VIETNAM'S SOCIO-ECONOMIC DEVELOPMENT No.1, SPRING 1995

VIETNAM'S ECONOMY IN THE REFORM PROCESS

Dr. VU TUAN ANH
Institute of Economics, Hanoi

Vietnam has undergone many economic, social, management and diplomatic changes in the past decade. Three main orientations for reform are being put into practice:
- First, in the economic field, to operate a shift from a centrally planned economy to a market economy;
- Second, in social life, to carry out a process of intensified democratization and at the same time to build a legally authoritative state of the people, by the people and for the people;
- Third, in international relations, to practise an open-door policy, step up communications and cooperative relations with the outside world for the sake of peace, independence and development.
This reform of socio-economic policies has been unfolding in the context of a rapidly changing world. Those global changes have had a direct and extremely vigorous effect on Vietnam's socio-economic development. Under the influence of reform, the socio-economic situation in Vietnam has undergone fundamental change.

Prior to the 1980s, Vietnam's economy operated under a centralized planning system. This mechanism proved then to be suited to war-time conditions, and played a positive role in the mobilization of the country's available resources in the service of national liberation and reunification. However, from 1975 onwards, in the stage of socio-economic development in peace-time, the fact that the State assumed the leadership of all economic branches and the management of all economic activities in a country with over 60 million inhabitants proved to be ineffective and still hampered the development of the country.
In the years 1979-1980, owing to cuts in aid from outside and the U.S. led economic blockade, Vietnam underwent a deep economic crisis. In face of such circumstances, Vietnam gradually issued a series of adjustment policies oriented toward liberalization and marketization, considering them to be situational solutions. But it was initial changes at micro level that led to the reconsideration of the directions regarding development, and to the ultimate adoption of proper economic policies at macro level.
A line for economic reform oriented toward the market economy was proclaimed by the leading body of Vietnam in 1986 which was subsequently followed by a series of reforms to be strictly implemented by the whole country. The result was that when embarking on the 1990s, Vietnam's economy was restructured to conform to a market mechanism.
Freed from the grip of the rigid centralized planning system, economic activities have developed with redoubled vigour. In the four years 1991-1994 taken together, on an average, the GDP increased every year by 7.9 percent (see Figure 1).

Figure 1: Growth rate of GDP

Source : Statistical Yearbooks of Vietnam 1992, 1993.
In the difficult conditions of an economy transfering to a market mechanism, in addition to a sudden cut in main financial aid from the former Soviet Union and Eastern European countries with a concurrent loss of export markets to these countries, the economic growth rates can only be described as a highly significant success for Vietnam. The level of economic growth has three advantages. First, that economic growth rate is far higher compared with previous years. Though having no data for the GDP rate in the years before 1986, but compared only with the period 1986-1990, the growth rate of the first years of the 1990s has already doubled. Second, the growth rate has remained stable, while in previous period, the economic growth suffered irregular increases and decreases with large oscilations. Third, what is most important is that the economic growth rate did not rely mainly on a great source of external aid.
Compared with several countries in Asia, Vietnam in recent years has recorded a rate of economic growth of medium range (see Table 1).

Table 1 : GDP growth rate of Vietnam and several other Asian countries (%)

	1987	1988	1989	1990	1991	1992	1993
China	10.9	11.3	4.4	3.9	7.5	12.8	1.0
Hong Kong	14.5	8.0	2.8	6.2	4.2	3.0	6.1
Indonesia	4.9	5.8	7.5	7.1	6.6	5.9	6.3
India	4.3	10.9	5.6	5.2	1.2	4.2	5.4
South Korea	12.0	11.5	6.2	9.2	8.4	4.5	6.0
Malaysia	5.4	8.9	9.2	9.7	8.7	8.0	8.0
Philippines	4.8	6.3	6.1	2.7	-0.7	0.0	2.3
Singapore	9.4	11.1	9.2	8.3	6.7	5.8	5.8
Taiwan	12.3	7.3	7.6	4.9	7.2	6.6	6.8
Thailand	9.5	13.2	12.0	10.0	8.2	7.5	7.8
Vietnam	4.0	5.2	8.0	5.3	6.0	8.3	8.0

