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Evolving economy

Released at: 08:41, 15/02/2017

Evolving economy

Photo: Viet Tuan

Professor Nguyen Quang Thai, Deputy Chairman of the Vietnam Economics Association (VEA), tells VET’s Nguyen Ha about the outlook for Vietnam’s economy in 2017.

by Ha Nguyen

Based on macro-economic facts and figures for 2016, what signs are in place for Vietnam’s economy in 2017?

In terms of supply, economic sectors have all experienced a transition towards quality improvements. The agricultural sector has developed large-scale rice fields and products of high quality. Fruit exports surpassed rice exports last year, even though rice has long been Vietnam’s major export line. The industrial sector saw the significant development of manufacturing industries using high technology. Exports of phones and accessories reached some $35 billion, or one and a half times higher than textiles, despite textiles being a leading sector for some time, while computer exports totaled $18 billion and machinery and equipment exceeded $10 billion. Services continues to hold the lead in trade, while logistics and tourism increased dramatically, with international tourists surpassing 10 million, which is evidence that the economy is developing rapidly.

In consumption and investment demand, 2017 holds quite a deal of promise. Spending has continually increased at a faster rate than GDP over the last few years, and even though government spending may fall in 2017 it will only account for a small proportion. In investment, the public sector has not increased its investment to any great extent but the private foreign sector has. Thanks to improvements in the local investment environment, the number of newly-registered enterprises has increased and stood at more than 110,000 last year, with large amounts of capital. The 110,100 new enterprises registered last year was a record and up 16.2 per cent against 2015, with committed capital at over VND891 trillion ($39.2 billion), for an average of VND8.09 billion ($355,960) at every newly-established enterprise and 48.1 per cent higher than in 2015, according to the Agency for Business Registration at the Ministry of Planning and Investment.

There are still, however, many internal issues in the economy that hamper effectiveness and pose a need for restructuring to improve efficiency and competitive advantages. The role of the government and the reform at authorities are of great concern. The role of citizens in inspecting and supervising, accompanied by social organizations, are increasingly important for economic growth.

What will be the bright points for the macro-economy in 2017?

First and foremost are subjective factors. The restructuring path and direction of authorities to overcome hardship together. Inflation, balancing budgets, balancing payments, and the value of the Vietnam dong all have good prospects. One of the most promising areas is clearly the dramatic development of the private sector, turning it into a driving force for the development of the market economy during international integration.

The business sector is instrumental in making the major balances healthier, while the sector itself will also become more vibrant. Overall, the government will need to make stronger efforts in transparency, to serve and build on development. A strong government that is accountable will create trust among businesses and citizens, providing a consensus for society to develop.
Nevertheless, 2017 will be feature new risks. But a consensus will certainly help the economy to develop stronger than in 2016.    

What will be the best investment channels in 2017?

Every investment channel has favorable factors, but only continuous improvement makes it a good channel.

Real estate is a good investment channel and fairly safe. Investors, though, need to look at the high demand in affordable segments for people on low incomes or condotels for the increasing middle class.

Business investment is the foundation of development, as they are increasingly involved in manufacturing during integration. If not large enough, investment in the domestic private sector will see it lose in competition with others as integration continues, primarily the ASEAN community.

The stock market may be better if the equitization process is sped up. But I personally don’t believe that this is an effective investment channel because local investors still know little about the “art” of stock trading, as those with limited capital but who want to be “surfers” are likely to lose out.

Gold and foreign currency cannot be good investment channels because Vietnam’s control over those markets is negligible. They incur many risks, for example from the disparity in Vietnam’s gold price being around 5 to 10 per cent higher than the global price.

What will be the major challenges for the economy and the business environment in 2017?

Macro challenges lie in the reform mechanism. There has been a lot of talk over recent years but it is safe to say there is still some hesitation. It was on display during the drafting of the Criminal Code, which still contained many adequacies once completed. Furthermore, laws on business conditions still lack consistency and regulatory change needs to be more systematic in the future. Only from achieving that can authorities operate smoothly. If during the next three to five years the global economy is still in a difficult state and this is used as a reason to not fully reform, Vietnam will have lost an opportunity. 

A constructive government is one that both builds a system and creates a business and investment environment, and this is one of three factors for success: a developed economy, a strong government with accountability, and a society where the participation of citizens is encouraged, accompanied by social organizations.

Favoring the business and investment environment is the direct approach to improving the effectiveness and competitiveness of the economy. Strategic breakthroughs in training and infrastructure also need to be more persistent to gradually improve quality and effectiveness. 

The world is moving quickly towards the development of science and technology and innovation and future transformations are forecast to be dramatic. Industries where Vietnam currently possesses advantages, like textiles, will soon face difficulties, even with abundant workers available. On the other hand, the “Make America Great Again” policy of US President Donald Trump and the rise of protectionism may make Vietnam only have access to low and mid-range technologies. Without a good transformation, there may actually be more risks for Vietnam than opportunities in the years to come. Having said that, it’s not all negative. Vietnam can develop in a smarter way while creating a win-win situation with other countries.

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