Vietnam: Capitalism, communist edition. Limited.

Why Vietnam?

My advice to any real, fake or aspiring economist – Vietnam is a place very well worth visiting. The dual nature of the country, led by a communist government, yet embracing the tools of capitalism and globalization, is pretty fascinating from economic and political standpoints. Add to it a very turbulent 20th century history and a North-South political divide, in many aspects mirroring the one on the Korean peninsula, and you will understand that Vietnam is like a complex story with many twists and turns.

As I planned my journey to Vietnam, I couldn’t help but wonder, to what extend is Vietnam’s economic development progressing (“How developed is Vietnam, really?”). I was also intrigued by the effect of its political system on the economy, as the only benchmark I had was that of post-communist Poland (so not really a good comparison). I was curious whether the political history influences the daily life of the Vietnamese (“How communist is Vietnam in practice”?). Finally, I wanted to understand what some of the biggest challenges in Vietnam’s economic development are (“What are the risks and what to watch out for?”).

How developed is “developed”?

It’s a fact – Vietnam used to be one of the poorest countries on the planet not a long time ago. A quick look at the World Bank website will tell us that in 1989 Vietnam’s GDP per capita was only around $100. To help you visualize how little this is, let’s compare it to Sub-Saharan Africa: Ethiopia reached $250 per capita in the same year, even Somalia was around $170. At the same time, neighboring Thailand had a GDP per capita of around $1.5k, while Malaysia reached around $2k (that’s before turning into one of the Asian tigers in the 2000’s).

Fast forward a quarter of a century and Vietnam is joining the lower middle income club of the South East Asian countries with a GDP per capita of $2k. It is slightly ahead of Cambodia ($1k), but still behind Thailand (around $6k) and Malaysia (above $10k) – although it is catching up at a faster pace.

What does it all tell us? Well, Vietnam has advanced from being extremely poor to moderately poor. Think of Vietnam as a leader among poorer countries in the South East Asian region. Not that impressive, right?

What is special about Vietnam, though, is the rate at which it’s coming out of the poverty. A quick history reminder is in place here: after the Vietnam War (1955- 1975), Vietnam was re-unified as a country in 1975 by a communist government (naturally supported by the Soviet Union). After the fall of the Soviet Union, the 90’s brought foreign direct investment, the lifting of the US embargo and ASEAN membership (among other more market-oriented measures). The current Vietnamese government is openly driving towards a socialist-oriented market economy, modeled perhaps after China. Not without a success. Vietnam’s GDP growth rate of 6.7% (source: World Bank) achieved in 2015 beats the growth metrics for most of the countries in the region. Actually, it is one of the highest growth numbers in the world.

So, can we observe any of those statistics in practice?

Yes, but they are most clearly (and most predominantly, perhaps) seen in the Saigon area. Or, at least, that’s where I noticed them.

Visiting Vietnam for the first time may be a daunting experience, assuming one arrives in one of the urban centres that have international flight connections i.e. in Saigon or Hanoi. I actually arrived in Saigon, on a short AirAsia flight straight from Kuala Lumpur. What hit me almost immediately after I exited the airport were the omnipresent crowds of people. Well, the country is inhabited by 87 mln individuals (just imagine the country of land and population size of Germany that’s in full demographic boom). Just like in most developing countries, growing population combined with high rural -> urban migration levels, make Vietnamese cities quite busy by default.

Swarms of motorbikes zipping through until late night hours make a simple thing such as crossing the street – one of the biggest challenges for newcomers (it took me two days to stop using my friend as a human shield in case of an unexpected Saigon kiss). If you don’t believe how crazy it is, here is a proof. Relatively low presence of automobiles is a result of rather modest incomes – similarly to India, you can see two or three people riding one bike at a time. However, compact size of vehicles comes in handy, when we consider the incredible city traffic and rising environmental concerns. It is not advised to drive around the city mid-day without wearing a face mask to cover the face from fumes and air pollution.

Ho Chi Minh City now has 7.4 million motorbikes - so that's around one per person!
Ho Chi Minh City now has 7.4 million motorbikes – so that’s around one per person!

Arriving to Saigon by plane, you will notice the city panorama dotted with rising skyscrapers. Bitexo Financial Tower is perhaps the most visually stunning one (it hosts a nice rooftop bar too, so go there to enjoy a lovely view of Saigon at night). For those of you willing to spend a penny more, feel free to wander around Bến Nghé neighbourhood and pop into Louis Vuitton or other luxury boutiques. There are many around there, so you won’t be disappointed.

