Investment efficiency low
This is the second consecutive year that Vietnam has been able to achieve all its targets and even exceed performance in some of the main targets set by the National Assembly, with GDP in 2019 increasing by more than 7%.
High GDP growth comes with macro-economic stability. Inflation according to the average CPI only increased by 2.79%, foreign exchange reserves continued to increase sharply by around USD 75 bn, the ratio of public debt decreased sharply to 55% of GDP, macro-balances such as investment savings, budget revenues, expenditures, and international balance of payments also improved.
However, behind these impressive figures, and along with progress on many other economic dimensions, there are still concerns about sustainable development, and promoting reform, innovation and perception in the market. That is the focus of the reform breakthrough as Resolution 01 of the Government from the beginning of 2019 emphasized. In 2019, more than 138,000 enterprises registered, which was an increase of 5.2% in numbers, an increase of 17.1% in registered capital, and 13.3% increase in the number of employees compared to 2018.
According to U.S News & World Report 2019, Vietnam ranked 8th among top 20 best economies to invest. Many of the basic reform contents had results lower than expected. The restructuring process has made certain progress, especially in the field of finance and banking, but has been delayed in public investment and in the state-owned enterprise sector. The opportunity cost is huge for a large congested resource, due to slow public investment disbursement and divestment and handling of state-owned enterprises. The rate of investment for infrastructure is currently significantly lower than the 8% of GDP (considered a reasonable threshold with investment efficiency assurance), which can significantly affect growth in the medium and long term.
In business investment environment, according to “Doing Business 2019”, a World Bank flagship publication, Vietnam is ranked 69 out of 190 countries, a decrease by one level since 2018. The goal of reaching the top level in ASEAN is still quite far. The quality of growth has also slowly improved although labor productivity was constant in 2019, and investment efficiency is still low and has not changed.
Vietnam is assessed at the "preliminary state" threshold in readiness for the 4.0 technology revolution. Vietnam is still far from reaching a satisfactory level of creative ability. The reason is lack of strong participation of leaders at all levels. At the same time, for a long time until recently, Vietnam has not considered businesses to be attached to research and development, as nucleus of innovation.
The volatility of the two stock exchanges and the real estate market, with the participation of a large number of investors and large capital inflow, are also noticeable indicators. Growth and macro fundamentals are good, but the stock market changed from 'excitement' in 2017 to 'cautious' at the end of 2018 and 2019. Not only did liquidity drop significantly, but the forecast was also cautious.
There are many reasons for such challenges, such as external uncertainties, legal and policy issues, information adequacy, and enforcement sanctions. But there is a fundamental reason too, that belief is not high in dealing with three issues, namely, social annoyance and corruption; reforms; and restructuring of economy, innovation, and development breakthrough.
The target for 2020 was set by the National Assembly at 6.8% growth, inflation no more than 4%, and other socio-economic development targets. This is a fairly careful choice with achievements in 2019, but reasonable. Because the world economy is still in a period of deceleration; uncertainty and risk in 2020 may be still high. International organizations continue to believe that with the fundamentals of a fairly stable economy, Vietnam can achieve growth rate of 6.5-6.8%.
Looking further, the National Socio-Economic Forecasting Center has presented two scenarios of economic growth for the period 2021-2025. (1) GDP growth rate average of 7% per year; and inflation at 3.5-4.5% per year; and labor productivity increase at about 6.3% per year. (2) If taking advantage of the 4.0 industrial revolution, GDP can grow on average 7.5% per year. This is also a premise for Vietnam to return to becoming a middle-income country by 2030.
It is necessary to recognize Vietnam in 2020 in a broader context, and prepare for the future with a five-year plan, a ten-year workable strategy and a vision until 2045. Reform, innovation and targets must be linked to new motivation and qualitative changes in development. In this spirit, the Government motto in 2020 must be "Action-Responsibility-Innovation".