Vietnam’s economic miracle: insights for Pakistan

[Norwegian]

Vietnam’s economic miracle: insights for Pakistan
Muhammad Abdul Kamal Published January 17, 2022 - Updated about an hour ago

Pakistan’s economy has been plagued by serious macroeconomic issues for some time now. However, it is not too late to resuscitate, as many of the region’s best-performing nations started at a low point and were able to embark on a path of sustainable economic growth after enacting the necessary reforms. The economy of Vietnam is one such success tale.
Vietnam’s economy was crippled by poverty, and per capita income was stuck between $200 and $300 by the mid-1980s. Vietnam’s transformation from a poverty-stricken economy to one of prosperity commenced in 1986 when the government launched “Ði Mi”, a series of political and economic reforms aimed at strengthening the private sector’s role and opening the country to foreign investors.
Under this initiative, Vietnam’s GDP per capita increased 12 times between 1985 and 2020, reaching over US$2,800. Over the same period, poverty rates (US$1.90/day) fell sharply from over 70 per cent to under 2pc.

Incremental efforts are required to stabilise the country’s entire social, economic and political environment so that much-needed foreign direct investment is attracted

The rise of Vietnam’s economy can be attributed to three main initiatives according to World Bank; firstly, it has enthusiastically incorporated trade liberalisation. The signing of many free trade agreements (FTA) with both Asian and Western countries signalled the gradual liberalisation of trade. Vietnam has concluded bilateral trade agreements with 72 countries and it also built trade relationships with 165 nations.
In 1995, Vietnam signed the Association of Southeast Asian Nations free trade agreement. In 2000, it executed an FTA with the United States, and in 2007, it joined the World Trade Organisation. In the recent decade, Vietnam has agreed or structured 12 bilateral and multilateral FTAs with Japan, South Korea and the European Union. On November 15, 2020, the Regional Comprehensive Economic Partnership was established and Vietnam is an active member of the pact. The regional integration is expected to cover 30pc of the world’s population, generate $500 billion in international trade, and yield $209bn to global revenues by 2030.
Vietnam has benefited from the “open-door” policy, and the country has developed into a manufacturing hub over the previous three decades, with significant foreign businesses such as Intel, Samsung, Adidas and Nike already having established bases there. With one out of every ten cellphones produced in Vietnam, the country has already established itself as a significant exporter of textiles, electronic goods, and footwear, among other goods.
Secondly, Vietnam has supplemented external liberalisation with internal reforms such as deregulation and decreased business costs. In 2007, Vietnam was placed 104th in the Doing Business index, with several major constraints identified by the study. The government has nibbled away at the inefficiencies using the indicators as a guide, and Vietnam has risen to 70th place in the 2020 Doing Business survey.
Vietnam achieved improvement in a variety of areas, including contract enforcement, improving access to credit and electricity, paying taxes, and cross-border trade. Vietnam’s placement on the World Economic Forum’s Competitiveness Index reflects this transformation, climbing from 77th place in 2006 to 67th place in 2019.
In the Global Innovation Index 2021, Vietnam was ranked 44th out of 132 countries and is one of four middle-income economies (the others being Turkey, India and the Philippines) having the potential to reshape the global innovation landscape by catching up to larger economies like China.
Thirdly, Vietnam has made enormous investments in human and social capital, leading to the development of a skilled workforce, which has enhanced productivity and competitiveness over time. The Human Development Index for Vietnam increased to 0.706 in 2020, up from 0.682 in 2016, leading it to join the group of countries with a high degree of human development.
Pakistan can achieve its goal of sustainable economic growth by following Vietnam’s model. Pakistan must concentrate on growth-oriented reforms and sound policymaking to achieve this goal. Following in the footsteps of Vietnam, Pakistan should liberalise trade and sign free-trade agreements with potential trading partners. Incremental efforts are required to stabilise the country’s entire social, economic, and political environment so that much-needed foreign direct investment not only be attracted but in desired sectors such as manufacturing and agriculture.
Furthermore, improvements in the export sector must be accomplished by enhancing domestic industrial production and productivity. To make the labour force more productive, it is essential to invest in human capital. Pakistan must strive to improve its knowledge capital, which will be a major driver of productivity, diversification, higher innovation, and thus higher growth in the future.
The writer is working as Assistant Professor at Abdul Wali Khan University Mardan. kamal@awkum.edu.pk
Published in Dawn, The Business and Finance Weekly, January 17th, 2022

