Vietnam’s location on the easternmost edge of the Indochinese peninsula makes it a vital link between East, Southeast, and South Asia. The physical connection to these Asian regions and the maritime connections to the rest of the world have shaped Vietnam’s history and will remain crucial for its future.
By The World Bank
& Ministry of Planning and Investment of Vietnam
Image Attribute: Ho Chi Minh City, Vietnam. Source: Peter Nguyen's flickr photostream,
used under a creative commons license
Image Attribute: Ho Chi Minh City, Vietnam. Source: Peter Nguyen's flickr photostream,
used under a creative commons license
Vietnam’s
location on the easternmost edge of the Indochinese peninsula makes it a vital
link between East, Southeast, and South Asia. The physical connection to these
Asian regions and the maritime connections to the rest of the world have shaped
Vietnam’s history and will remain crucial for its future. But geography very
likely will not be destiny in the same way that it was in the past. After all,
the hyper-connectivity of the modern world (which Vietnam has signed on to)
overcomes many of the binds of geography. Moreover, future opportunities and
risks are projected to be largely supra-regional. That will require geopolitical
and economic outreach well beyond the neighborhood. Four global megatrends will
be important for Vietnam to consider in the next two decades:[1] geopolitical,
economic, technological, and climatic.
Geopolitical Megatrends
The current
shift in the world’s economic and geopolitical axis from west to east and from
north to south will define the coming decades. The rise of China is
particularly significant. The geopolitical shifts will, however, be even more
complex. Other regional powers—including developed economies such as Japan and
the Republic of Korea, and emerging powers such as Brazil, India, Mexico, the
Russian Federation, and Turkey—are also likely to try to expand their own
spheres of influence.
The emergence
of a multi-polar world order would give rise to multiple possibilities, among
them more such collaborations as the Asian Infrastructure Investment Bank
(AIIB) and the New Development Bank of the BRICS states (Brazil, Russia, India,
China, and South Africa). There could also be tensions or even conflicts among
the rising powers, or among rising and existing powers.
Cooperative relations
with a rising China will remain essential. Vietnam is one of the signatories to
and founding members of the AIIB. Its infrastructure financing needs over the
next several decades will run into tens of billions of dollars a year. With
most bilateral partners reducing their presence in Vietnam, the AIIB could
cover some of the emerging financing gap.
Of the
geopolitical risks particularly relevant for Vietnam are maritime issues with
China that go beyond just territorial concerns. The maritime waters have
considerable economic and strategic value, containing a wealth of fish stocks
and energy and mineral reserves. They are also critical for shipping and
communications. With the Middle East in turmoil, the geopolitics of energy will
also have implications for Vietnam both as a producer and exporter of crude oil
and as a rapidly growing consumer of petroleum products.
In the midst
of this fast-evolving world order, Vietnam will need to continue building its
alliances judiciously with a clear eye on its long-term economic and political
interests.
Global Economic Megatrends
The global
economy is projected to grow at an average of 3.2 percent annually between 2015
and 2035, with continuing expansion in trade integration, urbanization, and
technological advances the main drivers. The rise of China, India, and members
of the Association of Southeast Asian Nations (ASEAN) matched by the (relative)
decline of the United States, Europe, and Japan would be the most apparent shift
in the global economic structure in coming decades.[2] China clearly is the
biggest part of this story. In this report’s projections, it would overtake the
United States as the world’s largest economy (in market prices) around 2032. It
has been the world’s largest exporter since 2009, and the second-largest
importer of goods. It is set to become an important source of investment
financing for emerging economies, particularly regionally.
Trade with
China already accounts for 20 percent of Vietnam’s total, up from 10 percent in
2000. The significant flow of foreign direct investment coming into Vietnam is
linked, in part, to a shift in low-wage production from China. As real wages in
China continue their sharp rise, many of its production bases will continue to
look southward in search of lower wages—the “China+1 strategy.” Vietnam’s
proximity to southern China, home to many of these production networks, gives
it a meaningful competitive edge. Producers can benefit from its low wages and
from being part of the Chinese supply chains at the same time—a highly
attractive combination. The agglomeration of a nascent electronics-industrial
cluster in the north-central parts of Vietnam (around Hanoi) is an early sign
of these possibilities. Moreover, with a rapidly emerging middle class, the
Chinese consumer market (the world’s fastest growing) will be increasingly
attractive for Vietnamese producers.
Growth
prospects in East Asia will also be underpinned by the ongoing shift toward
multilateral (often regional) trade agreements. The ASEAN integration—starting
with the ASEAN Economic Community that became a functioning trading bloc in
2016—can bring considerable economic benefits. Estimates for Vietnam range from
a 1 to 3 percent cumulative increase in national income.[3] Even so, ASEAN
integration is seen in Vietnam as a stepping stone for locking in even more
promising partnerships beyond the region.[4] Especially noteworthy is the TPP.
Also significant are the Free Trade Area of the Asia-Pacific and the Regional Comprehensive
Economic Partnership, each in less advanced negotiations than the TPP.
The TPP
agreement includes the world’s largest and third-largest economies (the United
States and Japan), with TPP countries accounting for 36 percent of world GDP
and more than a quarter of all world trade. Vietnam is well positioned to
benefit. According to this report’s analysis, implementing the TPP could add a
cumulative 8 percent to Vietnam’s GDP by 2035. Others have estimated
double-digit gains for Vietnam, many times larger than for any other TPP
country.[5] Vietnam could also usefully leverage commitments under the TPP to
lock in policy reforms that might otherwise be politically harder to carry out.
Top-down
multilateral trade integration is likely to be complemented by important
subregional collaborations, including that within the Greater Mekong Subregion.
