V.

Economy

During the centuries of Chinese and Vietnamese imperial rule, Vietnam’s society was predominantly agrarian. Its major source of wealth was rice. Although some manufacturing and trade existed, they received little official encouragement and occupied minor segments of the gross domestic product (GDP). Under French colonial rule, agriculture continued to occupy the primary place in the national economy, although emphasis shifted to the cultivation of export crops. In addition to rice, these crops included coffee, tea, rubber, and other tropical products. Small industrial and commercial sectors developed, notably in the major cities, but their growth was limited because colonial officials were determined to avoid competition with goods produced in France.

After partition in 1954 the governments of North and South Vietnam sought to develop their national economies, although they established different economic systems with different resources and trading partners. The North operated under a highly centralized, planned economy, whereas the South mostly maintained a free-market system that had some government involvement. After reunification in 1976 the North gradually extended its centrally planned economy throughout the country. In 1986, however, the government launched a reform program to move toward a mixed economy that operates under private as well as collective or state control. As a result, Vietnam entered a period of rapid development. By 2005 GDP had risen to $52.4 billion, increasing at an annual rate of 8.4 percent in the 1990s. However, per capita incomes remained low, averaging about $630.50 a year. The services sector contributed 38 percent of GDP; industry, 41 percent; and agriculture, forestry, and fishing, 21 percent.

A.

Government Role in the Economy

In Vietnam, as in other states ruled by Communist parties, the government is expected to play a guiding role in all matters, including the national economy. Classical Marxist economic theory calls for all major industries and utilities to be nationalized and for farmland to be placed under state or collective ownership.

Such was the situation in North Vietnam during the Vietnam War and initially in the reunified country established in 1976. However, Vietnam’s economy performed disastrously in the first decade after the war. Excessive government controls, lack of managerial experience, limited capital resources, and the absence of a profit incentive all contributed to the weak economy. In 1986 the government launched a reform program called doi moi (economic renovation) to reduce government interference in the economy and develop a market-based approach to increase national productivity.

The need for economic reform gained urgency in 1990, when poor harvests and economic mismanagement left millions of Vietnamese facing malnutrition. However, Vietnamese leaders initially encountered many difficulties in their effort to renovate the system. Among those obstacles was the reluctance of party leaders to further privatize the economy as well as a high level of bureaucratic interference in economic affairs.

The pace of economic reforms accelerated following the Communist party’s approval in 2001 of a ten-year development strategy enhancing the role of the private sector. The strategy simultaneously affirmed the primacy of the state in driving economic development, and Vietnam’s economy came to be characterized as “a market economy with socialist orientation.”

In the second decade of the doi moi reforms, Vietnam achieved one of the fastest-growing economies in the world. Annual growth rates exceeding 7 percent ranked Vietnam second only to China. The country’s economic vitality attracted surging levels of foreign investment and significantly decreased the number of Vietnamese living in poverty. However, Vietnam lagged behind in modernizing its infrastructure, a crucial step in making Vietnamese businesses competitive against foreign competition.

Vietnam sought to increase foreign trade and investment through membership in the World Trade Organization (WTO). Following more than a decade of negotiations, Vietnam’s entry was formally approved in November 2006, paving the way for the country to become the organization’s 150th member in December.

B.

Labor

The official labor organization in North Vietnam is the Vietnam General Confederation of Trade Unions, founded in Hanoi in 1946. After the country was reunified, the organization absorbed the South Vietnam Trade Union Federation. The confederation is an umbrella organization overseeing the activity of specialized labor unions in Vietnam, such as the National Union of Building Workers. By the mid-1990s the confederation contained more than 50 labor unions with a total membership of more than 4 million. As in all Communist systems, the labor movement in Vietnam is under strict party supervision. Labor unrest, including unsanctioned strikes, has increased since the doi moi reforms were launched in 1986. Much of the hostility fueling this unrest results from poor working conditions and low salaries in foreign-owned enterprises.

