Vietnam Economy After Embargo

VIETNAM MARKET AFTER EMBARGO

When the last United States forces left South Vietnam on March 29, 1973 in over-stuffed helicopters and crowded aircraft carriers, it was to be the closing of book whose chapters lasted through four presidencies. When North Vietnam successfully invaded South Vietnam and captured Saigon on April 30, 1975, an embargo originally placed on the north by the United States was extended onto the entire, newly-named Republic of Vietnam. That embargo, ordered by President Richard M. Nixon, stayed in place until President Bill Clinton dropped it on February 3, 1994. President Clinton has asserted on numerous occasions that the only reason he improved any relations America had with Vietnam was solely in the context of achieving the fullest possible account for Americans held as prisoners of war (POW) or missing in action (MIA) from the Vietnam War. Besides many things may shows that President Clinton's explanation involved a lot more than MIAs and POWs, but was resultant of power center influences on policy-making. History between the United States and Vietnam as well as Vietnam's relationships with the Soviet Union, China and Japan are aspect that can proves the truth of this thesis.

The ending of the economic embargo of Vietnam in 1994 opened a new panorama over international marketing. A new high potential market, with more than 70 millions of people was avaiable for the companies: the next great frontier.

As soon as the embargo was removed a lot of companies from all over the globe started their trading in Vietnam. But for now, the Vietam market have difficulties to take off. Why? Why a so "high potential market" after more than ten years from the removal of the embargo in not able to grow up in the world wide marketing?

Many economist and analysts are trying to give an answer to this question.

Here there are some excerpts from a New York Times article that talk about the question.

"IT'S Coke vs. Pepsi and United Airlines vs. Northwest in the post-embargo battle to win the hearts and wallets of the Vietnamese. These and dozens of other American name brands are sure to be welcomed, both because Vietnam is aching to end its psychological isolation and because American businesses are positioned to sell what the country wants most.

But there is a real question of whether Vietnam can grow fast enough to justify an aggressive marketing effort. While David Dollar, an economist at the World Bank, is "cautiously optimistic" that Vietnam will soon break out of the pack of the world's poorest countries, the obstacles are formidable.

The most immediate problems are wretched physical infrastructure (trains, planes, telephones, power plants) along with an absence of free market institutions (banking, property rights, contract law). But Adam Fforde, an Australian consultant specializing in the Vietnamese economy, thinks the Government may lose control over budget and credit policies -- a weakness that dogs Russia and is casting a shadow over China's development. "

Big obstacle to the rise of the economy are Infrastructures, absence of free market institutions. Lets analyse these problems in details.

The Vietnam War destroyed much of the economy of Vietnam. Upon taking power, the Government created a planned economy for the nation. Collectivization of farms, factories and economic capital was implemented, and millions of people were put to work in government programs. For many decades, Vietnam's economy was plagued with inefficiency and corruption in state programs, poor quality and underproduction and restrictions on economic activities and trade. It also suffered from the trade embargo from the United States and most of Europe after the Vietnam War. Subsequently, the trade partners of the Communist blocs began to erode. In 1986, the Sixth Party Congress introduced significant economic reforms with market economy elements as part of a broad economic reform package called "đổi mới" (Renovation). Private ownership was encouraged in industries, commerce and agriculture. Vietnam achieved around 8% annual GDP growth from 1990 to 1997 and continued at around 7% from 2000 to 2005, making it the world's second-fastest growing economy. Simultaneously, foreign investment grew threefold and domestic savings quintupled. Manufacturing, information technology and high-tech industries form a large and fast-growing part of the national economy. Vietnam is a relative new-comer to the oil business, but today it is the third-largest oil producer in Southeast Asia with output of 400,000 barrels per day. Vietnam is one of Asia's most open economies: two-way trade is around 160% of GDP, more than twice the ratio for China and over four times India's.

Vietnam is still a relatively poor country with an annual GDP of US$280.2 billion at purchasing power parity (2006 estimate). This translates to a purchasing power of about US$3,300 per capita (or US$726 per capita at the market exchange rate). Inflation rate was estimated at 7.5% per year in 2006. Deep poverty, defined as a percent of the population living under $1 per day, has declined significantly and is now smaller than that of China, India, and the Philippines.

As a result of several land reform measures, Vietnam is now the largest producer of cashew nuts with a one-third global share and second largest rice exporter in the world after Thailand. Vietnam has the highest percent of land use for permanent crops, 6.93%, of any nation in the Greater Mekong Subregion. Besides rice, key exports are coffee, tea, rubber, and fishery products. However, agriculture's share of economic output has declined, falling as a share of GDP from 42% in 1989 to 20% in 2006, as production in other sectors of the economy has risen. According to the CIA World Fact Book, the unemployment rate in Vietnam is one of the lowest in the world at 2%, trailing behind only Azerbaijan, Cuba, Iceland, Andorra and Liechtenstein. Among other steps taken in the process of transitioning to a market economy, Vietnam in July 2006 updated its intellectual property legislation to comply with TRIPS. Vietnam was accepted into the WTO on November 7, 2006. Vietnam's chief trading partners include Japan, Australia, ASEAN countries, the U.S. and Western European countries.

The modern transport network of Vietnam was originally developed under French rule for the purpose of raw materials harvesting, and reconstructed and extensively modernized following the Vietnam War. The road system is the most popular form of transportation in the country. Vietnam's road