Pakistan needs to learn from Vietnam’s Doi Moi miracle
https://arab.news/g5h67
Boasting an average GDP growth rate of over 6 percent over the last 30 years, Vietnam is one of the stars in the emerging markets universe. According to the World Bank: “Vietnam’s GDP expanded to USD363 billion in 2021 from USD21 billion in 1994. Exports of goods and services, valued at USD55 billion in 2007, soared to USD340 billion in 2021...High levels of foreign direct investment have fuelled growth in labor-intensive manufacturing and service sectors. Vietnam’s business sector is bustling with young, dynamic, and diverse firms.” The country’s average per capita growth rate for the last 10 years has been over 4.8 percent compared to Pakistan’s less than 1.5 percent. Vietnam’s exports as a percentage of GDP were close to 100 percent in 2021 compared to Pakistan’s less than 10 percent. Vietnam is well positioned to continue prospering and join the ranks of the middle-income countries as more foreign direct investment piles into the country. Meanwhile, Pakistan hobbles from one IMF structural adjustment program to the next.
Yet the comparison was not always so unfavorable. In the early 1990’s, Vietnam was one of the poorest countries in the world with a per capita GDP below $250 while Pakistan’s was above $400. Following the 20-year Vietnam war that ended in 1975, its economy had struggled to grow under the communist party’s five-year central plans. This all changed in 1986 when the government introduced the Đoi Moi policy - a series of economic and political reforms that unleashed the underlying potential of the country to usher in the economic growth of 6-7 percent over the coming decades to rival the phenomenal success of China. In essence, Đoi Moi comprised trade liberalization, lowering the cost of doing business through de-regulation, and investing heavily in human and physical capital.
In order to open up the economy, Vietnam entered a number of bilateral and regional free trade agreements (FTAs). It joined the ASEAN free trade area in 1995, which was followed by a free trade agreement with the US in 2000, and in 2007 it joined the World Trade Organization. This has been expanded further with the signing of FTAs with China, India, Japan, and Korea. This has resulted in lowering tariffs imposed on both imports and exports to and from Vietnam.
The country’s average per capita growth rate for the last 10 years has been over 4.8 percent compared to Pakistan’s less than 1.5 percent. Vietnam’s exports as a percentage of GDP were close to 100 percent in 2021 compared to Pakistan’s less than 10 percent.
Javed Hassan
Domestically, the Doi Moi reforms focused on deregulation, which meant removing bureaucratic impediments to make it less time-consuming and cheaper for foreign companies to conduct business within Vietnam. In 1986, the Law on Foreign Investment was enacted to enable foreign investment in Vietnam. In subsequent years, the law was further improved to better accommodate investors and enhance competitiveness. The success of the measures can be gauged by the fact that Vietnam’s global competitiveness ranking between 2006 and 2017 improved from 77 to 55.
The third plank of the Doi Moi focused on improving human capital and the country’s infrastructure. Since it had a youthful population, where even today over half of the population is under 34, the government considered it imperative to prioritize primary education. It focused on equipping the youth with skills to be easily absorbed by the job market. The government also provided infrastructure that gave citizens access to electricity, internet, and credit to set up small businesses in new technologies.
The market-friendly policies and investments in infrastructure and human capital have attracted top technology brands like Intel, Samsung, and Xiaomi to set up manufacturing facilities to supply component parts for their respective global value chains. Vietnam has therefore seen the share of high-tech goods increase from 13 percent in terms of export value in 2010 to 42 percent in 2020, which is the fastest growth in sophisticated and complex products as a percentage of exports among Asian countries. On the Harvard University’s Growth Lab Economic Complexity Index (ECI), which measures the number of products a country exports, and the exclusivity of these products, Vietnam has moved up 10 places to 52 in the last decade while Pakistan has remained static in the same period at around 99.
Vietnam was left behind by other South East Asian tiger economies in the period when it took on the might of the US to secure its sovereignty. The leadership sacrificed economic development to secure independence. Having attained that, they focused on transforming the economy by actively integrating with the rest of the world. It fostered trading relationships with old foes such as the US and China as it developed linkages across the globe. Such pragmatism has helped reduce the gap between the wealth of the average Vietnamese and their neighbors in Thailand and Malaysia, and it is now aspiring to catch up with China. Each country must tailor policies to its own specific circumstances and aspirations, but there are lessons for Pakistan to learn from Vietnam’s Doi Moi economic miracle."
– Javed Hassan has worked in senior executive positions both in the profit and non-profit sector in Pakistan and internationally. He’s an investment banker by training.
Twitter: @javedhassan