Testing Times
Despite sound economic development policies being adopted at Party Congress X,
former US diplomat Mr. Chris Runckel believes a demanding period awaits Vietnam
Hanoi is now heading into summer and is even more colorful than normal as flags, banners and propaganda posters line the streets. This year witnesses Vietnam completing and reviewing 20 years of "doi moi" (renovation) in time with Party Congress X.
Decisions announced on the country's top leadership and on the plan for the country s development for the next five years. Although these issues are obviously primarily for Vietnam as a sovereign country to decide upon and although the Party Congress will attempt to address a large number of issues for Vietnam's continued development, I thought it might be useful to note the views of a friend to Vietnam and one with considerable experience in the country on what issues both political and economic need to be addressed if Vietnam is to maintain its development pace.
NATIONAL PRIDE
Vietnam has much to be proud of. Its economic growth rate has increased in each of the last three years and was nearly 8.5 percent in 2005; the second highest in Asia and should again be second only to China in 2006. In the first ten months of 2005, exports grew by 22 percent. Inflation has decreased from 10.3 percent year-on-year in October 2004 to around 7.3 per cent year-on-year in August 2005. Millions of Vietnamese have escaped from poverty. Poverty levels were 57 per cent in 1992 but by 2004 had fallen to just 20 percent with only a moderate increase in economic inequality, according to a recent report "Vietnam: Economic Update 2006 to 2010 and Prospects to 2010" by Dr. Adam McCarty
Vietnam's legal infrastructure has vastly improved. The seventh session of the National Assembly held in mid-2005 passed 15 laws important for World Trade Organization (WTO) accession. The October-November session discussed and adopted 14 more laws including a new Law on Intellectual Property, the Enterprise Law, the Investment Law plus the amended the Law on Special Consumption Tax and the Law on Value Added Tax (VAT).
TASKS AHEAD FOR NEW PARTY LEADERSHIP
One of die decisions of the Party Congress was to permit Communist Parry members to own private businesses. Although some observers were surprised with this, I believe it is healthy and is a reflection of Vietnam's continued doi moi.
The private sector in Vietnam now contributes some 60 per cent of Vietnam's gross domestic product, based upon many studies. According to recent local news reports, some 38,000 private enterprises were established in 2005, raising the total number by the end of the year to 200,000, according to the Ministry of Planning and Investment (.MPI).
So what are the concerns going forward? First and foremost in the international sector is that the negotiation process for WTO accession, particularly with the US, needs to be accelerated.
Considering the amount of change required in Vietnam's legal and other fields, the failure to reach an agreement with the US in 2005 was not unexpected.
The danger this has created, however, is that US politics are already changing. The US has just named a new Trade Representative and trade is becoming an increasingly contentious issue in the US. Mid-term elections are approaching and tins means that the political environment for a WTO accession agreement with the US is becoming increasingly complex. Differences between the two sides remain primarily over services, telecommunications and rules on banks, insurance and other key sectors, and these need to be bridged soon in an agreement that will ultimately be good for both sides.
A second issue internationally is further economic integration into the region. This year and next many of Vietnam s customs duties for certain items will have to be reduced to meet the requirements of entry into the Asia Free Trade Area (AFTA) and other agreements. These changes will affect the domestic economy and will require prices to fall for many products and result in increased competition for many Vietnamese businesses.
Going forward it is quite possible that many Vietnamese factories producing automobiles or other items like televisions or electronics will find it increasingly difficult to compete with their regional competitors in Thailand, Malaysia, etc. because of scale of production, and further consolidations through mergers or other means may necessarily result.
The Government should refrain from any policies to slow the inevitable process of adjustment by either further loans to state owned businesses or other policies. These economic adjustments are to be expected and ultimately will work co the benefit of consumers by lowering costs.
Enforcement of Intellectual Property, not just the passage of laws, also remains an issue that needs continued attention.
According to a 2004 report by the Bangkok Software Association released in 2005, Vietnam and China had the highest rate of software piracy in the region. Vietnam's race, according to the study, is 92 percent while Chinas is 90 percent and India and Thailand are in the 70 percent range and falling.
Figures like this are causing US and other software creators plus other knowledge-based industries that rely on intellectual property to look elsewhere.
Vietnam has many fine computer professionals and should be a regional star in computer software development, leading to better paid jobs and more opportunities for Vietnamese youth, but continued lack of Stronger intellectual property enforcement will greatly hinder tills growth.
In the last twenty years and even more so today, Vietnam is clearly undergoing a process of dramatic change. The true question here though is: Is this change sustainable and at what cost?
The Government really needs to strongly focus on the environment, transportation and education. Hanoi and Ho Chi Minh City as well as Hue and Da Nang in central Vietnam are all beautiful cities but they are increasingly becoming polluted, congested and unhealthy places to live as automobile and motorbike pollution, industrial emissions and poor sanitation take their roll on city residents.
2006 will see the opening of new bridges and roads in both Hanoi and Ho Chi Minh City and many other places throughout the country, but the truth is that despite the increase in building much more needs to be done.
City Streets are increasingly congested and a summer rainstorm or a major meeting or other event can bring the straining infrastructure to gridlock and lead to long traffic delays and unhealthy commutes.
Even above the need for continued investment in transportation, however, is the need for greater investment in education. U.S. and other international businessmen and women tell me the quality of work that they get from their Vietnamese Staff is undoubtedly better than what they are able to achieve in China and elsewhere in the region.
Vietnam is known for its literacy rare and for the value that Vietnamese place on education. With this said, many note that finding mid-level business professionals is becoming increasingly problematic.
Further, recent Government decisions to in effect require most Vietnamese universities to fend for themselves and find their own wav to increase financing does not bode well for Vietnam. Education is critical to producing well-qualified citizens and is essential to the country's business competitiveness. More investment in education in Vietnam is desperately needed and the Government needs to spend increased attention to this important issue.
I have seen more than 35 years of development in Vietnam. Many of those years were difficult and as in all things human, mistakes have been made along the way, as is the case in any nation.
Despite this, I remain extremely optimistic about Vietnam and its future. I have tremendous respect for Vietnam and the work ethic of its people, for the beauty of its culture, and for the adaptability and resilience of its people.
The coming years will be challenging for Vietnam but it will inevitably continue to remove more people from poverty and to economically prosper. I welcome the new Party's leadership and wish them success in the coming years. Tasks will test the new top leaders.
About the Author:
Christopher W. Runckel, a former senior US diplomat who served in many counties in Asia, is a graduate of the University of Oregon and Lewis and Clark Law School. He served as Deputy General Counsel of President Gerald Ford’s Presidential Clemency Board. Mr. Runckel is the principal and founder of Runckel & Associates, a Portland, Oregon based consulting company that assists businesses expand business opportunities in Asia. (www.business-in-asia.com)
Until April of 1999, Mr. Runckel was Minister-Counselor of the US Embassy in Beijing, China. Mr. Runckel lived and worked in Thailand for over six years. He was the first permanently assigned U.S. diplomat to return to Vietnam after the Vietnam War. In 1997, he was awarded the U.S. Department of States highest award for service, the Distinguished Honor Award, for his contribution to improving U.S.-Vietnam relations. Mr. Runckel is one of only two non-Ambassadors to receive this award in the 200-year history of the U.S. diplomatic service.
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