Source : Asian Economic Outlook 1993. ADB. 1994

The growth rate in two important branches of Vietnam's material production, namely agriculture and industry, differed much from each other.
Agricultural production still constitutes a branch of primary importance in Vietnam's economy, attracting 70 per cent of the work-force and producing as much as nearly 40 per cent of the GDP.
Due to the achievements in the improvement of irrigation systems, in the supply of new varieties of seeds and also as a result of reform policies, food production has rapidly and continually increased from 1988 to now. The growth index of food production was higher than the population growth rates. For that reason, food output per capita has increased with passing years. The indicator was only 281 kg of rice in 1987; it increased to 349 kg in 1988, 349 kg in 1989, 324 kg in 1990, 325 kg in 1991, 349 kg in 1992, 359 kg in 1993 and it maintained the level of 359 kg in 1994. With such a growth in agricultural production, Vietnam has ensured safety in food supply. Vietnam is exporting 2 million tons of rice per year. The total food output would decrease by about 1 million tons if there were crop failures owing to natural disasters, that is to say the part of export rice was only affected, but this decrease in food production did not cause any shortage of food to home consumers.
Food safety is an important requirement for an agricultural country such as Vietnam. In economic aspects, it has created conditions for a change of structure in agriculture itself. The farmers are no longer to produce food at all cost as they did in the past. They can now make calculations about economic effectiveness and select the plant species which may bring them higher income. In the 1990s, the increase of output in non-food plants is higher than the growth rate of the whole agricultural production and of food crops. For instance, the average annual rate of increase in peanuts during the period 1991-1993 was 6.8 percent, in tea 6.6 percent, in mulbery 16.9 percent, in rubber 6.5 percent, in coffee 7.4 percent. Buffalos, cattle, pigs, ducks and chickens have also been the object of large scale farming to meet population food requirements, and enough jobs have been created for farmers in practicing animal husbandry and constitute a source of profits to supplement their income.
The difficulty lying now in agriculture are the low prices of agricultural products and the lack of a consumption market. Products destined for exportation are mainly in crude form, and there's steady market. Though the State pays much concern to supporting and assisting agricultural production by investing in irrigation works and developing an extensive network of technical services to farmers, the results obtained were rather limited as the State lacks funds.
Agricultural production has not become high intensive farming in many areas, even in the Mekong river delta. In recent years, the average rice yield in southern provinces almost stood level at 3.5 tons/hectare, while in northern provinces, due to intensive farming and use of high-yielding varieties, rice output has increased from 2.8 tons/hectare in 1990 to 3.7 tons/hectare in 1994.
Compared with other rice-growing countries in Asia, the rice yield in Vietnam is still low. For instance, the average rice yield in Indonesia is at present 4 tons/hectare, in Yunnan (China) 4.2 tons/hectare. Due to lack of investment, both intensification and expansion of the acreage under rice cultivation are much restricted. The coefficient of land rotation is not yet high. The capacity of growing a third crop in winter has not been utilized. Liverstock breeding has increased in intensity, but it still remains a secondary branch. The average pork output per capita in 1994 was only about 9 kg.
After a period of recession in 1989-1990, industrial production has completely recovered and started to record a high growth. On an average, during the three last years 1991-1993, industrial growth rate was 13.2 per cent per year. A number of important items such as electric power, crude oil, cement, steel and paper have gained a high and steady growth rate due to concentrated capital investments. A number of other industrial products, though not having a monopoly and facing strict competition by imported goods, have always secured a good growth rate. Those include iron and steel for construction, fertilizers, transformers, soaps, detergents, plastic goods, leather products, electronic appliances, beer and soft drinks. (See Table 2).

Table 2: Some main products of the industry 1990-1994

Products	1990	1991	1992	1993	1994*
Electric power (Bil.KWh)	8.79	9.31	9.82	10.85	12.69
Crude oil (Mil.tons)	2.7	4.0	5.5	6.3	7.0
Cement (Mil.tons)	2.53	3.13	3.72	4.85	5.17
Paper (Thous.tons)	79	109	118	128	139
Steel (Thous.tons)	101	149	196	243	250
Fertilizers (Thous.tons)	354	450	530	714	788
Beer (Mil.liters)	100	131	169	230	276
Fabrics (Mil.meters)	318	280	275	310

* Estimated data
Source: General Statistical Office.

