I.            Economic Development Overview

1.       Economic theory applies:

Economic models

Economic modeling is at the heart of economic theory. Modeling provides a logical, abstract template to help organize the analyst's thoughts.  The model helps the economist logically isolate and sort out complicated chains of cause and effect and influence between the numerous interacting elements in an economy. There are some primary applied economic models in the world, also in Viet Nam.

1.1. Aggregate Supply - Aggregate Demand (AS.AD) Model:

The AD-AS or Aggregate Demand-Aggregate Supply model is a macroeconomic model that explains price level and output through the relationship of aggregate demand and aggregate supply. It is one of the primary simplified representations in the modern field of macroeconomics.

Aggregate demand is the demand of all products in an economy - OR the relationship between the Price Level and the level of aggregate output (real GDP) demanded.

Aggregate Supply is the supply of all products in an economy - OR the relationship between the Price Level and the level of aggregate output (real GDP) supplied.

1.2. Loanable Funds Model:

  Model of interest rate determination

  Explore the causes of rising and falling interest rates

  Evaluate the wisdom of policy measures designed to influence credit and monetary growth rates and interest rates

  Can be represented as National Savings = Domestic Investment + Net Foreign Investment.

2.      Economic Development from history up to date:

  Economy of Vietnam developing planned economy and market economy

  Since the mid-1980s, VN has made a shift from a highly-centralized planned economy to a socialist-oriented market economy

  Nowadays, Vietnam is in the period of integrating into the world's economy, as a part of globalization

  As a leading agricultural exporter and an attractive foreign investment destination in Southeast Asia

HISTORY

2.1. Pre-Colonial Vietnam

  Agriculture was always the foundation of the country.

  Became the cradle of forest products, either as a commodity or tribute.

  Domestic and international exchange was undeniably significant in tradition.

  Trade and markets operated freely under the laws and  became the source of tax.

  In the seventeenth century, European merchants came.

2.2. Colonial Period

  Began in 1884, France was responsible for economic policy and finance.

  The South was designated to be developed agriculturally

  The North was selected as the region in which industrial development was to be concentrated.

  The separation distorted the basic Vietnamese economy by overly stressing regional economic differences.

  The colonial government also developed some extractive industries

2.3. 1954-1975

-         By the end of 1966, serious strains developed in the North's economy as a result of war conditions

-         Slowdown in industrial and agricultural activity.

-         In the South, became increasingly dependent on foreign aid.

-         The United States, the foremost donor supported in some fields.

2.4. Subsidy phase: 1976-1986

  The Vietnamese economy is shaped primarily.

  Planning is a key characteristic of centralized, communist economies, and one plan established for the entire country normally contains detailed economic development guidelines for all its regions.

  Three phases: incorporated the Second Five-Year Plan (1976-1980), socialist industrialization (1981-1990 & 1991-2005), allotted to "perfect" the transition (2006-2010)

2.5. The Second Five-Year Plan (1976-80)

  Set high goals for the average annual growth rates for industry (16-18%), agriculture (8-10 %), and national income (13-14%)

  Gave priority to reconstruction and new construction.

   In the South, material construction and systemic transformation were to be combined.

  Development plans were to focus equally on agriculture and industry.

  Heavy industry was intended to serve agriculture on the premise.

2.6. The Third Five Year Plan (1981-1985)

  Develop agriculture by integrating the collective, individual sectors into an overall system emphasizing intensive cultivation, crop specialization and by employing science and technology.

  Encouraged the development of the family economy.

  Free enterprise was sanctioned.

  The new policy especially benefited peasants.

  Industrial sector received a larger share.

  Stressed the development of small-scale industry, create goods for export, and lay the foundation for the development of heavy industry.

2.7. 1986-2000

-         Launched a political and economic innovation campaign.

-         Renew period combined government planning with free-market incentives.

-         Encouraged the establishment of private businesses and foreign investment

-         Still uses five-year plans

2.8. 2000 - Present

-         The July 13, 2000, signing of the Bilateral Trade Agreement (BTA) between the United States and Vietnam.

