Vietnam’s Economic Structure and Trade Analysis

Vietnam’s Economic Structure and Trade Analysis.

Vietnam’s Economic Structure and Trade Analysis

 

Overview

Vietnam is located in Southeast Asia, lying next to China, Laos, and Cambodia. The country borders Thailand, Tokin, and the South China Sea (Thoburn 99). The country occupies a land area of 325,360sq.km (Thoburn 99). In fact, Vietnam is among the most populous nations with a population density of 237.62/sq.km (Thoburn 99). The economic and political reforms introduced in 1986 by Đổi Mới have seen Vietnam achieve great economic progress over the last three decades (“Vietnam Overview”). The GDP per capita of the country has been one of the fastest growing in the world. In the last one and a half decade, the GDP per capita has been growing at an average of 6.4% per year (“Vietnam Overview”). In 2016, the country recorded a 5.5% GDP growth in the first half of the year while in 2015, the GDP expanded by 6.3% (“Vietnam Economic Overview” 3). Since the introduction of political and economic reforms in 1886, the country has experienced a significant growth in the per capita income. Before the economic reforms, the per capita income stood at around $ 100 but it expanded significantly to around $ 2,100 in the year 2015 (“Vietnam Overview”). The Purchasing Power Parity (PPP) has also improved significantly over the past 20 years. In reference to the 2011, the country has a PPP line of $ 1.90, which signified that individuals living below the poverty line had dropped significantly from 50% in the early 1990s to 3% in 2012 (“Vietnam Overview”). Moreover, according to the World Bank, the GNI per capita of the country has increased significantly from$ 100 in the 1990s to $1,890 in 2014. Vietnam is ranked at 140 among the countries with the strongest GNI per capita in the world. According to the World Bank ranking, the country’s GDP stood at $ 193.60 billion in December 2016 ahead of larger economies such as Peru, the Czech Republic, and New Zealand (“Vietnam Overview”).

Geography and Society

Mountains and hills cover the largest part of the country, which are almost four-fifths of the land. The north and northwest of the country are mountainous while the eastern and southern regions are low with extended flat deltas (Economy Watch). The highest population is concentrated around the alluvial plains, which are suitable for agriculture. The country experiences tropical climates in the south and monsoonal climates in the north. The dry season is experienced between November and April while the wet season sets in between the months of May and October.

The Truong Son Mountains cover the largest part of the country. The mountains extend for more than 1, 287 km from the Yuan River delta to the Laos border in the central highlands (Huyen and Tuan 2). The land near mountains experience heavy rains and have poor soils that make them unsuitable for agriculture. However, the Yuan River delta is rich in alluvial soils that make it suitable for agriculture including wet rice farming. The delta has an abundant supply of water and favorable climate for agriculture.

The mountains host some of the most popular wild animals in the world including buffalos, elephants, lions, and rhinoceros. The wild animals are revered for their role in attracting tourists in the country. Vietnam has a huge human resource of more than 40 million. However, the part of the population that is literate and skilled participate in technical jobs is only 21% (Huyen and Tuan 3). The technical sector of the economy is lacking enough labor supply due to low-skilled human resource. On the other hand, development of infrastructures has been significant since the inception of economic reforms in 1986.

 

The mountains host some of the most popular wild animals in the world including buffalos, elephants, lions, and rhinoceros. The wild animals are revered for their role in attracting tourists in the country. Vietnam has a huge human resource of more than 40 million. However, the part of the population that is literate and skilled participate in technical jobs is only 21% (Huyen and Tuan 3). The technical sector of the economy is lacking enough labor supply due to low-skilled human resource. On the other hand, development of infrastructures has been significant since the inception of economic reforms in 1986.

Influence of Geography on Economic Development

The physical geographic characteristics and resources of Vietnam have had a significant impact on the economic success of the country. Geographical location of the country near an extended coastal line has enabled the country to produce fish both for the local and for the international market (Huyen and Tuan 2). Moreover, the coastal beaches have become an important tourist attraction resource. Beside the beaches, the mountains and the tropical ecological forests have also played a significant role in a tourist sector. The presence of rich alluvial soils in the Vietnamese deltas has enabled the country to engage in agriculture, which has been vital in spurring economic growth in the country. Vietnam is a leading agricultural exporter in Asia exporting products such as rice, cashew nuts, coffee tea, and rubber among others. Close proximity to water sources has helped the country to engage in irrigated agriculture especially in production of rice and other food products (“Vietnam Economic Overview” 3). More than 75% of the inhabitants live in countryside and practice subsistence farming.

The country is also rich in natural resources and minerals (Huyen and Tuan 2). Oil and gas are some of the mineral resources that are available in the country. Other mineral resources include bauxite, iron ore, copper, gold precious stones, and appetite. Despite being in small proportions the minerals plays a significant role in the GDP of the country. Coal is an important source of energy for the country and an export commodity. The presence of large oil and gas reserves pose a great potential for economic growth of the country. However, regular flooding in the in the Yuan and Mekong river deltas pose a threat to the success of agriculture in Vietnam.

Current Economic Structure

Agriculture

Agriculture is one of the sectors of the economy that have been vital to the reinvigoration of the Vietnamese’s economy. Initially, the land was a communally owned resource; however, the privatization of the lands has aided in increased agricultural production. The land reforms made it possible for Vietnam to move from a food importing country to one of the biggest food exporters in the world (Huyen and Tuan 3). Before the land reforms, Vietnam was importing about 1 million tons of food from other parts of the world but currently, Vietnam is the second-largest rice exporter in the world, third largest coffee, and rubber producer in the world and the second and the largest peppercorn producer in the world (Huyen and Tuan 3).

