Pho-sure
November 28th, 2005, 01:30 AM
Changing gear
Nov 24th 2005 | HANOI
From The Economist print edition
Decent reforms are enriching the Vietnamese; the future looks fine
Reuters
http://economist.com/images/20051126/4805AS1.jpg
UNTIL recently, economists used to marvel at the speed with which the Vietnamese were trading in their bicycles for motorcycles. But that trend now seems out-of-date. Observers are now mesmerised by Vietnam's equally rapid embrace of the motor car. In the year to August, the local car industry's output grew by 43%. Private cars, their horns blaring in the hope of parting the sea of motorcycles, are suddenly a common sight on the streets of Hanoi and Ho Chi Minh City.
Like Vietnam's new car owners, the country's economy is accelerating, even as the rest of South-East Asia slows. In the first three-quarters of the year, it grew at an annual rate of 8.1%—faster than its five-year average of 7.2%. Better yet, Vietnam's poverty rate is falling almost as fast as its economy grows. The proportion of the population that the government deems poor fell from 58% in 1993 to 20% last year. If the reduction continues at the current rate, says Martin Rama, the World Bank's chief economist in Vietnam, abject poverty will soon be limited to ethnic minorities in remote areas.
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This rapid growth, explains Jonathan Pincus of the United Nations Development Programme, derives chiefly from the steady shift of millions of inefficient subsistence farmers into marginally more productive pursuits. Many have begun growing coffee or farming prawns, while others now work in textile plants or shoe factories. Tens of thousands of family firms have also sprung up since 2001, when the government eased restrictions on small businesses. Since some 74% of Vietnam's 84m inhabitants still live in the countryside, and most of those remain rice farmers, there is plenty more scope for growth.
This virtuous cycle seems unstoppable. Successive outbreaks of SARS, a respiratory disease, and avian influenza, which has killed lots of birds and a handful of people, barely registered. The high oil price has had little effect, since Vietnam is a big oil exporter. The economy even seems to have benefited from jitters about terrorism, since the same repressive regime that props up the country's Communist leaders also instils investors and tourists with a sense of security.
There are problems, of course. The authorities have recently conceded that Vietnam will not join the World Trade Organisation this year, as they had hoped. Indeed, Vietnam is in the midst of trade disputes with both the United States and the European Union. It stands accused of exporting everything from catfish to bicycles at predatory prices. But Vietnamese exporters seem remarkably adaptable. Shrimp and textiles that are being taxed by America have been diverted to Europe instead. Farmers who suffered when the international coffee price fell (thanks largely to a huge leap in Vietnam's output) are shifting to cocoa and pepper. Exports continue to grow at a steady clip of 20% or so a year. Seen in that light, Vietnam's many trade disputes are not so much a concern as a heartening indication of how competitive the country's exports are.
Observers also worry about Vietnam's banks. The biggest are state-owned, and operated murkily. Loans grew by 42% last year, largely given to other state-owned firms and local authorities. Earlier this year the central bank adopted stricter rules on loan classification, but the results are not yet clear. Foreign banks operate under severe restrictions—one of the main bones of contention in Vietnam's bid for WTO membership. Stock and bond markets are also in their infancy, although the government did issue its first international bond earlier this month.
All this makes it difficult for small businesses to raise money. Most family firms rely on personal savings or remittances from relatives abroad, amounting to $3.2 billion last year. Economists complain that Vietnam has plenty of tiny mom-and-pop outfits and big state-owned or foreign-invested firms, but nothing in between.
http://economist.com/images/20051126/cas874.gif
That does not seem to bother the government, which is keen to retain control of the commanding heights of the economy. It is planning big investments in petrochemicals and other heavy industries. The proceeds from the bond issue will be put towards assorted business ventures. But though the government continues to “equitise” (meaning privatise) state-owned firms, the pace is agonisingly slow. It recently announced that it would start selling shares in one of its four banks—but not a controlling stake, and only in small instalments spread out over five years.
The ultimate goal seems to be a web of partially privatised companies, subject to a certain degree of competition and market discipline, akin to Singapore's government-linked companies. Temasek, one of the Singaporean government's holding firms, has established an office in Ho Chi Minh City and has invested in one of Vietnam's two state-owned airlines.
The obvious drawback of this strategy is that Vietnam is a much more corrupt and inefficient place than Singapore. Singaporean officials argue that their country's tiny size and limited workforce necessitate a state-led industrial policy. But the same could not possibly be said of Vietnam. It would be better, perhaps, to leave the entrepreneurs of Hanoi and Ho Chi Minh City to drive the economy, as well as their shiny new cars.
