For every ten smartphones worldwide, one is produced in Vietnam, stated a research article by Brooking Institution.
Consequently, mobile phones are Vietnam's number one export, generating export revenues of more than US$45 billion in 2017.
This success is a symptom of a broader trend that defies global norms, assessed the research. While global trade has stagnated, Vietnam's trade has soared to 190% of GDP in 2017 from 70% in 2007. While premature de-industrialization sweeps through the world economy, Vietnam's manufacturing sector has steadily expanded, adding an estimated 1.5 million new manufacturing jobs between 2014 and 2016 alone.
As Vietnam's manufacturing is witnessing a "renaissance", the research stated Vietnam's experience holds lessons for developing and advanced economies alike.
In addition to low wages and young population, Vietnam has been able to capitalize on its strong foundation through good policies, said the research.
First, it has embraced trade liberalization with gusto. Second, it has complemented external liberalization with domestic reforms through deregulation and lowering the cost of doing business. Finally, Vietnam has invested heavily in human and physical capital, predominantly through public investments.
These lessons-global integration, domestic liberalization, and investing in people and infrastructure-while not new, need reiteration in the wake of rising economic nationalism and anti-globalization sentiments.
First, trade policy has arguably been the most important industrial policy for Vietnam. With Singapore, it shares the top spot in East Asia of being a member for bilateral and multilateral free trade agreements.
A signatory to 16 bilateral and multilateral free trade agreements, Vietnam is a member of the World Trade Organization, ASEAN, and has concluded bilateral agreements with the U.S., Japan, South Korea, the EU, and the Eurasian Customs Union. Earlier this year, it became one of 11 countries to join the revived CPTPP.
These trade agreements dramatically reduced tariffs, anchored difficult domestic reforms, and opened much of the economy to foreign investment. It is estimated that more than 10,000 foreign companies-including major global players such as Samsung, Intel, and LG-operate in Vietnam today, mostly in export-oriented, labor-intensive manufacturing.
Second, Vietnam has leveraged its demographic dividend through effective investment in its people. Vietnam's efforts to promote access to primary education and to ensure its quality through minimum quality standards have paid off. In the latest 2015 OECD Program for International Student Assessment (PISA)-which tests high school students in math, science, and other disciplines-Vietnam ranked 8th out of 72 participating countries, ahead of OECD countries such as Germany and Netherlands.
Third, relentless focus on competitiveness and the ease of doing business. Vietnam has made steady progress in improving its investment climate, as evidenced by higher scores in the World Economic Forum's competitiveness index (up five points to 55th in the world), and the 2018 World Bank's ease of doing business ranking (68th in the world, up 31 places since 2014). Vietnam also reduced the corporate income tax rate to 20% from 32% in 2003.
Finally, Vietnam invested in infrastructure, especially in the power sector and connectivity. Thanks in part to high public investment, power generation, transmission, and distribution capacity have been scaled up to meet rapidly rising demand. To keep pace with rapidly growing container trade (which expanded at a staggering average annual rate of 12.4% between 2008 and 2016), Vietnam also developed its connective infrastructure, including seaports and marine terminals.
However, it is worth mentioning that Vietnam's manufacturing sector remains relatively small. Most of the sector is driven by foreign direct investment (FDI), which accounts for close to 90% of manufacturing exports. Many of the newly created jobs in manufacturing are in basic assembly which requires manual labor but does not necessarily add a lot of value (per worker). Linkages between FDI and domestic firms are weak. Moreover, as wages inevitably rise, Vietnam's current comparative advantage in low-skill, labor-intensive industries will start to dissipate, a trend that may be amplified by new labor-saving technologies and automation.
Vietnam a success story of global economic integration.
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As Vietnam's manufacturing is witnessing a "renaissance", the research stated Vietnam's experience holds lessons for developing and advanced economies alike.
In addition to low wages and young population, Vietnam has been able to capitalize on its strong foundation through good policies, said the research.
First, it has embraced trade liberalization with gusto. Second, it has complemented external liberalization with domestic reforms through deregulation and lowering the cost of doing business. Finally, Vietnam has invested heavily in human and physical capital, predominantly through public investments.
These lessons-global integration, domestic liberalization, and investing in people and infrastructure-while not new, need reiteration in the wake of rising economic nationalism and anti-globalization sentiments.
First, trade policy has arguably been the most important industrial policy for Vietnam. With Singapore, it shares the top spot in East Asia of being a member for bilateral and multilateral free trade agreements.
A signatory to 16 bilateral and multilateral free trade agreements, Vietnam is a member of the World Trade Organization, ASEAN, and has concluded bilateral agreements with the U.S., Japan, South Korea, the EU, and the Eurasian Customs Union. Earlier this year, it became one of 11 countries to join the revived CPTPP.
These trade agreements dramatically reduced tariffs, anchored difficult domestic reforms, and opened much of the economy to foreign investment. It is estimated that more than 10,000 foreign companies-including major global players such as Samsung, Intel, and LG-operate in Vietnam today, mostly in export-oriented, labor-intensive manufacturing.
Second, Vietnam has leveraged its demographic dividend through effective investment in its people. Vietnam's efforts to promote access to primary education and to ensure its quality through minimum quality standards have paid off. In the latest 2015 OECD Program for International Student Assessment (PISA)-which tests high school students in math, science, and other disciplines-Vietnam ranked 8th out of 72 participating countries, ahead of OECD countries such as Germany and Netherlands.
Third, relentless focus on competitiveness and the ease of doing business. Vietnam has made steady progress in improving its investment climate, as evidenced by higher scores in the World Economic Forum's competitiveness index (up five points to 55th in the world), and the 2018 World Bank's ease of doing business ranking (68th in the world, up 31 places since 2014). Vietnam also reduced the corporate income tax rate to 20% from 32% in 2003.
Finally, Vietnam invested in infrastructure, especially in the power sector and connectivity. Thanks in part to high public investment, power generation, transmission, and distribution capacity have been scaled up to meet rapidly rising demand. To keep pace with rapidly growing container trade (which expanded at a staggering average annual rate of 12.4% between 2008 and 2016), Vietnam also developed its connective infrastructure, including seaports and marine terminals.
However, it is worth mentioning that Vietnam's manufacturing sector remains relatively small. Most of the sector is driven by foreign direct investment (FDI), which accounts for close to 90% of manufacturing exports. Many of the newly created jobs in manufacturing are in basic assembly which requires manual labor but does not necessarily add a lot of value (per worker). Linkages between FDI and domestic firms are weak. Moreover, as wages inevitably rise, Vietnam's current comparative advantage in low-skill, labor-intensive industries will start to dissipate, a trend that may be amplified by new labor-saving technologies and automation.
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