Vietnam’s economic miracle: insights for Pakistan

Incremental efforts are required to stabilise the country’s entire social, economic and political environment.

www.dawn.com

@Viet @Shotgunner51 @Patriot forever @beijingwalker @The Accountant @farok84 @FOOLS_NIGHTMARE @Mav3rick @muhammadhafeezmalik @Verve @koolio @RescueRanger @Jazzbot @Jungibaaz @Pakistan Space Agency @El Sidd @Bilal9

 

[SoulSpokesman]

@Norwegian

Norwegian sahib, The tragedy is that the first East Asian miracle- South Korea- was scripted right here in Pakistan.

Regards

 

[Bilal9]

Well I have many Vietnamese friends (some are academics) and we have discussed the Đổi Mới reforms at length.

A few factors have helped,

- Proximity to China
- China's meteoric rise as an economic juggernaut influenced Vietnam's rise as well (Cultures and business practices are similar enough).
- Spirit of entrepreneurship among Vietnamese small traders is very strong, if you visit little Saigon in LA you will get full idea of it
- Govt. policy support was major factor.
- Vietnam did not have to do much of backward integration, as raw material and practically every feedstock for every industry is widely available in China next door (which is not the same situation for Bangladesh and Pakistan unfortunately).
- Vietnam's aggressive moves to attract FDI from major ASEAN countries and Japan/Korea/China.
- Signing of FTA's with major EU countries and UK.
- Educated and hard-working labor force.

See the wiki for more,

Đổi Mới - Wikipedia

en.wikipedia.org

 

[vi-va]

Since when @Norwegian was identified as Israeli instead of Pakistani?

Since when @Norwegian was identified as Israeli instead of Pakistani?

I got it.

 

[REhorror]

Tbh, Vietnam's stability and independence are our the biggest strength.
Geographically, being a peninsula with (relatively) young and educated population are also huge advantages.

 

[Viet]

Well I have many Vietnamese friends (some are academics) and we have discussed the Đổi Mới reforms at length.

A few factors have helped,

- Proximity to China
- China's meteoric rise as an economic juggernaut influenced Vietnam's rise as well (Cultures and business practices are similar enough).
- Spirit of entrepreneurship among Vietnamese small traders is very strong, if you visit little Saigon in LA you will get full idea of it
- Govt. policy support was major factor.
- Vietnam did not have to do much of backward integration, as raw material and practically every feedstock for every industry is widely available in China next door (which is not the same situation for Bangladesh and Pakistan unfortunately).
- Vietnam's aggressive moves to attract FDI from major ASEAN countries and Japan/Korea/China.
- Signing of FTA's with major EU countries and UK.
- Educated and hard-working labor force.

See the wiki for more,

Đổi Mới - Wikipedia

en.wikipedia.org

I don’t believe to a correlation with culture affinity and close distance to China that is the decisive factor.
lots of countries in the world get rich without any affinity and close proximity to the chinese.
If the theorem is correct then Pakistan would be better off.

 

[Bilal9]

I don’t believe to a correlation with culture affinity and close distance to China that is the decisive factor.
lots of countries in the world get rich without any affinity and close proximity to the chinese.
If the theorem is correct then Pakistan would be better off.

Pakistan is not that close to Chinese industrial centers or points of logistics.

Northern Vietnam is very close to China road/rail network in Guangxi and Yunnan province.

The city and port of Haiphong is practically a day's travel away via cargo train (10 to 15 hours) from Guangdong near Hong Kong AFAIK. Guangdong and Shenzhen are the top areas for Chinese manufacturing and exports in Asia.

