Economic Growth of Vietnam

Economic Growth of Vietnam

Abstract

Although it is known that Asia has changed since the Second World War. The first Asian nation to recover from the Second World War was Japan. A remarkable record of economic growth was generated and demonstrated by economic power. Asia’s economic strength has attracted the world’s attention from Japan, China, India, and Vietnam. Through construction and economic growth, Vietnam has many obstacles to address, and yet several lessons and achievements. In the mid-1980s, the country began market-based economic reform. Nonetheless, Vietnam’s economic growth is only modest after almost three decades. Surprisingly, Vietnam’s economy, which now is an emerging market, is increasing after every stumbling, and foreign teachers agree that the Vietnamese market has great potential for exploitation.

Introduction

Vietnam’s economy is now a priority as it has a stable economy and a high degree of sustained positive growth that is followed by substantial technological advancement. In reality, the push to reform Vietnam’s economy has been robust. The reforms concentrate on developing significant industries like IT, telecommunications, financial markets, and the development of a pleasant business climate for investors. So we can see that the outcomes are a prosperous economy with high growth rates and the presence in Vietnam of many multinationals (Syadullah, 2017). However, above all, after becoming a member of the WTO, Vietnam changes substantially from the agricultural to the industrial and service industries. If Vietnam remains to be economically stable and positive growth is driven. Vietnam is very hopeful of becoming the next Asian tiger and may also be one of the world’s fastest-growing economies, such as China.

The Vietnamese economy has developed at a robust pace year after year after it joined the World Trade Organization in 2007. Many proposals were made to sustain this continuous path of development. But in the coming years, we still have some drawbacks to contend with. In this article, we concentrate on GDP and the driving factors that give us a snapshot of the current situation in Vietnam’s economy.

GDP of Vietnam

GDP is the Gross Domestic Product that indicates the total value of the products or services generated in a nation in a specified year. Simply stated, GDP is the total household spending, company expenditures, government expenditure, and the export/import gap. The Vietnam GDP percentage will give us an overview of our current economic growth. Vietnam’s GDP was 5.3% in 2007 and that GDP figures dropped sharply in the next two years only to 6.2% and 5.3% in 2008 and 2009 (“Vietnam GDP Annual Growth Rate,” n.d.). Here are several reasons:

Exports are the first justification. In developing export industries, Vietnam was an excellent demand for exports, but it was substantially reduced in the year 2009. Exports from Asian countries “fell” alarmingly, as consumer spending was decreased in the US, Europe, and other markets. The second is due to consumption expenditure. With the unemployment rate rising (as a result of problems in production exports) and the income of employees decreased in 2008 due to high inflation (22%), household expenditure was reduced. The investment was the third factor. Growth in investment rates has been caused by FDI cash inflows to Vietnam over recent years. Yet capital flows were severely impaired as a result of the credit crisis and the global economic recession. There have been a few hurdles in a few years. In all GDP results, Vietnam’s economy had already recovered and improved considerably faster by the end of 2009 as compared with other Asian countries. Now, for 2010 and the years that follow, we are improving the economy. The Asian Development Bank (ADB) estimates Vietnamese GDP growth is expected to be respectively 6.5 percent and 6.8 percent in 2010 and 2011 (“Vietnam GDP Annual Growth Rate,” n.d). According to the Minister of Planning and Investment (2010) in the first quarter of 2010, the first signal of GDP growth was revealed; GDP growth grew by 5.83 percent in the first quarter of 2010, which was higher than at the same time in 2009.’ As a result, Vietnam’s GDP is expected to rise in the coming months. We hope that in the coming years, efforts to improve Vietnam’s GDP will never end.

The labor force in Vietnam

The nation with a large number of citizens is known as Vietnam. As can be seen from the figures above, Vietnam is in a position almost in the top 10 world’s highest countries. As you know, the labor force is one of the key attractions for the Vietnamese manufacturing industry. Since Vietnamese workers have also achieved the expectation of a professional, hard-working workforce. However, salaries paid by businesses concerning China and India are lower than 30 percent (Shultz & Peterson, 2017). Vietnam has the benefit of a well-trained and available workforce. However, as international companies reach Vietnam, after entering the WTO, there are several human resources challenges:

There is more competition, which encourages local companies to behave and make decisions more proactively. Better remuneration packages also attracted professional staff from foreign companies. Local employers are required to change their wage scheme. The flexible working schedule of multinational companies has made it simpler and productive for people to work. Thus, it requires local companies to change their time table to avoid moving jobs to international firms. Also, Vietnam still faces a significant problem in the sense of the new globalization of businesses, namely the absence of a superior level of human capital, such as CEOs, CFOs, and CIFA (Markussen & Ngo, 2019). Naturally, the Vietnamese Government recognizes the importance of these issues that need to be dealt with immediately.

