Just how poor is Vietnam?

Economics discipline

Saigon Then & Now - what a difference!

#underdevelopedcountry #nationwidefamine #drought #lowGDP

Apparently, this is what many people associate with Vietnam - the idea that we are still a poor and "under-developed" country (even though no one uses that term anymore). However, this is completely unfounded as Vietnam has actually consistently placed itself among the fastest growing economies in the ASEAN region in terms of GDP growth, FDI and middle income population growth since 1995.

I remember how one of my friends from the US thought that cars were a luxury to Vietnamese families. When I shared about how I had my motorbike stolen, she asked whether my family had a car. When I said yes, she was very surprised, and said that she didn't think cars were common in my country. According to her perception, Vietnam is still "underdeveloped"; it must be difficult for citizens to make ends meet, let alone have the luxury of owning a car or other high-tech items. But the number of cars owned by Vietnamese families are showing an increasing upward trend, which indicates that the middle-class and upper-class is growing and people have higher incomes to spend on things to increase their quality of life.

Personally for myself, I was also quite impressed by how much Vietnam has changed - in terms of infrastructure, city planning, and order - ever since I moved. My own eyes have saw Vietnam's significant social and economic progress in the past decase. While the 'old' image of Vietnam in me was characterized by a particularly closeness and "ruralness", the 'new' Vietnam is a modern one with advanced technology and bustling streets. The capital city of Vietnam, Ha Noi, where I love, is filled with endless energy. In the little shops, people buy and sell everything from clothes to food, and they run to and fro to get to work, school and extra classes. Viet Nam is a young and growing country where anything feels possible.

How did Vietnam's economy change?

This wasn't always the case. We were among the world's poorest just 30 years ago. Over time, we developed into a lower-middle income nation. Vietnam's GDP increased 2.7 times between 2002 and 2018, a significant rise. But how exactly did we develop into a middle-income nation? From what I've learned, the turning point for Vietnam's economy was through a specific nationwide economic reform. By 1975, the end of years of war and conflict, Vietnam's economy was devastated, unstable, and not self-dependent. The per capita GDP was locked between $200 and $300 by the mid 80s. However, the government started pushing the nation towards a "socialist-oriented market economy" in 1986 by enacting "Đổi Mới", a series of political and economic reforms.

According to the World Bank and Brookings, Vietnam undertook three important strategies to boost the economy. Embracing trade liberalization was the first of these measures.

Vietnam has signed multiple free trade agreements with numerous countries over the past 20 years. One of them includes ASEAN which Vietnam joined in 1995. In 2000, the U.S. and Vietnam formed a partnership through free trade agreement, and then seven years later, Vietnam joined the WTO. As a result, Vietnam has been able to lower the amount of tariffs on imports into the country and exports leaving the country.

Graph of Vietnam's tariff rate - indicating that Vietnam is quite open to trade

The second step the Doi Moi reforms took to better the economy was deregulation and making it cheaper and easier for foreign companies to conduct business within Vietnam. One way this occurred was through the enactment of the Law on Foreign Investment in 1986. Over the years, this law has undergone revisions to lessening administrative red tape and better accommodate investors. This has improved Vietnam’s competitiveness tremendously, helping it rank at 77 in 2006 and 55 in 2017.

Lastly, the Doi Moi reforms aimed to improve Vietnam's human capital and infrastructure. The government decided to invest in education within the country due to its rapid-growing population. This was extremely important as the demand for jobs were growing quickly. Additionally, infrastructure development has been vital for the growth of Vietnam’s economy. Making sure that all citizens have access to internet services is important due to technological needs of the modern age.

Viet Nam's per capita GDP has increased 10 times over the past 30 years

Since then, Vietnam's economy has grown steadily and strongly, with GDP growth peaking at 6.8% in 2017. Notably, despite the COVID-19 outbreak, Vietnam's economy grew by 2.9% in 2020, one of the greatest rates in the world at the time.

In my opinion: is Vietnam that backward?

I would say that Vietnam is not poor at all, even if we forget about all the statistics and economic analysis and just look at it from its "outside image" like an ordinary person. For example, we have Lotte tower and Landmark 81 building, which are our highest and most famous architecture. Anyone looking at those buildings would think that Vietnam is indeed a wealthy and developed country.

