Formerly a neglected sector under central planning, services began to boom at the end of the 20th century. Since the early 1990s, the contribution of services to GDP has surpassed that of agriculture and matched or exceeded that of industry. By the early 21st century, services accounted for roughly one-fourth of total employment. The focus of the sector was processing and assembly; scientific research and design, marketing and market research, finance, and telecommunications were still in their infancy but growing. Although hundreds of thousands of service jobs were added to Vietnam’s employment market in 2006, sectoral growth continued to lag behind demand, posing a threat to broader economic development. Pressure from the U.S.-Vietnam bilateral trade agreement and the WTO resulted in a liberalization of the rules governing foreign participation in banking, telecommunications, and insurance that was expected to accelerate the service sector’s growth. Tourism has become increasingly important.
Labour and taxation
At the beginning of the 21st century, women accounted for about half of the active workforce, and highland ethnic minorities were more likely than the lowland Vietnamese to be unemployed or working in agriculture and forestry. Ethnic Chinese, despite the persecution and exodus of the late 1970s, have capitalized on liberalizing reforms and contacts with the Chinese diaspora to recover an important role in business, commerce, and trade.
The government is motivated by its socialist identity to be more rigorous than most developing countries in enforcing workers’ rights. In one celebrated case, the government in 1997 sentenced the foreign floor manager of a foreign contractor of a multinational corporation to six months in jail for compelling workers to run laps if they did not wear regulation shoes. In numerous similar incidents, particularly involving foreign-owned firms, labour unions have displayed a subdued but real determination to defend the interests of workers.
Workers’ rights do not extend to organizing independent labour unions, however. The Vietnam General Confederation of Labour (VGCL) is the sole legal national trade union, and all unions must affiliate with it. The confederation is a constituent of the Vietnam Fatherland Front, a communist party coalition, and is under the party’s firm control. The president of the VGCL is usually a member of the party central committee. Unions may press the government to enforce laws and regulations as well as to organize strikes, albeit within strict legal limits. Direct action by workers and the formation of altenative unions, however, are forbidden. A wave of worker unrest in 2006 was largely a protest against the failure of basic wages to keep up with the skyrocketing cost of living, especially in Ho Chi Minh City.
Vietnamese citizens and resident foreigners are subject to progressive taxation, while nonresident foreigners are taxed at a fixed rate on income earned in Vietnam. A law on corporate income tax adopted in 2003 lowered the standard tax rate for all legal entities, including foreign-invested firms. Another law makes it possible to grant lower, time-limited preferential rates as incentives for investment in certain projects, particularly those involving high technology. In addition, there are special sales taxes—some quite high—on various goods and activities, such as tobacco, alcohol, playing cards, automobiles, gasoline, certain air conditioners, massage services, and casinos. A value-add-tax (VAT) was introduced in 1999. Import and export tariffs began to fall in 2006 to comply with the requirements of the ASEAN Free Trade Area agreement and WTO membership.
Transportation and telecommunications
The topography of Vietnam renders land transportation between the north and the south difficult, with traffic limited to the narrow coastal corridor. Hanoi and Ho Chi Minh City are connected by rail and highway through this passage. Two railways connect northern Vietnam to southern China; one track leads to Yunnan province, the other terminates in the Guangxi autonomous region. Construction of a new line between Yen Vien, near Hanoi, and the northern Vietnamese port of Cai Lan began in 2004.
Vietnam’s road network is extensive and growing. Heavy government investment in highway construction and upgrades, especially since the late 1990s, has allowed the country’s total road length to increase rapidly—by nearly half between 1999 and 2004. This expansion, however, has come somewhat at the expense of road maintenance, which has posed a perenial challenge to the Vietnamese government. Some half of the country’s roads remain unpaved, and many paved ones need repair.
In the two large delta regions, where most of the population is concentrated, a vast network of navigable rivers and canals is intergral to local transportation. These waterways are generally inaccessible to larger vessels and their cargoes, as are the numerous seaports that dot Vietnam’s coasts. Larger ships operate through the country’s major ports, which include Haiphong in the north, Ho Chi Minh City in the south, and Da Nang in central Vietnam. There are several other good ports, including Cam Ranh, a superb natural harbour developed extensively by the Americans during the war. At the turn of the 21st century, the government inaugurated a plan to improve the seaport system by upgrading the shipping fleet, improving existing ports and constructing new ones (especially deep-sea facilities), and further developing the shipbuilding industry. Several ports in the Mekong delta are scheduled for expansion to accommodate oceangoing vessels. Progress on all these projects, however, has been slow.
Ho Chi Minh City and Hanoi have international airports. In addition, a number of smaller cities are connected by domestic air routes. The state-owned airline, Viet Nam Airlines, has been growing steadily and substantially since the early 1990s, serving both domestic and international travelers. In addition, the company has acquired several long-range aircraft to handle more direct flights to Europe and North America.
Market reforms of the 1980s and ’90s brought exponential growth in Vietnam’s telecommunications sector. By the early 21st century the number of main line telephones per capita was among the highest in Southeast Asia. Internet and cellular phone services were officially absorbed into Vietnam’s infrastructure in 2002, a few years after their arrival in the country, and subscriptions for both have nearly doubled each year since then.