Dwindling and increasingly unpredictable water supplies along with a rising
demand for water and energy will require greater regional cooperation for energy
and water security.
New Technological and Business Megatrends[6]
Technological
innovations, fueled and supported by the information revolution, will disrupt
production and trading patterns across the world. Advances in digital
technologies ranging from three dimensional (3D) printing, programmable
micro-controllers, and second-generation computer numerical control milling and
routing make it easier and less expensive to manufacture customized
high-quality products. Major advances in renewable energy (particularly solar)
are posing a growing challenge to conventional and usually environmentally more
damaging energy sources. Next-generation genome sequencing and other advances
in the bio-medical field are set to open a trillion-dollar industry in the next
decade, enhancing and extending human life. Advanced robots are being deployed
on shop floors at an exponential rate, boosting productivity and driving costs
down.
The
information revolution is also enabling major disruptive innovations in
business models. The Internet eradicates many of the information advantages of
co-location and cost-sharing. Raw materials and other inputs to various degrees
of pre-processing are available for sourcing on the Internet. Online platforms
such as Alibaba .com, Etsy, and Maker’s Row make it possible for manufacturers
to search for customers without having to spend a lot on advertising and
distribution. Crowdfunding sites such as Indiegogo and Kickstarter can aid in
attracting finance.
For the most
part, these trends bring upside opportunities. But some unintended consequences
have to be managed. Skill-intensive and labor-efficient technology is set to
eliminate the more routine middle-income vocations while complementing highly
skilled and thus higher-income jobs. Already, new technologies have displaced
handicraft producers in numerous industries ranging from textiles to
metalworking. The progress of technology may also increase inequality in
society, as those leveraging technology gain higher incomes. The gap between
labor productivity and wages may also widen. Some even raise the specter of
premature de-industrialization in the developing world, partly because of
automation.[7]
Vietnam, with
its well-deserved reputation as a dynamic and adaptable economy, can view these
disruptive innovations with optimism. But to maximize the benefits,
long-term investments will have to upgrade the technical skill sets of the next
generation, and the domestic business environment will have to be the focus.
Some technologies will have associated risks that require careful management.
Global Climate Change
Climate change
is among the most consequential global issues. Greenhouse gas emissions are on
a path to a 3.5– 4.0 degrees Celsius (°C) warmer planet by the end of the
century. Climatic conditions, heat, and other weather extremes considered
highly unusual or unprecedented today could become the new normal. The impact
of global climate change is already being felt, with the number of category 4
and 5 storms having risen sharply over the past 35 years. The Arctic Sea’s ice
has shrunk to its lowest on record, and global sea levels have risen about
10–20 centimeters (cm) in the past century, with an accelerating rate of
shrinking. Rising sea levels increase the risk of storm surges and the
fluctuations in precipitation.
Vietnam has
been ranked among the five countries likely to be most affected by climate
change. A high proportion of its population and economic assets are in coastal
lowlands and deltas. Temperature increases in Vietnam have averaged about
0.26°C per decade since 1971,[8] twice the global average.[9] On current trends,
annual average temperatures will (depending on the location) be 0.6–1.2°C higher
by 2040 relative to 1980–99.[10] The predictions show intensified heat and cold
waves, and 28–33 centimeter increases in sea level around Vietnam’s shores.[11] Seasonal variability in precipitation is also projected to increase, with the
wet season getting wetter and the dry season drier. Extreme rainfall and
flooding would also become more likely, particularly in the northern region,
including Hanoi, with increased risk of landslides in mountainous areas. A
southward shift has been seen in the typhoon trajectory in the past five
decades. If this continues, Ho Chi Minh City would be at greater risk of being
directly hit. Coastal erosion and salinity intrusion are other unfolding risks
likely to accelerate.
Agriculture,
particularly rice production, is projected to be hit hard, most severely around
the Mekong Delta, where much of the land area is less than 2 meters above sea
level.[12] Climate change could reduce annual rice production by 3–9 million tons
by 2050, and highly productive areas of coffee plantations may become
unsuitable for the purpose.[13] The marine ecosystems in Vietnam are also likely
to be severely affected. And climate change impacts are also likely to have
adverse health consequences, including waterand vector-borne diseases and
diarrheal illnesses.[14] Flooding would compound the risks. The poor and elderly
would be especially vulnerable to heat extremes, compounded by the rapid
increase in Vietnam’s elderly population.
Endnotes:
[1]. The
discussion on the four global megatrends draws on Centennial Asia Advisors
(2015).
[2]. The three
Asian economies are projected to contribute more than 40 percent of the
increase in global GDP between 2014 and 2035, with their collective share in
world GDP rising from 22 percent in 2014 to 29 percent in 2035.
[3]. ERIA 2012
and Thanh 2015.
[4]. Thanh
2015.
[5] Petri and
Plummer 2014.
[6] This
subsection draws on Centennial Asia Advisors (2015).
[7]. Rodrik
2015.
[8] Nguyen,
Renwick, and McGregor 2013.
[9].
Intergovernmental Panel on Climate Change (IPCC) 2007 report, available from
the General Statistics Office of Vietnam.
[10]. MONRE
2012.
[11]. These
projections do not take into account land subsidence, which further exacerbates
the impacts of sea-level rise.
[12]. Wassmann
et al. 2009.
[13]. Bunn et
al. 2015.
[14]. Coker et
al. 2011.
Cite This Article:
“World Bank; Ministry of
Planning and Investment of Vietnam. 2016. Vietnam 2035 :
Toward Prosperity, Creativity, Equity, and Democracy. Washington, DC: World Bank. Page 7-11, © World Bank.
https://openknowledge.worldbank.org/handle/10986/23724 License: CC BY 3.0 IGO.”
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