Welcome to Country File, which provides an overview of Vietnam, including key events and facts about this beautiful S-shape country.


Overview: Viet Nam embarked on the Doi Moi (reform) policy in 1986. Since then, the country has seen dramatic changes, first and foremost in the economic thinking. The centrally-planned economy was replaced by the socialist-oriented market economy; national industrialization and modernization were initiated together with the policy of multilateralization and diversification of external economic relations, openness and international integration. The Doi Moi process helped Vietnam rapidly escape hunger and poverty and lay the initial foundation for an industrialized economy, as well as maintaining a high growth rate and a relatively equal society.

The 1987 Foreign Investment Law was the first legal document that helped form the legal framework for the Vietnamese market economy. In 1991, the Private Enterprise Law and Corporate Law were introduced. The amended 1992 Constitution affirmed the existence and development of a multi-sector economy under a market mechanism, including the foreign-invested sector. This was followed by the promulgation of a number of laws essential for the formation of the market economy, including Land Law, Tax Law, Bankruptcy Law, Environment Law, and Labour Code etc. Hundreds of ordinances and decrees were enacted by the Government to guide the implementation of these laws, which help ensure national socio-economic development.

Along with the law-making process, market economy institutions have also been established. It is Government policy to eliminate the central planning mechanism, emphasize monetary - market relations, focus on economic management measures and establish an array of financial institutions, banks and basic markets for money, labour, goods and land, etc. The administrative reform was promoted so as to improve economic competitiveness  and to help create a more favourable business environment and mobilize all resources for economic growth. The political will of the Vietnamese Government is also reflected in the strategy for administrative reform in 2001-2010, which emphasizes the simplification of administrative procedures, amendment of laws and improvement of economic management. These changes will help establish a dynamic institution to meet the development requirements of the country in the new context.

Overall, tremendous economic reforms taking place over nearly two decades of Doi Moi have yielded encouraging results. Vietnam has created an ever more competitive and dynamic economic environment. The multi-sector economy has been encouraged to develop, thus mobilizing effectively all social resources for economic growth. External economic relations have been expanded and the flow of foreign direct investment increased. Export of goods and labour, tourism industry and remittances from overseas Vietnamese  have been strongly promoted to generate increasing foreign earnings for Vietnam.

During  20 years of Doi Moi, GDP of Vietnam saw a sustained growth, which stood at 8.2% in 1991-1995 as compared to 3.9% in 1986-1990. This rate dropped to 7.5% in 1996-2000 due to the impacts of the Asian financial crisis. Since 2001, GDP growth recovered on a year-on-year basis, reaching 6.9%, 7%, 7.3% and 7.7% for 2001, 2002, 2003 and 2004 respectively. The figure for 2005 was 8.4%. Vietnam has now succeeded in gradually replacing the centrally-planned economy, bureaucracy and a subsidy mechanism by a socialist-oriented market economy with growing dynamism. The GDP growth rate of 7 to 8% has been sustained, along with stronger industrialization and expanded integration with the world and regional economy. Vietnam has enjoyed a sharp rise in trade volume, especially exports, and an increase of foreign investment and income.

The proportion of the industry and construction rose from 38.13% in 2001 to 41.03% in 2005; the service from 36.63% up to 38.08%; and only the agriculture, forestry and fishery from 23.24% to respectively.

As Vietnam’s GDP continuously increases, the economic structure has also witnessed notable changes. From 1990 to 2005, the contribution of agriculture sector dropped from 38.7% to 20.89% ,  whilst that of the industry and construction was up from 22.7% to 41.03% . The service sector stayed relatively constant, 38.6% in 1990 and 38.08% in 2005. In each sector, the structure has also positively shifted. The agriculture sector has seen a decline in the role of agriculture and forestry from 84.4% to 77.7% during the period 1990-2003, while fishery gained a higher share. In the industrial sector, the proportion of the processing industry was up from 12.3% in 1990 to 20.8% in 2003 with improved product quality. In the service sector, the share of high-quality services such as finance, banking, insurance and tourism, etc. is increasing rapidly.

The economy is well on the road to a multi-sector model operating according to market mechanism and state regulations. This means that the private sector enjoys freedom to develop in all areas not specifically forbidden by law. The legal framework has been revised to facilitate gradual shift from the former centrally-planned economy to a market one, which unleashes production capacity, mobilizing resources effectively and creating a momentum for economic growth and development.

Upon the amendment of the Enterprise Law in 2000, private businesses have enjoyed strong encouragement for development. This Law institutionalized the freedom of all individuals to do business in areas not prohibited by law. It also removed administrative obstacles that hampered enterprises such as complex licensing procedures or fees, etc. In the 2000-2004 period, 73,000 private enterprises were registered, up by 3.75 times against the period 1991-1999. By 2004, the total number of private enterprises operating under the Enterprise Law amounted to 150,000 with the total capital of VND 182 billion. From 1991 to 2003, the private sector’s share in GDP was up from 3.1% to 4.1%; other non-state sectors increased from 4.4% to 4.5%; and foreign-invested sector from 6.4% to 14%; and the household sector was down from 35.9% to 31.2%.