I mean - you don't like the Chinese, that's fine, but that does not alter how close China is to North Vietnam or how Chinese business and trade opportunities that can and do benefit Vietnam as a country.

It's okay. The Koreans still don't like the Japanese, but their success was in large measure due to their proximity to Japanese companies, which Korean companies subcontracted for, for many years.

Hyundai Auto was a Mitsubishi subcontractor in the 60's and 70's.

Kia was a Mazda subcontractor at the same time period.

Now the tables are turned of course.

Koreans cornered the in-house manufacturing of LCD/LED screens, Microwave radiation tubes and semiconductor (FAB) businesses and took over the lead from Japanese companies.

No screen making in house, your TV's are going to be more expensive, so Samsung and LG sell more TV's than Sharp, Panasonic and Sony. Ditto with Microwaves and cellphones.

 

[vi-va]

Pakistan is not that close to Chinese industrial centers or points of logistics.

Northern Vietnam is very close to China road/rail network in Guangxi and Yunnan province.

The city and port of Haiphong is practically a day's travel away via cargo train (10 to 15 hours) from Guangdong near Hong Kong AFAIK. Guangdong and Shenzhen are the top areas for Chinese manufacturing and exports in Asia.

I mean - you don't like the Chinese, that's fine, but that does not alter how close China is to North Vietnam or how Chinese business and trade opportunities that can and do benefit Vietnam as a country.

It's okay. The Koreans still don't like the Japanese, but their success was in large measure due to their proximity to Japanese companies, which Korean companies subcontracted for, for many years.

Hyundai Auto was a Mitsubishi subcontractor in the 60's and 70's.

Kia was a Mazda subcontractor at the same time period.

Now the tables are turned of course.

Koreans cornered the in-house manufacturing of LCD/LED screens, Microwave radiation tubes and semiconductor (FAB) businesses and took over the lead from Japanese companies.

No screen making in house, your TV's are going to be more expensive, so Samsung and LG sell more TV's than Sharp, Panasonic and Sony. Ditto with Microwaves and cellphones.

South Korea benefited a lot from the experience of Japanese development, loans, technologies, engineers. South Korea has a national strategy to hire Japanese, so that they can get the technologies and know-how directly. The industry policy of Korea is copied from Japan as well.

Same thing to Vietnam. Foreign companies in Vietnam hire Chinese to manage and teach Vietnam how to run the companies. Technologies transferred from Chinese factories to Vietnam ones.

Vietnam cloned China national polices. Vietnam has exactly same cultural base as Chinese and same political structure, similar revolution background, so that Vietnam just simply use Chinese policies.

Basically, Vietnam is a small China back in 90s-2000s.

The difference is, Vietnam doesn't have as large industry base as China's. So Vietnam import most machinery and components from overseas, especially China.

The valued added in China is much greater than the one in Vietnam. Take Textile industry for example,

China can and build machinery for textile, build refinery for textile fibers, and home-made machinery to make all kinds of cloth. The value added in China is labors and machinery, as well as refinery.

While Vietnam import machinery and fibers from overseas, especially China. Then Vietnam make Nike, Adidas, exported to overseas. The value added in Vietnam is labors mainly.

 

[Bilal9]

South Korea benefited a lot from the experience of Japanese development, loans, technologies, engineers. South Korea has a national strategy to hire Japanese, so that they can get the technologies and know-how directly. The industry policy of Korea is copied from Japan as well.

Same thing to Vietnam. Foreign companies in Vietnam hire Chinese to manage and teach Vietnam how to run the companies. Technologies transferred from Chinese factories to Vietnam ones.

Vietnam cloned China national polices. Vietnam has exactly same cultural base as Chinese and same political structure, similar revolution background, so that Vietnam just simply use Chinese policies.

Basically, Vietnam is a small China back in 90s-2000s.

The difference is, Vietnam doesn't have as large industry base as China's. So Vietnam import most machinery and components from overseas, especially China.

The valued added in China is much greater than the one in Vietnam. Take Textile industry for example,

China can and build machinery for textile, build refinery for textile fibers, and home-made machinery to make all kinds of cloth. The value added in China is labors and machinery, as well as refinery.

