Like China, Vietnam has made a rapid transition from a command economy to one that is heading for open-market free trading. But it still has a very long way to go to get there. In spite of this, there are a vast number of foreign companies that can see the enormous market potential for business investments in Vietnam.
In spite of considerable efforts to industrialise the country especially in the north, Vietnam’s economy is still dominated by agricultural production. This is also the sector where economic reforms have so far had most success. Vietnam recently turned from being a rice-importing nation into the world’s third largest rice-exporter.
Economic liberalisation started in 1987. Since then a number of measures have been taken to gradually turn the country’s centrally-planned economy into a market economy.
Most importantly, foreign investment is now encouraged and the new constitution guarantees that enterprise with foreign invested capital will not be nationalised. A number of laws have been passed to create the legal framework for foreign investment. Bilateral investment protection treaties and double taxation treaties have also been signed with a number of countries.
While the country’s long-term growth prospects remains good, short-term problems such as the lack of adequate infrastructure, especially in the transport network and communications system as well as in the financial sector, and governmental bureaucracy remain handicaps. The World Bank has suggested that Vietnam will have to allocate at least US$7 billion to US$10 billion for infrastructure development by the year 2000.
Despite the Doi Moi policy, Vietnam had continued to maintain stringent controls over flows of money & currency to its economy. It has also yet to launch its stock market. These two factors actually turned out to be blessing for Vietnam. The currency speculators and hedge funds who wrecked havoc in several Asian countries, left Vietnam unscratched. However, Vietnam already had its share of problems loans in its banking sector as early as 1995/96. This lead to a severe credit and liquidity crunch, followed by bankruptcies and a serious slowdown of investment built-up. The lustre of Vietnam, as an emerging tiger economy, has faded a lot. The Government will need to continue to prime the confidence pump, and bring back the enthusiam into the economy.