Export role miracle in Vietnam: Lessons for Sri Lanka

Presenter – University of Colombo PhD Candidate, and Vietnam Ho Chi Minh City University of Technology Lecturer in Economics Bram Nicholas

Discussant – University of Colombo Senior Lecturer in Economics M. Ganeshamoorthy (Ph.D. in Economics, The Netherlands)

Moderator – University of Colombo Professor in Economics Sirimal Abeyratne

By Prof. Ruwan Jayathilaka

The Sri Lanka Economic Association (SLEA) organised its November monthly online forum, ‘Export role miracle in Vietnam: Lessons for Sri Lanka’. Brahm Nicholas, in the keynote presentation, dwelt on Vietnam’s effort to sustain its economy amidst the global economic crisis. The causes for the Sri Lankan financial debacle, in contrast to the laudable position of the Vietnam economy, were analysed. Experts from the University of Colombo, Dr. M. Ganeshamoorthy, Senior lecturer in Economics, was a key discussant, while Prof. Sirimal Abeyratne moderated the proceedings. The forum analysed how Vietnam’s economy remained sustainable amidst the global economic crisis and the lessons Sri Lanka could derive.

Overview and salient features

Vietnam’s per capita income in pre-crisis times compared to other East Asian countries, Sri Lanka, India, Laos, Ghana, and Kenya; the structural changes made to Vietnam’s economy, which laid the base for its financial stability, was analysed by the discussants. The sustainability of the export-oriented manufacturing strategy of Vietnam was a commendable effort. Vietnam’s exceptionalism had roots in a highly diversified industry-based economy. Moreover, the value-added export orientation of Vietnam has even outperformed the economies of significant East Asian countries. The spike in financial crises in non-industrialised countries worldwide in 2022 supports this contention.

Structural changes in the Vietnamese economy

Value-added manufacturing in Vietnam’s industrialisation process, initiated via electronic-based products post-2015, resulted in a steep growth trajectory. In 2015, Vietnam successfully replaced its industrial economy, shifting from exporting fuels, ores, and metal to value-added manufacturing. Vietnam will supersede all developing South Asian countries in economic growth by 2022. It is well on its path to reaching the position of stronger Asian economies such as Korea, Singapore, Hong Kong, Taiwan and China.

Vietnam’s export growth in the global context

In the analysis of Vietnam’s share of global exports, it was clear that Vietnam has steadily reached the uppermost international export performers by 2020, overshadowing larger economies such as Malaysia, Thailand, Saudi Arabia, and the Sub-Saharan African region. For the first time in 2020, Vietnam, with a population of below 100 million people, could surpass India’s export volumes.

Vietnam’s export diversification

Vietnam’s growth in the global value chain is phenomenal. Comparing performance in 2012 to 2020, the manufacture of mobile phones, electric batteries, monitors and computers grew significantly. Value additions in the manufacturing industry, i.e., producing office equipment for home-based work-settings during lockdowns, guided the country’s economy towards sustainable growth, as evidenced by the demand for work-from-home office equipment remaining the same even in mid-2022.

Export structure comparison of Vietnam and Sri Lanka 

By 2015, Vietnam had shifted from producing primary commodities, textiles and apparel, to advanced manufacturing sectors, such as electronics and machinery. China’s export structure shares similar characteristics, whereas countries such as Sri Lanka and Bangladesh concentrate only on exporting primary commodities and textiles, resulting in critical economic stagnation.

Comparison of trade imbalances

Discussants pointed out that trade imbalances are to be compared as a percentage of GDP since it strongly indicates economic stability. Sri Lanka, Bangladesh, Vietnam, and China were thus compared from 2000-2020. Even though Vietnam was considered separately facing deficits at its prime from 2000-2010, considerable growth has been recorded post-2010, displaying trade surpluses each year until 2020. In contrast, Sri Lanka and Bangladesh consistently faced trade deficits from 2010-2020, reflecting the aftermath of implausible investments to facilitate an undiversified export economy.

Implications for the currency

In analysing the economic performance of Sri Lanka vis-à-vis Vietnam, the presenter focussed on the implications of the currencies of both countries along with some of the declining economies in the region. Selected currencies were analysed against the Dollar, year-on-year percentage change, rolling throughout 12-month averages. While Sri Lanka and the rest of the currencies of Pakistan, Ghana, Chile, Laos, and Turkey, are foreseen to display a considerable depreciation after 2022, the Vietnamese Dong manifested a constant steadiness against the USD throughout 2020-2022 and possibly in 2023.

Political-economic challenges in tailoring the Vietnamese economic model to Sri Lanka

Having examined the strengths of the Vietnamese economy in the global economic crisis, the participants explored fitting the model into the Sri Lankan context.

Vietnam’s autocratic governance structure took critical initiatives for an influx of foreign investment in 2010-2015 with minimal interactions from pressure groups. In contrast, Sri Lanka’s democratic governance model cannot bolster its economy via firm measures, disregarding pressure groups. The key strategies adopted by Vietnam to engage in successful trade agreements proved very significant. Free trade agreements with China in 2009 and with the European Union, South Korea, and a host of Asian countries in 2015 provided a tremendous fillip to remain a sustainable economy in 2020.

Sri Lanka’s inability to grasp firm economic policies ultimately resulted in the country’s poor performance during the 2020 global financial crisis. Inefficiency in enforcing contracts and widespread corruption were attributed as contributory causes.

Recommendations made at the forum included diversification of the export economy of Sri Lanka by changing over from exporting primary commodities and textile products to more ultra-modern products and, focusing on electronics industries and machinery, establishing an industrial zone in Sri Lanka by providing tax concessions and repayments for exporters and foreign direct investors was also urged. Finally, it is imperative to reduce the arduous approval processes for FDIs and exports by creating an efficient single-window approach. Restructuring the single window approach developed in 2017-2020 should be focussed on.

(The writer is Council Member and Assistant Editor of the Sri Lanka Economic Association (SLEA) and Head, Department of Information Management – SLIIT Business School, SLIIT.)