Meet Asia’s new darling

Among the members of the Association of Southeast Asian Nations (ASEAN), the new darling is Vietnam. After introducing economic and political reforms in 1986 to steer the country to becoming a “socialist-oriented market economy,” GDP growth has been in the high six percent in the last few years.

Vietnam’s transformation is reflected in important international rankings. In the World Bank’s East of Doing Business 2018, Vietnam jumped to 68th place, and now ranks fifth among ASEAN countries next to Singapore, Malaysia, Thailand and Brunei.

(In contrast, the Philippines slipped to 113th from 99th across the 190 countries covered by an annual World Bank Group report. Among ASEAN members, the Philippines takes seventh rank after Indonesia, followed by Cambodia at 135, Laos at 141 and Myanmar at 171.)

The World Bank took note of significant strides made by Vietnam in the areas of paying taxes, trading, enforcing contracts, access to credit and electricity reliability.

In the World Economic Forum’s Global Competitiveness Report 2017-2018, Vietnam jumped to 55th place from 60th, and is now the sixth best among ASEAN countries after Singapore, Malaysia, Thailand, Indonesia and Brunei.

(The Philippines is ranked 56th, having been overtaken by Vietnam. Cambodia and Laos follows the Philippines, with rankings at 94th and 98th, respectively. Myanmar was not included in the last WEF report. The Philippines dipped one rank lower, from 55th to 56th place.)

Lessons from Vietnam

What is Vietnam doing right? Are there a few good things that the Philippines can pick up to improve its competitiveness? After all, even the International Institute for Management Development (IMD) 2018 ranking released earlier in May showed that Philippines slipped badly by nine places to 50th place.

Analysis by the World Bank and the think tank Brookings points to three major reasons: “First, (Vietnam) has embraced trade liberalization with gusto. Second, it has complemented external liberalization with domestic reforms through deregulation and lowering the cost of doing business. Finally, (it) has invested heavily in human and physical capital, predominantly through public investments.”

Giving value to foreign investments

How Vietnam has opened its doors to free trade is no secret among foreign investors. A foreign company can set up a business without going into joint ventures with local firms, and it can also retain 100 percent ownership. The Vietnamese government has also made it a point not intervene in private business undertakings.

Vietnam has attracted so many foreign investors that it has become a manufacturing hub of almost any foreign consumer brand. Additionally, this has resulted in boosting its export earnings to roughly 90 percent of its current GDP.

In contrast, the Philippines continues to keep a long list of investment areas that prohibit full foreign ownership of a business. Foreign businesses and individuals are also not allowed to own land.

Vietnam has also continued to amend its laws to make them more friendly and attractive to foreign investors. When it vowed to open its economy to the world, Vietnam worked to bring down import and export duties to make its industries competitive.

Of course, the Philippines has not exactly walked the talk, in spite the fact that it has been a member of the World Trade Organization, a founding country of ASEAN, and has participated in almost all appropriate trade liberalization initiatives in the world.

Work of Philippine lawmakers is likewise slow, with many of our laws badly needing updates and enhancements.

Public investments

Aside from adopting policies that would encourage foreign investors, Vietnam has also drawn up a committed program to prepare its domestic economy for future growth.

Using public funds, it bolstered education for its people, and embarked early on with an infrastructure-building program, mainly focused on ensuring cheap and accessible internet throughout the country.

Apparently, the Philippines has not had the same level of commitment with regards public spending, especially on infrastructure. Decades of dilly-dallying have allowed other countries to overtake us and prevent us from actively participating in a truly global economy.

All these public spending that Vietnam has invested in, coupled with effective policies that attract foreign capital to its market, has come in handy for it at this time, now that the United States and China continue to escalate their tariff war.

With Vietnam being just a hop away from the mainland, many global businesses are hedging against disruptions that could potentially arise more goods in the China-US trade exchange are being slapped higher import and export tariffs. Relocating plants to Vietnam is now an attractive option.

Wake-up calls

The recent competitive surveys should be regarded as wake-up calls to galvanize our government to doing much more than just reforming our current taxation system or allocating trillions of pesos on new infrastructure projects.

Our weaknesses as pointed out by studies and surveys have not been corrected fast enough. For example, how many years ago have we known that registering a business in the Philippines takes too many steps and wastes too much time, and yet nothing much has been done to solve this.

To be fair, the Philippines has not been doing too badly in the past and until now, but it is not doing enough to ensure that the economic growth in the coming decades will be sustained, and that we are not going to be left behind.

Vietnam is fast catching up on us. Will we see Cambodia, Laos and Myanmar also challenging us in a few years time?

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