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Vietnam Today

RMIT: Economic outlook positive

Released at: 16:42, 29/01/2019

RMIT: Economic outlook positive

Photo: RMIT Vietnam

All signs point to positive growth in Vietnam's economy in 2019 but there are challenges for the government in the next few years, according to RMIT Vietnam.

by Khanh Chi

The government’s adoption of strong policy stability has contributed to building a prosperous Vietnam now and into 2019 and 2020, according to RMIT Vietnam.

“The government hasn’t made as many reforms as people have wanted, but caution has reduced the level of risk for such a young economic market,” said RMIT Vietnam’s Professor Ian Eddie.

Currently classified as a Frontier Market by the Morgen Stanley Composite Index, Vietnam’s growth is slowly shifting it towards Emerging Market. A move to an Emerging Market classification will mark an important economic transition in the ASEAN region for Vietnam, as it will attract more foreign capital from large international investments that will support the development of Vietnam’s economy.

“You can argue that Vietnam probably has the best prospects to move further up towards the level of economic standards in Thailand and Malaysia,” said Professor Eddie. “It has positioned itself well, reformed its financial system, has strong government stability, and, in terms of Emerging Markets, has one of the strongest currencies.”

Vietnam has very strong foreign investment, which has now exceeded more than 100 per cent of GDP. It’s in a unique position, as not many countries in the world have more FDI than GDP. The transition will depend on the government’s reform of State-owned enterprises.

“Reforms in market and securities will be critical to achieve Emerging Market status,” Professor Eddie commented. “It’s important for the government to close those gaps, in order to sustain future growth, maintain openness for foreign companies and workers to come, and continue supporting new business startups. Cities today really need to be the center for innovation and encourage new businesses.”

Supported by a strong government policy, the entrepreneurial spirit in the country is thriving, particularly in Ho Chi Minh City, which is home to half of all startups. Because of the natural entrepreneurial mindset and business capability, people have been able to adapt to Vietnam’s emerging venture capital industry.

“The Vietnamese are very good at starting businesses,” Professor Eddie noted. “I think the next generation of entrepreneurs is going to look for opportunities to scale up their small businesses to create sustainability, higher pay rates, and more opportunities for workers.”

Vietnam currently has a large export economy, and most exports are sourced from FDI. But if Vietnamese companies grow and build up their skills, they will be able to boost their internationalized ASEAN capabilities further.

He also argued that while all signs point to positive growth for Vietnam’s economy in 2019, there are two clear challenges facing the government over the next few years: sustaining strong economic growth in the face of a turbulent global economic environment, and managing inequality.

“The government also needs to retain a strong currency to ensure that capital inflows are positive, so that Vietnam has a trade surplus and a strong currency and doesn’t resort to excessive borrowing of international funds, which creates financial risk,” he said. “If Vietnam can do that it will be well placed as a beneficiary, particularly if the trade war between the US and China deepens in any way.”

Last year in the Global Wealth Index (Wealth-X), Vietnam was the third-fastest growing country in generating new dollar billionaires. What an amazing fact: not only are there many successful entrepreneurs here, they’re successful at a global level. But this is also an issue that the government needs to be well aware of - there is still a degree of poverty, and income equality is a major issue. Income equality is always a fundamental issue for economic stability. The more inequality in any country, the more likelihood you’re going to get social and political unrest.

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