-         In 2001 the Vietnamese Communist Party (VCP) approved a 10-year economic plan.

-          January 11, 2007, Vietnam became WTO's 150th member.

-         Requiring Vietnam's economic sectors to open the door to increased foreign competition.

   II.            Recent picture of Vietnam economy

1.      Economy situation

1.1. In agro- forestry- fishing sector

a) Vietnam’s agriculture in 2011

vagro

-         The economic growth of agriculture reached 2.8%

-         The total production value is estimated to increase by 4.69%

-         Total export turnover reached the record highest rate (USD 19.15 billion)

-           Total area of paddy production was estimated to be 7.444 million ha of paddy

-         Rice production was higher 900 thousand tons, ensuring national food security and export of 6.7 million tons of rice.

vForestry sector in 2011:

-         The forest cover increased from 31.7 in 2005 to 39.5% in 2011

-         During the period 2006-2011, an area of 1.09 thousand hectares of forest was additionally planted, 9% higher than the expected rate, including:

+ 252,015 ha protection and special-use forest

+  839,416 ha production forests.

-         Over 5 recent years:

+ The total area of 2.507,355ha contracted for protection, 67% higher than the planned rate;

+ The forest area to be regenerated reached 922,768 ha, increasing by 15% over the planned rate.

vFishing sector in 2011

-         Total annual marine production reached nearly 5.2 million tons, increasing 7.2% compared to 2009 and attained 30% higher than the objective of the 5 year plan 2006-2011.

-         Total marine production reached 2.8 million tons, increasing by 9% compared to 2010.

b) Several problems of agricultural development 2011:

- Exporting of agricultural products obtained benefits from warning message “risk of food crisis and global food”.

- The price of agricultural products increases to improve the poverty rate.

- Subsidizing inputs- fertilizer prices rise.

- Disease and weather have bad effect to agricultural production (the impact of natural disasters and impact of disease).

1.2. Industry and manufacturing

a) Industrial growth

  In 2011, the country's industry sector remains instable and seeing slow growth, only 6.8%.

  For sectors of processing industry and manufacturing that now accounts for approximately 90% of total industrial production value.

  The consumption index in September 2011 decreased by 4.8% compared to August.

   While the inventory index as of October 1 increased over 21% over the same period last year.

b) FDI and industrial zones

  Industrial zones extant in Vietnam for about 20 years.

  As of 2010, 250 industrial zones established.

+ 170 industrial zones begun operation;

+ The others were in various stages of implementation.

  Located in three major economic areas

  Contributed more than 30% of industry gross values and created 1.5 million jobs for workers.

d) Remaining problems        

- Industrial distribution according to regions is still unbalanced

- Environmental Pollution

+ Along with the development of industrial zones, environmental pollution of the areas around them has increased.

+ By 2009, only 43% of industrial zones had waste water treatment works; and a large number of those did not operate efficiently.

1.3 Service factor: Education and tourism

In fact, the development of industry has contributed to the development of the service sector.

b) The education system in Vietnam

Current National Education System in Vietnam

  The national education system consists of formal education and continuing education and includes the following levels:

- Pre-primary education with nursery and kindergartens;

- General education with primary education, lower secondary education, and upper secondary education;

- Professional education with professional secondary education and vocational training;

- Higher education with college, undergraduate, master and doctoral degrees

  Quantity: numbers of schools, pupils/students and teachers increased over the last 10 years.

  Quality: By 2000, Vietnam succeeded in making primary education universalized throughout the whole country

  Teaching method: Most teachers in Vietnam apply the old and traditional teaching method .

  Shortage of teachers: Serious shortage in teaching staff - in both quantity and quality.

  Inadequate school infrastructure: Most schools in Vietnam do not have qualified labs, libraries, and playgrounds… for students

  Teaching materials: Teaching materials changing slowly and still a long way from practical use.

  Examination: Is really a burden to all learners…

1.3.2. Tourism

a) Recent picture of tourism in Vietnam

Vietnam is one of the most popular tourist destinations in the Asia-Pacific region and its tourism industry has been growing unprecedentedly over the past few years.

