Vietnam is one of the few communist countries left in the world. But its economy has been more capitalist for the past few decades.

The Vietnamese government realized a state controlled economy would not be effective in riding the ASEAN region’s wave of growth. So they took steps to ensure a smooth transfer of control from the state into the hands of private business owners. It hasn’t been easy.

A brief history of the Vietnamese economy would cover the nation’s extremely high growth. Like many former communist countries, it slowly lost momentum and ultimately failed to meet planned, sustainable growth.

In 2013, the country had a nominal GDP per capita of US$1,902. This was a far cry of the prediction made in a report by Goldman Sachs. The report specified that the Vietnamese economy would be the 35th largest economy in the world with a per capita GDP of $4,357 by 2020.

 

The Most Capitalist, Communist Country on Earth

Vietnam is now more integrated into the global economy. Almost all of its companies are small and medium-sized startups. A leading rice exporter and one of the best places for investment in ASEAN, Vietnam has an economy which relies on the large FDI it receives.

With recent economic instability, foreign and local business owners now hope for a more focused approach by the Communist Party. They want the state controlled economy to be on par with global standards.

The Vietnam economy may have lost some hype over the years, but it’s not gone. Vietnam has a lot of potential – especially since most of its economy is still controlled by state owned enterprises (SOEs).

Many analysts believe privatization of SOEs will lead to the sustainable growth which has eluded the Vietnam economy so far.

 

Major Obstacle to Growth in the Vietnam Economy

With global markets in shambles, Vietnam has something else it has to deal with. It’s an unnecessary problem, but the main obstacle of growth right now.

Most of Vietnam is still dominated by state owned enterprises. These types of businesses are often far less efficient than private firms.

The behavior is a bit like China’s with the leaders of Vietnam not wanting to relinquish their control over commerce. It’s proven that privately owned companies are more profitable, but the leaders don’t care.

The rest of the world notices this, and international players have tried to help change the role Vietnam’s government plays.

A US led trade agreement, Trans Pacific Partnership (TPP), requires less government involvement in the domestic economy. A direct benefit of being included in the 12 countries for TPP is the expectation from foreign investors that the Vietnamese market will be more predictable. This would lead to higher FDI for the country.

A director at the American Chamber of Commerce in Vietnam said the government should be “more of a referee in the economy than a player.”

With greater FDI and reforms to its domestic market, Vietnam is looking for sustained growth of between 6.5% and 7% for the next five years.

About Reid Kirchenbauer

Reid Kirchenbauer is the Founder of InvestAsian. He's experienced with trading stocks and buying property in Thailand, Cambodia, and elsewhere. He's been featured in publications such as Forbes, Nomad Capitalist, Property Report, and Seeking Alpha. Download his free investment guide by clicking here.

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