Vietnam’s labor force numbered 44 million in 1996. Agriculture, forestry, and fishing employed 60 percent of the workforce in 2003; the services sector employed 24 percent; and industry employed 16 percent.

C.

Agriculture, Forestry, and Fishing

Vietnam has traditionally derived the bulk of its wealth from agriculture, especially from the cultivation of wet rice. During the traditional and colonial eras most farmland was privately owned and cultivated either by owners or tenants. Under Communist rule, however, the government placed farmland in the North under collective ownership. After reunification, the government attempted to collectivize all privately held farmland in the South, but local resistance and declining grain production eventually persuaded party leaders to dismantle the collective system. Instead, they granted long-term leases to farmers in return for an annual quota of grain paid to the state. Surplus production could be privately consumed or sold on the free market.

Agricultural production increased dramatically, rising 62 percent between 1985 and 1997. By far the most important crop is rice, which is farmed under wet conditions in the Red and Mekong deltas as well as in parts of central Vietnam. Most rice-growing areas can support two crops per year, and three crops per year are possible in parts of central Vietnam. Total rice production rose from about 16 million metric tons in 1985 to 36 million metric tons in 1997, while tea production rose from 28,200 to 110,000 metric tons. Other important crops are coconuts, coffee, cotton, fruits and vegetables, rubber, and sugarcane. The annual fish catch increased from 808,000 metric tons in 1985 to 3.1 million metric tons in 2004.

The growth of commercial forestry has been hindered by a lack of transportation facilities as well as by the mixture of different species of trees, which makes it uneconomical to harvest a single species. Furthermore, population pressures have increased the rate of deforestation. Since 1992 the government has banned the export of logs and some timber products in an attempt to preserve remaining forests. Most harvested roundwood is used for household fuel. Timber production, primarily teak and bamboo, has remained stagnant.

D.

Manufacturing

At the time of the French conquest in the late 19th century, Vietnam’s industry was at a relatively primitive stage. The French introduced some modern technology and production methods. After the division of Vietnam in 1954, both the North and South governments attempted to promote industrialization. However, efforts were stymied by the Vietnam War, and little was accomplished before 1975.

After reunification, the Communist government promoted the creation of an advanced industrial society characterized by state ownership, but the results were meager. The plans adopted as a part of the doi moi reforms call for a balanced approach to developing both industry and agriculture, with a mix of state, collective, and private ownership.

Most large firms remain under state ownership, but the role and number of private enterprises has steadily increased. Most enterprises produce consumer goods for the domestic market, although a growing number manufacture goods for export, notably textiles and processed foods. Steel production has increased dramatically since the end of the war, and the manufacture of cement, chemical fertilizer, and textile and paper goods is on the upswing. Foreign firms play a growing but still limited role in the industrial sector.

E.

Mining

Most mining activities take place in the northern provinces of the country, where anthracite coal, phosphate rock, gypsum, tin, zinc, iron, antimony, and chromite are extracted. Coal and apatite are mined extensively. The total coal production in 2003 was 16 million metric tons.

In recent years, large petroleum and natural gas deposits have been discovered along the continental shelf in the South China Sea. With assistance from the Soviet Union, Vietnam began extracting oil from its first oil field in the mid-1980s. Additional oil fields have since become productive. In the late 1990s petroleum accounted for nearly one-third of Vietnam’s export revenues. Further development may be hindered, however, by disputes with China and other neighboring nations over the ownership of offshore deposits in the area.

F.

Energy

Per-capita consumption of electricity is relatively low in Vietnam because many people, especially in rural areas, burn wood to meet their household energy needs. Such traditional fuels accounted for nearly half the country’s total energy use in the mid-1990s, but commercial and urban growth is increasing the demand for electricity. In the mid-1990s electricity was supplied mainly by hydroelectric stations, although thermal installations burning petroleum and coal were also important.

G.