Tourism in Vietnam is a significant component of the modern Vietnamese economy. In 2011, Vietnam received about 6 million visitors, 1 million more than that in 2010. In 2008, Vietnam received 4.218 million international passengers, in 2009 the number was 3.8 million, down 11%.

b) Development orientation for future

To meet demand for development and global integration, Vietnam’s tourism industry has developed a lot of different types of tourism products to serve tourists, among which green tourism and green tours are most focused

-         Green tourism

ü  Firstly, green tourism places little influence on natural resources. It minimizes negative impacts on the environment while trying to maximize benefits to the environment.

ü   Secondly, this type of tourism does no harm to social structure of the community tourists come to visit. Instead, it pays respect to local culture and traditions.

ü   Last but not least, green tourism generates a huge income for the sector since it does not require maintenance cost while attracting a large number of tourists. It is extremely appealing to those who love “natural tourism” and “eco-tourism”.

ü  The Master plan of National Tourism Development until 2020, vision until 2030 particularly focuses on planning and developing this eco-tourism network.

-          Developing “green places”

Vietnam is aiming at developing green places and green tours to attract tourists. In 2011, Hanoi developed and implemented the slogan of “Green tourism year”. Vietnam is aiming at a green economy and even further than green ecoconmy and green tourism, it is aiming at “green values” and demand for real sustainability.

2.      Strength and weakness

2.1 Strength

Ø  Growth of GDP: 1998-2002, AOB estimated Viet Nam achieved growth 5.5%.

Ø  Export: In 1997 – 2002 increased from 9.1- 16.5 bill USD.

Ø  The processing industry: Achieved the growth medium.

Ø  Stabilization macroeconomics:   Low inflation and deficit budget go down.

Ø  Private investment: Increased 20% per year since 1999. 2000 – 2002, The entire formal private sector created 1.75 mill jobs

Ø  Poverty Reduction: the percentage of poor families declined from 58% - 37% from 1992-1998

Ø  Foreign economic relations: : Economic relations with the US improving. Boosted VN’s exports to the US

2.3. Weakness

-  higher growth, but still lag even further behind.

-  continuous growth in the long run, but has yet to be seen as sustainable development.

-       open integration to promote export, but continuous imports with large scale.

-       Fourth, move to market economies for many years, but may delay processin

-       Fifth, move to industrialization and modernization has over 15 years, but new technology wasn’t used much more

-       Sixth, “agricultural, rural, farmers" very important, but not considered adequate.

-       Seventh, with the goal of high growth, Vietnam has huge stimulus investment (investment ratio to GDP leading the world), but loan interest rate in Vietnam, which are high compared to other countries and territories

-       Eighth, the savings rate, the proportion of motivated high finance, but the proportion of large budget deficits and rising.

Nine is, science - technology is the engine of growth factors to improve the quality of growth, but the impact on the economy is low.

III.            Future Economic development

1.      Opportunities

-          Expanding product consumption market

-         Promoting exports

-         Approaching the advanced technology, the leading financial market

-         Boosting Vietnam enterprises continuously improve product quality, reduce costs…

2.      Challenges

Joining WTO has brought for Vietnam many opportunities to develop economy. However, once Vietnam has become a WTO member, the country will also have to face difficulties and challenges.

1.                             

2.                             

2.1                            Competition in international market

Vietnamese commodities, when accessing to international market, have to compete with those from more developed countries. Structure of Vietnam’s key exports does not much differ from those coming from China and ASEAN, but they lack specialty and service that cause low competitiveness due to rapidly increasing cost.

2.2 Competition in domestic market 

In the domestic market, Vietnam has to face with a lot of problems from the liberalization of economic sectors in the committed integration process. When Vietnam join WTO, foreign companies may promote their exports to Vietnam, instead of investment, because import substitute polices lose their effects and Vietnam’s investment environment is less competitive than other regional countries.

2.3 Enterprise system

- Vietnamese enterprises: weak, low competitiveness.

- low at technology, management capacity and labor expertise.

