Current development state of Vietnamese service sector

VNU Journal of Science, Economics and Business 25, No. 5E (2009) 1-14

Current development state of Vietnamese service sector
Assoc. Prof. Dr. Nguyen Hong Son*
Faculty of Development Economics,University of Economics and Business,
Vietnam National University, Hanoi, 144 Xuan Thuy, Cau Giay, Hanoi, Vietnam
Received 7 March 2009

Abstract. Service sector has proved to be an important source of economic growth and social
development of Vietnam over the past two decades. However, it is also subjected to numerous
criticisms for a lack of facilities, monopoly, insufficient qualified service workers, poor quality,
corruption, non-transparency, favoritism, and discrimination. At present, liberalization is expected
to bring about significant changes to the Vietnamese services in terms of number of service
providers, service structure, supply mode, governance, and regulations as well as service price and
quality. This article will describe the current state of development of the Vietnamese service sector
and identify the service gaps that need to be bridged in the coming years as Vietnam will
implement the new socio-economic development strategy from now to the year 2020.

1. The Role of Service Sector in the Economy *

and modernization which created a higher
demand for services.
Although since
1996 the service ”With the launching of the
sector has been Doi Moi, service industries
however have been quickly
expanding
considerably,
its transformed to become
share in the GDP important facilitators of
has

declined economic growth”.
because
manufacturing and mining sectors grew rapidly,
and because skewed resources were given to
industrialization and modernization priority at the
expense of service development. Indeed, the
annual growth target of 12 - 13% for service
sector set in the 1996 - 2000 Five Year Plan was
not achieved. Neither was the target to increase
the share of service sector in GDP to 45 - 46% by
2000. Service share in the GDP declined during
1996 - 2004 and it was not until 2005 has the
growth rate of the service sector been higher than
the average growth of the economy.

In 2008, the service sector accounted for
38.1% of the GDP and 26.7% of the employment.
Since the beginning of the Doi Moi, the share of
services in the GDP has gone through different
stages of change: i) it declined in the 1986 - 1988
period when Vietnam was still in the socialeconomic crisis and when agricultural
development was given priority to ensure food
security; ii) it increased during 1988 - 1990 as the
market economy policy became more effective,
and threat of food insecurity was relieved; iii) it
fell down sharply in 1991 when the entire
economy experienced a shock because the
traditional markets in the former socialist blocs
collapsed; and iv) it increased during 1991 - 1995
as the economy gradually escaped from the

economic crisis, stepped up its transition to the
market economy and conducted industrialization

______
*

Tel.: 84-912257733
E-mail:

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N.H. Son / VNU Journal of Science, Economics and Business 25, No. 5E (2009) 1-14

2

Figure 1. Share of service sector in the GDP of the economy (%)
50
44.1

45
38.6

40

38.7

38

38.1

38.1

38.1

38.5

2000

2005

2006

2007

2008

Prel 2009

33

35
30
25
20
15
10
5
0

1986

1990

1995

Figure 1. Share of service sector in the GDP of the economy (%).
Sources: GSO (2000), Socio-economic Statistics of Vietnam 1975 - 2000, Hanoi: Statistical Publishing
House; GSO (2004), Vietnam 20 Years of Reforms and Development (1986 - 2005), Hanoi: Statistical
Publishing House; GSO (2009), Statistical Yearbook 2008, Hanoi: Statistical Publishing House; GSO (2008 and
2009), Annual Report 2008, Quarterly Report I/2009, and Half Year Report I/2009.
12

10.19

10

9.56
8.77
7.86

8

9.83
8.8

8.64

7.38

8.48

8.68
8.29

7.58
7.26

7.14
6.54

7.18

6.45

6.1

6

5.5

5.32

5.08
4.6

4

2.3

2.25

2

7
H 2
a 00
lf 8
o
f
20
0
9

6

00

F
ir

st

2

5

00
2

4

00
2

3

00
2

2

00
2

1

00
2

0

00
2

9

00
2

8
1

99

7

99
1

6

99
1

5

99
1

4
99

99
1

3
1

2

99
1

1

99
1

0

99
1

9

99
1

8

98
1

7

98
1

98

1

1

98

6

0

Figure 2. Growth Rate of the Service Sector, 1986 - first half 2009 (%).
Sources: GSO (2000), Socio-economic Statistics of Vietnam 1975 - 2000, Hanoi: Statistical Publishing
House; GSO (2004), Vietnam 20 Years of Reforms and Development (1986 - 2005), Hanoi: Statistical
Publishing House; GSO (2009), Statistical Yearbook 2008, Hanoi: Statistical Publishing House; GSO (2008 and
2009), Annual Report 2008, Quarterly Report I/2009, and Half Year Report I/2009.

