As per IMFs (International Monetary Fund) 2020 year-end reports, Vietnam’s per capita income has grown by $3,500 leaving behind the Philippines which has been stagnant at $3,380.This victory can be attributed to Vietnam adopting Doi Moi policies in 1986, which primarily focussed on making Vietnam a market-led, socialist economy. Despite facing the extreme damages caused by Vietnam War for 21 years which concluded in 1975, this didn’t deter Hanoi from becoming one of the most progressive economies in Southeast Asia, even overtaking the Philippines in per capita income and FDIs (Foreign Direct Investments). If we consider both the countries for the past 33 years in terms of average economic growth rate, Vietnam has risen to 6.5 percent whereas the Philippines have grown only to 4.6 percent.
Why did Vietnam’s Economy grow?
Failure to revolutionize its Industries can be one of the major reasons for the declining economy of the Philippines. Vietnam started to modernize its Industries and Agricultural sector by enticing foreign capital, enhancing manufacturing units for upgraded exports, and thereby generating more revenue. Vietnam concentrated on building infrastructure, transport, and telecommunication, and energy that helped in laying the foundation for today’s growth. Vietnam has taken a keen interest in upgrading the skills and training of the workforce by allocating special funds and investment for infrastructure, increasing practical education, R&D, enhancing trade integration, and creating better policies in institutions’ revival. Vietnam has the right balance of skilled and unskilled labor, where unskilled labor is available at a cheaper rate to attract foreign businesses. Google Engineer Neil Fraser has said that Vietnam has the world’s best science students and has a huge potential for skilled talent.
Vietnam has created the right environment for foreign investors by providing a competitive tax system, less bureaucratic intervention & reduced corruption by having stable government policies, and creation of upstream and downstream supply chains for organization & transparency in the network. Initially, Vietnam was weak in infrastructure but has advanced its infrastructure by laying out 8 percent of GDP.
Vietnam has been the favored location by various multi-national corporates because of its pleasing climate, cheap production price, and its competent manufacturing from the past three decades. The export rate of Vietnam grew by an average of 16 percent while that of the Philippines has remained by half that rate for decades. Vietnam was successful in grabbing FDIs (Foreign Direct Investment) worth $112 billion from 2010 to 2019, while the Philippines were able to draw only $57 billion. As per 2019 reports, Vietnam’s merchandise exports stood at $300 million while the Philippines were only at $70 million.
Philippines’ failure in the economy can be due to overreliance on its population for growth. The Philippines completely depended on the revenue generated by the Filipinos working abroad. Instead of exporting its talent, it should have focussed on creating industries for foreign investors and reviving its energy sector. Even neglecting the industrial and agriculture sector was one of the biggest mistakes committed.
Vietnam Magic
While the whole world was battling the COVID-19 pandemic, Vietnam was successful in reporting only a few casualties and having less fatality rate. Most of the major Asian countries experienced economic hitches, except China. The annual contraction in Asia and the Pacific region accounted for only 3.5 to 4.8 percent. This could be due to food insufficiency, Unemployment, Sickness, and closure of schools that contributed to the destruction of human capital and losses.
But the only miracle spot in Asia was Vietnam that was able to balance the healthcare and economy of the country with the arrival of the pandemic. As per World Bank 2020 reports, Vietnam’s economy grew by 2.8 percent while its Asian counterparts were struggling to redeem themselves from the ongoing crisis. Vietnam was not only able to keep the virus at bay, but drive more export revenue as more organizations started relocating from China because of its negative brand presence. The current economic growth of Vietnam is set to even surpass China’s export revenue rate.
Final Takeaways
As per World Economic Forum, Vietnam’s economic growth can be credited to three main factors. Firstly, having a broad-minded vision to embrace trade liberalization. Secondly, restructuring domestic rules and policies to make it conducive for businesses to thrive. Finally, depending mainly on public investments for investing in human and physical capital. The Stimulus package of Vietnam stood at 10.12 percent of GDP, whereas the Philippines accounted for only 5.83 percent of GDP. This indicates that Vietnam will surpass the Philippines economy easily in 2021 and 2022.