Transportation and Communications

A primitive transportation system has long been one of the main obstacles to economic development in Vietnam. While the system of roads is one of the best in Southeast Asia, until recently the motor fleet was outmoded, consisting primarily of Soviet trucks built during the 1950s. Furthermore, rail facilities suffered damage during the war, and a lack of funds prevented adequate repair or expansion of the system. In the late 1990s, the government began an attempt to modernize the truck fleet and the rail system and to improve the major roadways. Most goods in the country, however, are still transported by barge along the numerous rivers and canals.

Major ports used for international shipping are Haiphong, Da Nang, and Ho Chi Minh City. All, however, lack modern facilities. The state-run Vietnam Airlines operates both internationally and domestically but has been seriously hindered by an aging fleet consisting of Soviet-built planes that have been in operation since the Vietnam War. To modernize the airline, the government is using scarce foreign exchange reserves to purchase new aircraft from Europe and the United States.

Poor communications facilities represent an additional obstacle to economic development. The nation’s telephone system is grossly inadequate, and Vietnam is just beginning to enter the computer age. Private ownership of telephones and computers is still severely limited. Access to information is somewhat better, as most Vietnamese own a radio or a television set, and there are a number of major national newspapers, including the official daily Nhân Dân (The People) and the military newspaper Quan Doi Nhân Dân (People’s Army). Many independent newspapers and periodicals are now being published, although those that transcend the official line run the risk of censorship or losing their licenses.

H.

Foreign Trade

During the French colonial period, Vietnamese foreign trade was characterized almost exclusively by the export of primary raw materials—such as rice, rubber, and other tropical products—and the import of manufactured goods from abroad, mainly from France. During the Vietnam War, both the North and South had a chronic imbalance in their balance of payments, as their sponsors pumped in military and economic assistance with little regard to their client’s ability to pay.

After reunification, these adverse conditions continued. Vietnam consistently ran a significant deficit in its trade relations with foreign countries. At first, the bulk of Vietnamese trade was with the Soviet Union and other Communist countries, which exported manufactured goods, food, and oil to Vietnam in return for cheap textile goods, cash crops, and maritime products. Trade was tightly controlled under the management of several state-owned trading corporations, each specializing in a particular commodity line. The United States imposed a trade embargo on North Vietnam in 1964 and all of Vietnam in 1976; this embargo was lifted in 1994.

Foreign trade has developed rapidly since the implementation of the doi moi reforms and the end of the U.S. embargo. Most foreign trade now takes place with other countries of Asia or with developed countries in the West. Exports have increased significantly, notably in the area of cash crops, oil, and rice. But imports of foreign technology and consumer goods have increased as well, and the trade deficit continues to be one of the country’s most serious problems. In 2002 the value of imports was estimated at $19.7 billion, while exports were estimated at $16.7 billion.

I.

Currency and Banking

Vietnam’s national monetary unit is the new dông, which is divided into 100 xu (15,859 new dông equal U.S.$1; 2005 average). Until 1990 the only banking system within the country was The State Bank of Vietnam, with its headquarters in Hanoi. In 1990 the government established four independent commercial banks (for foreign trade, investment and construction, agricultural development, and industry and commerce) and allowed foreign banks to operate. The State Bank continues to perform general supervisory functions; it also controls the money supply and credit policies. The Bank of Foreign Trade is authorized to handle foreign currencies.

J.

Tourism

Modern tourism began in Vietnam during the colonial era, but it declined drastically during the long years of conflict after World War II. With the launching of economic reforms in 1986, the government opened the country to foreign travelers and has made a concerted effort to improve its tourist facilities as a means of earning hard currency. Old hotels like the Metropole in Hanoi and the Continental in Ho Chi Minh City have been renovated, and a number of new ones have been built in both cities. In addition, a number of foreign cruise lines stop at ports along the coast en route to Hong Kong and Singapore. In 2005, 3.5 million tourists from all parts of the world visited Vietnam. Most visitors make short trips to the major cities and the former imperial capital of Hue.