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The Economy of Vietnam

Vietnam's greatest economic resource is its literate and energetic population. Its long coastline provides excellent harbors, access to marine resources, and many attractive beaches and areas of scenic beauty that are well suited to the development of tourism; a lack of infrastructure, however, has inhibited full utilization of these assets. The actual potential for economic growth based on Vietnam's wealth of natural resources, however, is being rendered increasingly problematic by population growth, environmental degradation, and rising domestic demand, and the country remains one of the poorest in the world.

During the period of 1954-75, when the country was divided, there were three layers to the Vietnamese economy: a bottom layer based on the cultivation of rice, a middle layer dominated by mining in the north and rubber plantations in the south, and a third layer that was a wartime creation marked by large-scale Soviet and Chinese aid in the north and substantial American aid in the south. In the north, land reform in 1955-56 was followed by rapid collectivization of agriculture and handicrafts. Government investment favored heavy industry at the expense of agriculture, handicrafts, and light industry, the traditional mainstays of the economy. Heavy industry grew, but efficiency was low, quality was poor, and further progress was hampered by deficiencies in agriculture and light industry. Economic aid from socialist countries masked many economic deficiencies. The southern economy was largely based on free enterprise, with significant state ownership of industrial enterprises. Agriculture flourished in the Mekong delta, while trade and transport were developed by private enterprise. The standard of living was significantly higher in the south than it was in the north.

After reunification, the northern model of development was imposed on the entire country. Efforts to socialize the commercial sector and to collectivize agriculture met with resistance, especially in urban centers and in the rich Mekong delta, where the majority of farmers in the 1970s were self-sufficient, middle-income peasants. The south also experienced a severe loss of human resources. Many well-educated people fled Vietnam after 1975. Hundreds of thousands more, mainly those associated with the former government or the Americans, were placed in jails or reeducation centers, while other skilled but politically suspect people were forced to resettle in remote areas. Efforts to abolish private enterprise in the south and deteriorating political relations with China mainly affected the ethnic Chinese and precipitated a flight of ethnic Chinese from Vietnam in 1978. Large police and military expenditures further strained the budget and diverted resources from productive enterprises.

These factors, combined with poor management of state-run programs, precipitated a severe economic crisis. Food production and per capita income dropped, and consumer goods were shoddy, expensive, and in short supply. The government responded with minor reforms in 1979 and more basic changes beginning in 1986. Vietnam began to move away from a state-controlled, centrally planned, subsidized economy toward one that utilized market forces and incentives and tolerated private enterprise--albeit under continuing government control. In response, the quality and variety of food and of various consumer goods increased, as did exports.


Mineral deposits, mainly in the north, are diverse. There are large reserves of anthracite coal, as well as of phosphates, high-grade chromite, tin, antimony, bauxite, gold, iron ore, lead, tungsten, zinc, and lime. A number of offshore oil deposits have been discovered in the South China Sea, mainly off Vietnam's southern coast.

Agriculture, forestry, and fishing

Agriculture is by far the most important economic sector in Vietnam. The great majority of the population earns its income from farming. In addition, agriculture is the main source of raw materials for the processing industries and a major contributor to exports; by the late 1980s Vietnam was again exporting rice after years of shortages. Permanent cultivation covers large areas of the country's lowlands and smaller portions of the highlands. The primary agricultural areas are the Red River delta, the Mekong River delta, and the southern terrace region. The central coastal land, which is subject to destructive typhoons, is a region of low productivity. The central highlands area, traditionally one of low productivity, has been intensively cultivated since 1975, but with mixed results.

Rice is the most important crop. It is grown on about four-fifths of the cropped land, principally in the Red River and Mekong River deltas. Other major food crops are cassava (manioc), corn (maize), soybeans, peanuts (groundnuts), and sweet potatoes. Agriculture is highly labor-intensive in Vietnam, and much plowing is still done by water buffalo. There are many plantations of banana and other fruit trees, coconut, and sugarcane, most of them found in the Mekong River delta and the southern terrace regions. Coffee and tea are grown in the central highlands. The production of rubber was disrupted by the war but has been restored in the central highlands and southern terrace regions. Other cash crops include tobacco and jute. Fields, groves, and kitchen gardens throughout Vietnam include a wide variety of fruit trees (banana, orange, mango, jackfruit, and coconut) and vegetables. Kapok trees are found in many villages, and the Vietnamese cultivate areca palms and betel peppers for their nuts and leaves and mulberry bushes to feed silkworms.