Nov 24th 2005 | HANOI
From The Economist print edition
Decent reforms are enriching the Vietnamese; the future looks fine
Reuters
http://economist.com/images/20051126/4805AS1.jpg
UNTIL recently, economists used to marvel at the speed with which the Vietnamese were trading in their bicycles for motorcycles. But that trend now seems out-of-date. Observers are now mesmerised by Vietnam's equally rapid embrace of the motor car. In the year to August, the local car industry's output grew by 43%. Private cars, their horns blaring in the hope of parting the sea of motorcycles, are suddenly a common sight on the streets of Hanoi and Ho Chi Minh City.
Like Vietnam's new car owners, the country's economy is accelerating, even as the rest of South-East Asia slows. In the first three-quarters of the year, it grew at an annual rate of 8.1%—faster than its five-year average of 7.2%. Better yet, Vietnam's poverty rate is falling almost as fast as its economy grows. The proportion of the population that the government deems poor fell from 58% in 1993 to 20% last year. If the reduction continues at the current rate, says Martin Rama, the World Bank's chief economist in Vietnam, abject poverty will soon be limited to ethnic minorities in remote areas.
Advertisement
This rapid growth, explains Jonathan Pincus of the United Nations Development Programme, derives chiefly from the steady shift of millions of inefficient subsistence farmers into marginally more productive pursuits. Many have begun growing coffee or farming prawns, while others now work in textile plants or shoe factories. Tens of thousands of family firms have also sprung up since 2001, when the government eased restrictions on small businesses. Since some 74% of Vietnam's 84m inhabitants still live in the countryside, and most of those remain rice farmers, there is plenty more scope for growth.
This virtuous cycle seems unstoppable. Successive outbreaks of SARS, a respiratory disease, and avian influenza, which has killed lots of birds and a handful of people, barely registered. The high oil price has had little effect, since Vietnam is a big oil exporter. The economy even seems to have benefited from jitters about terrorism, since the same repressive regime that props up the country's Communist leaders also instils investors and tourists with a sense of security.
There are problems, of course. The authorities have recently conceded that Vietnam will not join the World Trade Organisation this year, as they had hoped. Indeed, Vietnam is in the midst of trade disputes with both the United States and the European Union. It stands accused of exporting everything from catfish to bicycles at predatory prices. But Vietnamese exporters seem remarkably adaptable. Shrimp and textiles that are being taxed by America have been diverted to Europe instead. Farmers who suffered when the international coffee price fell (thanks largely to a huge leap in Vietnam's output) are shifting to cocoa and pepper. Exports continue to grow at a steady clip of 20% or so a year. Seen in that light, Vietnam's many trade disputes are not so much a concern as a heartening indication of how competitive the country's exports are.
Observers also worry about Vietnam's banks. The biggest are state-owned, and operated murkily. Loans grew by 42% last year, largely given to other state-owned firms and local authorities. Earlier this year the central bank adopted stricter rules on loan classification, but the results are not yet clear. Foreign banks operate under severe restrictions—one of the main bones of contention in Vietnam's bid for WTO membership. Stock and bond markets are also in their infancy, although the government did issue its first international bond earlier this month.
All this makes it difficult for small businesses to raise money. Most family firms rely on personal savings or remittances from relatives abroad, amounting to $3.2 billion last year. Economists complain that Vietnam has plenty of tiny mom-and-pop outfits and big state-owned or foreign-invested firms, but nothing in between.
http://economist.com/images/20051126/cas874.gif
That does not seem to bother the government, which is keen to retain control of the commanding heights of the economy. It is planning big investments in petrochemicals and other heavy industries. The proceeds from the bond issue will be put towards assorted business ventures. But though the government continues to “equitise” (meaning privatise) state-owned firms, the pace is agonisingly slow. It recently announced that it would start selling shares in one of its four banks—but not a controlling stake, and only in small instalments spread out over five years.
The ultimate goal seems to be a web of partially privatised companies, subject to a certain degree of competition and market discipline, akin to Singapore's government-linked companies. Temasek, one of the Singaporean government's holding firms, has established an office in Ho Chi Minh City and has invested in one of Vietnam's two state-owned airlines.
The obvious drawback of this strategy is that Vietnam is a much more corrupt and inefficient place than Singapore. Singaporean officials argue that their country's tiny size and limited workforce necessitate a state-led industrial policy. But the same could not possibly be said of Vietnam. It would be better, perhaps, to leave the entrepreneurs of Hanoi and Ho Chi Minh City to drive the economy, as well as their shiny new cars.