THE LEGATUM PROSPERITY INDEX™ 2016

Bringing Prosperity to Life

Vietnam

Ranked 75th of 149

At a glance

Ranks

75 th on the Legatum
Prosperity Index™

36th
80th
104th
50th
62nd
53rd
124th
58th
80th

SUB-INDEX RANKINGS

In the Prosperity Sub-Index rankings, Vietnam performs best on Economic Quality and Education and scores lowest on the Personal Freedom sub-index.

Visit our Rankings table to see how Vietnam compares to other countries.

Prosperity Gap

The ‘Prosperity Gap’ takes a country's GDP and uses it as the yardstick to measure a nation's expected Prosperity Index ranking.

Vietnam has one of the highest prosperity surpluses in Southeast Asia thanks to strong over-delivery in the Economic Quality, Education and Health sub-indices. However this surplus has been static for a decade.

Note:
In the chart above, each dot represents a country. The curve shows the general tendency with which prosperity increases as GDP per capita increases. If a country falls below the curve, then we can say that compared to all other countries, it is under-delivering prosperity for its citizens. Likewise, if a country rises above the curve, then we can say that it is over-delivering prosperity for its citizens. Learn more about the Prosperity Gap here.

Alternatively, have a look at the Prosperity Gap view on our Rankings table for a full list of countries and to see how each of them are performing on the various sub-indices.

Commentary

By all accounts, Vietnam has been a story of success for the past ten years. Standards of living have risen steadily, and poverty rates fallen sharply, with the country’s strong economic development. Vietnam has had the world’s fastest GDP per capita growth rate since 1990 barring China. Attracted by relatively cheap and educated labour, foreign capital flocked in to open up new businesses and vie for the country’s still underdeveloped consumer market backed by a population of 90 million. Recognising its comparative advantages, the government kept pouring resources into education and health improvement while upgrading infrastructure to accommodate increasing business demands. Unlike many other fast-growing developing countries, Vietnam’s economic take-off has not been achieved at the expense of equity – merely in a decade’s time the proportion of people living under $1.9 a day fell from 22% to just above 3% today. As a result, in 2016 Vietnam enjoys one of the biggest prosperity surpluses in Asia over-performing in all sub-indices except for Governance and Personal Freedom.

Prosperity gap for ASEAN countries
Vietnam has one of the biggest prosperity surplus in the region

Besides the geographic advantage of being located in the vicinity of China that makes it a natural destination for profit-driven investors and manufacturing businesses exiting the world’s second largest economy due to soaring labour costs, two other factors have been crucial to Vietnam’s success. A fundamental element to the country’s prosperity has been its healthy and educated population. With only a third of Southeast Asia’s average per capita wealth level, Vietnamese life expectancy of 75.78 years, after a 1.3 years’ increase in just ten years, is nevertheless the second longest, behind only Singapore. The perseverant Vietnamese are also less troubled by health problems as only a fifth of the population say they are prevented from normal life by health problems. All these help explain an astonishing labour participation rate as high as 82.5%, a restless engine for the country’s economic progress.

Vietnam’s education, the third best in the region in 2016, has also made impressive progress. Today youth illiteracy is almost eliminated and the percentage of adults who cannot read and do basic maths has been reduced to merely five percent, four percent lower than the regional average. Gains have been made at every level of the educational system – every pupil can now complete their primary education, and in less than ten years, the average years of secondary and tertiary education per worker have increased by 0.68 years and 0.014 years respectively. Cheaper and better-educated labour pushes Vietnam ahead in the regional competition for foreign investment.

Since the launch of a series of economic reforms in 1986, the Vietnamese government has worked hard to ensure the country’s economic integration into the global production network and to clear obstacles to foreign investors. The strong improvement achieved by Vietnam in the Economic Quality sub-index in the last decade, indeed the fourth biggest globally, derives from a variety of changes in economic structure and policies ranging from a more diverse export industry moving up on the global manufacturing value chain, markedly reduced trade barriers, and stronger anti-monopoly policy aiming at restricting conglomerate giants in the state sector. Resources have been poured into construction and the upgrading of roads, railways, airports, and telecommunications, with special industrial parks sprawling across the country competing for foreign investments. The best acknowledgement of this combination of open business strategy and loosening labour policy is issued by the World Bank with Vietnam rising to the upper half in its Ease of Doing Business rankings.

This economic transformation notwithstanding, the country is standing at a crossroads as the old growth model relying on resource mobilisation is approaching its bottleneck. Economic reforms should deepen and even extend to the political arena. Starting from the economy, the too-big-to-fail state-owned enterprises have held back the country’s pace by decimating efficiency. With the majority of credits and investments drained by low-return SOEs, the private sector has to survive under rough conditions. Affordability of financial services is the worst in the region and costs for businesses to get access to a stable electricity supply are only lower than Cambodia and Laos. The over-centralised political and economic system creates a hotbed for cronyism and official corruption, which severely undermine the rule of law and investor confidence. Much as favourable business policies could help, economic growth cannot be sustained in the long run with less than 60% of people thinking the country a good place to start a business and nearly a fifth feeling pessimistic about the link between hard work and opportunity. A more level playing ground for state and private sectors alike, and a higher quality of regulation, are what is now required to carry Vietnam’s success further. This calls for the government to loosen its grip on economy and confer more freedoms to its population.


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Data

How to read this graph:
When comparing multiple countries on a spider chart, data points that appear
further away from the center represent a better performance to the points that are closer to the center.

Special Analysis

Special Analysis

OVERALL

Vietnam has become a more prosperous country in the past ten years, both in absolute terms and compared with regional peers. The biggest gains have been made in the Health, Economic Quality, and Business Environment sub-indices, reflecting the impact of the government’s targeted policies.

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Areas of Success
Areas of Success

Vietnam has consistently improved its performance in the Economic Quality and Health sub-indices in the past decade. This has mainly been driven by substantial poverty alleviation, rising average living standards, and health gains from an improved public healthcare system, reflecting the government’s committed pursuit of economic and social development.

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Areas of Little Change
Areas of Little Change

Compared with rapid improvements in other areas, improvement in Education, although still impressive in the global context, seems limited. On the one hand this is understandable since educational changes normally take time to manifest; on the other hand, this also reveals needs for more policy attention and resources devoted to this important foundation of the country’s prosperity.

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Areas of Improvement
Areas of Improvement

Governance and Personal Freedom, the two sub-indices in which Vietnam fares worst, have seen decline over the past decade. Structural problems aside, this also shows growing contradictions between the authoritarian political system and the emancipating and liberalising forces evoked by the increasing interactions with the rest of the world. If Vietnam is to continue its prosperity rise, these two areas must be addressed.