- Capital mobilization capability is low

- loose linkage among Vietnamese enterprises and with the rest of the economy in value chains

2.4 Physical infrastructure system

This system, even remarkably improved recently, still restrains competitiveness. The infrastructure network has not been developed nationwide, limiting a large number of rural and minor ethnics people to access to market economy and international integration opportunities. The prices of some infrastructure services in Vietnam are higher than those in regional countries and tend to increase (like electricity and water), negatively affecting low - cost - based competitiveness of Vietnam. The dual prices for domestic and foreign customers have yet to be completely settled. Construction of a developed infrastructure is a big challenge to Vietnam, which requires external support through FDI and ODA.

2.5 Science and technology

Technological level of most industries is more backward compared with regional countries. Most enterprises are at the stage of technological absorbing through importing machines and equipments . Technological and knowledge content in Vietnamese goods is low, products are mainly based on capital and labor. Scientific and technological market, both supply and demand, is infant. So, it is also a large challenges for Vietnam develop economy.

2.6 Human resource

Vietnam has abundant human resource but proportion of skilled labors is still very low. In the labor market, therefore, there exists a paradox: labor supply is high, meanwhile enterprises are lacking skilled labors, especially technical workers, marketing, designing and financial specialists, and business administrators. Productivity is low. Whereas, labor force of other countries members has high skills, know how to apply modern technology in production and manufacture… so the enterprises or company or even the farms should has many training course to improve working skills, increase productivity.

2.7 Environment

- environmental degradation have long and lasting consequences for later generations of Vietnamese.

- Current policy trends: not geared toward environmentally sustainable development.

àTo overcome those challenges, Vietnam needs to make active and careful preparations for effective integration in the WTO.

3.      Future plan

General objective (2011-2015)

-         GDP growth increased 7-8%/year

-         The poverty rate decreased 2-3%/year

-         Exploiting and promoting the advantages and strengths of the sectors, field, regions

-         Encourage the development of economic sectors with innovating and promoting state economic efficiency

3.1 The specific plan

3.2 Agriculture

-         Cultivation

Ø  Development of Vietnam rice production to  became a key export commodities and to ensure food security

Ø  Development of commodity crops has strong competitiveness and high efficiency to enter domestic market and export

Ø  Rational development  the crops that have a average or low competitive advantage,  import substitution

     -       Livestock

Ø  Response domestic demand is developing, developing raise high quality of pig and  good quality of poultry

Ø  Developing the feed processing toward large scale, high quality, low cost, increase the rate of using industrial feed.

Ø  Encouraging the development of slaughter methods and industrial processing, Strengthen the capacity, establishing a system of veterinary,  disease control.

3.3 Fisheries

-         Aquaculture

Ø  Promoting the advantages of the sector, developing aquaculture and establishing the  model of farms, group production, business and cooperation

Ø  Establishing the system of distribution of fishery products in domestic and international. Diversifying seafood products and expanding  the market for domestic consumption, exports.

Ø  Attracting domestic and foreign investment to develop seafood processing industry and trade promotion.

-         Exploiting and protecting of fisheries resources : Completely eliminate the use of explosives, poisons, electrical impulses to exploit of marine resources and fishing nature destruction of aquatic resources

3.4 Forestry

-         Developing 3 kind of forest by rational planning

Ø  Arrangement and stability the system includes three types of forest: 8.4 million ha of production forest, 5.68 million ha of  protection forest and 2.16 million ha of  special use forests

Ø  Exploiting the economic benefits from production forests by sustainable principles, using revenue from forest to protect, develop and enrich.

-         Innovating management method, protecting, developing and using forest

Ø  Combining forest protection, forest exploitation, plant and animal breeding development    conservation of biodiversity.

Ø  Building industrial processing zones  and trade of forest products

3.5 Industry

·        Priority development of high technology: high-tech development is the key to promote industrial development in Viet Nam.