The export of such seafood as shrimp, squid, crab, and lobster has become a growing source of foreign exchange. There also has been an increase in the number of commercial shrimp farms. The most important freshwater fisheries are located on the plains of the Mekong and Bassac rivers.

Forestry is a major industry. Charcoal production is widespread, and a number of factories produce furniture, pulp, and paper. Plywood, lumber, and rattan products also contribute to the economy. Deforestation and soil degradation, however, threaten the viability of the industry, especially because of increasing domestic demand for forest products.


Following the reunification of the country in 1975, a concerted effort was made to rapidly transform the private, capitalist industry in the south into a state-run sector. Many industrial operations there were nationalized or forced to become joint state-private enterprises. For industry as a whole, the productivity of both capital and labor declined, and gross output slumped. Heavy industry--plagued by waste and inefficiency, lack of spare parts and raw materials, energy shortages, and poor quality control--led the decline.

Reform measures in the 1980s included introducing incentives, reducing subsidies to inefficient state-run operations, and gradually allowing limited market mechanisms. Light industry registered significant gains, while heavy industry responded more sluggishly but showed some improvement. Private enterprise and collectives grew somewhat at the expense of the state sector.

Mining has remained important, especially in the north, although not to the extent it once was. Coal, especially anthracite, has long been an important export. Phosphate, iron, tin, antimony, and chromium are produced for domestic industry and for export. Gold is used to make jewelry. Manganese, bauxite, lead, tungsten, zinc, and lime also are mined in significant quantities. The fledgling petroleum industry has grown steadily since oil extraction began in 1986.

Food processing is the largest industrial activity in Vietnam. Seafood is processed for export, while coffee and tea are processed both for export and for domestic consumption. Beverages and a variety of condiments also are produced in significant quantities. Textiles are of increasing importance; silk production revived in the 1990s after a period of decline.

Vietnam long has been a major producer of cement. The chemical industry has been growing, with fertilizer being its most important product. Steel is a major part of Vietnam's heavy industry. Rubber is processed for export and is used in domestic production, mainly to make bicycle tires and tubes but also in the manufacture of a wide range of other goods. Other important industrial products include bicycles, machine tools, electrical equipment, celluloid and paper, and leather goods. Electric power generation has increased significantly since 1980, with much of the growth coming from the development of hydroelectricity.


In the north until 1975 and throughout Vietnam thereafter, the state-owned National Bank of Vietnam (renamed the State Bank of Vietnam) functioned as a government monopoly in the banking sector. Commercial banking facilities were virtually nonexistent. Following economic reforms in the late 1980s, however, this structure was inadequate to attract badly needed foreign trade and investment. An import-export bank was established in 1989 to promote investment and to facilitate trade transactions. As foreign investment gradually increased in the early 1990s, some foreign commercial banks were allowed to establish branch offices in Vietnam, which greatly expanded the scope of banking services available.


Both parts of Vietnam experienced trade deficits during the war, and deficits continued after reunification. A trade embargo imposed by the Americans exacerbated problems of low efficiency and poor quality control that hampered exports. In the first decade after reunification, the value of exports was only one-third that of imports. The Soviet Union and the communist countries of eastern Europe came to be Vietnam's most important trading partners.

Vietnam's efforts to increase trade with capitalist countries as part of its larger program of economic reforms took on added urgency with the breakup of the Soviet Union and the demise of the communist governments in eastern Europe in the late 1980s and early 1990s, because trade with these areas was drastically reduced. Subsequently, such countries as Japan, Singapore, and Thailand became major trading partners. Exports increased, and the trade deficit narrowed.

Mineral fuels and lubricants, motor vehicles, machinery, and foodstuffs account for most of Vietnam's imports. Exports consist mainly of primary commodities (e.g., rubber, coal, forest products, and coffee), handicrafts, and such light manufactures as textiles and footwear. In addition, there has been a significant rise in the export of processed seafood and petroleum.


The topography of Vietnam renders land transportation between the north and the south difficult, with traffic limited to the narrow coastal corridor. Hanoi and Ho Chi Minh City are connected by rail and highway through this corridor. The nation's road network is extensive but in generally poor condition. The two large deltas, where most of the population is concentrated, rely heavily on a vast network of navigable rivers and canals.

Ho Chi Minh City and Hanoi have international airports. In addition, a number of smaller cities are connected by domestic air routes. Vietnam's major ports are at Haiphong in the north and Ho Chi Minh City in the south, followed by Da Nang in central Vietnam. There are several other good ports, including Cam Ranh, a superb natural harbor developed extensively by the Americans during the war.




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