Viet Nam Economic Forum – Regionalism and Modernisation of Viet Nam
Speech
by
Ayumi Konishi
Country Director
ADB Resident Mission
Asian Development Bank
Ho Chi Minh City, Viet Nam
23-24 April 2007
Your Excellency Minister Vo Hong Phuc, Ministry of Planning and Investment
Chairman Le Hoang Quan, Ho Chi Minh City’s People Committee
Vice Ministers,
Distinguished guests,
Ladies and Gentlemen,
Introduction
It is my pleasure to be here today to attend this important event at the critical time as Viet Nam is entering into a new phase of development. I have been in Viet Nam for one year and it has been a great pleasure for me to be able to observe personally the great strides that Viet Nam has been making thus far. It is also great to feel the vibration or dynamism in the business sector in every face of life.
The timing and the venue of this forum are significant, because this historical month of April, more than 30 years ago marked the unification of Viet Nam. Now in 2007, we see a significant milestone - the WTO accession in January this year marks Viet Nam’s new journey in the economic globalization.
Today, let me start by discussing the Viet Nam’s new economic context of globalization and regional integration. Then I would like to look at where Viet Nam stands. I will then turn to Viet Nam’s future in the context of globalization and regional integration.
Global economy
We now live in a very dynamic world. The deregulation, information technology (IT) and telecommunication revolution since 80s all lead the changes in production processes as well as trade and investment patterns, resulting in accelerating and deepening the globalization. The globalization opens the access to larger markets, access to advance technology, access to resources such as capital and labor. Taking advantage of increasingly globalizing market, many Asian countries successfully transformed their economies, resulting in rapid growth and sharp reduction of poverty.
While rapid globalization has brought substantial benefits for many people, it also accompanied new financial, economic and political uncertainties. Changing trade and investment patterns, the risk of financial crises and contagion, and trans-border health and security threats are challenges that must be managed through cooperative approaches at the global, regional and national levels.
Regional integration
10 years have passed since the Asian Economic Crisis. The regional economic landscape has changed dramatically in this period. Asia has emerged as a key player in the global economy. In 1960 Asia accounted for only 15% of total world GDP, but as of 2005, this figure has nearly doubled. Furthermore, four of the ten largest economies in the world (Japan, PRC, India and Korea) are now in Asia.
Over the past 30 years, the economic structure of developing Asia has been transformed significantly, moving from agriculture to industry and service. The diversification and the birth and expansion of new economic activities and adaptation and adoption of better methods of organization and production have boosted the economic growth. The movements in the capital and employment into higher productivity production; the pace of technological transformation; and developing patterns of specialization and diversification supported by the evolution in value chain; resulted in unrivalled economic achievements of developing Asia.
In this dynamic development process, it is noted that countries that do not change fail to sustain the rapid growth. The Newly Industrialized Economies in Asia (NIEs) that are nearly completing the catch up process and successfully closed the productivity gap with OECD, have three achievements in common: they have raised the share of industrial output; diversified their manufacturing base; and upgraded, both in terms of technology and the complexity, of the export basket they produce. China and India – the two emerging giants will continue to be important drivers of Asian and global growth.
Globalization is the driving force behind increasing regional integration in Asia. The trade and investment liberalization, the global value chains and the improved physical connectivity have brought Asian economies closer. Increased vertical specialization and the rise in intra-industry trade driven by multinational corporations (MNCs) and their affiliates, have led to strong ties among Asian economies. Regionalization of economic activities has gained strong momentum through progress in sharing of production processes across the region.
Let us remind us about the location of Viet Nam in a map. Viet Nam is strategically situated in the Great Mekong Subregion (GMS), comprising Camobdia, Lao PDR, Myammar, Thailand, Viet Nam, and two southern provinces of the Peoples Republic of China. As you can see in the map, the GMS serves as a landbridge between South Asia, and East and Southeast Asia, and connects Southeast Asia and the rest of China. The GMS connects to the large markets of China on the north and northeast to Southeast Asia as a whole and also to South Asia on the west through Myanmar. “Think regionally” is an important theme.
In this context, ASEAN is primed to enhance its role as a regional hub for much wider East Asian integration. In fact, within East and Southeast Asia, there has been explosive growth in trade in intermediate products—especially in parts and components of electrical machinery and transportation equipment centered on the PRC as the assembly point for final goods. Continued efforts at integration between ASEAN economies can benefit each country individually and the region as a whole. Clearly, Viet Nam needs to take a strong initiative in accelerating the process of integration. Acceleration of the regional integration in turn will provide significant opportunities for Viet Nam’s further growth.