Under the command economic system,
service industries in Vietnam, like in most
former socialist countries, did not enjoyed
favorable conditions to develop because of the
view that these are not productive sectors of the
economy. In 1985, services accounted for only
32.5% of the GDP whereas the share of

agricultural, aquaculture and forestry sector was
40.2%. With the launching of the Doi Moi,
service industries however have been quickly
transformed to become important facilitators of
economic growth.
The growth of the service sector has jumped

from merely 2.3% in 1986 to 10.19% in 1990


N.H. Son / VNU Journal of Science, Economics and Business 25, No. 5E (2009) 1-14

(Table 1) during the first phase of unbundling
and re-structure of the economy toward market
orientation. In the 1986 - 1990 period service
sector grew at 5.77% annually which was
higher than the growth rates of the
manufacturing and agriculture. Service sector
grew at 6.92% on average in the 1986 - 2008
periods whereas the entire economy grew at
6.87%. For specific phases, service sector grew
faster the entire economy during 1991 - 1995,

3

peaking at 9.83% in 1995 when the economy
was said of escaping from a decade prolonged
socio-economic crisis. Then it grew more
slowly than the economy from 1996 to 2004, as
priority, hence resources, was given to
industrialization and modernization. However,
service sector has recovered, growing faster
than the entire economy since 2005 and faster
than the manufacturing sector in 2008.

Table 1. Average Growth Rates of Three Sectors and the Economy, 1986 - 2008

Quinquennia

Economy

By sectors
Agriculture,
Forestry and
Aquaculture

1986 - 2008

6.87

1986 - 1990

Industry and
Construction

Services

3.75

9.39

6.92

4.43

2.67

4.71

5.77

1991 - 1995

8.18

4.03

12.00

8.57

1996 - 2000

6.95

4.42

10.60

5.69

2001 - 2005

7.51

3.82

10.18

6.97

2006 - 2008

7.63

3.72

7.48

8.05

Sources: GSO (2000), Socio-economic Statistics of Vietnam 1975 - 2000, Hanoi: Statistical Publishing
House; GSO (2004), Vietnam 20 Years of Reforms and Development (1986 - 2005), Hanoi: Statistical
Publishing House; GSO (2009), Statistical Yearbook 2008, Hanoi: Statistical Publishing House; GSO (2008 and
2009), Annual Report 2008, Quarterly Report I/2009, and Half Year Report I/ 2009.
Table 2. Contribution of service sector to GDP growth (% age points)

GDP Growth of the Economy
Contribution of Agriculture,
Aquaculture, and Forestry
Contribution of Manufacturing
and construction
Contribution of Services

2000

2001

2002

2003

2004

2005

2006

2007

2008

6.79

6.89

7.08

7.34

7.79

8.44

8.23

8.48

6.18

1.58

1.55

1.54

1.55

1.59

1.65

1.54

1.51

1.06

2.40

2.52

2.65

2.83

3.07

3.39

3.37

3.54

2.57

2.80

2.83

2.89

2.97

3.14

3.40

3.32

3.42

2.55

Sources: Author calculated from: GSO (2000), Socio-economic Statistics of Vietnam (1975 - 2000), Hanoi:
Statistical Publishing House; GSO (2004), Vietnam 20 Years of Reforms and Development (1986 - 2005), Hanoi:
Statistical Publishing House; GSO (2009), Statistical Yearbook (2008), Hanoi: Statistical Publishing House.

Service growth was the largest contributor
to the growth of the economy during the 1986 2005 periods even though it was lower than that

of the manufacturing and construction sector(1)


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N.H. Son / VNU Journal of Science, Economics and Business 25, No. 5E (2009) 1-14

because the service sector accounts for a larger
share in the GDP in constant prices. Service
sub-sectors that contribute the largest parts to
the growth of the entire service sector are trade
and repair of motor vehicles, transport, storage
and communication, hotel and restaurants,
business services, and education and training.
Service sector growth is associated with the
development of infrastructures needed by
industrialization and modernization. These
infrastructures, for example, include new and
upgraded highways, railway, seaports and airports
serving as the artery for the transportation
activities; extensive telecommunication and
internet network; increased number of domestic
and foreign banks and two stock exchanges
channeling capitals into industrial production; and
higher educational institutions which produce
almost a quarter of million graduated students for

the labor market each year. Although these
outputs are still modest, this is a marked success
for a relatively poor country with limited
resources and large population.
Service development has been crucial factor
for Vietnam to attract new foreign investments
not only to the industries but also to the services
to provide capital and technology to the
industrialization and modernization processes.
Total registered foreign investments increased
from 6.8 billions USD in 2005 to 12 billions
USD in 2006, 21.3 billions USD in 2007, 71
billions USD in 2008, and 8.78 billions USD in
the first half of 2009. By 2008, registered FDI
into the service sector reached 62 billions USD,
or 39% of total registered FDI. In terms of
number of licensed projects, service FDI
accounts for 45.4% of the total FDI. Current
FDI flows into hotel and restaurant sectors and
real estate and business activities because of
their booms, followed by the distribution and
transport sectors. However, in the long run, FDI
flows into other services such as financial
intermediation, health and education are also

(1)

Except the year 1995.

expected to rise because these sectors are

opened up for competitions.


