[Vnbiz] Master class in growth from Hanoi

[Phan, Tai]

Master class in growth from Hanoi  
Greg Mills


 
 
WHAT happens when you take 85-million people repressed by colonialism, war and, latterly, a Soviet-style no-choice communist economy, and liberalise? Vietnam's answer: More than 7% average economic growth for two decades. 

When President Thabo Mbeki visits Vietnam next month, what might he learn from their experience? The Vietnam story shows what can be done by changing policy - and avoiding the excuses not to do so as many have consistently done in Africa. For Vietnam's history and situation is decidedly African. Its economy is heavily dependent on commodity exports - especially oil - and the agricultural sector. It has suffered a traumatic history, with 1000 years of Chinese colonial rule, nearly 100 years of French colonialism briefly interrupted by Japanese rule during the Second World War, and an ultimately vast US military presence for 15 years until 1975. It has 53 recognised ethnic groups. 

It lives in a difficult region, with wars with neighbouring Cambodia and China in 1978 and 1979. Moreover, its lengthy borders make the extension of administration countrywide more difficult across its 52 provinces. And it has been heavily dependent on aid, with more than $3bn in annual inflows. 


But no policy rocket science was required for its economic revolution, nor did the world have to change first. 


Essentially, Hanoi gave up on its Soviet-style statist path and unleashed the entrepreneurial spirit of the Vietnamese. Their dismal experience with the Soviet Union made Vietnam realise that no one was going to help them but themselves. The spark was chronic food shortages - commonly described as a "famine" - in the mid-1980s. 


By allowing farmers land use rights together with liberalising price controls and subsidising state inputs of fertiliser, fuel and seeds, Vietnam started not only to feed itself, but was able to export foodstuffs. From a requirement for half a million tons of rice imports in the mid-1980s, Vietnam today is the second-largest rice exporter in the world, with more than 4-million tons of sales, and has burgeoning sales of robusta coffee, rubber, tea, tobacco, pepper and cashews, among other cash crops.


The next step was to allow a market economy to flourish in order to take advantage of Vietnam's other great natural asset, its cheap, productive labour. This included an "open door" economic policy, expanding trade and investment ties more than 15-fold from its nine socialist partners of the 1970s and 1980s.

Tapping into globalisation by building, first, its garment and shoes and, later, its electrical goods sectors meant keeping the currency competitive. Instead of seeing aid as a form of assistance, Hanoi intelligently used it as an investment catalyst, steering much of it towards infrastructure.

External conditionality was replaced by internal policy clarity. 


In all this, Vietnam turned regional location to its advantage.

Being surrounded by high-growth economies such as the Asian tigers helps, not only in terms of positive lessons but also in trade and investment links. The largest investors today in Vietnam are Taiwan, Singapore and Japan, with a combined stake of more than $20bn. China is its largest trade partner, with the once imperialist enemy number one, the US, in second place. 


The effects? Household poverty has been reduced from 70% in the 1980s to 10% today. Donor reports describe the country as one of the "greatest success stories in economic development".


Even so, Hanoi's decision makers are focusing on dealing with the next set of economic and social dangers, including:


?Overheating: In 2006 the Vietnamese stock market rose by 145% and has already expanded by more than 50% this year. Government concerns of overheating are compounded by difficulties in scrutinising and monitoring new listings. Of concern is the impact of a fright by foreign investors, which could collapse the market, even though $20bn of new foreign direct investment is expected this year. Hence pressure to list the best of the 7000 state-owned enterprises. Already more than 5000 have been privatised since 1986;


?Consumerism: Despite low salaries (the average factory worker making your running shoes, flat screen TV or backpack earns about $70 a month), the economic boom has given rise to consumerism, especially among a young population (the average age is just 24) not interested in making savings or long-term investments, a foundation for sustaining East Asian growth over the past 50 years. Lifestyle products are in, from the darting Honda Dreams to pink Piaggio scooters, designer-label clothes to cellphones and iPods: the symbols of Vietnam's Bling dynasty;


?Financial regulation: Greater liquidity in the banking sector means lower interest rates, easier bank credit and heightened risk in nonperforming loans. Improved oversight and control is deemed necessary;


?Key infrastructure: Keeping pace will require urgent development in infrastructure, especially logistics, communications and energy. Once largely bicycle cities, Hanoi and Ho Chi Minh City (better known as Saigon) are clogged with traffic congestion and pollution. While much of the country resembles a building-site, more has to be done;


?Inequality: There is also an urgency to address the growing inequality between rural and urban areas. While the national poverty rate is at 23%, less than half of the rate 10 years ago, it is twice that number in the country's rural areas. There remains a concentration of wealth around Saigon, which accounts for 70% of exports and more than one-third of national economic activity. For its part, the government realises the importance of creating jobs and reducing poverty rather than simply relying on productivity increases to keep the economy growing;


?Environment: Growth has had its costs, especially on Vietnam's great rivers and forests, compounding the "ecocide" of the war with the US, which saw the country's forested area decline by half because of Washington's use of defoliants, napalm and other radical depopulation techniques. Saigon and Hanoi's chronic air pollution is, however, a result of today's growth excesses; and


?Democracy: Hanoi will inevitably have to grapple with more problematic structural reforms including, ultimately, greater democracy and personal freedoms. Pressure to do so will ratchet up as the rate of growth slowly but inevitably subsides over time, not least given its low starting base. The signals of moving with the times are already there as the military and party divests from business interests.


While Vietnam's economic revo-lution is not without its problems, it shows what is possible when government commits itself to growth with the same single-mindedness it fought against colonial control. It illustrates the benefits of focusing more on the future and less on the past.

It demonstrates that policy matters; that bad - and good - domestic policy is a choice, and has a dramatic socioeconomic impact. And it vividly displays what people can do when given the right environment. 





?Dr Mills heads the Brenthurst Foundation, which co-staged an event in Hanoi in March identifying mutual opportunities between Africa and Vietnam.