Vietnam is on its way to prosperity .. Will the next Asian miracle be?

Within days of China announcing its first case of the virus (Covid-19), Vietnam was on alert to stop the spread of the virus. Their contacts and everyone who came into contact with them.

The rapid isolation of the epicenters of the epidemic has kept deaths among the lowest rates in the world, at about one death per million people.

In an article published in the American newspaper "New York Times", writer Rocher Sharma said that containing the epidemic allowed Vietnam to quickly resume commercial activity, and its economy is expected to be the fastest growing in the world this year.

While many countries suffer a huge economic setback that prompted them to borrow from the International Monetary Fund, the Vietnamese economy is growing at a rate of 3% annually, and perhaps most surprising of this is that its growth is driven by a record trade surplus despite the collapse of global trade.

In fact, Vietnam has been working on achieving this development for a long time. After World War II, the "Asian miracles" (first Japan, then Taiwan, South Korea, and most recently China) made their way out of poverty through openness to trade and investment, and turned into a powerhouse. Industrial export.

Currently, Vietnam is on the same path, but in a completely new era, the conditions that made Asian miracles possible are gone, the era of rapid globalization with growing trade and investment flows has passed, and economic growth is slowing worldwide.

Under these conditions, great powers no longer ignore the strategies that previous economic miracles used to advance.

Last week, the United States formally accused Vietnam of manipulating the currency and began the same investigation that sparked the tariff war with China.

While many countries suffer an economic downturn, the Vietnamese economy is growing at a rate of 3% annually (Getty Images)

Challenges

The writer believes that the biggest threat that lurks the continued growth in Vietnam is the authoritarian party that has ruled the country for nearly half a century.

In the absence of opposition, autocrats can impose very rapid growth, but their unbridled political whims and obsessions often generate chaotic boom and bust cycles, which impede development.

All these hurdles make what the unusually inefficient authoritarian regime has achieved in Vietnam so far more impressive, but also more difficult to make sustainable.

During its prosperous years, the first Asian miracles achieved annual export growth of nearly 20%, equivalent to double the average in low or middle income countries at that time, and Vietnam has maintained the same growth rate for 3 decades.

Even with the decline in global trade in 2010, Vietnam’s exports grew by 16% annually, which is by far the fastest rate in the world, and equivalent to 3 times the average in developing countries.

While other emerging countries spend lavishly on social welfare in an attempt to appease voters, Vietnam allocates its resources to preparing infrastructure for exports, by building roads and ports to transport goods abroad and building schools to educate workers, and the government also invests about 8% of GDP annually in New construction projects, and Vietnam currently scores the highest for the quality of its infrastructure of any country at a similar stage of development.

Vietnam directs foreign investment in the same direction. Over the past five years, foreign direct investment has averaged more than 6% of Vietnam’s GDP, the highest rate of any emerging country.

Most of these investments are directed towards building manufacturing facilities and the associated infrastructure, and most of them are currently flowing from sister Asian countries, including South Korea, Japan and China.

In other words, old miracles help build new ones.

Although the demographic growth of the working-age population has slowed, most Vietnamese still live in the countryside (Getty Images)

Vietnam in its era of prosperity

Vietnam has become the preferred destination for export manufacturing companies, leaving China looking for cheaper prices. The average annual per capita income in Vietnam has increased five times since the late 1980s, reaching nearly $ 3,000 per person, while the labor cost still accounts for half of the labor cost in China, as well as its workforce is unusually well-educated, given the income group.

This qualified workforce is helping Vietnam climb to the "top of the pyramid," perhaps faster than any competitor to manufacture increasingly sophisticated goods. Technology has overtaken clothing and textiles as the leading exports to Vietnam in 2015, and they account for most of this year's record trade surplus.

In the era of protectionism, Vietnam is also a communist proponent of open borders, with more than a dozen free trade agreements, including the historic one recently concluded with the European Union.

But can Vietnam continue to succeed, despite potential hurdles such as shrinking population, declining trade, and an authoritarian government tightening its grip on power?

Most likely, it could happen. Although demographic growth of the working-age population has slowed, most Vietnamese still live in the countryside, meaning that the economy can continue to grow by shifting workers from rural areas to work in urban areas.

Over the past five years, no major country has doubled its share of global exports more than Vietnam.

So far, the government of Vietnam has not made the fatal political mistakes that usually hinder economic development in autocracies. It is making autocratic capitalism work extraordinarily well, through open economic policies and sound financial management.

The vast majority of postwar economies that grew by leaps and bounds were run by authoritarian governments, and Vietnam has maintained robust growth so far away from classic excesses such as large government deficits or public debts.

One potential problem is that, after several rounds of privatization, the government no longer owns only a handful of companies, but they are huge and account for nearly a third of economic output, as they did a decade ago.

And should any problem arise, these bloated government companies responsible for the many bad loans in the banking system would be their source.

It is reported that the growing debt also led to the outbreak of financial crises that put an end to sustainable growth in Japan, South Korea and Taiwan, and it is now overcoming China as well.

Indeed, any development path carries risks, but Vietnam at present looks like a miracle of a bygone era, making its way to prosperity.