Ten years after the southern communist victory, Vietnam made a decision — a pivotal decision, which has transformed it from an introspective country to one that actively looks for opportunities to develop and improve. This decision is known as Đổi Mới.
Open for Business.
Đổi Mới are the first economic reforms initiated in Vietnam to pursue a “socialist-oriented market economy”. In 1986, the government rolled out an extensive renovation policy, which included opening doors to the world economy and: (1) liberalizing domestic trade, (2) reforming state-owned enterprises; (3) reforming the country’s financial system; and (4) diversifying ownership and entrepreneurial development and attracting foreign investment.
Restructuring the economy did not stop there. After Đổi Mới, several other laws and circulars were passed to foster economic growth:
- Company Law and Law on Private Enterprise (1990)
- This was the first step in the creation of a new environment for entrepreneurship. Within the first eight years after the law was enacted, more than 35,000 enterprises were established.
- Law on State Bank and Law on Financial Institutions (1998)
- This strengthened the financial system with a further orientation to the market mechanism and enhanced the efficiency of the banking system. It allowed many more players to compete to create a diversified financial system in the country
- New Enterprise Law (2000)
- This replaced two former laws and fostered even more of an entrepreneurial spirit. It revoked unnecessary business license restrictions in 145 industries, trades, and service; and eased private entry in the market
- The law also made gaining a license to start an enterprise easier. The waiting period went from 98 days on average under pre-NEL to 2-7 days.
- Ten Year Socio-Economic Development Strategy 2000-2010 and Vietnam’s socio-economic development from 2011-2020
- Both of these economic plans were implemented to continue promoting industrialization and modernization, developing fast and sustainably, while maintaining “socialist orientation”.
Startups = Economic Development.
The transformation from a centrally planned system to a socialist market-oriented one has resulted in remarkable advances. Apart from a domestic financial crisis in 1997, Vietnam’s GDP growth rate has been steadily rising and is continuing to do so in 2016. In fact, Vietnam currently has the fastest growing economy in all of Southeast Asia.
A few other economic accomplishments:
- Real GDP per capital grew at roughly 6% per year during 1990-2011
- The proportion of people living on less than $1.25 per day declined from 64% in 1993 to 13% in 2008
- The proportion of underweight children under five years old has sharply decreased from 37% in 1993 to about 20% in 2008
- Life expectancy at birth has improved from 69 in 1986 to 76 in 2014
- Undernourishment fell by almost 40% between 1990 and 2012, even though the agricultural sector has in overall GDP decreased from 38.7% to 20% in 2011
This is largely due to more opportunities in international trade (Vietnam’s trade turnover to GDP ratio increased from 46% in 1991 to 160% in 2011) and, even more notably, domestic entrepreneurship.
A record number of businesses are being registered in-country, more local and international investors are seeing the potential in financing startups, and a significant number of startup initiatives like Seedfund.vn and Hatch.vn are taking root in Vietnam. These strides are mainly seen in Ho Chi Minh City, which the BBC pronounced the Asian Silicon Valley; however, cities like Hanoi and Da Nang are slowly seeing an entrepreneurial growth spurt as well.
Such accomplishments have moved Vietnam to a lower middle-income country in a mere 20 years. Despite this progress, Vietnam, especially its more rural areas, faces serious developmental challenges. I saw this first-hand, when I visited over the summer. According to the 2010 Vietnam Household Living Standards Survey, only households in the highest quintile have per capita income exceeding the World Bank’s lower middle-income threshold of $1026 per person per year. Nearly 40% of the population continues to live on less than $2 per day. However, because of Vietnam’s impressive economic growth, aid agencies are increasingly pulling out of the country to reallocate their funds to poorer SE Asian countries like Laos and Cambodia, who have not yet been labeled as lower-middle income countries. This lack of foreign aid is a change Vietnam is currently having to deal with and respond to.
The million dollar question is how. How can Vietnam deal with losing more and more of its international aid? As we discussed, domestic entrepreneurship is on the rise and international business is thriving. However, social programs, which are still necessary and were previously funded by foreign aid, are finding it hard to establish themselves in today’s Vietnam. What’s the solution?
Two words — Social Entrepreneurship.
The Social Enterprise Spaceship Take-off.
While social entrepreneurship existed in Vietnam on a small-scale , it officially emerged in 2011 after the British Council promoted the idea of social enterprises and made an active effort to support early Vietnamese social entrepreneurs. 86% of MPs voted in favor to revise Vietnam’s Enterprise Law to include a legal definition of social enterprises and to grant them specific rights within the law — since then the movement has slowly been seeping into mainstream entrepreneurial talk.
“Vietnamese social enterprises have emerged and developed steadily during the past years. They have contributed many business innovations to achieving social and community objectives. Their innovations should be nurtured, recognised and promoted. The approval of social enterprise articles on enterprise law affirms the concern, recognition and appreciation from society to social enterprises.” — Nguyen Minh Thao, CIEM
Social ventures could fill the gap between a rapidly expanding entrepreneurial economy and millions of poor people, who have not been able to reap the benefits of Vietnam’s economic expansion. They could take the place of international aid organizations in offering poverty alleviation, human rights aid, and health care in a long-term, sustainable way.
Despite a law surrounding social ventures, the notions around social entrepreneurship are currently still being misunderstood by both investors and consumers. This skepticism makes it difficult to attract capital and customers, both of which are the key ingredients to making any startup a successful business. In order to dispel misconceptions, the Vietnamese government needs to welcome social entrepreneurship with more than just a constitutional definition. Furthermore, existing social enterprises and for-profit startups need to raise awareness and make social ventures part of Vietnam’s internationally recognized startup movement.
Through this, Vietnam’s social reform can start catching up with economic reform.