Vietnam: Surprising Resilience but Challenges Ahead
cheap labor cost and abundant natural resources, Vietnamese products and services are still less internationally competitive than regional competitors (See Nguyen and Nguyen 2010), due to high transaction costs. Vietnam’s WTO accession and membership is neither the beginning nor the end of the country’s international integration. But the question is: Will traditional trade liberalization and openness policies still drive—and ensure—Vietnamese growth in the future? For many researchers and policy makers in Vietnam, economic reform based on traditional trade liberalization theory seems to have lost its momentum, as most of the country’s tariff and nontariff barriers have already been removed. Finding a new engine for growth is a high priority. This is even more important in a time of crisis when the economy’s competitiveness and advantages, relative to its trading partners and competitors, are most openly visible. The following challenges, old and new, thus face Vietnam in the postcrisis era:
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Infrastructure limitations: The absence of good infrastructure could potentially obstruct the country’s economic growth. One of the most pressing risks is a potentially serious power shortage, in which the national electricity system is unable to cope with the increased power consumption in the near future. The need for a more skilled workforce: A slow pace of human capital development can put an end to fast economic growth. The domestic supply of skilled labor remains a constant challenge and is mainly the result of a weak education system whose outdated curricula do not meet current work requirements. The need to reform the state-owned enterprise sector: The reforms of the SOEs have not seen much progress and recently slowed down significantly due to the global crisis. To improve the efficiency of the sector as a whole, particular attention should be paid to the contingency liabilities risk of SOEs. It is undeniable that guaranteeing these enterprises’ borrowing is a good and efficient way of supporting them because it is less costly than a direct subsidy. However, by doing this, governments have to suffer potential risks such as having to pay the outstanding loans when borrowers default. The most recent case of near-collapse of a giant shipbuilder Vinashin testifies this risk (see Nguyen and Nguyen 2010).
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