Published October 24-27, 2022
Hashout in HCM
In September, Netcore organised a “Hashout” for our domestic customers in Ho Chi Minh (HCM) City in Vietnam. The “Hashout” is a relationship building event where we take some of our customers and prospects to an international destination, combining conference and local sight-seeing. Previous events (pre-pandemic) have been in places like Bali, Moscow, Hong Kong, Kuala Lumpur and Istanbul. This time, Netcore’s marketing team chose Vietnam’s HCM City, which is Vietnam’s largest city with a population of about 10 million. With the start of a direct flight from Mumbai to HCM City, the flying time was down to just five hours – no doubt a key factor in the destination choice. Delhi already had direct flights to HCM City.
A direct flight makes a big difference when one is going for a short visit. The elimination of a hop means less stress about connecting flights, security checks and baggage transfers. It is also less tiring. I have flown the non-stop Air India Mumbai-Newark-Mumbai sectors for the past 15 years – skipping the stopovers in Europe that were the rule since my first flight as a student in 1988. The Mumbai-HCM City sector has flights from VietJet Airlines, a budget airline. (Even the water costs money!) But it does the transportation job well, and that’s what matters. I wonder why Indian’s domestic airlines who have permission to fly abroad haven’t capitalised on this. Indians are forever looking for new places to explore and Vietnam could be a good travel destination.
We landed on a Wednesday morning, with colleagues joining in from other Indian cities also. We stayed at Hotel Grand Saigon, right in the middle of the city. The bus ride from the airport took about half an hour amidst peak hour traffic. What strikes you first is the number of bikes. The first impressions were that of orderly traffic movement in a clean city. We had a mini-conference in the later afternoon on the first day, followed by a couple hours of a city tour and dinner. The second day was a full-day conference. We then went on a cruise in the Saigon river for dinner. The next two days were free format. Some chose to visit Mekong, others picked places to see in HCM. Since Netcore has many customers in Vietnam, I chose to meet some of them. I also saw the “Water Puppet Show”, which reminded me of a puppet show I had seen in Bangkok many years ago. The HCM innovation was the use of water. Saturday (Day 4) afternoon was time for the return journey. By now, everyone knew each other well.
While I had done some reading about Vietnam and its success prior to the visit, I started digging a bit deeper on its complete transformation in the last 50 years after the War. What is behind the economic success of the nation? Are there lessons for India?
Economic Success – 1
The Economist had a story on Vietnam recently:
[The] message—Made in Vietnam—has been emblazoned on ever more products in umpteen languages since the formerly communist economy started opening up and promoting private enterprise in the late 1980s. Since 2000, Vietnam’s gdp has grown faster than that of any Asian country bar China, averaging 6.2% per year. It has lured big foreign firms in droves. What started with apparel makers such as Nike and Adidas seeking low-skilled labour has turned into a boom in electronics—higher-value goods that create better-paid jobs for more highly skilled workers. In 2020 electronics made up 38% of Vietnam’s goods exports, up from 14% of a much smaller pie in 2010.
… Apple’s biggest suppliers, Foxconn and Pegatron, which make Apple Watches, MacBooks and other gadgets, are building big factories in Vietnam and look set to join the ranks of the country’s largest employers. Other big names moving chunks of production from China to Vietnam include Dell and hp (laptops), Google (phones) and Microsoft (game consoles).
All of which could lead to more growth, and make millions of Vietnamese people better off. That in turn could boost the popularity of the Communist Party, which has run the country as a one-party state since the end of the war in 1975. The government wants Vietnam to become rich—with gdp per person exceeding $18,000, up from just $2,800 today—by 2045. It hopes to do this partly by moving from cheap garments to complex electronics that require investment and skilled labour.
… Vietnam has many things working in its favour. Its workforce will remain young and sprightly as China’s ages and shrinks. The country is an enthusiastic member of over a dozen free-trade agreements, giving it easier access to scores of national markets.
… The country of some 100m people also has geographical blessings, such as more than 3,000km of coastline. And it is right on China’s doorstep. Thanks to massive infrastructure spending on things like new roads, its electronics cluster is just a 12-hour drive from Shenzhen, China’s tech capital.
Ruchir Sharma wrote this in Financial Times: “Vietnam [is] a case study in communism that works. As geopolitical tensions increase with China, western businesses are hedging their bets by adopting a “China plus one” strategy — and often the “one” extra sourcing destination is Vietnam. By investing heavily in the infrastructure required of a manufacturing export power, and opening its doors, Vietnam is growing at nearly 7 per cent, the fastest pace in the world.”
The Diplomat provides some history: “In 1986 the Vietnamese Communist Party (VCP) set out to transform its economy from a centrally planned model to one that utilized market forces to allocate resources. The reforms, known as doi moi, encouraged private industry, recognized private land rights, and abolished collective farming. These changes, along with Vietnam’s military withdrawal from Cambodia in 1989, set the country on a course toward one of the quickest and most impressive periods of economic development in world history. When the VCP first implemented the reforms, Vietnam was one of the poorest countries in the region, with a poverty rate above 70 percent. By 2020, this rate had declined to 5 percent, and over 10 million people have been lifted out of poverty in the 2010s alone. The country’s GDP per capita also increased nearly tenfold from under $300 in the 1980s to $2,800 in 2020.”