Lifestyle-wise, I was personally surprised with the number of nice and cosy cafes I managed to find in Saigon. One day, I stumbled upon a hidden hipster town with alternative designer boutiques and signature shake bars – hidden behind ugly, multistory apartment blocks on the outskirts of the city center. I don’t think any tourist ever wandered around in that direction, but many would probably enjoy a little sneak pick into the lives of middle-income Vietnamese. It’s not all street stalls and plastic chairs.

I wasn’t actually that confused with the rise of private consumption among Vietnamese middle-income class. It’s one of the fastest growing markets for e-commerce – companies like Lazada are actively recruiting and developing their services in Vietnam.

Shopping and coffee, anyone? Hanoi center is just like any western city.
Shopping and coffee, anyone? Hanoi center can provide entertainment, just like any other Western city.
Ho Chi Minh City now has 7.4 million motorbikes - so that's around one per person!
Or fast food – Vietnamese love their fried chicken 😉

Vietnam is a one-party state, which means the ruling Communist Party of Vietnam is always guaranteed to win any upcoming elections. Don’t be too surprised by the plethora of communists flags and posters in the public space – the government propaganda is alive and well. Therefore, don’t expect much objectivity in Vietnam’s museums or at tourist information points, especially when it comes to country’s historical achievements, international position and accounts of wars.

Propaganda posters are a friendly reminder you are in a communist country.
A friendly reminder you are in a communist country. This is the first photo I took in Vietnam.
The architecture looks quite dated (communist), even if it's just an entrance to a park. Flags are a must.
The architecture looks quite dated (communist), even if it’s just an entrance to a park. Flags are a must. Here, it’s in Can Tho.

There is one experience that I thought I would exclude from this general rule, though.

Despite the fact that the War Memorial Museum in Saigon included a lot of propaganda material (“We love Cuba”, “Workers of the world, unite!” etc.), some of its exhibitions shed a new light on the way I perceived Vietnam War (which is, by the way, also known as American War among locals – talk about a change of perspectives). The scale of harm and suffering done to Vietnamese population by U.S. forces, dropping chemical weapons throughout the 60’s, was not something that I was aware of. I don’t think I fully comprehended the extent of damage done by Agent Orange. The exhibition featured many (very graphic) photos and horrific accounts of people directly affected by it. In certain regions of the country, people, who were born even as 1st or 2nd generations after the Vietnam War, still suffer from genetic diseases and body mutilations related to Agent Orange.

In the same museum, I also saw a powerful tribute-like exhibition devoted to foreign correspondents and photographers covering the situation in Vietnam during Indochina and Vietnam Wars. Their work and commitment to revealing the darkest sides of those 20th century conflicts that consumed so many innocent victims in Vietnam is rightly appreciated by the Vietnamese government. It puts any pseudo-rational judgments we frequently make about the Vietnam War (and other conflicts for that matter, especially in areas we frequently know little about) in an entirely new, human-oriented and highly unsettling perspective. One name I suggest for you, dear readers, to check out is Robert Capa.

INDOCHINA. First Indo-Chinese War (1946-1954). On the road from Namdinh to Thaibinh. May 25th, 1954. A French military convoy. After World War II France reinstalled its colonial government in Indochina (after the Japanese invasion during the war). In 1946 a Vietnamese independence movement, led by communist Ho Chi Minh, started to fight against French troops to gain control of northern Vietnam. On May 7th, 1954, the French were defeated at Dien Bien Phu. The armistice, signed in Geneva, divided Vietnam into a "Democratic Republic" in the North, under communst rule, and the "State of Vietnam" in the South, under French rule.
INDOCHINA. First Indo-Chinese War (1946-1954).
On the road from Namdinh to Thaibinh. May 25th, 1954. A French military convoy.
After World War II France reinstalled its colonial government in Indochina (after the Japanese invasion during the war). In 1946 a Vietnamese independence movement, led by communist Ho Chi Minh, started to fight against French troops to gain control of northern Vietnam. On May 7th, 1954, the French were defeated at Dien Bien Phu. The armistice, signed in Geneva, divided Vietnam into a “Democratic Republic” in the North, under communist rule, and the “State of Vietnam” in the South, under French rule. Source: Magnum photos.

As I mentioned in the introduction, Vietnam is opting for a socialist-focused market economy, perhaps modeled after China. That fact alone explains country’s high levels of foreign direct investment and active membership in international organisations like ASEAN. The disbursed foreign investment in 2015 stood at roughly $14bln (source: Bloomberg Businessweek), as the country is significantly easing business regulations to attract investors from abroad, in line with the Trans Pacific Partnership.