·        New investment or additional investment to upgrade technology and equipment of factories that produce the high-tech productions. Develop the production of high-tech products in the fields of technology development promotion as follows:

·        In the field of information technology- communication: manufacturing batteries, high-performance batteries for information equipments and communication, micro-electromechanical systems (MEMS) …

·        In the field of biotechnology: biotechnology applications in industrial processing, production of bio-fuels, in the pharmaceutical industry, production of protein, in recombinant DNA vaccines…

·        In the field of new materials technology: research and production of nano materials for industry, agriculture, health, biology and environment, corrosion resistance and special alloys for industrial use, electricity, play ships, and military equipment…

·         Establishing and developing the high-tech enterprises to produce the high-tech productions on the basis of receipt and transfer of research results from the high-tech research programs in science and technology or import and apply them into some high-tech products…

·        Developing the industry to support for developing the high-tech industry by the Decision No.12/2011/QD of the Prime Minister on policies for developing some industry assistance.

·        Training of human resources for the development of high-tech industry:

- Training and retraining crucial staffs or leaders in science and technology so that, in 2020, about 500 leaders have capable of implementing projects of industrial high-tech, enhancing the qualification of more than 10,000 professionals, engineers in the fields of high-technology.

- Training at universities in the country and abroad for professionals, engineers in the fields of high technology so that by 2020, about 20,000 professionals, engineers are trained and work in the project developing high-tech industry

- Reforming (changing) the industrial development mechanisms, such as: FDI policy, high-tech policy, policy of human resource, the employment structure for employees…

3.6 Construction

Short-term strategic plan:

·        Solving the difficulties in real estate market, with aggressive action plan to develop the market healthy-oriented by the ways of creation the suitable laws and policies to enhance controlling management the real-estate market as well as removing the difficulties of determining the land prices, personal income tax in the assignment, providing the authorities certification of owning land and property on land, accelerate the establishment of saving houses, real-estate investment fund to support capital for the market.

·        Establishing the capital fund to lend the housing development projects serving low-income people, and projects will be completed and capable of recovering capital investment..

Long-term strategic plan:

+ In the next 5 years, the growth target of the construction business is from 12 to 15%.

+ The average housing area reached 22 m2 per person, building at least 10 million square meters of social housing.

+ Urbanization rate reached 38% nationwide with approximately 870 urban

3.7 Education 

The strategic objectives

Ø  Rational development the education scale,  preparation of quality manpower for the country the period of industrialization and modernization and creation lifelong learning opportunities for every citizen

Ø   Quality and efficiency education is improved, access to international and regional education

Ø   The resources  for education are mobilized adequately, allocating and using effectively  to ensure educational development condition

The implementing planning

-      Innovating education management

-      Development of teachers and education managers

-      Restructuring the national education system and expanding the network of educational institutions

-      Renewal programs and educational materials

-      Renewal of teaching methods, examination and assessment of learning outcomes, testing and evaluating educational institutions

-      Socialization of education

-      Increasing  investment in facilities and  technology for education

-      Linking training with social demands

-      Supporting  education for remote areas and priority students

-      Building the advanced educational institutions

 IV.            LESSON

1.      Positive lesson

-         Actively analysis and forecasting; promptly set out guidelines, policies and solutions and direction of the sensitive, flexible, focused and aggressive.

-         The selection of economic growth must be linked to keep macroeconomic stability

-         Focused on response to the economic downturn, care ensuring social security

-         Focused developing internal resources, while taking advantage of external resources.

-         Promote the work of information, propagation and dissemination of guidelines and policies of the Party and State.

2.      Negative lesson

-         The government should closely monitor the input cash flow

-         System of social protection in Vietnam still weak, while the number of people affected by the crisis increased. 

-         Many policy makers failed to forecast that Vietnam no comprehensive system to capture the economic situation.

-         Need to create institutional conditions for implementation of policy

    V.            CONCLUSION

-          The Vietnamese government shown their commitment to economic liberalization and international integration

-         Structural reforms needed to modernize the economy

-         The government is making strong efforts to curb the growth of inflation

-         Vietnam joined the WTO. This will be a major boost for Vietnam's export led economy. It’s good condition to develop economy.