However, industry now is facing great trials no matter how big the index. Machinery and equipment are not adequately available, not to mention the low technical skills and poor technologies of the indigenous industrial establishments which can not compete with foreign-imported goods. A number of foodstuffs processing industries and industrieal branches such as textiles and mechanical ingineering, are in a state of stagnation and decline before harsh competition from outside, especially the dirt-cheap goods from China. In 1993, over one-third of the main products in the country were cut in output as compared to 1992. Such products as diezel engines, water pumps, insecticide sprayers, manual farm instruments, cotton and silk fabrics, and ready-made garments reduced output from 20 to 50 per cent. It is of utmost necessity to counter smuggling of foreign goods and to use the custom barriers in a rational manner to protect home-made products. But the way out of the state of depression for industry should be first and foremost the renewal of equipment and technology, and a change in business strategy and product assortiment. It is predicted that in years ahead, industry may gain a rate of growth of over 10 per cent per year if conditions are favourable.
Although it would be possible to maintain the GDP growth rate for a number of years ahead with increased investments from inside the country and abroad, it should be envisaged to see to structural change and industrialization in order to avoid the danger of a declining growth rate by the end of this decade. This could be explained by an analysis of structural change in the economy.

In the past few years, the sectoral structure of the Vietnamese economy has been changing slowly. The proportion of agriculture was reduced from 41.4% in 1987 to 35.0% in 1994. After a period of recession and decrease of its proportion in GDP, industry begin to rehabilitate its place. The service sector has considerably increased from 33% in 1987 to 39.0% in 1994. The economic structure change was due mostly to a shift to a market economy; not yet to the change in the growth and structure of investment.
The following picture (see Table 3) is comparing the economic structure of Vietnam with that of several other Asian countries.

Table 3: Structure of GDP of Asian countries (percent)

		Agric.			Industr			Servic
	1970	1980	1992	1970	1980	1992	1970	1980	1992
China	42.2	25.6	16.7	44.6	51.7	58.4	13.2	22.7	24.9
Hong Kong	...	0.9	0.2	...	32.0	42.6	...	67.2	76.3
Indonesia	35.0	24.4	17.9	28.0	41.3	42.9	37.0	34.3	39.3
India	44.5	39.6	32.5	23.9	24.4	27.3	31.6	36.0	40.2
South Korea	29.8	14.2	7.0	23.8	37.8	46.2	46.4	48.3	46.8
Malaysia	...	22.9	16.1	...	35.8	43.9	...	41.3	40.0
Philippines	28.2	23.5	22.6	33.7	40.5	35.0	38.1	36.0	42.5
Singapore	2.2	1.1	0.3	36.4	38.8	37.5	61.4	60.0	62.2
Taiwan	...	7.9	3.7	...	46.0	42.6	...	46.1	53.7
Thailand	30.2	20.6	13.1	25.7	30.7	37.4	44.1	46.7	49.5
Vietnam	...	42.7	38.2	...	26.3	23.8	...	31.0	30.0

Source: Asian Economic Outlook 1993.

Attention must be given to the data on GDP structure of Vietnam calculated on the 1989 price, that is to say the time when the prices for industrial products still contained some subsidized elements from the State and set at an artificial level compared with the prices of agricultural products and services fixed by the market. Thus, the proportion of industry was lower compared to reality. If supposing that there were not many errors committed in the making of statistics in different countries, and comparisons could be possible, Vietnam's actual economic structure is similar to that of Thailand prior to 1970, of Indonesia before 1970, of India in 1980.
The proportion of the service sector in Vietnam's GDP at present has attained approximately the level of the countries with a higher rate of development. In the future, this proportion will not increase much, and structural changes called upon to bring about a high economic growth rate shall be oriented toward industrial development and correspondingly the proportion of agriculture should diminish.
In examining the structural change of each sector, we should be aware of the fact that structural shifts do not take place as strongly as wished for. In agriculture, as said above, the ratio of liverstock breeding to cultivation does not change considerable. In industry, except the tendency to raise the proportion of fuel industry due to increased oil output, the structural shift is not yet clearly seen. In services, commerce constitutes the branch with the greatest proportion, usually accounting for one third of the added value of the tertiary industry. In the meantime, finance, banking and insurance, which are important services in the market economy, account only for about 4 percent of the added value of the tertiary industry.
An important tendency in Vietnam's structural change in the past period is a vigorous switch from import-substitution production to export-oriented one. In reality, the idea on promoting exports to gain enough foreign currencies for covering industrialization expenditure was already devised long before. But against the past politico-economic background of Vietnam, this idea could not be put into practice. No with policies aimed at boosting production and liberalizing economic relations with the outside world, Vietnam can make big strides on her path of development. The rapid increase in oil output and in the exportation of rice in particular has secured Vietnam a considerable gain in export turnover.
With the exception of 1991 (in which the disintegration of the Council Of Mutual Economic Aid was the cause of the loss of Vietnam's commercial contracts signed with former Soviet Union and East European countries), in general Vietnam has increasingly exported her commodities abroad. Correspondingly, imports were reduced in the years 1989-1991. In two recent years, the balance of payment has improved. (See Figure 2).
In general Asian countries have secured a high rate of exports, almost over 10% per year; in some countries and territories such as Thailand and Hong Kong, that rate was over 20%. With the exceptions of Philippines in 1990 and 1991, India in 1991 and 1992, Taiwan in 1990 (where the rates of exports were very low due to political factors), such increase in exports conforms with development in trading relations in the region. This has created a closer connection of Vietnam's economy with other economies in the region (see Table 4)

