Vietnam’s Development: A Long Way to Go Despite Progress

Vietnam is no longer one of Southeast Asia’s four least developed countries according to announcements at the 11th Association of Southeast Asian Nations (ASEAN) Business and Investment Summit.

Vietnam had previously been grouped along with three other Southeast Asian countries, Cambodia, Lao PDR and Myanmar. This collective, known as the CMLV countries, is a group of the four newest members of ASEAN that are considered the least developed in the region. This development marks a step forward for ASEAN’s efforts in bridging the development gap among its members to ensure regional solidarity.

Vietnam as a Model

Over the past few decades, Vietnam has made significant progress in the areas of human and economic development. Vietnam’s Human Development Index (HDI) value stood at 0.617 in 2012, compared to 0.439 in 1990. By contrast, the 2012 HDI values of Cambodia, Laos and Myanmar were 0.579, 0.543 and 0.498 respectively. Since 1980, life expectancy at birth has grown by almost half while the total adult literacy rate stood at 93.4 % from 2008-2012.

A large part of this progress has been attributed to Vietnam’s rapid economic growth, the fastest in Asia behind only China since 2000. Since the introduction of the doi moi (renovation) economic reforms of 1986, which saw Vietnam liberalise trade, encourage foreign investment, as well as join regional trade blocs and FTAs, Vietnam has come a long way. From 2000 to 2013, Vietnam’s GDP grew at an annual average of 6% while its GNI per capita grew by more than four times ($1730 in 2013). In view of its stellar economic performance, some have touted Vietnam as a model for development and even the “hidden Asian Tiger”.

Is Vietnam Out of the Forest Yet?

Despite moving out of poverty into the middle division of international economic league tables, Vietnam faces a daunting prospect which threatens the continued growth of all developing countries – the middle income trap. As wages and the cost of investment in Vietnam increase, there are fears that Vietnam will lose its competitive edge to other countries in the region such as Laos and Cambodia. According to a 2012 Mckinsey report, Vietnam’s traditional drivers of growth such as textile and footwear production are declining in their power to support growth and annual labour productivity growth would need to be boosted by more than 50% in order to meet the government’s target of 7% - 8% annual economic growth by 2020.

As far as labour is concerned however, much remains to be accomplished. A World Bank report in July isolated the lack of skilled workers as the greatest challenge to the country’s development. While Vietnamese workers have demonstrated impressive levels of literacy and numeracy skills, employers note that a skill gap exists: most apparently in applicants for technical, professional and managerial positions. In view of this, experts advise an overhaul of the current education system which is seen to be overly rigid and insufficient for the fostering of cognitive and behavioural skills crucial for higher-value jobs created through Vietnam’s economic modernization.

Increasing Chinese Assertiveness

Another concern for Vietnam’s growth is its ongoing territorial dispute with China over the Paracel Islands, a group of small islands replete with resources in the South China Sea. China remains Vietnam’s largest trade partner as of 2013, with a total turnover of US$50.21 billion. Not only do many factories owned by multinational corporations depend on Chinese factor inputs, Chinese clients also make up a large portion of Vietnamese engineering and procurement contracts for infrastructure and industrial projects. In June, the Chinese government temporarily banned state-owned enterprises from bidding for new contracts in Vietnam in response to the anti-China riots which had erupted in Vietnam in May over the deployment of a Chinese oil rig in disputed waters.

While recent efforts such as Chinese State Councilor Yang Jiechi’s visit to Vietnam suggest progress in repairing strained ties between the two neighbours over their territorial dispute, it remains to be seen if Vietnam can navigate out of its Chinese quandary with its economy intact.