Vietnam Has Reached A Crossroad For The Future

It is difficult to develop a modern technological savvy economy without a progressive and forward moving society. Authoritarian regimes always end up in the dilemma of government control versus growth. Vietnam has arrived at this critical juncture. The country is developing rapidly and is opening up to the West, but the authorities in power are unwilling to let go of the vise they have on the citizenry and the economy at large.

A growing number of companies, multinationals and even individual investors continue to consider the country as a rising market for international goods and services. Vietnam has a number of economic benefits that appeal to a wide variety of entrepreneurs, looking to either gain a foothold in the region or wanting to expand operations.

The key products of the country consist of black pepper, cashew nuts, coffee, fishery products, rice, rubber and tea. Information technology, high technology industries and general manufacturing constitute a growing segment of the economy. Vietnam has also become one of the leading oil producers in the region.

At the same time there are many impediments in making foreign investments, due to the complex bureaucracy that has evolved over time. Numerous challenges exist in navigating a system of business rules and regulations that are designed to maintain the government’s monopoly on power.

Many basic rights that are taken for granted elsewhere, are denied by an elite that wishes to cling to power. Through the use of censors, the government has either silenced or suppressed artists, poets, writers and other leaders of the intelligentsia. Any real freedom of thought, speech or even religion, has been curtailed by the various organs of the political leadership.

The press as it exists in Vietnam today, is merely a tool for propaganda that the authorities use with abandon. Journalism is a totally corrupt enterprise within the country. The written word regardless of its form, must adhere to a strict line of thought.

Despite the vision of a nation that is rich in culture and history, the Vietnamese as a whole are not permitted to express themselves in any way not approved of by government officials. If one cannot be intimidated or silenced they are exiled.

The country is now holding the 12^th National Congress that meets every five years. What will be approved by the 1,510 members of the Communist leadership, is a new economic plan and the recommended candidates to the Central Committee. At the end of the conference there will also be a decision on who gets to be the party’s general secretary. This person is the de facto ruler of Vietnam.

The Central Committee comprises 16 of the most influential people in the country. Individuals serving here, possess a large patronage and support a type of crony socialism that permeates throughout the entire society. It has breed a system of governance that is massively corrupt.

Of the 90 million plus people who live in Vietnam, only about 4.5 million are members of the CPV (Communist Party of Vietnam). This group forms the political and economic elite. They are the ones who enjoy the privileged benefits provided by a debased and antiquated system.

There have been major internal reforms, since the country abandoned a total command economy in 1986. Faced with near starvation in areas of the countryside, the leadership at the time embarked on a new direction. It resulted in a Vietnamese brand of market socialism.

This comprise consisted of allowing free enterprise to thrive at the lowest levels of society and permitted individuals to do well further up the economic ladder, as long as they towed the regime’s line in politics. The most important industries in the country would of course, remain totally in government hands. These would include banking, mining, defense, shipbuilding and other heavy industries.

During the subsequent years, a brief period of cultural reform was allowed as well. It would prove to be short lived. By 1991, the authorities were already conducting raids and harassing noteworthy citizens. Some would be imprisoned and others sent into exile. For the those remaining, they either had to submit to government censorship or no longer produce works that were considered objectionable by officials.

Diplomatic relations were resumed with the United States in 1995. It allowed growing business interactions, but the big economic event was the admission of the country to the WTO (World Trade Organization) in 2007. Entrance to this club, brought many new foreign investments. Unfortunately, this new stream of funds would mostly dry up, during the global financial crisis that followed in 2008 and 2009.

In Vietnam as elsewhere, the sudden dearth of investment created what has since become known as the Great Recession. Oblivious to economic circumstances, the government continued to pour money into those enterprises that were owned by the state.

This lack of expertise proved to be disastrous. Inflation was soon galloping ahead at near 60% annually, which became a major liability to the leadership of the country. An overheated property market soon collapsed as well. Worse yet, a number of state owned enterprises would be forced into bankruptcy, sunk by overwhelming debt. This final outcome, gave top officials the marque of being incompetent.

Besides the Communist Party, the other ongoing feature in Vietnamese politics is the influence of China. The Chinese have purchased rights to mining and the extraction of other natural resources in various parts of the country. This flow of cash has become an important feature of the domestic economy and to the political class.

More recently relations between the two countries have deteriorated. By 2014, the Chinese were moving an oil rig into territorial waters that are claimed by Vietnam. This resulted in a diplomatic rift that was far worse than anything seen in many years. China also began to assert its previous claims over large swaths of the South China Sea, by enlarging and solidifying a number of partially submerged islands. This has continued into 2015 and 2016.