Consequently, government support policies to promote its human capital, such as improvements in quality of education, particularly in tertiary and vocational training, are being implemented more widely. In the next few years, Vietnam will, therefore, ideally have a higher number of qualified workers to draw more and more investment from foreign companies. It will be able to compete with professional and experienced foreigners who work in Vietnam.

IT industry in Vietnam

IT is always regarded as the most competitive and essential industry, so Vietnam wants to improve its effectiveness. The importance of IT in developed countries is a crucial factor in speeding up the international integration process and allowing the Government to provide more substantial governance capabilities. People can also access information and knowledge from around the world easily in this country. Local businesses are certainly able through modern technologies to cut costs and boost operating efficiency. The Government promises to help multinational IT companies in building and growing their brand names in Vietnam, while at the same time encouraging the application of IT in social life, to create a competitive IT market, Prime Minister Nguyen Tan Dung said (2009).

In recent years, Vietnam’s information technology is growing fast. In 2008, growth in the IT sector remained high at 23%. In 2009, more than 20 percent were projected, which was equivalent to 6,26 billion dollars. Sales were estimated at 4.68 billion dollars, up 14%, particularly in the electronics and hardware industry (Bon, 2018). And the tech market has had an impressive 30 percent growth rate, with total sales of 880 million dollars. The above figures indicate that, given the significant impact of the economic crisis in 2008, the IT industry could remain at a very high level. Moreover, in tandem with the growth of local IT companies such as FPT, HIG, or CMC, a range of major companies participated in various sections of IT, such as Intel, ADM, Dell, Sony, and Samsung (Bon, 2018). Hopefully, Vietnam will soon become a key economic industry, which plays a vital role in improving the economic output of its IT industry.

The GDP proportion dramatically shifted in 2008 in its composition (only 22% of the agricultural sector, 39.9% of the manufacturing industry, and 38.1% of the service industry). Science and technology have been slowly improving in agriculture and aquaculture production. Vietnam’s rural growth, for example, housing, health, and education have reached optimistic rates. As a long term goal, Vietnam is mainly intended to be a developed country with state-of-the-art technology, a high standard of living, and high product quality in 2020.

Industrialization in Vietnam

Vietnam became a WTO member in 2007 and changed its main structure substantially, from agriculture to manufacturing and services industries. Or put another way, industrialization and modernization are taking place in Vietnam. It started the industrialization process from 2001 and will be completed 20 years from now (2020).

Throughout the past, Vietnam was a farming nation, contributing up to 90 percent of total GDP in agricultural contributions. In the eighties and nineties, a new wave of industrialization grew dramatically in Asian countries, in particular Southeast Asia, including Singapore, Thailand. This has developed a new economic presence in Asia (Thuy, 2019). Therefore, to keep abreast of the economy in other countries, Vietnam is now deliberately opening the way for further international trade and collaboration, seeking to achieve Industrialization and Modernization.

Natural resources in Vietnam

Vietnam has many different forms of natural resources, including advantages of economic growth with a favorable geographical location and varied topography and a long coastline of 3600k. In Vietnam’s natural resources, seven groups can be divided:

Land resources: supporting rice production agriculture to promote its strength. Vietnam is just behind Thailand, the world’s largest rice exporter, and it has a good soil quality for planting high-value crops such as coffee and rubber. After Brazil and Columbia, Vietnam is the world’s third-largest coffee exporter. Roughly $1 billion of Vietnam’s rubber exports were made in 2009. Water resources: Most surface and mineral water are sufficient for the processing of natural minerals.

Marine resources: Seafood exports are expected to hit $4.1 billion, up 6.8% in comparison with 2009. Marine resources: Forest resources: Vietnam is an integral part of an ecosystem in which its forests are protected to ensure freshness of air and climate control.

Biological resources: Vietnam’s flora and fauna are diverse and can contribute to food, medicine, and oil production. In addition, the flora of Vietnam has an absolute abundance of wood for export. Vietnam would seek in 2010, compared with 2009, to increase the number of wood exports by 8% to 10%. Mineral resources: The mining policy should, therefore, be sufficient across the country to optimize the benefits of each type of resource.

