Pakistan’s economy has been plagued by serious macroeconomic issues for some time now. However, it is not too late to resuscitate, as many of the region’s best-performing nations started at a low point and were able to embark on a path of sustainable economic growth after enacting the necessary reforms. The economy of Vietnam is one such success tale.
Vietnam’s economy was crippled by poverty, and per capita income was stuck between $200 and $300 by the mid-1980s. Vietnam’s transformation from a poverty-stricken economy to one of prosperity commenced in 1986 when the government launched “Ði Mi”, a series of political and economic reforms aimed at strengthening the private sector’s role and opening the country to foreign investors.
Under this initiative, Vietnam’s GDP per capita increased 12 times between 1985 and 2020, reaching over US$2,800. Over the same period, poverty rates (US$1.90/day) fell sharply from over 70 per cent to under 2pc.
Incremental efforts are required to stabilise the country’s entire social, economic and political environment so that much-needed foreign direct investment is attracted
The rise of Vietnam’s economy can be attributed to three main initiatives according to World Bank; firstly, it has enthusiastically incorporated trade liberalisation. The signing of many free trade agreements (FTA) with both Asian and Western countries signalled the gradual liberalisation of trade. Vietnam has concluded bilateral trade agreements with 72 countries and it also built trade relationships with 165 nations.
In 1995, Vietnam signed the Association of Southeast Asian Nations free trade agreement. In 2000, it executed an FTA with the United States, and in 2007, it joined the World Trade Organisation. In the recent decade, Vietnam has agreed or structured 12 bilateral and multilateral FTAs with Japan, South Korea and the European Union. On November 15, 2020, the Regional Comprehensive Economic Partnership was established and Vietnam is an active member of the pact. The regional integration is expected to cover 30pc of the world’s population, generate $500 billion in international trade, and yield $209bn to global revenues by 2030.
Vietnam has benefited from the “open-door” policy, and the country has developed into a manufacturing hub over the previous three decades, with significant foreign businesses such as Intel, Samsung, Adidas and Nike already having established bases there. With one out of every ten cellphones produced in Vietnam, the country has already established itself as a significant exporter of textiles, electronic goods, and footwear, among other goods.
Secondly, Vietnam has supplemented external liberalisation with internal reforms such as deregulation and decreased business costs. In 2007, Vietnam was placed 104th in the Doing Business index, with several major constraints identified by the study. The government has nibbled away at the inefficiencies using the indicators as a guide, and Vietnam has risen to 70th place in the 2020 Doing Business survey.
Vietnam achieved improvement in a variety of areas, including contract enforcement, improving access to credit and electricity, paying taxes, and cross-border trade. Vietnam’s placement on the World Economic Forum’s Competitiveness Index reflects this transformation, climbing from 77th place in 2006 to 67th place in 2019.
In the Global Innovation Index 2021, Vietnam was ranked 44th out of 132 countries and is one of four middle-income economies (the others being Turkey, India and the Philippines) having the potential to reshape the global innovation landscape by catching up to larger economies like China.
Thirdly, Vietnam has made enormous investments in human and social capital, leading to the development of a skilled workforce, which has enhanced productivity and competitiveness over time. The Human Development Index for Vietnam increased to 0.706 in 2020, up from 0.682 in 2016, leading it to join the group of countries with a high degree of human development.
Pakistan can achieve its goal of sustainable economic growth by following Vietnam’s model. Pakistan must concentrate on growth-oriented reforms and sound policymaking to achieve this goal. Following in the footsteps of Vietnam, Pakistan should liberalise trade and sign free-trade agreements with potential trading partners. Incremental efforts are required to stabilise the country’s entire social, economic, and political environment so that much-needed foreign direct investment not only be attracted but in desired sectors such as manufacturing and agriculture.
Furthermore, improvements in the export sector must be accomplished by enhancing domestic industrial production and productivity. To make the labour force more productive, it is essential to invest in human capital. Pakistan must strive to improve its knowledge capital, which will be a major driver of productivity, diversification, higher innovation, and thus higher growth in the future.
The writer is working as Assistant Professor at Abdul Wali Khan University Mardan. firstname.lastname@example.org
Published in Dawn, The Business and Finance Weekly, January 17th, 2022