Economy motivated by exports
The world’s economic growth slowed down substantially in 2019 because of the ongoing US-China trade war, disputes and trade tensions between Japan and the Republic of Korea, along with trade disputes and tensions between the US and EU. In this scenario, Vietnam’s economy still managed to reach a GDP growth rate of over 7.15%, which is higher than the goal set by the NA and the highest in several years.
The macro-economic situation remained stable, with CPI of 2.75%, and the basic inflation rate at 1.98%. The state budget revenue is expected to exceed the 2018 figure by 3.9%, of which the domestic revenue increased by 5.8%, the revenue from import-export was the same as in 2018, while the revenue from crude oil was about 80% of 2018. Most significantly, there has been a positive change in domestic revenue, making up more than 83% of the total state budget revenue, whereas the state budget deficit was lower than in previous years, at just about 3.54% GDP.
A report by the Ministry of Finance says that the public debt decreased by 56.1% GDP, the government debt was at 49.2% GDP and foreign debt was about 45.8% GDP, which was within the NA permissible range and lower than the medium-term financial plan. The VND/USD ratio increased by less than 2% and the general growth of the entire economy, the agricultural, forestry and aquatic sectors increased by 2.4%, a 3.76% increase since 2018, making a contribution of 4.8% increase to the general growth rate. The industrial and construction sectors increased by 9.36%, contributing 52.6%, and the service sector increased by 6.85%, contributing 42.6%.
The economy was greatly motivated by exports which increased by an impressive 8.5%, exceeding the 7-8% goal set by the NA. Import turnover increased by about 7.9%, with import of production materials making up more than 91%. What was special was the record high of over-exports reaching USD 10.9 bn. The current balance of trade and services continued to have an estimated surplus of about USD 5.2 bn. Exports of aquatic products, fruits and vegetables saw a remarkable increase, and export of farm produce was more than USD 41.5 bn.
The domestic economic sector witnessed positive changes with an export turnover increase of 18.1%, much higher than the FDI sector, by 3.8%. FDI investments by November 2019 were over USD 31.8 bn. There were 3,478 new projects in the year, with a total registered capital of USD 14.7 bn; increased investments reached USD 5.9 bn and indirect investments through acquisition of shares in the securities market were more than USD 11.2 bn, increasing 47.1% over 2018. FDI in the first eleven months was a record high, with more than USD 17.6 bn disbursed, compared to the USD 16.5 bn dispersed in 2018.
The private sector contributed strongly towards the whole economy, with increasing contributions to GDP and providing jobs for thousands of people. Private investments have made strong progress, making up 33% of investments in the society. By the end of November, 126,721 new enterprises were established, increasing by 4.5% over 2018, with a total registered capital of VND 1,574,000 bn, increasing by 27.5% over 2018, with an average of VND 12.4 bn per enterprise, increasing by 22% over 2018 and creating 1,137,000 jobs. About 36,868 companies that had suspended their business activities restarted them again, increasing by 15.7% over 2018.
Cash from Vietnamese expats abroad in 2019 was about USD 16.7 bn, equivalent to 6.4% of GDP, making Vietnam one of the ten countries with the largest cash flow from expats in 2019. What was special was that foreign exchange reserves saw a record increase with more than USD 73 bn. Bank credit for the economy saw a year-on-year increase of about 9.4%, from 10.35% increase in 2018. What was different was that credits were spread out over the year, instead of usually being poured heavily in the final months of the year, and effects of credits have positively improved. Equity capital raised from the securities market through issuance of corporate shares and additional shares substantially increased by over 33%.
It also came as good news for business people when 115 unreasonable requirements were removed and 136 other requirements were simplified, with 72.7% of complicated requirements cut off. The world economic forum raised Vietnam by 10 levels in the Global Competitiveness Index (GCI) rankings, to the 67th position out of 141 ranked economies.
Measures for 2020
Based on economic forecasts and Vietnam’s economic capacity and situation, the NA has approved twelve basic goals for 2020. In particular, the GDP is set to increase by about 6.8%, CPI by below 4%, total export turnover by around 7%, over-imports are expected to be at 3%, and total investments for development of the entire society at about 33-34% GDP. These goals are relatively high and rather challenging while the global and domestic economies are facing various difficulties and risks.
In order to maintain sustainable growth rates and achieve the goals above, firstly, it is vital to maintain macro-economic growth, keep inflation under control, and positively ensure major balances. It is essential to closely monitor the changes in the international economic and financial markets and make flexible changes, and step by step stabilize and raise the value of the Vietnamese dong. It is important to cautiously watch the fluctuations in the real property and securities markets; and promptly take appropriate measures to prevent abnormal changes from causing adverse effects on the domestic economy. It is also imperative to positively restructure revenue and expenditure of the state budget and minimize the state budget deficits; make necessary changes to the tax policy, improve the effectiveness and efficiency of public spending, and sustainably reduce the ratio of public debts and foreign debts to GDP.
Secondly, it is vital to improve the economic structure, accelerate changes in economic models with increasing application of science and technology, improve the quality of human resources, increase the effectiveness of production and management, and exploit, use and improve economic resources. It is crucial to consider it the main drive to apply science and technology and improve production effectiveness and quality of manpower for economic growth, and pave the way for initiatives and improvement of the economic and business structures for the entire 2020-2030 period.
Thirdly, it is fundamental to treat the private sector as a new motivation that needs special support and policies for significant growth. Over the years, the private sector has made pivotal breakthroughs in various fields, making a contribution of about 33% of the total capital of the whole society, creating over 42% GDP, but there have been lots of hindrances and unfair treatment for this sector in terms of opportunities for development. It is therefore essential to provide sufficient support for major companies so that they can drive the entire economy forward. These leading companies can help small and medium enterprises (SMEs) to make high-quality products that can satisfy international requirements and meet domestic and export needs and also get involved in the global supply chain.
Additionally, it is crucial to reform the operations of state-run companies in the sense of market mechanism, especially the companies that the State wants to continue to hold for the purpose of management and control of the national economy; actively categorize and privatize the companies that the State does not need to hold any more, and provide equal opportunities for all companies to publicly and transparently get involved in such fields as infrastructure construction, electricity supply, water supply and petroleum supply.
Accelerating export, diversifying market
In the context where many countries increase protectionism by raising the tariff and non-tariff barriers, it is necessary to diversify the export markets to avoid possible shocks when there are changes in the import-export and tariff policies in the target markets. It is important to import machinery, equipment and raw materials from developed countries and target markets like the US, EU, Japan and the Republic of Korea to ensure good sources of materials for production of high-quality products, improvement of technology, skills in production, and increase in productivity.
The US imposes a high tax rate, of about 456.23% on some stainless steel products from Taiwan and the Republic of Korea, and investigates the export source of these aluminum products. This has caused several Vietnamese export products going to the US to also face strict inspections and receive serious warnings. Companies need to avoid fake products and prevent products from other countries to be labelled as Vietnamese products.
In 2020, the world economy is expected to experience lots of difficulties, the global economic growth is likely to slow down, and trade exchange and services will probably go downhill. Companies are required to improve their competitiveness, machinery and technology in order to make high-quality products. Also, companies need to work closely together to create chains of products and raise the value of their products to satisfy the requirements of partners in FTA and enjoy preferential treatment from FTA. Companies should seriously consider, adapt to and make good use of the opportunities to meet FTA commitments for their benefit and sustainable development of various economic sectors.