VNU Journal of Science, Economics and Business 25, No. 5E (2009) 1-14

Table 3. FDI in service sector by July 2009 (Effective projects)
Sector
Real estates
Hotel and Restaurants
Communication
Arts and Entertainment
Transportation and storage
Financial intermediation
Trade and repair service
Health and social works
Others
Professional services and science and
technology
Education and training
Public administration
Water supply and garbage collection
Total

Number of
projects
299
247
526
116
269

71
225
62
56

Total registered
capitals (USD)
34 318 699 373
10 772 027 712
4 644 523 917
3 741 202 178
2 127 690 039
1 181 625 080
1 037 210 781
951 775 273
603 612 000

Chattered
capital (USD)
9 111 219 289
2 325 997 243
2 891 673 564
1 103 142 799
794 886 012
1 084 338 000
475 392 995
234 151 705
129 737 644

688

121
86
14
2 780

550 125 923
243 503 203
177 212 926
48 323 000
60 397 531 405

246 785 786
97 149 497
80 592 516
31 523 000
18 606 590 050

Source: Department of Foreign Investment, MPI. Database (July 24th 2009).

Services are major source of employment.
Since many service enterprises can be started with
very little capital, service industries provide
opportunities for persons with minimal resources
to become self-employed and economically
productive. In Vietnam, the number of employees
in the service sector has increased steadily since
1985. As of 2008, the number of service workers

was already 2.8 times higher than that of 1985,
growing at an annual rate of 4.56%. In the same

period, total employment of the economy only
increased 1.73 times, rising at a pace of 2.41%
each year. Financial intermediation, transport,
storage and communication are those services that
generate the largest portion of employment in
service sector.

Table 4. Labors in the service sector 2000 - 2008
Year

Number of
employees
(thousands)

Changes (%)

Share of service workers
in total workers of the
economy (%)

2000

8199.8

25.42

21.8

2005

10504.6

28.11

24.7

2006

11008.4

4.80

25.4

2007

11535.8

4.79

26.1

2008

12026.9

4.26

26.7

Sources: GSO (2000), Socio-economic Statistics of Vietnam 1975 - 2000. Hanoi: Statistical Publishing
House; GSO (2004), Vietnam 20 Years of Reforms and Development (1986 - 2005), Hanoi: Statistical
1


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N.H. Son / VNU Journal of Science, Economics and Business 25, No. 5E (2009) 1-14

Publishing House; GSO (2009). Statistical Yearbook 2008. Hanoi: Statistical Publishing House; GSO (2008 and
2009), Annual Report 2008, Quarterly Report I/2009, and Half Year Report I/2009.

Latest Human Development Report of the
United Nations Development Program (UNDP)
in 2005 ranked Vietnam Human Development
Index 105 within 177 countries with data with a
score of 0.733 (UNDP, 2007). Within a tenyear period, from 1993 to 2004, the number of
population who lived below the national
poverty line in Vietnam was brought down
from 40.4 millions to 19.7 millions, or 60% of
the number of poor households (MDGs Report,
2005: 14). In 2008, the proportion of poor
household declined to about 13.1% comparing
with 20.2% in 2005 (MPI, 2009: 69). The preschool enrolment rate of children under five
years old was 92.5% in 2008 and the primary
net enrolment rate has been increasing steadily
since 2005, reaching 96 % in 2008 (MPI, 2009:
55). National level malnutrition rate in children
under five years old decreased from 25.2% in
2005 to about 21.0 % in 2008. Under-five

mortality rate decreased from 28% in 2005 to
25% in 2008 whereas under-one-year-old child
mortality decreased from 18% in 2005 to 15.5%

in 2008 (MPI, 2009: 61). These remarkable
achievements are attributed in the large part to
service
development,
especially
the
development of basic public services such as
education, and health which are regarded as
engines for sustained growth and opportunities
for the poor to escape from the porverty trap.
2. Structure of the Service Industry
The biggest service sector is the distributive
trade sector, which accounted for almost 14%
of the GDP in 2008, whereas the next three
biggest service groups are transport, post and
tourism (4.53%), hotel and restaurant (4.38%),
and real estate and consultancy (3.63%). Their
shares in the GDP of the service sector are
36.28%, 11.89%, 11.50% and 9.53%
respectively. These are also the sectors which
have experienced rapid growth.