Figure 2: Vietnam's Imports - Exports in 1987 - 1994

Source : Statistical Yearbooks of Vietnam 1992, 1993.

Table 4: Export growth rates of Asian countries (%)

	1987	1988	1989	1990	1991	1992	1993
China	34.9	18.2	5.3	19.2	14.4	16.5	16.0
Hong Kong	36.8	30.3	15.8	12.3	20.0	21.2	20.0
Indonesia	19.5	13.4	17.8	16.7	9.8	13.5	13.0
India	16.0	13.7	19.5	12.2	0.6	2.1	12.2
South Korea	36.4	29.0	3.0	2.8	10.2	8.1	8.6
Philippines	18.1	23.7	10.6	4.7	8.0	9.8	11.5
Singapore	28.7	38.3	13.8	17.2	12.1	6.0	8.6
Taiwan	34.8	13.2	9.2	1.4	13.0	7.1	8.1
Thailand	31.7	36.1	25.7	15.0	23.8	17.8	18.4
Vietnam	-	21.6	87.4	23.5	-13.2	18.6	19.7

Sources Statistical Yearbooks of Vietnam 1992, 1993
Asian Economic Outlook 1993.

Vietnam's recent success in economic reforms has been spoken of favourably of by Western economists, and consists mainly in the improvement of the macro-economic environment.
Prices have been set according to demand and supply relationship on the market since 1989. The official exchange rate and the market exchange rate have been drawn closer to each other, and since mid-1991, an unique exchange rate has prevailed. The State has been intervening in adjustment and regulation to secure a relative stability for Vietnam's currency. Though this policy is still being hotly discussed as regards its effect on exports, one thing is clear that it has a positive impact on the mentality of domestic investors and consumers.
The most striking feature was the curbing of galloping inflation. The price index from 3 digits in 1988 was gradually reduced and stood only at 5.5% in 1993. In 1994 the inflation rate insreased to 14% again. The prices of goods and services in 1994 have increased owing to the following reasons:
- the government has carried out wage reforms from March 1993;
- a number of imported products such as fertilizers and cotton in the world market have increased in prices. Even the prices of several important home-made products such as electricity and paper have increased.
- the government has used several measures of intervention with a view to raising the price of agricultural products (such as purchase of rice to store in the national food reserve fund and increase of exports). On other hand, the quality of rice for export and domestic consumption has improved which has raised selling prices. As a result, the prices of foodgrains and foodstuffs have increased more rapidly than other commodities (See Table 5).

Table 5: Index of retail price (percent)

	1991	1992	1993	1994*	1991-94
- Commodities and services	67.5	17.5	5.2	9.9	127.5
Commodities	71.8	13.9	3.1	10.2	122.3
+ Food and foodstuffs	72.4	6.4	7.6	16.1	129.2
# Food	54.2	-14.7	6.3	19.7	67.4
# Foodstuffs	83.5	18.2	7.8	14.3	164.2
+ Non-food commodities	70.4	21.7	-0.4	4.0	114.8
Services	40.5	41.1	19.2	8.9	157.3
- Gold	88.7	-31.3	7.4	7.8	50.1
- U.S.dollar	103.1	-25.8	0.3	1.1	52.8

* Nine first months of 1994
Source : General Statistical Office 1994.