While Vietnam import machinery and fibers from overseas, especially China. Then Vietnam make Nike, Adidas, exported to overseas. The value added in Vietnam is labors mainly.

Cotton Textile Apparel wise there is some backward integration in Bangladesh (carding, spinning, weaving, finishing)- probably a bit better than Vietnam. Same situation in Pakistan as well.

But the challenge now is to go to backward integration for sophisticated synthetic fibers (acrylic, advanced polyester, nylon etc.), There is a lot of PET Polyester fiber production locally from PET Chips (and onward carding, spinning, weaving, finishing using air jet and waterjet looms) but as far as PET Chips, AFAIK there is no chemical refinery production locally - all PET chips quantity imported, mostly from Saudi Arabia (SABINCO etc.).

So Bangladesh (traditionally a strong textile producer) does add more value than simply sewing and stitching for apparel. Spinning is a strong field, they added capacity even during COVID.

Investment Galore in spinning despite Covid

The spinning sector in Bangladesh witnessed a major jump in investment last year as entrepreneurs set up 26 new mills to meet rising demand despite uncertainty in the global apparel supply chain owing to the pandemic.

www.thedailystar.net

Spinning sector is robust in Bangladesh, which boasted around 13 Million spindles in 2019, which was higher than Vietnam (7 Million spindles), Indonesia (10 Million) and Pakistan (12Million). Between 2019 and 2021, they have supposedly added another 2 Million spindles, boosting spindle capacity to 15 Million.

http://www.icmab.org.bd/wp-content/uploads/2019/12/8.Transformation.pdf

<b>Spinning capacity estimate in major textile markets</b> |CCFGroup

 

[Viet]

Pakistan is not that close to Chinese industrial centers or points of logistics.

Northern Vietnam is very close to China road/rail network in Guangxi and Yunnan province.

The city and port of Haiphong is practically a day's travel away via cargo train (10 to 15 hours) from Guangdong near Hong Kong AFAIK. Guangdong and Shenzhen are the top areas for Chinese manufacturing and exports in Asia.

I mean - you don't like the Chinese, that's fine, but that does not alter how close China is to North Vietnam or how Chinese business and trade opportunities that can and do benefit Vietnam as a country.

It's okay. The Koreans still don't like the Japanese, but their success was in large measure due to their proximity to Japanese companies, which Korean companies subcontracted for, for many years.

Hyundai Auto was a Mitsubishi subcontractor in the 60's and 70's.

Kia was a Mazda subcontractor at the same time period.

Now the tables are turned of course.

Koreans cornered the in-house manufacturing of LCD/LED screens, Microwave radiation tubes and semiconductor (FAB) businesses and took over the lead from Japanese companies.

No screen making in house, your TV's are going to be more expensive, so Samsung and LG sell more TV's than Sharp, Panasonic and Sony. Ditto with Microwaves and cellphones.

Pakistan has the greatest asset we don’t have, she is China’s best friend. If we could have avoided the war with China in the 1980 our GDP per capita would be $10,000 or higher today.
It’s a mistake to think close proximity and culture similarity play the decisive role, no it’s not. It’s certainly helpful, but you see at least 100 countries on the planet those people don’t have any cultural link or share the same common border. There is no correlation.

 

[GiantPanda]

Pakistan has the greatest asset we don’t have, she is China’s best friend. If we could have avoided the war with China in the 1980 our GDP per capita would be $10,000 or higher today.
It’s a mistake to think close proximity and culture similarity play the decisive role, no it’s not. It’s certainly helpful, but you see at least 100 countries on the planet those people don’t have any cultural link or share the same common border. There is no correlation.

Unless, you have oil, the only non-white societies that have advanced from developing to developed are those who are majority ethnic Chinese -- Taiwan, Macau, Hong Kong, Singapore -- or a member of the Sinosphere (Japan and South Korea.)

