Celebrated as a new “Asian Tiger” two decades ago, Vietnam has lagged behind its neighbors and needs further reforms in order to catch up, foreign investors say.
Overloaded infrastructure, an under-qualified workforce, excessive bureaucracy and corruption are just some of the problems investors cite.
The hopes and promises of the early 1990s, when the communist nation abandoned a planned economy for the laws of the market, have not been realized.
Photo: AFP
“Most investors agree that Vietnam has huge potential,” says Adam Sitkoff, executive director of the American Chamber of Commerce Vietnam (AmCham).
“However, the country is struggling to live up to its full potential, hindered by slow progress on a list of perennial barriers to investment,” he said.
Over the past two decades Vietnam has been among Asia’s fastest-developing countries, with average annual growth of 7.1 percent between 1990 and last year, according to the Asian Development Bank.
With a per capita income of about US$1,200, the nation of 86 million people is now a “middle-income” country, according to World Bank criteria.
However, Vietnam remains far from resembling Taiwan, Singapore or South Korea, whose fast growth earned them the label “Tiger” economies, and whose success it dreams of emulating.
The country “risks falling into the ‘middle income trap,’ the inability to arise out of an economy based on cheap labor and low-technology manufacturing methods,” said Matthias Duhn, executive director of European Chamber of Commerce in Vietnam (Eurocham).
The warnings come just before a five-yearly Communist Party Congress, expected in the middle of next month. A gathering as opaque as it is fundamental, the congress will determine key political posts for the next five years, as well as the country’s main “economic themes,” said Benoit de Treglode, director of the Research Institute on Contemporary Southeast Asia in Bangkok.
The international community has stepped up calls for reform in the weeks before the congress, hoping the top leadership will take note, he said.
Foreign business leaders reemphasized their concerns on Thursday at the twice-yearly Vietnam Business Forum, held by the World Bank and Vietnam’s Ministry of Planning and Investment. They urged infrastructure development, upgrading workers’ skills, streamlining bureaucracy and other reforms.
The chairman of AmCham also told the forum that Vietnam has violated its WTO commitments with a new price control law targeting overseas firms.
Some officials close to the regime admit the need for reform.
“Too much attention has been given to the increase of investment rather than that of quality, productivity, efficiency and competitiveness,” Tran Tien Cuong, of the Central Institute for Economic Management, was recently quoted as saying in the state-run Vietnam News.
Eurocham cites estimates that Vietnam needs around US$70 billion to US$80 billion of investment in road, rail and seaport infrastructure over the next five to 10 years.
The figure rises to US$120 billion if energy infrastructure is included, it said.
Other obstacles include endemic corruption and the instability of the Vietnamese currency, the dong, which has been devalued three times since late last year.
Serious concerns have also emerged in recent months about the financial health of big state conglomerates.
While Vietnam Airlines stands out as a regional player, investors wonder whether other state-owned firms are in the position of Vietnam Shipbuilding Industry Group (Vinashin). The company has been driven to the brink of bankruptcy with debts of at least 86 trillion dong (US$4.4 billion).
Sitkoff regrets that the state sector continues to play a dominant role in the economy.
“Investors wonder which over-extended state-owned conglomerate will be the next to fail, or which will be forced into taking bad assets onto their balance sheets,” he said.
Vietnam has always introduced reforms at its own pace — slowly and carefully. However, de Treglode said the requests of the international business community have increased resonance ahead of the Communist Party Congress.
With 1 million young people entering the job market annually, the ruling party, concerned about maintaining its power, “is not in a position to close the door” on the foreigners’ suggestions, he said.
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