Vietnam has been successful in cutting down her public expenditures and in controlling inflation, thereby biulding an effective financial system. The taxation system is being reformed to be suit the new circumstances. In former times, budgetary receipts were mostly derived from the contributions of State-owned businesses. Now Vietnam has been gradually shifted to the collection of different taxes ranging from turnover tax, profit tax, natural resources exploitation tax, land tax, export and import tax and income tax. At present is under consideration the application of an value added tax.
The banking system has undergone a radical transformation to adapt itself to the requirements of the market economy. The interest rates of savings bank deposits have been adjusted in time with the aim of attracting more funds available among the population. In the coming time, Vietnamese banks must strive to raise their professional capabilities in order to effectively compete with foreign banks in the monetary market.
One thing should be considered that from the analysis of the distribution of the GDP in the past few years, it was seen that the rate of savings was still very low, accounting only for about 13% of the GDP. Compared with the average rate of savings ranging from 17 to 25% in developing countries, or even from 30 to 34% in China, this proves to be a worrisome figure because with it a decrease in the growth rate would be a real danger. In order to ensure an average annual growth rate of no less than 8%, the total capital invested must account for at least 20-25% of the GDP. At present, it is only one half of that required figure. The rate was 4.8% in 1991, 6.9% in 1992 and 12.7% in 1993.