Table 5. Share in GDP of service groups (%)

Service sector

2008
38.10

Trade

13.82

Hotels and restaurants

4.38

Transport, post, tourism

4.53

Financial intermediation

1.84

Science and technology

0.62

Real estate and consultancy

3.63

State management

2.77

Educations and training

2.60

Health and social works

1.25

Sports and culture

0.41

Activities of party and membership organizations

0.13

Community, social and personal services
Private household with employed persons

1.94
0.17


N.H. Son / VNU Journal of Science, Economics and Business 25, No. 5E (2009) 1-14

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Sources: GSO (2008 and 2009). Annual Report 2008, Quarterly Report I/2009, and Half Year Report I/2009.
Table 6. Average Growth Rate of Service Groups (%)

Trade
Hotels and restaurants

1996 - 2000
5.70
5.85
5.63

2001 - 2005
6.96
7.45
8.74

2006
8.29
8.55
12.42

2007
8.68
8.67
12.72

2008
7.18
6.34
8.54

Transport, post, tourism

6.45

7.38

10.13

10.42

13.84

Financial intermediation

7.48

7.73

8.18

8.82

6.63

Science and technology

5.69

8.55

7.38

7.67

6.14

Real estate and consultancy

4.66

3.91

2.94

4.07

2.49

State management

2.58

5.49

7.57

8.22

6.38

Educations and training

5.63

7.46

8.42

8.68

8.04

Health and social works

5.57

7.40

7.84

7.99

7.67

Sports and culture

7.80

6.20

7.68

7.98

7.83

Activities of party and membership
organizations
Community, social and personal services

12.49

5.94

7.42

8.05

6.92

8.02

5.95

7.25

7.91

6.31

Private household with employed persons

5.84

3.39

7.45

8.49

7.94

Service sector groups

Sources: GSO (2000). Socio-economic Statistics of Vietnam 1975 - 2000. Hanoi: Statistical Publishing
House; GSO (2004). Vietnam 20 Years of Reforms and Development (1986 - 2005). Hanoi: Statistical
Publishing House; GSO (2008). Statistical Yearbook 2007. Hanoi: Statistical Publishing House; GSO (2008 and
2009). Annual Report 2008, Quarterly Report I/2009, and Half Year Report I/2009.

Large shares and relatively high growth rates
of final demand services such as hotel and
restaurant, and part of real estate and distribution
occur as the economy has grown fast, brought
wealth to the society and stimulate consumption
which was discouraged in the centralized
distribution system. Because of the impact of the
recent global economic recession, growth of those
sectors appears slowing down but it will certainly
bounce back as the economy recovers. Recent
expansion of transport and real estate are taking
place in the process of liberalization of those

sectors, especially with the participation of the
private sector into the business, and as greater
resources are channeled into the infrastructure
development of the economy.
Nonetheless, shares of backbone services of
the economy such as financial intermediation,
science and technology and education are small

even though these are rather fast growing
sectors. Share of science and technology service
has been almost unchanged at the level of 0.62%
of the total GDP or 1.63% of the service GDP in
the past few years, whereas that of education and
training service has been declining since the year
2000 to 2.60% of the total GDP or 6.83% of the
service GDP in 2007.
New
services such “Nonetheless, shares of
as securities, backbone services of the
paid household economy such as financial
services, and intermediation, science and
different kinds technology and education are
of
business small even though these are
service
rather fast growing sectors”.
activities
associated with the market economy (e.g.
consultancy, auditing, accounting, market
research, etc) are emerging fast and

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N.H. Son / VNU Journal of Science, Economics and Business 25, No. 5E (2009) 1-14

contributing to the dynamic and diversification
of the service sector though their shares are still
small. At the same time, old services which
accounted for the large share in the command
economic system such as state management are
shrinking in relative term. Share of state
management service fell down from 3.34 % of
the GDP in the beginning of the Doi Moi to
2.77% in 2008.
Low GDP shares of a number of service
sub-sectors are resulted from a small size of the
service sector in the economy. However, there
is a sharp skew in terms of distribution within
the service sector as final demand services take
a major share and leave small portion to be
owned by intermediate services such as
education which is the source for long-term and
sustained growth or financial service which is a
stipulator of rapid growth. In comparison,
shares of distribution and catering services,
finance and insurance services and health and
social services in the GDP of the service sector
were less than 20%, almost 14% and 13% for
China in 2002 when service sector accounts for

around 40 % of the GDP even though

construction is added into the service sector
(ADFAT, 2005: 14). In India, where services
account for around 48% of the GDP, banking
and insurance services accounts for more than
14.5% of the service GDP in 2001.
Regarding the shares of each service subsector in the GDP and total employment, there
are clearly two categories of services. Those
which stipulate growth and contribute to GDP
increase are science and technology, financial
intermediation, hotels and restaurants, real
estate and consultancy and to a lesser extent
transport, post and tourism. Those which
generate employment are trade, education, sport
and culture, party and organization services,
community, social and personal services.
Science and technology is most effective in
terms of growth stipulation whereas party and
organization services are most effective in
terms of employment generation. Sectors such
as distribution service which remains more the
source of employment so far just because it is
still underdeveloped and the forms of modern
distribution have not fully grown.