Like China, Vietnam has single-party rule. From Wikipedia: “Vietnam is a unitary Marxist-Leninist one-party socialist republic, one of the two communist states (the other being Laos) in Southeast Asia. Although Vietnam remains officially committed to socialism as its defining creed, its economic policies have grown increasingly capitalist, with The Economist characterising its leadership as “ardently capitalist communists”. Under the constitution, the Communist Party of Vietnam (CPV) asserts their role in all branches of the country’s politics and society. The president is the elected head of state and the commander-in-chief of the military, serving as the chairman of the Council of Supreme Defence and Security, and holds the second highest office in Vietnam as well as performing executive functions and state appointments and setting policy. The general secretary of the CPV performs numerous key administrative functions, controlling the party’s national organisation. The prime minister is the head of government, presiding over a council of ministers composed of five deputy prime ministers and the heads of 26 ministries and commissions. Only political organisations affiliated with or endorsed by the CPV are permitted to contest elections in Vietnam.”
A 2018 WEF article wrote about Vietnam’s growth: “According to analysts from the World Bank and the think tank Brookings, Viet Nam’s economic rise can be explained by three main factors: “First, it 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, Viet Nam has invested heavily in human and physical capital, predominantly through public investments.”
Bloomberg wrote a few months ago about the challenges facing Vietnam:
Vietnam can do a lot better. The government is only aiming for 7% growth this year — meager compared to the double-digit expansions China registered during its export-driven boom in the early 2000s. Even though there have been talks of shifting supply chains, progress in moving mass production of more advanced tech products to Vietnam has been slow.
The bottleneck is poor infrastructure. The nation, shaped as a long and curvy letter “S,” still relies on roads — which can be narrow, congested and bumpy — for three-quarters of freight and 90% of passenger traffic. Meanwhile, not all ports along the coast can be used for the biggest container ships. By comparison, even during Shanghai’s Covid-related lockdown, the nearby Ningbo port was still operating and exporting.
Road modernization, while a national priority, has been slow. A planned North-South Expressway, described as the future transport backbone, has seen long delays, as the government struggles with cost overruns.
… From geopolitics to female labor-force participation, Vietnam’s got everything to its advantage. What’s holding the country back is Hanoi’s policy inertia, and its failure to build up its infrastructure.
As India seeks growth and betterment for its people, what can we learn from Vietnam’s success story?
Learnings for India
Vietnam’s manufacturing and exports success has been one of the key reasons for its growth. This is where India lags. India has still not been successful in moving people out from low productivity agriculture into manufacturing. I believe there are four reasons which need to be tackled. First, there needs to be a much greater on-ground ease of doing business. Laws, politicians and bureaucrats connive to make doing business hard. Second, there needs to be a strong emphasis on improving education. Under successive governments, education has been politicised and controlled. India needs to free its education sector. Third, India’s policymakers falling in love with tariffs need to realise that a tax on imports is a tax on exports. Finally, there needs to be a focus on encouraging labour-intensive industries to absorb people wanting to move out from villages and agriculture.
What India is missing is quality jobs paying Rs 40-50,000 a month with a promise of upward mobility as a reward for hard work. Today’s India seems stuck between the sub-Rs 20,000 job and the high-end job in IT and specialist functions paying upwards of Rs 100,000 a month. The chasm in the middle needs bridging. This will need a disciplined focus on education, manufacturing, free trade, contracts enforcement (a legal system that works), and removal of restrictions that hinder doing business on-ground. Simply creating more PLI (production-linked incentives) schemes is not the solution to creating hundreds of millions of jobs which ensure that tomorrow’s life will be better than today for aspiring Indians.
The Indian Express explains India’s jobs crisis:
The movement of workforce from agriculture that India has witnessed over the past three decades or more does not qualify as what economists call “structural transformation”. Such transformation would involve the transfer of labour from farming to sectors – particularly manufacturing and modern services – where productivity, value-addition and average incomes are higher.
However, the share of manufacturing (and mining) in total employment has actually fallen along with that of agriculture. The surplus labour pulled out from the farms is being largely absorbed in construction and services. While the services sector does include relatively well-paying industries — such as information technology, business process outsourcing, telecommunications, finance, healthcare, education and public administration — the bulk of the jobs in this case are in petty retailing, small eateries, domestic help, sanitation, security staffing, transport and similar other informal economic activities. This is also evident from the low, if not declining, share of employment in organised enterprises, defined as those engaging 10 or more workers.
Simply put, the structural transformation process in India has been weak and deficient.
India needs to prioritise economic growth. It needs policies which free businesses, people and trade – and get the government out of business. With many countries and continents under economic duress, this is a unique moment in time for India to shed the baggage of the past and reverse policies that have kept people poor. (800 million Indians are still dependent on free food from the government for their survival.) Politically-induced poverty needs to be replaced with freedom-driven prosperity. If the politicians don’t do it, middle-class Indians need to rise and set the agenda. It is their future that is at stake. Can India, learning from countries like Vietnam, set itself on a Nayi Disha? It was these thoughts that were uppermost in my mind as we landed back in Mumbai from Ho Chi Minh City.