Vietnam highly appreciates the finances contributed by external sources. The Vietnamese leadership has affirmed in "The Strategy of socio-economic stabilization and development of Vietnam up to year 2000" that "efforts should be made to attract funds from foreign countries, secure aid and assistance from outside and to borrow money at low interest rate".
This strategy has planned that for doubling the per capita GDP, Vietnam would need an amount of invested capital to the order of 40-50 billion US dollars, of which foreign funds derived from ODA, credit loans, foreign adids, direct investment, issue of debentures etc. should make up 50 per cent.
First of all, Vietnam must strive to improve and expand her relations with international financial and monetary institutions. She is a member country of the IMF and WB since 1950 and of ADB since 1966. From the early 1980s, those organizations did not lend any money to Vietnam for political reasons.
From 1990 to now, due to economic recovery and growth, especially to rapidly increased exports, Vietnam has paid back a number of debts long overdue. On July 2, 1993 US President Bill Clinton opened the way for the relations to be resumed between international financial organizations and Vietnam. Immediately after his declaration, financial and banking organizations granted credit to Vietnam. Since October 7, 1993, relations with IMF, WB and ADB have been normalized. ADB began to lend to Vietnam 127 million US dollars in 4 years 1993-1996. According to provisions, ADB will lend Vietnam 300 million US dollars in 1994 and 350 million US dollars for 1995 and 1996 (with interest rate of 1% per annum during 40 years) for development purposes.
On November 1, 1993, the WB agreed to grant to Vietnam a loan of 228.5 million US dollars for two projects on infrastructure development, namely to help develop the primary education system and upgrade highway No. 1A. Subsequently, in the three coming years, WB will provide Vietnam with a a credit of 1 billion US dollars. This program of financial assistance shall be concentrated in the reorganization of State-owned enterprises, in the liberalization of the capital and labour market, in the encouragement of exports, and last but not least in the attraction of private capital into the domains of communications and energy.
Thus, after 15 years, three major international financial organizations have resumed on a much larger scale financial aid to Vietnam. In the 1993-1994 fiscal year alone, the sums of money lent to Vietnam amounted to 850 million US dollars. A meeting of developed countries held in November 1994 in Paris announced that they would lend to Vietnam 2 billion US dollars in 1994-1995.
Several other international and national financial organizations have also signed agreements on loans to Vietnam.
Though the financial aid from outside has regularly been provided for Vietnam's development projects, what is worrying most is that Vietnam may become a country where debts weigh heavily on the shoulders not only of the present but also coming generations.
In Vietnam, the weakest link in the management and use of loaned capital in past times was having an institution responsible for refunding. In order to overcome this defect, the government issued the decision No. 58/CP dated August 30, 1993, by which the power of coordinating the loans and the money uses was concentrated in the hands of the State Planning Committee (SPC). A national Council in charge of bidding and contracting was set up under the chairmanship of the head of the SPC. The Ministry of Finance and the State Bank are assigned to manage the loaned funds to be distributed to infrastructure projects such as transport and communications, public health care and education.
Vietnam is developing bilateral relations with other countries. She strives her best to attract direct foreign investment which appropriately conforms to Vietnam's actual circumstances. This helps provide Vietnam with more funds and new technologies, create more jobs and raising income earnings.
Vietnam's new law on foreign investment was promulgated in 1987. Compared with corresponding laws now prevailing in other countries in the Asian region, Vietnam's foreign investment law is quite open and more suited to investors' requirements, thereby seemingly more attractive in terms of its provisions. Counting from the date of promulgation of the law to August 31, 1994, Vietnam has granted licences to 868 projects from investors of 51 countries and territories (not including licences withdrawn for one reason or another) with an aggregate registered capital of 9.139 billion US dollars. The legal capital is 4.927 billion US dollars, with the Vietnamese partners contributing 33.77% of the total invested capital and the foreign partners the rest (66.23%).
Among different forms of projects with foreign investment, about 64% of foreign investment projects are joint ventures between foreign and Vietnamese partners. According to the Vietnamese Law on Foreign Investment, the foreign capital in joint ventures is not limited by a "celling percentage" (such as the shares 49/51 in some other countries), but it should be lower than 30% of total status capital.
Nearly 28.5% of projects are businesses with 100% foreign-owned capital. There are now 329 these businesses with invested capital of 2.4 bil. US dollars. The form of business with 100% foreign-owned capital is allowed in the cases when the most of products of business are used for exports, or when business is located in the Export Processing Zones and Industrial Estates. Branches of foreign banks belong to this kind of business.
Business cooperation contract signed between Vietnamese and foreign partners is one of the forms of foreign investment involvement. In this case there isn't any new business legatity established. The foreign partner should fulfil the financial duties according to the Law on Foreign Investment, and the Vietnamese partner - to the laws on domestic companies. Most of the projects in oil and gas exploitation, importing materials and exporting processed goods are conducted in the form of this business contracts. There have been 86 such projects licenced with more than 2 bil. US dollars.
The foreign investment projects are classified according to economic branches as follows (see Table 6).
The following tendencies might be observed in foreign investments in Vietnam:
- First, the rate of increase in investment capital is high. From 1988 to 1992, this capital rose averagely by 51.6% every year. In 1992, this capital was equal to 70% of the aggregate capital of the four previous years added together. The year 1993 witnessed an increase by 40% compared to 1992;
- Second, the average size of investment capital for one project (not counting oil projects) has gradually increased with time. The size of capital for each project was 3.5 million US dollars during the years 1988-1990, 7.5 million in 1991, 7.6 million in 1992, and 9.9 million in 1993. Smaller scale projects with a capital of less than 5 million US dollars each account for over 70% of all projects, but make up only about 12% of the total registered capital;
- Third, there have been changes in the domain of investment. In the years 1988-1990 exploration and exploitation of oil and gas constituted the main preoccupation of foreign investors

Table 6: Foreign Direct Investment in Vietnam 1988-1994

	Number of projects	%	Registered Capital (Mil.USD)	%
Hotel & tourism	113	13.0	1905.8	20.9
Light industry	221	25.5	1414.9	15.5
Oil & gas	25	2.9	1281.1	14.0
Heavy industry	127	14.6	1247.5	13.6
Transport &communication	57	6.6	759.3	8.3
Construction	65	7.5	744.9	8.1
Services	73	8.4	728.3	8.0
Agric.& forestry	117	13.5	446.6	5.0
Building EPZs	5	0.6	306.8	3.3
Finance & banking	16	1.8	152.9	1.6
Fishery	27	3.1	94.3	1.0
Culture & Education & Health care	21	2.4	36.2	0.3
Export-import	1	0.0	0.3	0
TOTAL	868	100.0	9139.3	100.0

