Walking around in Ha Noi, Viet Nam’s capital, you can feel boundless energy everywhere. People whiz by on scooters, buy and sell everything from phones to food in the countless small shops, and run to and fro to get to school or work. Viet Nam is young, growing, and anything feels possible.
It wasn’t always thus. A mere 30 years ago, the country was one of the poorest in the world. How did this southeast Asian nation grow to become a middle-income country?
If you’ve been to Ha Noi, this description will definitely ring true. Read this article for a good partial answer to this question asked in the second paragraph. While you’re at it, check out the video overview. While it doesn’t cover all of the bases and you have to consider the source (IMF), it is pretty accurate. I try to stay up-to-date on economic statistics and trends but am also a long-term participant-observer in the exciting reality that is Viet Nam’s rapid development.
Having spent a considerable amount of time in Germany back in the day, both West and East, as a student, teacher, and researcher, I’m reminded of the German economic miracle (Wirtschaftswunder, also known as the “Miracle on the Rhine”). One stark difference between the two countries is that there was no Marshall Plan for Viet Nam.
In order to engineer its own “Miracle on the Red River,” Viet Nam first had to rely on itself – with assistance from the INGO (international non-governmental organization) community and Official Development Assistance (ODA) – before and after the Đổi Mới, or renovation, reforms of 1986, which gave rise to Viet Nam’s “market economy with socialist orientation.” (A lot of INGO funding has shifted to another countries with the rise of Viet Nam as a threshold middle-income country.) The rest, as they say, is history, and an inspirational one at that.
According to the World Bank, Viet Nam ranked a close 9th to Bangladesh in 2016 in total remittances with an infusion of $13.4 billion.
With a 2016 GDP of $202.6 billion this means that 6.6% of Viet Nam’s GDP was attributed to remittances. (See GDP definition below.)
Where Does the Money Go?
According to the State Bank of Vietnam HCMC Branch, a report released in early 2016 indicated that 70% of remittances went to production and business projects, while 21.6% went to the real estate market and 7% was spent on families’, i.e., relatives’, daily lives, healthcare and education services.
One result of the decrease in the dollar interest rate to 0% a couple of years ago has been more money flowing into real estate. (HCMC has one of the hottest real estate markets in the world.) The rationale behind the official decision to lower the USD interest rate to nothing was to prevent people from hoarding dollars.
Another way to make money with money is simply to have foreign currency converted to VND and park it in a CD account. Current savings interest rates are in the 7-8% range, considerably higher than in the sending countries. This reflects the growth of the domestic credit market and explains why so many banks are doing so well.
Brain Circulation: A Mixed Bag
Remittances are one of the benefits of having a large diaspora and one reason why the term “brain drain” is not a useful description of what happens when people emigrate for whatever reason. There are about 4.5 million overseas Vietnamese nearly half of whom are in the US. Vietnamese-Americans send 60% of the total. This also includes money sent by Vietnamese working overseas on a work visa. The majority is sent by overseas Vietnamese.
It was predicted earlier this year that the decrease in remittances would continue, especially from the US, because of tighter restrictions on immigration to the US that would primarily affect illegal immigrants and those with a work visa. (These individuals comprise up to 38% of all workers in the US from the Philippines, Viet Nam, and India.)
In fact, it is estimated that Ho Chi Minh City will most likely receive a total of $5.2 billion in 2017, an increase of 6% from 2016. Let me go out a limb here and say “As HCMC goes, so goes the country.” (Viet Nam’s economy grew at the fastest rate in a decade this year and slightly higher than the government target of 6.7% exceeding the 6.21% for 2016.)
The November estimate was $5.7 billion, which was revised downward because of plans by the US Federal Reserve System to increase interest rates several times next year. Another unknown variable is the VND/USD exchange rate, for which an “upward trend” is predicted “in the next four or five months”. The VND has been stable for a number of years, thanks to government policy. This means that there is virtually no difference on a given between the bank and “black market” rates.
Definition of GDP from The World Bank: It’s useful from time to time to actually define terms, even if they are seemingly well-known. Here’s the definition that the World Bank uses: GDP at purchaser’s prices is the sum of gross value added by all resident producers in the economy plus any product taxes and minus any subsidies not included in the value of the products. It is calculated without making deductions for depreciation of fabricated assets or for depletion and degradation of natural resources. Data are in current U.S. dollars. Dollar figures for GDP are converted from domestic currencies using single year official exchange rates. For a few countries where the official exchange rate does not reflect the rate effectively applied to actual foreign exchange transactions, an alternative conversion factor is used.
Last summer, the Asian Development Bank (ADB) announced that it was providing $70 million in loans for the Viet Nam Skills Enhancement Project, which will offer training programs in priority industries in cooperation with the private sector.
As in other countries, vocational education and training is “low prestige” and therefore not attractive to most high school graduates. It is also one of the highest priorities in Vietnam’s postsecondary education system in order to meet the severe shortage of skilled workers. Every year, 1.5 million young people enter the labor market and only 13% of all workers have a vocational qualification. The pressing reality is that Vietnam needs to enroll far more students in vocational education and training programs.
According to the ADB press release, 24,000 students will benefit from the program with 25% of them women and members of ethnic minority groups. Specifically, the project will fund training programs in public and private vocational colleges in automotive technology, electrical and mechanical manufacturing, hospitality and tourism, information and communication technology and navigation and shipping.
In one recent success story from a pilot project that began three years ago 7,000 students, graduates of Ha Tinh Province’s Viet Nam-Germany Vocational Training College Training Department were earning monthly average salaries of VND3.3 million (US$165) while many university graduates have not yet found a job. Many companies had recruited skilled workers at an initial average salary of VND2.5 to 4.5 million ($125-225). To put this in perspective, the 2009 per capita income in Vietnam was $1052, or $88 per month.
Unlike most programs, the curriculum was based on the actual needs of employers, including the Da River Hydropower Plant, the Prime Group and the Vung Ang Industrial Zone. Companies were encouraged to participate in the process by specifying the number of skilled workers they needed based on a contract and having input in the examinations. About 70% of the training programs were based on Vocational Training Department criteria with balance coming from industry.
Vocational Education and Training at US Community Colleges
Since the majority of Vietnamese begin their US study experience at a community college before transferring to a four-year school to complete their Bachelor’s degree, some may want to think about the possibility of earning an Associate’s degree in a high-demand vocational area. After completing their degree in two years, they could apply for Optional Practical Training (OPT), gain valuable work experience related to their degree and earn some money before returning home. Some adventurous and visionary US community colleges could consider promoting this option in Vietnam, in addition to the general education track that leads to university transfer.