Vietnam produces some extraordinary contrasts. A country ravaged by war for almost 100 years, it was the only Asian economy to have grown faster than China since 2000. Altogether, there’s been 25 years of strong and stable growth, which has seen Vietnam become the rising tiger of south-east Asia and darling of the World Bank. Vietnam attracted foreign investment dollars driving growth and productivity.
Now Vietnam is moving into a very challenging period. Speaking to the New York Times in August this year, prominent Vietnamese economist and government advisor, Le Dang Doanh (1): described Vietnam’s problems as “a very very toxic cocktail from the European Debt Crisis, the stagnation in the US economy plus a very critical situation in the domestic economy. Its a dangerous mixture.”
Mr Doanh’s comments are salutary. While acknowledging the complexity of their internal challenges, he sought to situate foreign understanding of Vietnam’s current drop in productivity and growth within the wider challenges developed countries are struggling with. Mr Doanh went on to describe the current situation as an opportunity for “creative destruction.” More innovative competitors will need to naturally replace established companies.” Mr Doanh was signalling the necessity for the Government to support the continued movement towards privatisation of State Owned Enterprises (SOEs).
McKinsey Consultancy argues that between 2005 and 2010, an expanding labor pool and a structural shift away from agriculture drove two-thirds of Vietnam’s GDP growth. The remaining third came from improving productivity within sectors. (2) Vietnam, in spite of its difficulties, has strengthened competitive niches across the economy in textiles, footwear, coffee, rice and tourism.
With the waning of the first two drivers, McKinsey believes Vietnam must boost labor productivity by more than 50 per cent to achieve its growth target of eight per cent in 2020. If the economy continued to grow at only seven per cent, by 2020 Vietnam’s GDP would be 30 per cent lower.
Driven by Tourism
One area where productivity growth looks promising, though not without its challenges, is tourism. Tourism is a growth sector worldwide and ranks as the largest industry in the world in terms of providing employment (WTTC1995). ASEAN tourism supported more than 73 million international arrivals in 2010, an increase of over 11 per cent from 2009. 47 per cent of this travel came from within ASEAN countries. Vietnam as a member of ASEAN is seeking to capitalise on this relationship while also marketing tourism internationally. In 2012, while Indonesia, Thailand and China received more international travellers, Vietnam still accounted for three per cent of Australia’s overseas travel. It sits behind China at five per cent and ahead of Japan.(Tourism Australia 2012)
Vietnam offers over 3,000 kilometres of coastline and a long list of UNESCO World Heritage Sites. Diverse, unspoilt and inexpensive, it is enticing Australians away from larger Asian destinations. Cheap prices, cheap airfares and reliable hotels add to its reputation as a friendly people with a diverse and rich cultural history. Vietnam’s cuisine, something the country is famous for, is yet another marketing opportunity. Backpackers laid the foundation for travel here. New markets such as families, people seeking beach getaways and water sports, diving and golfing holidaymakers have increasingly replaced this. In 2011 Vietnam was Intrepid Travel’s best selling destination. This is a remarkable feat given Vietnam has no tourism office in Australia. (3)(The Age 2011)
Destination for the New Millennium
In 2000 Vietnam launched its first national tourism campaign: “Vietnam – a destination for the New Millennium.” At this time only limited beach tourism existed. Developments proceeded rapidly and optimistically with large injections of foreign capital. However state-owned enterprises (SOE’s) that drove infrastructure development expanded too rapidly. They diversified into areas where inexperience and limited knowledge stalled developments. In some cases the SOE’s defaulted on their debts, alienating foreign investors. When the GFC hit in 2007, the Vietnamese government pressured the banks to keep supplying credit. Some developments were plagued by cronyism and inexperience.
In the tourism sector there seems to be an understanding that, difficult as Communist Vietnam’s transition is within a global economic market, these failures are an inevitable part of a learning curve. They look optimistically to a second wave of development where the ‘youthful tiger of south- east Asia,’ can re-emerge, it’s painful lessons learnt. The success of this will depend upon Vietnam’s capacity to move effectively enough to form a new partnership between government and private developers and operators. It is a challenging period where sectors such as tourism are pointing the way.
- Former president of the government economic research organization: Central Institute for Economic Management (CIEM) which is part of the Ministry of Planning and Development
- The McKinsey Global Institute (MGI) 2012 Richard Dobbs, Marco Breu: “Sustaining Vietnam’s growth: The productivity challenge”
- The Age “Siren song of an unassuming beauty” May 8 2011