If you switch Vietnam and Burma geographically, Vietnam would not do as well as Burma. The investment and parts from China and the rest of the Sinosphere (East Asia) would flow into Burma not Vietnam. It would be nearly the same if you switched Vietnam and Pakistan geographically though cultural differences would have some impact.

What 100 countries in the world that has done well? Are you including the European Union?

The white nations have all done well because they culturally connected with one another and are mostly neighbors save for Australia and New Zealand.

 

[Viet]

Unless, you have oil, the only non-white societies that have advanced from developing to developed are those who are majority ethnic Chinese -- Taiwan, Macau, Hong Kong, Singapore -- or a member of the Sinosphere (Japan and South Korea.)

If you switch Vietnam and Burma geographically, Vietnam would not do as well as Burma. The investment and parts from China and the rest of the Sinosphere (East Asia) would flow into Burma not Vietnam. It would be nearly the same if you switched Vietnam and Pakistan geographically though cultural differences would have some impact.

What 100 countries in the world that has done well? Are you including the European Union?

The white nations have all done well because they culturally connected with one another and are mostly neighbors save for Australia and New Zealand.

I don’t deny China influence on our economic or anything however there are some factors that don’t add up. China mainland investments in Vietnam are much lower than by Singapore, Japan, Korea and Taiwan. Second, the numbers of chinese ethnics in Thailand, Malaysia, Philippines are much higher than us in Vietnam.
How is that possible that Vietnam is the only country in Asia (except Japan and Korea) sinic?
Vietnam will become industrialized in our lifetime while the rest will not. They will remain forever as exotic places for tourists.

 

[vi-va]

I don’t deny China influence on our economic or anything however there are some factors that don’t add up. China mainland investments in Vietnam are much lower than by Singapore, Japan, Korea and Taiwan. Second, the numbers of chinese ethnics in Thailand, Malaysia, Philippines are much higher than us in Vietnam.
How is that possible that Vietnam is the only country in Asia (except Japan and Korea) sinic?
Vietnam will become industrialized in our lifetime while the rest will not. They will remain forever as exotic places for tourists.

Vietnam was Sinicized, it's the French who reversed the course, Frenchified.

If history was not interrupted by French colonization, Vietnamese will call themselves Chinese today.

This is Vietnam history book, you can't read, can you? But I can.

Đại Việt sử ký toàn thư – Wikipedia tiếng Việt

vi.wikipedia.org

越南共产党 Đảng Cộng sản Việt Nam
I can read Vietnamese Đảng Cộng sản Việt Nam by pronunciation.

Vietnam forgot Chinese, the most valuable part of your history, literature. In day to day life, both Koreans and Vietnamese has a big issue, because there are so many homophones you can't differentiate without Chinese.

Like it or not, Chinese is in every Vietnamese blood and culture.

 

[Bilal9]

I don’t deny China influence on our economic or anything however there are some factors that don’t add up. China mainland investments in Vietnam are much lower than by Singapore, Japan, Korea and Taiwan. Second, the numbers of chinese ethnics in Thailand, Malaysia, Philippines are much higher than us in Vietnam.
How is that possible that Vietnam is the only country in Asia (except Japan and Korea) sinic?
Vietnam will become industrialized in our lifetime while the rest will not. They will remain forever as exotic places for tourists.

Well....couple of counterpoints.

1. You may be partially right about the Philippines being not as industrialized than Vietnam, but their industrialization goes back a long way. They are very active in value-added assembly of electronics, high grade consumer products (SLR cameras and lenses for example), large shipbuilding sector and of course back-office business like Indians because of English skills.

2. Malaysia and Thailand got to being industrialized way before Vietnam did. Their backward integration in industrialization and also, dependence of internal consumer economy for growth is very high, they are at that next stage already and as a result have what is called a stagnancy in middle income growth. There are industrial park and metro rail development companies in Thailand that Bangladesh is currently cooperating with and Thai industrial parks are some of the most picturesque and well-designed industrial parks, exceeding US and EU standards in some cases. Ditto for Malaysia. There is no doubt that Thailand and Malaysia is no less industrialized than Vietnam, probably more. Growth has though slowed a little right now.

