Vietnam Environmental Technologies Export Market Plan

Chapter 1
Economic Overview
From the late 1980s until 1997 Vietnam enjoyed some of
the highest growth rates in Asia after the government
launched its doi moi, or renovation, program in 1986.
Faced with a decline in Soviet aid and food shortages
caused by failing agricultural cooperatives, Vietnam’s
leaders were forced to open the country’s economy to
foreign investors and trade.
Vietnam dismantled its collective farms, giving
families the right to use land in the countryside, where
80 percent of Vietnam’s population lives. Farmers were
allowed to choose which crops to grow and to sell them
at market prices to whomever they chose.
The results of these changes were dramatic. Vietnam’s
GDP growth averaged more than 8 percent from 1991 to
1997, making it the second fastest growing country in
Asia, after China. Vietnam went from being an importer
of rice to the world’s third largest rice exporter. Poverty,
as measured by the World Bank, dropped from 70 percent
to 30 percent.
At its peak in 1996, Vietnam licensed foreign
investment projects valued at more than $8 billion.
Foreign companies, mostly from Asia, rushed into a
market of 77 million people, eager to profit from what
would surely become the next “Asian Tiger.”
In recent years, that optimism has faded. The slowing
pace of reforms and lingering effects of the Asian
economic crisis have taken their toll. After reaching $8
billion in investment pledges in 1996, that number
plunged to $4.5 billion in 1997. In 1998, the amount
dropped further, to $1.8 billion. In 1999, Vietnam
approved 274 new foreign investment projects worth
$1.48 billion. Donors estimate that actual inflows will
total $600 million in 1999, the lowest since 1992 (Table
1.1).
Recognizing the trend, the government has taken
incremental steps toward improving the investment
climate. It has made it easier for foreign companies to
establish 100 percent foreign-owned enterprises instead
of arranging forced marriages to local joint-venture
partners. Foreign companies can now set employee
salaries in Vietnamese dong. Previously, salaries were set
in dollars, making Vietnam a less competitive labor
market, especially after devaluations in Indonesia and
Thailand.
Table 1.1 Foreign Direct Investment in Vietnam,
1987–1999 (billions of dollars)
Total
Commitments Disbursements
1987–1995 36.2 11.2
1995 6.6 1.8
1996 8.5 2.3
1997 4.5 2.4
1998 1.8 1.0
1999 1.0 0.6
Note: Figures do not include additional capital committed to
existing projects.
Source: World Bank, Ministry of Planning and Investment,
January 2000.
These steps have not been enough, however, and the
economy has slowed over the past three years. For 1999,
GDP growth was between 4 and 5 percent depending on
the source. Generally, the World Bank’s forecast is a bit
lower than the Vietnamese government’s. The industrial
sector grew about 10.5 percent in 1999, despite falling
demand. As has been the trend over the past five years,
foreign-invested companies are growing fastest,
recording a 19.4 percent growth rate, with state
enterprises growing an estimated 4.9 percent, and local
private businesses 8.5 percent.
Inflation dropped precipitously in 1999, with Hanoi
recording an inflation rate for the year at 0.1 percent yearon-year
(Table 1.2). The figure for year-on-year inflation
in 1998 was 9.2 percent. Falling rice prices, which
account for 60 percent of Vietnam’s consumer price
Table 1.2 Year-on-Year Inflation in Vietnam,
1994–1999 (Percent)
1994 1995 1996 1997 1998 1999
14.4 12.7 4.5 3.8 9.2 0.1
Source: World Bank, General Statistics Office, January 2000.
Vietnam Export Market Plan
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