021 on the back of successful control of COVID-19 infections, strong performance by export-oriented manufacturing and robust recovery in domestic demand.
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By handling COVID so well, Vietnam’s leadership is riding an approval wave. The state and party are seen as more open and approachable.
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The business window is also open. Vietnam’s digital revolution is accelerating and the country wants to take advantage of it.
THREE: DIGITAL TRANSFORMATION AND SOME CHALLENGES
Vietnam is experiencing rapid demographic and social change. Its population is expected to reach 120 million by 2050. Vietnam’s emerging middle class, currently accounting for 13 percent of the population, is expected to reach 26 percent by 2026, with an average of $10,000 per capita GDP.
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Vietnamese leaders need to deliver fast economic growth over the next decade to keep pace with these changes and ensure quality jobs for a young, better educated population
There is also a need to upgrade the skills of the workforce to create productive jobs at a large scale in the future.
Earlier I mentioned that FDI was premised on low-cost labor. Rather than get stuck in a trap where it continues to manufacture low value-added goods, Vietnam has a strategy to move up the value chain.
A big part of that is adoption and implementation of an effective digital economy strategy.
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Vietnam wants to move up the manufacturing value chain and increase investments in its services industry.
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Industrial Revolution 4.0 is a priority for the government and Vietnam aims for the digital economy to represent 30% of GDP by 2030.
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On Digital 4.0, PM issued a directive on “strengthening the ability to access the fourth industrial revolution with 5 key pillars, including (a) high quality human resources; and (b) improving the digital awareness of government officials.
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Already there has been much progress. Vietnamese own more than 56 million smartphones, representing over 80 percent of people over the age of 15. Data access is cheap and 5G will roll out soon. There is widespread access to free wifi. Vietnam has a $5 billion software development industry.
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The country has nearly 400,000 developers, accounting for 57% of those employed in the IT industry. Talent in the Artificial Intelligence field is centered in HCMC.
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SMEs are highly likely to develop their own digital strategies in Vietnam, and SMEs represent as much as 80 percent of the country’s employment.
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Given the Party’s twin goals of economic growth (investments) and efficiently managing the state (control), key challenges for leadership involve how they work around existing laws like the law on cybersecurity to facilitate foreign investments in Vietnam.
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Vietnam’s approach to law making is not always coherent. We see numerous overlapping rules and regulations, and different agencies within the Government wanting to lead on issues such as cybersecurity and content control. Measures such as data localization straddle both of these categories.
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A number of decrees, implementing rules and regulations are either being amended or newly developed to address what the Vietnamese government considers key gaps in their policy and regulatory frameworks. Their goal is to support the growth of Vietnamese tech companies and control content.
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Some of the draft legislation in the works poses operating uncertainty for tech companies that want to invest more in Vietnam. These draft laws range from the implementing decree on cyber security, content regulation, broadcasting regulations, digital advertising and taxes.
The full CSIS session, “The Future of the U.S. Vietnam Partnership,” is here: https://www.youtube.com/watch?v=oQNu4zjqdw8
I was honored to join Vietnam’s ambassador to the USA, Ha Kim Ngoc, as well as Fulbright University professor Nguyen Xuan Thanh, AmCham Vietnam Executive Director Mary Tarnowka, and CSIS Senior Fellow for Southeast Asia Greg Poling for this discussion of the Economic Partnership between the United States and Vietnam.
Thank you for reading, and see you in my next newsletter!
Ted Osius
Ambassador (ret.)
tosius@google.com
www.tedosius.com
www.facebook.com/tedosiushcmc/
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