Bill Gates’ recent one-day visit to Hanoi to speak to students at Hanoi University of Technology and to conclude an agreement with the Vietnam government on licensed software is a sign of Vietnam’s growing economy. In fact, 20 years after Vietnam launched economic reforms to take the country from a centrally planned economy to one driven more by markets, the Agence France-Presse reports that Vietnam is “Southeast Asia’s fastest growing economy.”
April marks the 31st anniversary of the end of the Vietnam War, but most Vietnamese are far too busy to notice. Vietnam, about twice the size of Florida, but with more than five times that state’s population, has become increasingly renowned for its cheap and capable labor force. Vietnamese correctly insist they are not Chinese, but a Confucian heritage dating back two thousand years is undoubtedly a factor in their economic success since Confucianism places a premium on education, hard work and success in this world.
Today Vietnam is one of the seriously reforming Southeast Asian “tigers,” countries that grew rapidly for many years but stumbled for a time after the 1997 economic crisis. Over the past five years Vietnam has had the most consistent growth record of all the Southeast Asian nations: going from a 1999 GDP low of 4.7% (which is still higher than growth rates in most countries of the world), to more than 8% in 2005.
This growth has been driven by an increasingly market- oriented perspective that encourages private enterprise, as well as a burgeoning private business sector. This private sector has expanded by about 20% per year in recent years, has created hundreds of thousands of jobs and has become a major force in substantially raising general living standards.
Vietnam was not one of the original Southeast Asian “tigers” because Le Duan, who succeeded Ho Chi Minh as communist party boss in 1969, was mainly interested in post-war reprisals and traditional communist-style economic centralization. When Le Duan died in 1986, Vietnamese pragmatists began the so-called “renovation” (doi moi) program that is creating contemporary Vietnam. While doi moi does not allow serious political change, it does recognize the need for market-oriented policies, greater individual opportunity and personal initiative.
The door was formally opened to the private sector by the creation of the 2000 Enterprise Law, an act that significantly simplified a labyrinthine registration and operation process for businesses. The result is that three times more private businesses (about 125,000) registered in Vietnam between 2000 and 2005 than in the preceding 15-year period.
But for all the good news, serious impediments to rapid private-sector growth remain, among them cultural preferences and baggage from the past: corruption, a bloated, intrusive, non-productive bureaucracy, ideological inclinations toward paternalism, and obstructionism by local officials. Nearly half of the domestic private companies are small with fewer than ten employees and out-dated technology. Although some larger private firms compete effectively with state- and foreign-owned firms, the smaller ones cannot do so.
Recent international surveys also confirm that doing business in Vietnam is still quite burdensome. A Mekong Private Sector Development Facility (MPDF) survey found that registering a business can still take 50 or more days despite the reforms of the Enterprise Law. The World Bank’s latest “Doing Business” [sic.] study of the regulatory problems encountered by companies in various countries of the world ranked Vietnam 99th among 155 countries surveyed. The latest World Economic Forum ranking of global competitiveness placed Vietnam 81st among 117 countries.
Among the serious post-registration problems for businesses in Vietnam are continued corruption, inadequate financing, lack of managerial training, an inadequate corporate tax system, and time wasted trying to follow, evade, or adjudicate complex or unclear legal regulations that even judges and lawyers often do not understand. There is also direct as well as indirect government interference and over-regulation (especially at the local level), ranging from bureaucratic regulations to demands for bribes. One response to these problems in Vietnamese cities is the increasing use of brokers who take care of paperwork for a modest fee.
The 2000 Enterprise Law and other often conflicting legislation are scheduled to be superceded in mid-2006 by the new Unified Enterprise Law and the Common Investment Law, both drafted over several years’ time with input from varied players across the economic community. These and other recently adopted laws should reduce the complications of starting and running a business, eliminate many overlapping procedures and create a more transparent and level playing field for domestic and foreign investors and entrepreneurs, including women, who are among the most capable business-persons in Vietnam, but are often discriminated against. Hanoi hopes these and other changes will help Vietnam get into the World Trade Organization by the end of 2006.
Visits by entrepreneurs like Gates send an important signal about Vietnam’s potential business opportunities. Foreigners can provide valuable assistance in education, advice and funding, and excellent groups like the MPDF in Hanoi contribute much to the country’s growth. But one Vietnamese American with years of experience in the country warns that foreigners, including returning ethnic Vietnamese, will have a hard time if they “come to Vietnam to save people. One of the determining factors for success is humility.”
In the end, while many problems remain, much has been done and the prospects for further improvements are good. New leaders chosen in April and the new laws are clearly demonstrating the Vietnamese government’s determination to secure the country’s standing among the region’s economic tigers.
|William Ratliff is a Research Fellow at the Independent Institute and a member of the Board of Advisors of the Institutes Center on Global Prosperity. He is also a Research Fellow and Curator of the Americas Collection at the Hoover Institution. He travels frequently in China and Asia. His latest book is Vietnam Rising: Culture and Change in Asias Tiger Cub.|