With a view to raising the productivity of the state-owned sector, policies were formulated with concrete measures to adjust and reorganize SOEs. The management of SOEs' finance and state equity in SOEs was strengthened and the process of SOEs’ equitization well monitored. As the multi-sector economy has further developed, the proportion of SOEs in GDP decreased from 40.1% in 1991 to 38.3% in 2003. The collective sector dropped from 10.2% to 7.9% during the same period. In 2002 and 2003, 1,655 SOEs were listed for reorganization and reform. The figure for 2004 and 2005 were 882 and 413 respectively.

Vietnam has succeeded in translating economic achievements into social progress. Benefits of the Doi Moi process, for instance, are delivered to the majority of the population on a relatively equal basis. Economic growth is combined with the improvement of life quality and development of health care and education. The Human Development Index of Vietnam increased from 0.583 in 1994 with a rank of 120/174 to 108/177 in 2005. The average life expectancy was raised from around 50 in the 1960s to 70.5 at present. The poor household ratio dropped from 70% in 1980 to below 7% in 2005s.

Foreign trade and international economic integration: The policy of openness and industrialization has opened up new opportunities for Vietnam to make full use of its inherent comparative advantages, i.e. vast natural resources, and an abundant and inexpensive workforce. These advantages are  being exploited to raise Vietnam’s exports, which generate an increasing flow of foreign income for economic growth and industrialization. Over the years of the Doi Moi process, Vietnam's export growth has averaged 20%. From around US$ half a million before the introduction of the Doi Moi policy, the total export volume of Vietnam reached US$ 26 billion in 2004 and US$32.23 billion in 2005. This foreign earning is a significant resource for the national industrialization and modernization.

The structure of exports has also seen a positive change. During the 1991-1995 period, major exports of Vietnam were crude oil, fishery products, rice, textiles, coffee, forestry products, rubber, peanut and cashew nuts. By 2005, apart from crude oil, textiles, rice and coffee, Vietnam was mainly exporting namely crude oil, garment and textile, footwear, seafood, woodwork, electronics appliances, and rice. This structure reflects the rise in processing and manufactured products and decline in unprocessed products, including agricultural, fishery, forestry products and minerals. Despite this shift, unprocessed export products still make up a large proportion. Therefore, greater efforts are needed to rapidly raise the proportion of industrial exports.

The policy of "multilateralization and diversification" of international relations has helped Vietnam integrate more deeply into the world and regional economy. Before 1990, Vietnam had trade relations with only 40 partners. Now with the foreign policy of openness, which is to befriend and cooperate with all countries in the world on the basis of equality and mutual benefit, Vietnam has established diplomatic relations with 167 countries, and has signed multilateral and bilateral trade agreements with over 80 nations. The country has been granted MFN status by more than 70 countries and territories, including countries and regions with large capital resources, high technologies and vast markets, such as the United States, Japan, the EU and newly industrialized countries in East Asia.

Following the introduction of Doi Moi, Vietnam signed an economic and trade cooperation agreement with the EU in 1992, joined ASEAN in 1995, AFTA in 1996 and APEC in 1998. Vietnam also signed the Bilateral Trade Agreement with the United States in 2000. Vietnam started negotiations for WTO accession in 1995 and is expected to become a member of this organization by the end of 2006[1].  

Foreign Direct Investment: In December 1987, the Foreign Direct Investment Law of Vietnam was introduced to help form the basic legal framework for foreign investment activities in Vietnam. To better respond to business requirements and feedback from foreign investors, this Law was amended and supplemented several times, notably in 1996 and 2002, which created a more open and attractive environment to draw foreign investors into crucial industries such as export-oriented processing and manufacturing, and key economic zones of the country.

In recent years and especially in 2005, the Vietnamese Government made a number of adjustments and conducted reforms to create more incentives for foreign investors. They are now supported in tackling business obstacles. The Law on Personal Income Tax has been amended in favour of the tax payers. The one-stop-shop policy has been promoted, telecommunication tariffs lowered to gain competitiveness over other countries in the region. Infrastructure has been improved. More areas, including those previously closed to foreign investors, such as telecommunication, insurance and supermarkets, etc. are now open to investment. As such, Vietnam has become an attractive venue for foreign investment.

The aforesaid measures were conducive to recovery and rapid increase of the FDI inflows in 2005. The sharp rise of FDI is also attributed to political, economic and security stability, high economic growth rate, continuation of economic reform in accordance with market economy principles, improved living standards leading to higher domestic demand, greater international integration and the emergence in the international market of Vietnamese trademarks and Vietnam’s growing reputation.

Over the past years, Vietnam has drawn increasing inflows of FDI. From a negligible figure of 1986, FDI into Vietnam reached US$ 3.2 billion in 1997. Due to the negative impacts of the 1997 Asian financial crisis, the FDI flow then saw a drop during 1998-2000 period, with only US$ 1.58 billion in 1999. In the past few years, Vietnam has enjoyed a recovery of FDI, from US$ 2.6 billion in 2001 to US$ 4.1 billion in 2004. FDI not only generates profits for foreign investors but also represents a significant capital source which comes along with technology transfer and advanced managerial skills. FDI helps better tap national potential, creates tens of thousands of jobs and raises professional skills for Vietnamese workers.