Growth and Coffee in Vietnam
Before going to Vietnam, I thought the best thing about it was its seriously delicious coffee (seriously … you should try it). However, after visiting I found that the best thing about Vietnam is its fighting entrepreneurial spirit.
The country has had to rebuild itself more times than most: it successfully fended off the Chinese, French and Americans and survived 10 years of conflict with neighboring Cambodia. Despite the economic calamity caused by decades of conflict, Vietnam has recently entered the scene as one of the economic powerhouses of the ASEAN region.
Its secret? Vietnam’s Doi Moi reforms focused on transforming the economic structure from a centrally-planned economy to a market-oriented economy. The Doi Moi initiatives, launched in 1986, led to a reduction in SOEs from 5,759 in 2000 to 3,287 in 2008[AG1] which was complimented by an explosion in non-state enterprises: 35,004 in 2000 to 196,766 enterprises in 2008.
This combination of a reduction in state-owned enterprises (SOE) and an increase in entrepreneurial activity contributed to lifting 80 percent of the impoverished out of poverty within two decades.
I was able to witness just how far Vietnam has come through a Global Studies Field Intensive led by the New York University Center for Global Affairs. I recently spent two weeks meeting with officials from the State Bank of Vietnam, different government ministries, chambers of commerce, Hanoi and Ho Chi Minh City stock exchanges, universities, non-governmental organizations, and state-owned and non-state enterprises.
The most interesting site visit was to PetroVietnam, Vietnam’s state-owned energy company. (Pictured below)
During our meeting, PetroVietnam revealed its contribution to the economy accounted for 20 percent of Vietnam’s GDP and about 30 percent of the state budget revenues.
If one state-owned company accounts for 20 percent of Vietnam’s GDP, what about all state-owned companies? Further research revealed that the decrease in total numbers of SOEs has not reduced the state’s economic influence. In 2005, SOEs represented 38.4 percent of the economic sector; in 2010, SOEs represented 36 percent.
So what? Who cares if SOEs still generate such a large segment of the country’s GDP?
Entrepreneurship increases employment opportunities and pressure for positive reform. Vietnam’s private sector created more than 10 million jobs in seven years while SOE shed jobs. As of 2009, non-state enterprises represented 95.66 percent of total enterprises and accounted for 57.53 percent of employees—compared to 20.04 percent by SOEs.
The problem is that the “dominating role of the state sector” is considered fundamental to the “socialism-oriented market economy” has slowed privatization. A recent survey revealed that Vietnamese entrepreneurs are highly critical of government officials’ skills and knowledge and feel they are being victimized by corruption and purposefully excluded from formal and informal linkages.
These activities harm the source of the majority of jobs in Vietnam. The inability to grow restricts the ability for private enterprises to expand job creation and increase salary allotment, reduces incentive for entrepreneurs to start new businesses, and reduces private enterprises’ impact on policy.
Vietnam’s economic situation is looking less promising than in recent years. Its growth rate has stagnated at about 5 percent, and according to a BBC news report, inflation has risen to 13.5 percent. Unfortunately, inequality is also on the rise: the income gap between the richest and poorest has increased from 8.9 times in 2008 to 9.2 times in 2009. This growing inequality is further reflected in the Gini coefficient of 0.43—a Gini coefficient of 0.4 is the international standard for dangerous levels of inequality.
In a country where the North and South still suffer from strained relations, increased inequality could potentially destabilize a country plagued by a history of conflict. Now more than ever, Vietnamese entrepreneurs must embrace their fighting spirit to ensure the state reduces its stronghold on the economy to ensure continued privatization and a bright economic future. Fight on.
(Oh, and I’m not kidding – try the coffee.)