Sources : State Committee for Cooperation and Investment 1994

(accounting for 32.2% of the total investment capital), there after came hotel business undertakings (20.6% of capital). But as from 1991 onward, processing industries have occupied a predominant position with 45% of the registered capital;
- Fourth, the form of investment with 100% foreign-owned capital is tending to increase, from 6% of projects during the four years 1988-1991 to 17% in 1992 and to 28.5% at present. This increase is due to the improved legal system in Vietnam which has on the one hand inspired foreigners with much confidence in making investment and on the other has kept foreign investors free from dispute and controversy between partners in a joint venture;
- Fifth, there has been a transfer of investment- recipient territory. The majority of projects lie in the three regions with suitable infrastructural facilities. These are:
a/ in North Vietnam, that is the Hanoi capital - Haiphong port city - Quangninh province triangle,
b/ in South Vietnam, that is the Ho Chi Minh City - Dongnai province - Vungtau zone axis,
c/ in Central Vietnam, that is Danang city.
In the first years, North Vietnam did not attract much attention of foreign investors, but in recent times it has attracted more and more capital investment in projects designed to supply energy and raw materials. This is chiefly due to a more improved infrastructure;
- Sixth, in the first years, investors were mainly small-sized companies. In recent times, more and more big companies with abundant capital and advanced technologies have joined in the investment drive. West European companies at an early date made investments in oil and gas exploration and exploitation, while their Asian counterparts came later in this investment drive. But the latter's percentage in the total capital invested in Vietnam has rapidly increased and accounted actually for over 50% of projects and nearly 60% of registered capital.
Up to now, after 6 years of implementation of the law on foreign investment, the positive socio-economic effect of investment is strongly felt. Businesses with foreign capital have created nearly 50,000 jobs in their own establishments and about 100,000 jobs in the service sector connected with their undertakings. The State budget could derive more receipts from the taxes levied on those businesses. In six years, these businesses have produced goods and services worth 780 million US dollars, and have also applied a number of new technologies in telecommunication, oil and gas exploration, electronic industry and agriculture. Vietnamese businessmen have gained much experience in management and business operations.
Naturally, there have been also setbacks and failures. Due to different causes and factors, 114 projects had seen their licences withdrawn ahead of the time-limit (accounting for 14.3% of total licence-granted projects and making up nearly 8.8% of total investment capital in the six years from 1988 to 1993). There were no few projects which could not meet the requirement in high technology and economic efficiency. The majority of workers' strikes, which are a rare phenomena in Vietnam's society, have taken place in enterprises with foreign capital. The shift of qualified and skilled laborers from the indigenous economic sector to the sector with foreign-funded enterprises is rapidly gaining in scope along with an increase in available funds. Those are phenomena deserving a constant attention from the government so as to issue policies suited to the socio-economic situation.
In spite of all that, foreign investment will continue to play an important role in Vietnam's economic development. In coming decades, when the source of accumulated funds from inside the country is not made available in desired amounts, foreign capital shall make up a bigger proportion in the total invested capital. It will be perhaps a big push to development.

Vietnam's economy has passed through the critical period and commences towards a take-off. The good results obtained from food production, petroleum extraction, manufacture of important items such as electricity and cement, to say nothing of an explosion in commerce and services have contributed to maintaining the GDP at a good level. The centralized planning mechanism in the economy was dissolved and replaced by the market mechanism. Both State and private economic sectors have been stimulated to further development for the country's sake. The macro-economic environment is relatively stable with a low rate of inflation and a steady currency exchange rate. Efforts have been made to boost external economic relations. Potential sources which could be mobilized for the country's socio-economic development are most diversified.
However, the economy still bears an agricultural character. Industry is not yet up to the mark. Production capacity is still inadequate to be mobilized for bigger undertakings in the coming period of time. If increased capital investments are not to be obtained from outside, the rate of economic growth may not maintain the same level as it is now. The curbing of inflation is not yet steady. The state budget deficit is not yet completely eliminated with a permanent excess of expenditures over recepts. The State hasn't enough money to service its foreign debts which are much bigger than the annual export turnover.
The legal system is not yet effecient, and more seriously still, law execution is not as strict as it should. Unemployment is commonplace everywhere, especially among working age youth. It constitutes a burning problem that society should immediately tackle and also one of the causes engendering social evils.
In order to encourage the socio-economic development in the coming year, there are six key issues raised by the Vietnam's Government as follows:
- Urgent reform of financial and monetary systems;
- Heightening the quality of development planning;
- Developing the overall strength of all economic sectors;
- Using new advantages to develop external economic relations;
- Reforming the educational system and improving the human factor;
- Reforming the administrative system as part of economic reform.