By Philippe Le Houérou
This article was originally published in the Vietnam Investment Review.
Vietnam stands out as a development success story. More than three decades since the government set in motion growth-oriented reforms, it is clear that people across the country are healthier, more educated, and more prosperous.
It is hard to believe that, back in 1990, Vietnam had one of the highest poverty rates in the word. Today, it is one of the fastest-growing economies with a young, vibrant workforce and emerging middle class.
Economic changes under the 1986 doi moi have spurred rapid growth and transformed the country. Extreme poverty has been almost eliminated, from about 53 per cent of the population in 1993 to about 2 per cent in 2016.
Vietnam is known in Asia as the land of the rising dragon. The economy has accelerated, and it can boast a remarkable development record over the past 30 years.
The World Bank Group, which includes the International Finance Corporation (IFC), has been privileged to accompany Vietnam on its remarkable journey. As a global leader in private sector development, IFC began to engage Vietnam in 1992, responding to the country’s quest for foreign investment and expertise to help its transition from a centrally planned to a socialist market-oriented economy.
In 1994, IFC approved its first investment in Vietnam. It was for the refurbishment and expansion of Hanoi’s historic Metropole Hotel, which at the time was showing its age and in a state of some disrepair. It was the country’s 13th licensed foreign investment after the reforms. Landmarks such as the Metropole are now major draws for the tourism industry, which creates jobs and boosts the local economy.
Since then, IFC has partnered with Vietnam to achieve a number of “firsts” in the country: the first private port project, the first build-operate-transfer power project, the first private leasing company, the first equity fund supporting small and medium-sized enterprises (SMEs), the first internationally-accredited university and the first private grid connected solar farm. In addition, an IFC-supported bank was the first private bank to list on the Ho Chi Minh City stock exchange.
IFC’s supportive role in setting up the landmark Private Sector Forum in 1997 also stands out in our history with Vietnam. Its origin dates back to 1996, at a time when foreign direct investment started to decline in the country after the initial success of the 1980s reform process. Vietnam announced a new program to eradicate poverty and boost growth, and in response IFC recommended a special dialogue between the government and the private sector to improve the investment climate. Known today as the Vietnam Business Forum, this policy dialogue channel now includes both foreign and local businesses.
IFC also began supporting Vietnam’s small and medium-sized enterprises in 1997, with the creation of what was then called the Mekong Project Development Facility (MPDF), a multi-donor trust fund managed by IFC. Now, over 20 years on, many of those small and medium-sized enterprises have become large corporates in Vietnam and key players in the economy.
Yet, there are challenges on the road ahead. Vietnam is one of the countries most vulnerable to the impacts of climate change. The country’s emerging middle class, rapid urbanization, and growing manufacturing sector is creating greater demand for energy. And Vietnam still requires significant investments for continued economic growth and development. To meet those needs, it’s clear that there’s a greater role for the private sector going forward.
Helping Vietnam meet its energy needs is a key priority for IFC, especially our focus on infrastructure projects for renewable energy. Other priorities include the agribusiness sector, in particular sustainable and efficient agriculture, as well as SMEs and capital markets development.
Our support goes beyond financing to include advisory work — where IFC has helped raise standards in corporate governance and green buildings, and promoted such projects as investments in the future.
Some 30 years after the Doi Moi reforms began, there is no doubt that Vietnam’s private sector is coming of age, and its entrepreneurs are thriving. The SMEs of yesterday are today’s large corporates, and they are creating jobs and growth while driving innovation. Continuing to harness the power of the private sector will be crucial in Vietnam’s efforts to reach even greater heights.
Philippe Le Houérou is CEO of the International Finance Corporation (IFC).