Table 7. Share of employment of service sectors in 2007
Thousands

Share in

Share in the

Share of

people

entire
economy

entire service
sector

GDP of
service sector

Entire economy

44915.8

100.00

--

--

Entire service sector

11925.1

100

100

Trade

5371.9

11.96

45.05

36.30

Hotels and restaurants

830.9

1.85

6.97

11.49

Transport, post, tourism

1221.7

2.72

10.24

11.90

Financial intermediation

220.1

0.49

1.85

4.82

Science and technology

26.9

0.06

0.23

1.63

Real estate and consultancy

251.5

0.56

2.11

9.53

26.55


N.H. Son / VNU Journal of Science, Economics and Business 25, No. 5E (2009) 1-14

9

State management

866.9

1.93

7.27

7.27

Educations and training

1401.4

3.12

11.75

6.83

Health and social works

399.8

0.89

3.35

3.30

Sports and culture

134.7

0.3

1.13

1.06

Activities of party and membership
organizations

220.1

0.49

1.85

0.33

Community, social and personal services
and hired household services

979.2

2.18

8.21

5.54

Source: GSO (2009), Statistical Yearbook 2008, Hanoi: Statistical Publishing House.

3. Profiles of Service Firms
Service enterprises account for 61.19% of
the total enterprises in the Vietnamese
economy. The number of service enterprise also
grows faster than the number of enterprise in
the economy. Health, education, business
services and science and technology are those
sectors which have experienced most rapid
increase in the number of enterprises thanks to the
opening of the economy which allows for greater
participation of private sector in the delivery of
both old and newly emerged services. In terms of
shares, commercial sector owns the largest
portion of the total service enterprise (65.35%),
followed by real estate and consultancy (13.75%),

transport, post and tourism (9.58%), and hotels
and restaurants (6.37%). Thus, the shares of other
service sectors are negligible. For example,
despite its rapid growth in terms of number,

companies operating in the field of science and
technology still account for less than 0.01% of the
total service enterprises.
The majority of service enterprises in
Vietnam are small both in terms of employees
and capital. Most service enterprises have less
than 9 employees and very few enterprises
employ more than 200 staffs. For example,
around 70% of enterprises in trade and repair of
motor vehicles and household goods and
community, social, personal services and hired
household services employ less than 9 persons.
Sport and culture activities have highest
proportion of enterprises with more than 200
staffs, at 7.52%, whereas the groups of
commerce and repair services, and community,
social, personal and hired household services
have lowest share, at 0.53% and virtually none,
for each.

Table 8. Share of service enterprise in terms of number of employees in 2007 (%)
Size of employees
Sectors

<5

5-9

10 - 49

50 - 199

> 200

Total

Trade and repair of motor vehicles and
household goods

34.17

37.34

25.08

2.87

0.53

100

Hotels and restaurants

20.32

37.59

33.80

6.85

1.44

100

Transport, and storage

18.68

32.76

36.74

8.96

2.87

100

Post and telecommunication

9.50

45.11

34.54

7.03

3.82

100


N.H. Son / VNU Journal of Science, Economics and Business 25, No. 5E (2009) 1-14

10

Financial intermediation

27.78

20.37

44.44

5.56

1.85

100

Science and technology

28.20

37.80

28.15

4.67

1.18

100

Real estate and consultancy

22.05

39.53

30.93

5.83

1.66

100

Educations and training

13.37

27.62

43.02

14.24

1.74

100

Health and social works

24.49

39.21

25.17

6.34

4.79

100

Sports and culture

19.48

33.60

33.60

5.81

7.52

100

Community, social, personal services and
hired household services

33.33

33.33

33.33

0.00

0.00

100

Source: Author calculated from GSO (2009), Statistical Yearbook 2008, Hanoi: Statistical Publishing House.
Table 9. Share of service enterprises in terms of size of capital in 2007
Amount of Capital (billion VND)
Sectors
< 0.5

0.5 - 1.0

1.0 - 5.0

5.0 - 10.0

> 10.0

Total

Trade and repair of motor vehicles and
household goods

8.98

16.71

53.42

11.80

9.10

100

Hotels and restaurants

23.80

21.58

40.32

5.89

8.41

100

Transport, storage, post and
telecommunication

13.66

14.68

50.13

8.37

13.16

100

Financial intermediation

8.30

4.22

13.39

24.23

49.87

100

Science and technology

22.22

7.41

44.44

11.11

14.81

100

Real estate and consultancy

16.98

16.58

44.34

7.60

14.50

100

Educations and training

27.32

20.67

39.53

5.41

7.07

100

Health and social works

13.08

13.95

43.02

11.05

18.90

100

Sports and culture

21.06

19.86

32.53

9.08

17.47

100

43.47

20.77

21.45

3.52

10.78

100

Community, social, personal services
and hired household services

Source: Author calculated from GSO (2009), Statistical Yearbook 2008, Hanoi: Statistical Publishing House.

