Bernardo M. Villegas
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Catching Up With Vietnamese Economy

           In a recent investment road show to Ho Chi Minh, I accompanied a group of business people from the Philippines to meet their counterparts in Vietnam in order to explore how our two economies can synergize in the ASEAN Economic Community (AEC).  Our focus was on banking, infrastructures, agribusiness, tourism and professional services.  It was the first time for one member of the Philippine delegation to visit Vietnam.  When we were traveling from the international airport to the business center, this first timer commented that he had the impression that Ho Chi Minh is what Manila was twenty years ago.  There were no signs of a Makati district or Ortigas Center, not to mention a Fort Bonifacio Global City.  Skyscrapers were few and far between.  Motor cycles still dominated as means of transport.  I think his first impression was accurate.  Ho Chi Minh is a far cry from our National Capital Region in terms of urbanization and modernization.

          Soon we realized that this seeming backwardness of the business center of Vietnam is actually a strength.  As we traveled to Danang to join a group of Filipino triathletes who were participating in the Half-Iron Man event sponsored by sports  entrepreneur Fred Uytengsu, it dawned on us that the leaders in Vietnam are doing things right in attaining inclusive economic growth.  They are not making the mistake that we committed in overconcentrating resources in Metro Manila and leaving the countryside largely underdeveloped, especially as regards rural infrastructures like farm-to-market roads, irrigation system, post-harvest facilities, etc.  The Vietnamese have decided to pour a lot more resources into the areas outside of Ho Chi Minh.  Danang was a pleasant surprise.  A former U.S. Naval base, it has been developed into a very modern tourism and industrial hub. It deserves the name given to it by the foreign visitors:  “Asia’s leading new resort.”   No wonder Vietnam attracts more foreign tourists than the Philippines, despite the fact that with our more than 7,000 islands, we have more to offer in attractive destinations.

          The success story of Vietnam, however, is mainly in agribusiness development.  Quoting from an article that appeared in “Asian Management Insights” published by the Singapore Management University, written by a prominent Vietnamese economist, Le Dang Doanh, “The reforms (Doi Moi or economic renovation policy) incentivized the farmers, who were given packages of land to grow their own crops, and to freely sell their products at market prices.  This led to an earnings increase of as high as 150 to 200 percent over the two decades since Doi Moi was introduced.  Vietnam was transformed from a crop importer to an exporter of rice, fish, cashews, black pepper, coffee and others.  So in the agricultural sector, the success story has been quite obvious.”  The Philippines has surely benefitted from this success story because we are importing large volumes of rice from Vietnam.  While we are still starting to redevelop our fledgling coffee industry, Vietnam has become the largest exporter of coffee in the world in record time, surpassing Brazil a few years back.

          True, the Philippines still has a higher per capita income in dollar terms than Vietnam.  That, however, is not the crucial test.  Just consider this assessment of the success of Vietnam in achieving more inclusive growth, as also reported by Le Dang Doanh:  “I believe these reforms have been largely successful.  Poverty levels have dropped significantly.  At the time of the reforms (early 1990s), over 60 percent of Vietnam was living in poverty (based on the World Bank’s criterion of living on less than US$1.25 per day).  But by 2010, this had been reduced to around 12 percent—a truly impressive achievement!”  In contrast, the Philippines has gotten stuck at 25 percent of our population living below the poverty line.  We have a lot of catching up to do with Vietnam!

          To make matters worse for the Philippines, Vietnam is way above us in the ranking of Ease of Doing Business as published regularly by the International Monetary Fund.  For 2014 to 2015, Vietnam ranks 78 compared with our 95.  True, we have improved by 53 points during  2011 to 2015 (thanks to governance reforms under the present Administration).  But we still have some way to go to catch up with Vietnam.  In fact, unless the next Administration does more to improve the foreign investment climate, the gap may actually widen in the coming years.  The Vietnam Government just scrapped 3,300 legal requirements for new companies, especially foreign investors.  Under the new rule, only the Central Government can decide on which conditions businesses have to meet.  Now, it takes only 17 days to start a business compared to 34 before.  During the start-up process, the time to acquire a business license has been reduced by half to 3 days.    Under the new decree which became effective in July 2015, foreign ownership can be up to 100 per cent for most sectors and firms will be allowed to propose their own limit.  Ownership of land will also be open to foreigners. All these liberalization moves can lead to much higher Foreign Direct Investments (FDIs) which already in the last ten years have been two to three times more in Vietnam than in the Philippines.

          How can we catch up with Vietnam in attaining more inclusive growth?  The answers are obvious:  the next Administration must be able to unleash a lot more resources from both its capital budget and through Public Private Partnerships to improve infrastructures in the countryside.  Additionally, it must remove from the Philippine Constitution the economic provisions which are too restrictive of foreign direct investments.  The next President must listen to Speaker Belmonte.    For comments, my email address is