Turning southeast

  • Nepal has much to learn from Vietnam
- Arpan Dahal

Jan 28, 2019-

A nation that was once economically struggling with a poverty rate of over 58 percent in the 1990s is now one of the hottest economies in the world. Today, their unemployment rate is below 2.5 percent and poverty has fallen below 10 percent. This is the story of Vietnam.

Its transformation from one of the poorest countries to one of the most important global economies makes Vietnam’s story quite remarkable. Since 2010, Vietnam’s GDP has grown by at-least 5 percent each year and in 2017, it grew by 6.8 percent.

 Vietnam’s poverty decline has been nothing less than a miracle.

Vietnam understood investing in human capital would drive growth and attract Foreign Direct Investments (FDIs).  The nation invested heavily in education and infrastructure; this paid off as Vietnam became a hub for foreign investment and manufacturing in Southeast Asia. Vietnam is now one of the major trading partners for several countries such as China, Japan, and the United States. Today, Vietnam is favoured by foreign investors and is one of the largest exporters of electronics and clothing.

Meanwhile, Nepal’s economy still depends heavily on remittance and primitive agriculture, and a significant portion of Nepal’s working-class population remains unemployed.

Vietnam’s success can be linked to the government’s commitment to create an appealing business environment for domestic and international industries. Once Vietnam realised the importance of foreign direct investments, they put forward friendly investment policies and incentives to attract them. Some incentives included a daily-adjusted interest rate, tax breaks for specific sectors,

reduced corporate tax, and support packages for foreign and local businesses. The results have been noticeable. Vietnam’s FDI doubled from 2006 to 2017. Foreign direct investment has enabled structural transformation and raised the nation’s economic growth. Improving the ease of doing business and having the policy to attract foreign investors will not just raise growth but also increase labour force participation, which is why Vietnam’s unemployment rate is below 2.5 percent. They also eased start-up business regulations that encouraged young entrepreneurs to be innovative, providing support to the country’s rising number of start-ups.  

In 2018, Vietnam ranked 69th on Ease of doing business, above countries like India and Indonesia. It was 104th in 2007. Nepal, today, ranks 110th (5 worse than 2017) but was 55th in 2006.

When it comes to a favourable business environment, it is clear two nations moved in opposite directions. Vietnam made momentous progress by lifting excessive control and creating an ideal environment for doing business. From increasing access to credit and incentives for paying taxes, to facilitating cross-border trade, Vietnam’s proactive policy amendment deserves praise.

Vietnam also identified tourism as a potential sector to drive economic growth. Today tourism contributes to over 6 percent of the nation’s GDP. In 2018, Vietnam saw almost a 23 percent increase in the number of tourists from the previous year.

While Nepal has equal potential, it lacks proper management and promotion of the tourism industry. The public-private partnership is crucial for improving tourism, and the Nepalese government should work with private sectors to address existing challenges and upgrade tourism infrastructure.

Apart from infrastructure, other problems persist. There are frequent complaints regarding visa and immigration procedures from travelers. Furthermore, the problematic administrative bureaucracy is not making the things easier. A country full of natural beauties, including some of the highest peaks in the world and birthplace of Gautam Buddha, should be doing better.

According to the Ministry of Culture, Tourism & Civil Aviation, a total of 940,218 tourists visited Nepal in 2017.  It is safe to say;Nepal’s tourism potential is far from fulfilled.

Being landlocked has its constraints but that does not mean there is no way to economic prosperity. With two economic giants as neighbors, geography remains an important factor. Nepal should work to boost the trade of its goods and services in the foreign market. Nepal has an option to use its open border policy and trade agreement with India as a strong leverage to open its economy further and attract more FDIs. Foreign investors want compelling infrastructure and friendly investment policies; meaning, Nepal needs to invest in better infrastructure and deregulate business constraints wherever required. Now, after the long-awaited political stability, there is no excuse for failing to increase foreign direct investment. Vietnam has benefited significantly from agreements like the WTO and regional cooperation like ASEAN. Nepal has failed to do so. The question is: How is Nepal taking leads to benefit from such regional cooperation?

The Nepal government must commit to promoting negotiations of trade agreements and organizational obligations. Nepal’s perpetual mentality of dependency and passiveness is unfortunate, and it is time to take the step towards fully-fledged economic growth.

Obviously, FDI and ease of doing business are not the only indicators of a healthy economy. There are other areas Nepal could replicate from Vietnam. Vietnam has a better record on innovation, more trade freedom, and has well-educated labor force. The number of labor force leaving Nepal in search of better lives remains alarming. New investments and businesses could certainly help ease this issue.

Vietnam had a clear vision and methodology, and it is gradually seeing the progress. Nepal still lacks a solid framework for attracting FDIs and facilitating their evolution. Nepal has seen several investment summits in past without tangible outcome. The next investment summit is on March 2019. The outcome will not be different if the substandard approach and sluggish implementation continue. Prime Minister Oli’s recent statement in Davos of Nepal becoming ‘one of the fastest growing global economies in few years’ is optimistic, however, there will always be questions on ‘how’.

For a more complete analysis (with graphs), please visit our website. The writer has an MA in International Relations from Maxwell School at Syracuse University with focus on Economics and Economic Policy. He currently resides in Washington D.C. He tweets at @arpandahal.

Published: 28-01-2019 07:38

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