Except in the financial sector, more than
half of service enterprises have the capital of 5
billions VND or less. However, there is a
positive trend in the increase of capital by
service enterprises over the past years, as

evidenced in the science and technology, sport
and culture and trade sectors.
In many service sectors, state-owned
enterprises (or state agencies) are still the main
and biggest providers. In some cases, they enjoy


N.H. Son / VNU Journal of Science, Economics and Business 25, No. 5E (2009) 1-14

monopoly such as Vietnam Social Insurance in
pension for public sector, Vietnam Railway
Corporation in rail transport service, and Vietnam
News Agency in news agency sector. Or they
have oligopoly and control large share of the
market. For instance, VINALINES controls more
than 53% of total shipping capacity of maritime
transport. The airline services are dominated by
Vietnam airline (in passenger services), Service
Flight Corporation of Vietnam (SFC) (helicopter
services), and Vietnam Air Service Company
(VASCO) (air support services). In banking, five

state-owned
commercial
banks
(BIDV,
Vietcombank, Agribank, Vietinbank, and MHB)
owned 51% of total banking assets, and almost
57% of total deposits in 2008.
In the
telecommunication sector, Viettel Corporation,
MobiFone and VinaPhone held 88% of the
mobile market, whereas VNPT/VDC, Viettel and
FPT Telecom possessed more than 90% of the
ADSL market in 2008.
Current step of SOEs reforms is the pilot
establishment of the major state economic
groups and special general state corporations in
key economic sectors on the basis of 18 stateowned corporations (so-called the 91 general
corporations). As of 2009, 8 state economic
groups and 12 special general state corporations
have been created, including such service
providers as VNPT, Vietnam Railway and State
Capital
Investment
Corporation. These
economic organizations are put under the direct
administrative management of the Prime
Minister(2). State Economic Groups are
organized according to holding (parent)
company - affiliated company models(3).
Holding company is state-owned and operates

according to the SOE Law. Affiliated
companies are limited liability companies or
joint-stock companies. Although the aim of this
restructure program is to increase the
specialized capability and competitiveness of

the important SOEs, some economic groups
already took advantage of their capital scale to
venture into their non-core business activities
such as securities, banking and real estates more
than on the expansion and improvement of their
core services.
Over the past years, the participation of the
private sector, including foreign investors, into
the service sector has significantly expanded. In
the airline, Pacific Airlines (Jetstar Pacific) was
established as the first joint venture. In
November 2007, the government approved the
establishment of the first privately-owned
airline known as Vietjet Aviation Joint Stock
Company, and in May 2008, the second
company - Indochina Airlines. In maritime,
GEMATRANS (Asia) Co., Ltd. and APM - Sai
Gon Shipping are two joint-venture companies
with significant roles in container transport. In
banking sector, from 1997 to 2008, the share of
joint stock commercial banks increased from
11.86% to 32.45% in terms of assets, and from
10.6 % to 31.23% in terms of deposit. In 2008,
five foreign banks - HSBC and Standard

Chartered (UK), ANZ Bank (Australia and New
Zealand), Shinhan Bank (South Korea), and
Hong Leong Bank (Malaysia) - were given
permission to set up fully-owned subsidiaries
which allow them to compete for market shares
in earnest (BMI 2009, QIII: 29). In the telecom
market, besides Vinaphone, MobiFone, and
Viettel, there are also the joint ventures such as
S-Fone, Hanoi Telecom (HT Mobile), Gtel
Mobile in mobile service and FPT in fixed line.
In the insurance sector, dominant service
providers are joint stock and private companies
such as PVI, Bao Minh, Bao Viet, AAA, and
BIC, which account for 83% of the non-life
insurance market. Distribution services are
attracting major foreign distributors such as
Metro Cash & Carry (Germany), Big C
(France), and Parkson (Lion Group, Singapore).

______
(2)

Except Bao Viet Financial Group which is put under the
administrative management of Ministry of Finance.
(3)
Except Bao Viet Financial Group which is a joint-stock
company.

