The Economic Impact of doi moi: II

One of the best measures of the underdevelopment of Vietnam is the role of agriculture versus industry and the urban-rural ratio:

Approximately 80% of the population lives in rural areas and 20% in cities; 73% of employment is in agriculture; industry, construction, and services account for about 20% of employment; agriculture generates only about 28% of GDP; industry, construction, and services generate about 70% of GDP.

Development for Vietnam means in part increasing the productivity of agriculture, but mostly it means shifting population from country to city and employment from agriculture to industry and services

Another important measure of the impact of doi moi comes from foreign direct investment (FDI) which is an indication of how much foreign business are willing to invest in Vietnam

By 1996, foreign businesses had pledged nearly $20 billion in FDI to Vietnam

The actual inflow of FDI in 1995 was between $1 billion and $1.5 billion (different measuring systems produce different amounts)

This amount pledged was more than officials expected and is certainly more than the political end economic system can absorb

The largest foreign investors in Vietnam are other Asian states: Taiwan, Hong Kong, and South Korea

Vietnam has received significant financial aid from international agencies and from other governments. The three largest donors of aid, almost all for infrastructure development, are the World Bank, the Asian Development Bank, and Japan

The State Committee for Cooperation and Investment (SCCI) is in charge of overseeing and approving all FDI

What this really means is SCCI is in charge of maneuvering through the bureaucracy (national and local) to facilitate the actual process

Perhaps the greatest barrier to foreign investment is the many infrastructure weaknesses:

very poor roads
poor communication systems
inconsistent but generally expensive accommodations for Westerners
very slow moving bureaucracy
substantial corruption by officials
difficulties in having decisions by the central government honored by local government
continuing opposition to reform by party conservatives

These difficulties tend to deter those who have a short term profit perspective and/or who have little experience doing business in Asia

What are the attractions to foreign investors in Vietnam?

1) Knowledge that several other Asian states started about 30 years ago where Vietnam is today and are now economic powerhouses: Taiwan, Korea, Malaysia, Thailand, China; very rapid change in Asia is quite possible

2) Vietnam's population of 75 million makes it the 12th largest in the world

3) Hard-working and entrepreneurial

4) 88% literate with nearly equal rates for males and females

5) High potential as a production platform based on very low wages and high productivity