Vietnam should generally take advantage of these opportunities to build a thriving business atmosphere and draw more foreign investments. However, it was not yet well controlled by the Vietnamese Government, so its natural resources cannot be thoroughly exploited. Both resources must be effectively and efficiently used to utilize the natural resources for the economic growth of the country.

Drivers of Economic growth in Vietnam

Foreign direct investment is one of the critical factors that contribute to Vietnam’s economy. This aspect is aimed not only at solving the capital shortage for social development investment but also at creating more employment for workers, supplying computer technology, manufacturing technology, generating more quality and technological material for Vietnam (Negreeva & Thanhtuan, 2017). This also provides synergies for the modernization of the country’s industrialization. So Vietnam’s Government has adopted many new strategies and policies to give domestic and foreign companies new momentum. Three main factors are considered main drivers of the Vietnam economy; A new investment law, a cut in corporate income tax, and a promotion of infrastructure growth.

New Investment Law

The new investment law, which assists international firms such as those with domestic money, was published in 2006 by the National Assembly of Vietnam. The “New Investment Act” aims at improving the market and investment climate and the legal framework, simplifying investment procedures, and creating conditions favorable for attracting and effective use of capital investments, complying with the criteria of international economic inclusion and enhancing state administration of investment activities. Law also called for the opening of the investment sector following Vietnam’s international treaties. The elimination of barriers has been confirmed by statute (Kubu, 2013). It is an important topic that the WTO’s negotiating partners are interested in, for instance, ‘New investment rule,’ not necessary for investors either to buy and use products and services in the country or to provide other services in the country. After the issuance of the New Foreign Investment Act, the Government adopted a variety of policies to encourage investment in an open economy.

A cut in corporate income tax

Corporate income tax (CIT) is a tax method to control production and company results of corporations directly. To raise resources for development and enterprises, the regular tax rate should be reduced. The tax rate should be reduced. Many small companies are presently low because of Vietnam’s competitiveness, efficiency, and cumulative effects. Thus, Vietnam’s Government reduces CIT, which helps Vietnam to attract more investment from its businesses; allows companies to increase their profits and create more jobs in Vietnam. The latest 28-25% cut, in effect from 1 January 2009, offers companies more significant benefits and can build competition in Vietnam’s market climate (Lim, 2014). Furthermore, the reduction in CIT has provided an equal level between domestic and international companies. For local and international businesses, this is a positive motive.

Promotion of infrastructure growth

Investors in foreign investors do care about the infrastructure that may encourage national development. The lure of infrastructure investment capital is, therefore, one of Vietnam’s big solutions for the future. Vietnam’s Deputy Planning Minister announced the USD 60-70 billion required by 2020 to develop Vietnam’s domestic infrastructure network, including highways, urban highways, and power plants. Meanwhile, the budget of the state is unable to fulfill Vietnam’s appeal. Just 5% of the overall demand is met in Vietnam (Lim, 2014). The Government in Vietnam, therefore, needs to find ways of mobilizing substantial domestic and foreign resources for infrastructure building. Vietnam is currently using PPP for attracting infrastructure investors. ‘Public-Private Partnerships’ stands for PPP. The initiative was launched in England and was successful in promoting infrastructure in more than a hundred countries.

PPP is a process by which the best of the public and private sectors are combined to provide value for money, quality public services, and management and execution of projects. These collaborations would help the public and the private sectors alike. Great Britain will be a strategic partner for Vietnam, and Great Britain will discuss ways to improve this model for Vietnam. PPP is the key to funding assistance. Budget words are still limited in Vietnam. The state and the private sector work together to develop the infrastructure through the use of the PPP type.

Conclusion

The economic growth of Vietnam in recent years brought a great deal of attention to multinational corporations, particularly in the areas of IT, including Intel, Samsung, Sony, Dell, and Cannon, etc. There is, therefore, a higher chance for Vietnamese businesses to absorb the nature of many of their creative concepts and innovations. Vietnam is forecast to hit 6.5% of GDP in 2010. The change in a positive GDP number can tell us that, after the global crisis (2008), Vietnam is on the road to better health and economic growth.

In comparison, the Government aims to retain a steady CPI rate of 8.3% and also to reduce the inflation rate to 7%. Also, the Government seeks to create a business climate for investors to raise FDI, the more investments in ventures, the higher the prosperity of our economy. Meanwhile, it may be considered as essential to view the workforce as increasing economic well-being. And Vietnam’s economic growth is also influenced by the element of natural resources.  International investors see that cheap labor is not the only reason for them through the constructive acts of the Government of Vietnam. The Government of Vietnam has a powerful means of attracting and retaining foreign investments.

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