11

4. Vietnam’s Trade in Services


N.H. Son / VNU Journal of Science, Economics and Business 25, No. 5E (2009) 1-14

12

Service trade volume has increased
constantly during the 1991 - 2008 period
(except the year 1999) at an annual rate of
24.1%. From 1991 to 2008, the annual growth
rates of service export and import volumes are
22.6% and 25.9% whereas those of the total
export and import volumes are 20.1% and 21%
respectively. The share of service trade in total
foreign trade turnover increased from 6% in
1990 to 30.4% in 1995 before falling to 19.8%
in 2000, 11.5% in 2005 and 9.5% in 2008.
During the 2001 - 2008 periods, the annual
growth rate of service export is 12.15%, which is
still lower than that of goods export (above 20%).
By the end of 2008, the proportion of service
exports in total exports of the economy is just
10.2% which is below the average world level
(20.0%) and even below the average level of the
transitional economies (14% - 15%) (Figure 3).
At the same time, Vietnam’s service
imports have increased considerably, from
2.304 billions USD in 1996 to 3.382 billions

USD in 2001, 5.036 billions USD in 2005, and
7.931 billions USD in 2008. As a result, service
trade deficit has been rising fast, from 61
millions USD in 1996, when it first occurred, to
872 millions USD in 2004 at its peak, and to
819 millions USD in 2008 (Table 10).
Tourism, airlines, maritime transport and
finance are four largest export sectors,
accounting for around 93.1% of total service
export in 2008. During the 2005 - 2008 period,
shares of tourism, airlines, and maritime
transport increased from 53.9%, 15.4% and
12% to 56.7%, 18.6%, and 14.6% respectively.
In contrast, the share of financial services
decreased from 5.2% in 2005 to 3.2% in 2008.
Tourism, airlines and the group of “other
services” account for more than 37% of total
service import in 2008. However, largest
portion belongs to the cost of insurance and
freight paid for transportation in foreign trade,
accounting for almost 53% of total service
import value in 2008.

Figure 3ice trade volume of Vietnam, 1990 - 2008 (millions USD).

16000

15011
13636

14000
10892

12000
8745

10000

8606
7322

8000
5683 5762 5533

6000
4129

4000

5954 6192

6646

4547

2547

2000
308

719

1136

1466

0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Figure 3. Service trade volume of Vietnam, 1990 - 2008 (millions USD).
Source: Author calculated from WTO Statistics. GSO (2009), Statistical Yearbook 2008. Hanoi: Statistical
Publishing House; GSO (2008 and 2009). Annual Report 2008, Quarterly Report I/2009, and Half Year Report
I/2009.
Table 10. Service Exports and Imports of Viet Nam, 2005 - 2008


N.H. Son / VNU Journal of Science, Economics and Business 25, No. 5E (2009) 1-14

Change
(%)

Share in
export (%)

2005

Export
Turn-over
(USD
million)

4265

10.3

2006

5100

2007
2008

Year

Change
(%)

11.6

Import
Turn-over
(USD
million)
4480

-5.5

Share in
imports
(%)
10.9

19.6

11.4

5792

29.3

11.4

-692

6460

26.7

11.7

7176

23.9

10.3

-716

7096

9.8

10.2

7915

10.3

8.9

-819

13

Service exports
minus imports
(million USD)
-215

Source: GSO (2009), Statistical Yearbook 2009, Hanoi: Statistical Publishing House; GSO (2008 and
2009). Annual Report 2008, Quarterly Report I/2009, and Half Year Report I/2009 .

5. Vietnamese service gap
Although Vietnamese service sector has
been an increasingly important source of
economic growth, its GDP share is still modest
and has remained almost constant over the past
years. At present, the service sector accounts
for 38.5% of the GDP, below the level of a
number of transitional economies and the
economies in Southeast Asia (e.g. Singapore,

the Philippines, Thailand, Cambodia, Malaysia
and Indonesia). In other transitional economies,
whose GNI per capita exceeds 2000 USD (low
medium income threshold) such as Romania,
Bulgaria, and Russia, the service sector
accounts for more than 50% of the GDP, and
whose GNI per capita exceeds 4000 USD (high
medium income threshold) such as Hungary,
Latvia and Litva, the service sector accounts for
more than 60% of the GDP (UNDP, 2006: 2).
Even in the major cities of Vietnam, the GDP
share of the service sector is still not high. For
instance, service sector accounts for 57.5%,
50.4% 43.6%, 48.3% and 42.7% of the GDP of
Hanoi, Ho Chi Minh city, Hai Phong, Da Nang
and Can Tho respectively. To the same extent,
the share of service employment in the total
employment in Vietnam is low. Service sector
accounts for merely 26.7% of total employment
in 2008 whereas these shares were 36.5% and
40.9% in Southeast Asia and Asia-Pacific
region respectively in 2007. Nonetheless, the
GDP share of Vietnamese service sector may be
underestimated because of the exclusion of the

informal service activities and such sectors as
construction and utilities supply from the
official service statistics. This statistical gap
needs to be bridged in order to have fuller
assessment of the development state of the

Vietnamese service sector.
Within the service sector, final consumption
services such as retail distribution, hotels and
restaurants and tourism account for the major
share, both in terms of the GDP and employment.
For instance, the distributive trade sector
accounted for more than 36% of the GDP and
almost 46 % of the employment of the service
sector in 2007. In contrast, the shares of backbone
services such as financial intermediation, science
and technology and education are small even
though these are rather fast-growing sectors.
Although new services such as securities, hired
household services, and various kinds of business
service activities are emerging fast, their shares
are small. Part of the reason is the emergence of a
wealthier and consuming economy. Another is a
focus of the producers in the market and the
policy on the development of consumer or final
demand services.
In this regard, the “prioritization” of
services in the development strategy of Vietnam
must take into account the overall development
level of the country and its foothold in the
international market to come up with realistic
goals. For example, it is more realistic for
Vietnam to choose to become a competitive
service provider next to China which already