Finally, you can feel the clash between the international, business-oriented South of Vietnam and more traditional and policy-focused North. For instance, you might have noticed that “Saigon” and “Ho Chi Minh City” frequently feature interchangeably as names of the biggest city in Vietnam. The official name is Ho Chi Minh City and it was coined shortly after the country’s unification, in 1976, in honor of the late Communist leader Hồ Chí Minh. However, very few Vietnamese in the South refer to the city that way. Most of them stick to the name “Saigon“, probably because they relate more to the city’s pre-communist history and heritage or do it out of spite to the communist government.

Hanoi, for me at least, had a much more political and formal character, perhaps as the country’s current capital. It’s were the Mausoleum of Ho Chi Minh, containing the corpse of Uncle Ho, is located. It is currently one of the biggest attractions in the city. Moreover, street vendors and nightlife aren’t as prominent there as they are in Saigon. I do have to exclude the wonderful tradition of bia hoi – the world’s cheapest beer!

Say hi to Uncle Ho the leader of communist Vietnam (the Mauseoleum is closed on Mondays and no photos can be taken inside).
Say hi to Uncle Ho, the leader of communist Vietnam (the Mauseoleum is closed on Mondays and no photos can be taken inside).

What are the downsides?

When I landed in Saigon on a February morning, I didn’t quite know what to expect. My friend, who was waiting for me outside of the airport, had just one piece of advice: “In case of any problems, just pass on a couple of dollars to the officers, it will save you time and trouble”. Uncertain of whether he was joking or not, I considered the idea pretty risky and ridiculous. I wasn’t, of course, going to bribe anyone. To be honest, I thought my blonde hair and a cheerful smile will do the trick, in case the officials ask me any surprising questions at the border. As I waited to have my baggage screened at the exit of the arrivals hall, I noticed an old Vietnamese man in front of me nervously searching his pockets. After a minute or two, he was putting a small pile of Vietnamese Dongs inside of his passport and swiftly passing it to one of the security guards. “Oh, I guess he wasn’t joking after all…” – the rumors of Vietnamese corruption were not exaggerated. Vietnam ranks 112/168 in Corruption Perceptions Index (2015) by Transparency International. I think that speaks for itself.

Environmental issues

Rapid economic development always comes at a cost to the environment. I witnessed that first-hand when I visited one of the tiny Vietnamese islands in the  Gulf of Thailand. During my three-day stay, I had a chance, not only to observe the port life from up close, but also to talk to some of the men working as fisherman. What I found out was actually very surprising – they go out all the way to Malaysia for couple days each month for fishing purposes. That is apparently where the fish and where the money is. Interestingly enough, all of the fishermen in the region underlined that the number of fish has been declining year after year. Blame global warming? Over-fishing? Pollution?

The entire town is working in the fishing industry - here untangling the nets before the trip to the sea.
The entire town is working in the fishing industry – here untangling the nets before the trip to the sea.

It’s not uncommon to hear about negative effects of environmental pollution in the area. In April 2016, a major steel producer, Taiwanese firm Formosa Plastics, was fined $500m (clean-up and compensation) for polluting the central Vietnam’s coastline with toxic discharges. As a result, around 70 tonnes of dead fish were washed ashore. This fact had a detrimental effect, not only on the fishing, but also for the tourist industry, which favors many of Vietnam’s beautiful beaches.

In 2015, seafood exports of Vietnam were worth more than $6bln (source: seafoodsource)
In 2015, seafood exports of Vietnam were worth more than $6bln (source: seafoodsource)

Additionally, the recent drought in the Mekong River Delta (worst one in the last century) has taken a heavy toll on Vietnamese agricultural production. That, in turn, caused a downward revision of country’s GDP growth forecast for the year (to 6.2% level according to IMF).

***

Vietnam is a fascinating country full of contrasts and contradictions. Rising foreign direct investment levels on one hand and the omnipresent communist party on the other. Somewhere in between we have urban societies enjoying the new pro-western lifestyles and rural populations focusing on exports of their splendid produce. However, Vietnam as a country and Vietnam as a nation are both increasingly challenged with high levels of corruption and negative environmental impacts of urbanization and growth.

Sustainable development will define Vietnam's bright future.
Sustainable development will define Vietnam’s bright future.

This post is meant as an introduction to a wider discussion: what should be the long-term sustainable recipe for growth of Vietnam, as it advances from the circle of poor countries to join the affluent club? Feel free to share your thoughts.

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