Government support has played a significant role in the transformation of the agricultural sector in Vietnam. Provision of agricultural inputs such as fertilizers, pesticides and others, mechanization of labor, support of the trade liberalization and support of export has seen the agriculture sector play a significant role in the takeoff of the Vietnam’s economy (Huyen and Tuan 3).

Industry

Liberalization of the economy and vast economic reforms has helped the industrial sector to develop rapidly. The reforms are geared towards creating an economy with competitive export-driven industries. The industrial sector has been growing at an annual average rate of 10% (Huyen and Tuan 3). Garment and textile, agriculture processing, electronics, motor, automobile, and mining are some of the industries that have developed rapidly. The industrial sector has helped in upping exports gains for the country, which has created a positive trade balance. Liberalization of the market has attracted foreign direct investment, which has had an eminent effect on the industrial growth (Economy Watch). Moreover, government’s direct support through incentives and tariff protection has helped industrial development (Huyen and Tuan 3). Additionally, the government, thus enjoying massive government support, owns most of the agglomerates.

Service

The service industry has also accounted substantially for the economic growth of Vietnam. Tourism has accounted heavily in the development of restaurants and recreational facilities in different parts of Vietnam. The growth of the industrial sector has facilitated the development of the service industry (Huyen and Tuan 4). Banks, insurance companies, sea and air transport have increased rapidly with the rise in industries in the country. The real estate sector has also improved owing to the rising purchasing power of the consumers. The rate of unemployment stands at 2.3% (“Vietnam Overview”).

The Vietnamese economy fits the three-sector hypothesis. Most of the agricultural products are exported in their primary form including coffee, tea, rice, and peppercorn (“Vietnam”). Moreover, the manufacturing industry processes some of the agricultural products and produces electronics, automobiles, and textile products. The service industry is also well established and it accounts significantly for the GDP. Education has been given a major boost to foster a generation of ideas, creativity, and innovation to spur economic growth. The manufacturing industry best fits the Vietnam since most of the export products come from the manufacturing industry. Electronics, garment, textile products, and automobiles account for the biggest part of the exports. In 2017, Vietnam recorded $ 16.3 billion revenue from exports. Electronics, computers and their accessories accounted for 40% of the export revenue, while the textile exports accounted for 13% and footwear 14%. Evidently, the manufacturing industry is playing a significant role in growth and development of the Vietnamese economy. The sector has helped to reverse the trade balance between Vietnam and it’s trade partners where the difference between the exports and imports is $ 15.8 billion in favor of Vietnam (“OEC”).

Trade Relations and Trade Products

Transformation of the Vietnam’s economy to a more market-oriented economy has seen the country rise significantly globally in terms of economic development. Trade has helped Vietnam to change from an agricultural based economy to an industrial based economy. The liberalization of the economy has opened up opportunities for foreign direct investment, which has propelled industrial development.

The trade helped Vietnam to export goods worth $185 billion in 2015 against $169 billion value of imported goods (“OEC”). This helped Vietnam to change its trade balance to a positive figure of $ 15.8 billion (“OEC”). Top export goods for Vietnam included broadcasting equipment’s valued at $30.3 billion, integrated circuits at $ 10.8 billion, computers at $7.29 billion, footwear at $ 6.27 billion and textile at $ 6.01 billion (“OEC”). The United States of America is the biggest export destination for Vietnamese goods importing goods worth $ 38.1 billion, followed by China at $19.2, Japan $15 billion, South Korea at $ 9.9 billion and Germany $ 8.71 billion (“OEC”). On the other hand, Vietnam imports most of its products from China, South Korea, Japan, and Thailand.

The Vietnam economy fits in the intra-industry category where its export and import goods from the same sector of the economy. The most imported goods in 2014 were electronic integrated circuits and micro assemblies, electric applications for telephones, petroleum oil, iron, and polymers (“Vietnam Economic Overview” 11). The import trends do not indicate a lack of any particular natural resource endowment.

 

 

 

 

Works Cited

Huyen, Nguyen, and Bui Anh Tuan. “Vietnam’s Economic Development: Opportunities and Challenges towards the Integration Tendency.” Vanderbilt University, n.d., http://www.vanderbilt.edu/econ/faculty/Wooders/APET/Pet2004/Papers/Vietnams%20economic%20development.pdf. Accessed 06 Apr. 2017.

“OEC – Exports, Imports, and Trade Partners.” Atlas.Media.Mit.Edu, n.d., http://atlas.media.mit.edu/en/profile/country/vnm/. Accessed 06 Apr. 2017.

Thoburn, John. “Vietnam as a Role Model for Development. Achieving Development Success: Strategies and Lessons from the Developing World, edited by Fosu, Augustin, Oxford University Press, 2013, pp. 99-118.

“Vietnam Economic Overview and Trade Analysis”. Government of Dubai, 2017, http://www.dedc.gov.ae/StudiesAndResearchDocument/MTR002022016VIETNAM.pdf. Accessed 06 Apr. 2017.

“Vietnam Overview.” Worldbank, 6 Apr. 2017, http://www.worldbank.org/en/country/vietnam/overview. Accessed 06 Apr. 2017.

“Vietnam.” Australian Government, 2017, https://dfat.gov.au/trade/resources/Documents/viet.pdf. Accessed 06 Apr. 2017.

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Vietnam’s Economic Structure and Trade Analysis