14

N.H. Son / VNU Journal of Science, Economics and Business 25, No. 5E (2009) 1-14

established its firm position as the world
manufacturer. In addition, the industry and
services have a strong inter-linkage, which should
be taken into account in the overall development
strategy to ensure that both sectors grow side-byside and are supportive to each other. The service
structure also indicates that high value-added
intermediate services which are critical for
enhancing the competitiveness of the whole
economy remain underdeveloped and are not
capable of meeting the needs of the economy.
Although services comprise over half of
Vietnam’s enterprises (UNDP, 2006), the size
of the majority of Vietnamese service firms is
still small both in terms of capital and
employment. In addition, there are a large
number of very small and unregistered service
providers including individuals and households
who have their business in the informal sector.
There are also a few big providers in the service
sectors under the monopoly and oligopoly of
the state such as telecommunication, airlines,
rail transport, maritime transport, banking,
insurance,
and
pension.
Overall,

competitiveness of the Vietnamese service
sector is low and this is also true for sectors that
have such comparative advantage as tourism.
Productivity levels are comparatively low and
caused by various reasons such as low skilled
labor force, small economy of scale, low
technology and outdated facilities. In addition,
current
competitive and “Vietnamese socialist-market
marketing
oriented economy requires
strategy among the service development
the
service strategy to take into account
firms
still the needs of the low-income
focuses on the and
most
vulnerable
price
rather segments of the population”.
than
quality
dimension. Recent establishment of the socalled economic groups in some service sectors
is said to increase the competitiveness of
Vietnamese companies in terms of scale and
market share and to provide the regulatory
mechanism of the state on the economy in the

face of global economic integration. However,

this may strengthen the monopolies of the state
and distort competitiveness dynamics in the
service sector.
Overall, the share of Vietnamese trade in
services in total foreign trade is still modest and
on a trend of decline in 2008. In addition,
Vietnamese service trade deficit is growing.
Maritime transportation accounts for a large
share of service trade deficit because of high
cost of freight and insurance paid to foreign
companies. Service exports concentrate on a
few sectors such as tourism and computer and
grow slower than goods exports. Vietnam’s
service export strategy is an import substitution
strategy rather than an export-growth strategy.
In the long run, expectations for service exports
are low given the limited competitiveness
capability of potential export service sectors.
Foreign investment in the Vietnamese
service sector remains relatively low and this is
contrasted to the trend of increased foreign
investment in the service sector in the world.
Moreover, executed foreign investment is often
far below the total amount committed. The FDI
flow may not be sustainable since it
concentrates on the booming sectors of the
economy such as real estates and hotels and
restaurants. In this respect, the FDI sector has
minor effect on the improvement of the
competitive capability of Vietnamese service

sector and while Vietnam wishes to diversify
the investment capital, it is actually still relying
heavily on the State budget.
Finally, there exists a huge accessibility gap
among the regions and among the social strata to
basic services such as healthcare, education, and
basic public utilities. Constraint on the
government resources in investment and
consumption subsidies serves as bottleneck in the
improvement of the quality and delivery of public
services and widens socio-economic gaps across
the regions and social groups. Thus, Vietnamese
socialist-market oriented economy requires the
service development strategy to take into account


N.H. Son / VNU Journal of Science, Economics and Business 25, No. 5E (2009) 1-14

the needs of the low-income and most vulnerable
segments of the population.
References
[1] ADFAT (Australian Department of Foreign Affairs
and Trade) (2002), Economic Analytical Unit,
Unlocking China’s Service Sector, Canberra,
Australia.
[2] GSO (2000), Socio-economic Statistics of Vietnam
1975 - 2000, Hanoi: Statistical Publishing House.
[3] GSO (2004), Vietnam 20 Years of Reforms and
Development (1986-2005). Hanoi: Statistical
Publishing House.

15

[4] GSO (2009), Statistical Yearbook 2008, Hanoi:
Statistical Publishing House.
[5] GSO (2008 and 2009), Annual Report 2008,
Quarterly Report I/2009, and Half Year Report
I/2009.
[6] UNDP and MPI (2006), General Framework for
Strategy for Service Sector in Vietnam to the year
2020, Hanoi.
[7] Sectoral papers, Serv-2A (2009), Project
“Formulation of the Draft Comprehensive
Strategy for Services Sector Development to the
Year 2020 and a Vision to 2025”.
[8] WEF (2009), Global competitiveness report 2008
- 2009.