Where Viet Nam stands
Let us then look at Viet Nam. Over the last 20 years, Viet Nam’s economy has been transformed significantly. It has become one of the fastest-growing economies in Asia, recording average annual gross domestic product (GDP) growth of 7.2 % over the last decade. Broad-based and vigorous economic growth, combined with Government-led targeted poverty reduction interventions, has all helped reduce poverty. The country’s success in reducing general poverty incidence over the last decade - from about 58% in 1993 to 27.8% in 1996 and an estimated 18.1% in 2006 - is remarkable.
Viet Nam’s transition from central planning to a socialist-oriented market economic system has involved the liberalization of markets, recognition of private property rights, and a gradual opening up of the economy to external markets for trade and investment. The growth of the private sector has been a significant feature of economic development. The structure of the economy is changing markedly, with a steady increase in the share of industry and services. Greater diversification in industrial production and services is laying the foundations for sustained growth in output and employment. The recent increase of investment in high-tech projects such as of Intel Corporation or Nidec is an encouraging sign of a path of moving up in value chain, helping improve the productivity.
As the past experience shows, openness to trade provided an environment conducive to rapid industrial growth and transformation of the predominantly agricultural economies of East and Southeast Asia into modern industrial economies in a remarkably short period of time by historical standards.
Similarly, a further integration of the Viet Nam’s economy into the global and regional economy will help stimulate structural reforms, open the access to markets, access to capital and technology, resulting in higher productivity of the economy. The globalization and regional integration brings opportunities but also challenges. Competitiveness is the biggest challenge for the leaders of Viet Nam and of Vietnamese enterprises, particularly as 95% of the domestic private sector are SMEs and many of them have limited technological capacity and competitiveness. The shortage of skilled labor, the inadequate infrastructure, e.g. a shortage of energy, a bottleneck of ports, roads, if not addressed properly will create constraints in realizing the benefits of integration, hindering the development in the future.
Viet Nam’s dream with eyes open:
The NIEs, for example Korea has successfully transformed its economy, nearly completing the catch-up process with OEDC and becoming an industrialized economy after 50 years of development. The target that Viet Nam set to become an industrial country by 2020 is ambitious but achievable, given its strategic location in a very dynamic and a rapid expansion region, its young and dynamic population (65% of population is less than 35 years old ), and the capitalization of the past achievements . The Viet Nam’s development path is rosy but not without thorns. Reflecting our optimism with caution, therefore, we often note that Viet Nam should dream with its eyes wide open.
The experience in the region shows that countries that do not change will fail to sustain a rapid growth. Changes in the application of labor, human capital, physical capital, and technology have influenced its development path. Changes in output growth can occur only if there has been a change in one or more of these components.
Sustained efforts to increase national competitiveness to attract and actually realize increased private investment, and take full advantage of the benefits of and regional and international integration are needed to achieve these results. This implies a need for the following:
- acceleration of infrastructure development to both overcome existing weaknesses
and to respond to rapidly growing demand for new infrastructure;
- addressing remaining policy, institutional and structural bottlenecks to increased
private investment;
- improving financial intermediation;
- promoting sustainable rural livelihoods;
- human resource development to supply the increasing demand for a more skilled
and productive workforce.
Continued efforts to strengthen regional and international cooperation and economic linkages will boost the economic growth as rapid expansion of trade has usually occurred in tandem with large investments in capital, technological upgrading, and the acquisition of new skills and knowledge.
Concluding remarks:
Ladies and Gentlemen,
Viet Nam is experiencing a rapid transformation of its economy. There is no doubt that deepening of the integration will contribute to the robust economic development. The globalization, however, can generate social and economic stresses, particularly when institutional capacities and social safety nets are inadequate. To maximize the benefits from integration and minimize the risks, the Government needs to maintain sound macroeconomic management, strengthen the financial system and the corporate sector, and improve economic efficiency and competitiveness, while in parallel also strengthening social protection for vulnerable people, and ensuring the access of people to basic public services.
ADB has been actively supporting Viet Nam in its development process and is very proud to be a development partner of Viet Nam, particularly at this critical stage of its development. We are committed to continue working closely with the Government for achieving the goals in bringing the unity, the harmony and the prosperity to the people of Viet Nam.
I thank you very much for your attention.
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