Anti-Chinese sentiment led to a number of disturbances inside Vietnam. In the spring of 2014, hundreds of factories believed to be Chinese owned were attacked and looted. A number of them were burned down and people were killed in the resulting mayhem.

Despite the feelings of antipathy towards Chinese investors, it is difficult for Vietnam to take concerted action against their monolithic neighbor to the north. There are many inside the country that suspect that there is a private collusion between their government and China.

On a positive side, the Vietnamese government is likely to accede to having the country become a full fledged member of the Trans-Pacific Partnership (TPP). It will provide an outlet for many products Vietnam wishes to sell abroad.

In addition, Vietnam can more easily have the present non-market designation that has been applied to their country by both the European Union and the United States changed. This will facilitate even greater access to these two enormous markets. By 2030, the benefits of more open trade can boost the country’s exports by 30% and grow the economy by an additional 10%.

As part of the TPP agreement there are a number of provisions concerning labor rights, but it is doubtful it will be enforced in the case of Vietnam. There is a larger geopolitical issue at stake. Given the growing strength of China, the country is becoming seen by many as a counterweight. This is especially the case with the United States.

The communist leadership in Vietnam is presently divided into two factions. One wants to continue closer relations with China. The other wishes to allow growing ties with the United States to expand. The struggle has resulted in a personal contest, between two powerful leaders vying for the top post.

The one who occupies that position and would like to keep it awhile longer, is General Secretary Nguyen Phu Trong. He has strong support among those individuals who wish to maintain the special kinship that exists with China. Prime Minister Nguyen Van Dung who would like to succeed him, has been drawing progressively closer to the United States and Europe. In his mind, the growing entente with the West, can be used to resist the growing political and economic pressure on Vietnam by China.

Vietnam does have some distinct advantages for investors. Demographics are one of these. Near 60% of the population is under 35. This provides two working age individuals for each person in retirement. It is an ideal situation for a country that needs to modernize and grow. The people of the country have also maintained an entrepreneurial spirit, despite the historical setbacks that have occurred over the past few decades.

Unfortunately, this will change in the years ahead. By 2035, the number of citizens over the age of 65 will double. A forward looking government needs to start planning for this eventuality. There will need to be additional modifications to the present two child policy. Retirement ages will have to be raised as well. The present ages of 60 for men and 55 for women, is not sustainable over the long term. A society does not want to grow old before it grows rich.

It would be to the benefit of the country as a whole, if the officially sanctioned discrimination against families that sided with the United States during the war, was finally unwound. This change would finally permit a large segment of the population, to contribute far more to the country as they become normalized. It would also help bring to a close, the direct economic impact of the Vietnam War.

Another advantage is the rapid growth the country has been experiencing. Even in the face of a slowing global economy,Vietnam is still expanding at a rate of 6.61%. The last 5 years has seen an average growth rate of 5.7%. GDP (Gross Domestic Product) is near $200 billion USD (United States dollar). The country is still seeing an expansion in exports, whereas the rest of the region is moving in the opposite direction.

However, the country still faces daunting challenges. For now the country remains totally reliant on cheap labor which allows for cheap exports. Many international companies have relocated here from China for this very reason, over the past decade. Vietnam will now need to begin to produce more value added goods, which will permit the country to create more wealth.

The tax system is still far too complicated and is rated among the most inefficient in the world. It makes doing business in the country more complex than in other countries in the region. As stated previously, corruption is rampant. It has over time, eroded any popular support or trust in the government. Better governance although improving in some sectors, is still sputtering.

It is not to say the country has not made progress. There has been an attempt to contour rules for foreign investment, so they are easier to understand and comply with. The government has sold off more of state owned enterprises, since the financial meltdown some 8 years ago. At the same time many more of these could be put up for sale, which would benefit the productivity of the country at large.

One can also clearly see, the efforts Vietnam has made in opening up more of the country to foreign investment. The government is making far larger contributions in developing the infrastructure of the country. The flow of funds from abroad will need for this to proceed apace. More efficient communications and modes of transportation are necessary, for the economic boom to continue.

The immediate question for the government of Vietnam now is, how much control over the economy are they willing to cede to allow growth to continue at the present rapid pace? The country is forecast to post the fastest expansion, among the six major Southeast Asian nations. The longer term problem of the need for political freedom as well, will be postponed for a later date.