(I myself have been)

An interesting perspective

Nevertheless, global perceptions of Vietnam's economy remain outdated. So why is Vietnam still considered relatively poor? Well, although according to data, Vietnam has experienced similarly quick growth since 1986 as its neighbors in Asia (Malaysia, South Korea, and Thailand), there is little difference between the countries in terms of wealth accumulation (as shown in the graph below).

The log-scale shows that Vietnam is the fastest growing among its Asian neighbours

GDP growth on the natural scale

Other Asian nations have more wealth in absolute terms because they began compounding their wealth earlier, while Vietnam missed 18-20 years of growth prior to 1986. Despite similar growth-rates (the parallel lines on the log-chart), a few years of no economic growth will result in large disparities in wealth on the absolute scale (the left-side of the chart). Due to the exponential nature of growth, countries that have a head start will experience greater gains in subsequent years; this reinforces the idea that Vietnam is seemingly poorer.

Thus, lost-compounding is the single biggest element in explaining why Vietnam may still be considered "poor" today. However, it should be noted that we have made great strides to improve and grow our economy.

Improvement still needed

Despite Vietnam's economy growing by 7% in 2018, our citizens continue to point out hunger and poverty as the two major issues that needs more efforts to be made in. In fact, 13 million of the 88 million people that make up Vietnam's overall population still live in poverty as of 2010. With persistent systematic inequalities, the rate of poverty reduction is slowing down and inequality is rising. This is especially true for Vietnam's ethnic minorities, who make up just 14% of the population yet are a part of 50% of the country's poor.

This is especially a problem when it comes to rural areas or ethnic minorities because they are the most vulnerable stakeholders, who systematically cannot access services readily and do not have the most effective support systems. It's likely that these groups end up in a cycle of multidimensional poverty - with no means to escape their tough situations.

Here, 2 comparisons can be made: 1. Kinh (majority ethnic group) people make much more than minority ethnic groups on average 2. Citizens in urban areas have higher incomes than those in rural areas. But the same previous observation still applies: on average Kinh people will have a higher monthly income in any circumstances.

A picture says more than a thousand words: the inequality is obvious. These low-income street vendors are sitting in front of a high-fashion boutique. Notice the contrast.

Now that I think about it, I believe that the impression of Vietnam as a poor country could have come from the sights of many street vendors sprawling on the streets and the relatively old and crumbling infrastructure on the streets. Nevertheless, these are just the distinct characteristics that make up the quaint vibe of bustling Hanoi and HCM city. Overall, Vietnam is not poor (objectively speaking). We have made a lot of progress in reducing poverty and most of our citizens are comfortable. This is quite a subjective judgement to make, so I think Vietnam's economic status would depend on the person. Essentially, the process is more important than the result. Vietnam's hard work on the economy deserves all the recognition.

Reference list:

William (2021). Myth-busting: ‘Why is Vietnam so poor?’ [online] Vietnam Daily. Available at: https://vietnamdaily.ca/culture/myth-busting-why-is-vietnam-so-poor/ [Accessed March 19, 2020].

The Borgen Project. (2021). Doi Moi - The Borgen Project. [online] Available at: https://borgenproject.org/tag/doi-moi/ [Accessed March 19, 2020].

‌Vanham, P. (2018). The story behind Viet Nam’s miracle growth. [online] World Economic Forum. Available at: https://www.weforum.org/agenda/2018/09/how-vietnam-became-an-economic-miracle/ [Accessed March 19, 2020].

‌‌Vietnam Law and Legal Forum (2019). Poverty and economic inequality from Vietnamese citizens’ perspective in 2018. [online] Available at: https://vietnamlawmagazine.vn/poverty-and-economic-inequality-from-vietnamese-citizens-perspective-in-2018-16719.html [Accessed March 19, 2020].

PWC (2018). The Future of ASEAN: Viet Nam Perspective. [online] PwC. Available at: https://www.pwc.com/vn/en/publications/vietnam-publications/the-future-of-asean-vietnam.html [Accessed March 19, 2020].

Oxfam International (2022). Vietnam | Oxfam International. [online] Oxfam International. Available at: https://www.oxfam.org/en/what-we-do/countries/vietnam [Accessed March 19, 2020].

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