3. Industry from wealthier and better-developed economies in Asia and ASEAN (for example Korea, China, Japan and Taiwan) will always gravitate to lowest cost labor destinations in the region for value addition (assembly mostly) to save cost and offer a competitively priced and profitable product. This includes stitching of apparel, shoes and assembly of cellphones like Vietnam is doing right now.

4. The final point is, Thailand, Malaysia and Indonesia have become high labor cost places for industrial assembly (Indonesia cost is a bit lower than the other two) - while Vietnam and Bangladesh both still claim low cost labor. I'd argue that Bangladesh labor costs are about half that of Vietnam for apparel and shoes, but the sunk FDI in Vietnam already means production will still take a while to get to Bangladesh. Bangladesh and Vietnam are vying nose-to-nose for top apparel exports to US right now. Last year it was Vietnam, this year we took back top spot again. When labor cost goes high in Vietnam, it will be in Thailand and Malaysia situation too.

There is no "we are the best" situation here - things can change in less than a year's time sourcing wise. The point is how long can you let foreigners exploit your low labor cost (lowest common denominator) until you offer skills and educated expertise which trumps that of EU and US and foreigners pay for that instead of dumb (and dumber) low cost labor?

That should be the ongoing thought for the future, not competing for lowest cost among ourselves as Asians, exploiting poor people and driving down labor costs for poor people lower, lower and lower - just so EU and US folks can have cheap clothes, cellphones and shoes.

 

[Viet]

Well....couple of counterpoints.

1. You may be partially right about the Philippines being not as industrialized than Vietnam, but their industrialization goes back a long way. They are very active in value-added assembly of electronics, high grade consumer products (SLR cameras and lenses for example), large shipbuilding sector and of course back-office business like Indians because of English skills.

2. Malaysia and Thailand got to being industrialized way before Vietnam did. Their backward integration in industrialization and also, dependence of internal consumer economy for growth is very high, they are at that next stage already and as a result have what is called a stagnancy in middle income growth. There are industrial park and metro rail development companies in Thailand that Bangladesh is currently cooperating with and Thai industrial parks are some of the most picturesque and well-designed industrial parks, exceeding US and EU standards in some cases. Ditto for Malaysia. There is no doubt that Thailand and Malaysia is no less industrialized than Vietnam, probably more. Growth has though slowed a little right now.

3. Industry from wealthier and better-developed economies in Asia and ASEAN (for example Korea, China, Japan and Taiwan) will always gravitate to lowest cost labor destinations in the region for value addition (assembly mostly) to save cost and offer a competitively priced and profitable product. This includes stitching of apparel, shoes and assembly of cellphones like Vietnam is doing right now.

4. The final point is, Thailand, Malaysia and Indonesia have become high labor cost places for industrial assembly (Indonesia cost is a bit lower than the other two) - while Vietnam and Bangladesh both still claim low cost labor. I'd argue that Bangladesh labor costs are about half that of Vietnam for apparel and shoes, but the sunk FDI in Vietnam already means production will still take a while to get to Bangladesh. Bangladesh and Vietnam are vying nose-to-nose for top apparel exports to US right now. Last year it was Vietnam, this year we took back top spot again. When labor cost goes high in Vietnam, it will be in Thailand and Malaysia situation too.

There is no "we are the best" situation here - things can change in less than a year's time sourcing wise. The point is how long can you let foreigners exploit your low labor cost (lowest common denominator) until you offer skills and educated expertise which trumps that of EU and US and foreigners pay for that instead of dumb (and dumber) low cost labor?

That should be the ongoing thought for the future, not competing for lowest cost among ourselves as Asians, exploiting poor people and driving down labor costs for poor people lower, lower and lower - just so EU and US folks can have cheap clothes, cellphones and shoes.

You are right in the assessment we are still behind other Asean fellows in the economy however at the end of the day Vietnam pursuits different path unlike other in Asean. we can say without shame we copy the chinese, japanese and koreans. We want to make own cars, own stuffs not just be a slave laborer for foreigners.