In addition to the government’s prompt instructions, such a result has been achieved thanks to strong and continuous reforms in recent years, which have helped to improve the macroeconomic foundation and resilience of the Vietnamese economy.
Growth reliant on external forces
At a recent economic forum held by the Central Institute for Economic Management (CIEM), economist Nguyen Anh Duong stated that for one percentage point decrease in global growth, Vietnam’s export growth falls by four percentage points.
But the reduction in 2020 is even greater due to the Covid-19 pandemic, which has disrupted several major sectors of the Vietnamese economy. Tourism, for instance, has seen international arrivals drop by three quarters while sectors such as garment and footwear, which are considered the largest beneficiaries of new free trade agreements, have also been disrupted as the outbreak spreads all over the world.
Furthermore, the adaptation to sustainable development requirements is also taking place at a slow pace as seen in the extremely low rate of public investment disbursement in education and the environment.
Most businesses are only concerned with rising costs when complying with sustainable development requirements without realising that if they do not improve their product quality in association with sustainable development, their doors to exporting will be narrowed in the context of increasing trade defence in the future.
A survey by the General Statistics Office (GSO) on Covid-19’s impacts on business activities shows that the challenges facing the Vietnamese business community are also their intrinsic weaknesses such as the lack of input materials and the difficulty in securing funding and affected markets.
Head of the GSO’s industrial statistics department Pham Dinh Thuy stated that nearly 84% of 153,000 surveyed enterprises said they were affected by Covid-19. The larger an enterprise is, the greater impact it suffers. The hardest hit are enterprises in air transport, tourism, hotel and hospitality, footwear, automobile and electronics and telecommunications.
Despite pointing out the risks facing the Vietnamese economy, such as rising bad debt, shrinking government revenue and reduced exports, Dr Le Duy Binh, CEO of consultancy firm Economica Vietnam, is still confident that Vietnam can grow by more than 6% in 2021, among the fastest-growing economies in East Asia and the Pacific.
Such an optimistic outlook is based on Vietnam’s continued business environment reforms, which makes the country an attractive destination to foreign investment, while the digital economy is being strongly promoted to create new opportunities for growth. In addition, Vietnamese enterprises still maintain the ability to supply goods for the domestic and foreign markets, which is a good foundation compared to other countries and provides an advantage in that production can be restored promptly once the disease subsides.
Reform amid pandemic
According to experts, the Vietnamese economy is projected to be one of the fastest economies in the region and the world but in the face of looming risks, it is necessary to further step up institutional reform so as to cut costs and create more space for economic growth while fostering innovation among enterprises.
The CIEM research clearly states that promoting reform right during the pandemic rather than waiting for it to end will be least costly for enterprises and the economy. Reform is especially needed to accelerate digital transformation and implementation of the agenda on sustainable development so that the economy will be more resilient to uncertainties and possible similar shocks in the future.
Improving labour productivity is one of the first requirements for post-Covid-19 sustainable development. Professor Tran Tho Dat at the National University of Economics said that Vietnam’s labour productivity has been increasing over the years but remains low compared to the region and the world.
A new driver to improve labour productivity rapidly is the digital economy. In order to promote the digital economy, Vietnam needs a framework strategy as the foundation for digital transformation policies.
According to Dr Le Duy Binh, Vietnam’s digital economy grew by about 38% in term of size in 2019 and is expected to increase by over 40% in 2020, with an estimated US$12 billion, making it a major driver of economic growth.
Dr Do Tri Thanh, Director of the Institute for Brand and Competitiveness Strategy, suggests that along with giving the top priority to controlling Covid-19, the government needs to continue its reforms aligned with new trends, and take advantage of new free trade agreements and the wave of shifting investment.
For businesses, Thanh recommends they capitalise on the competitive advantages of cheap labour, logistics, information connecting and processing services as well as pay attention to green consumption, a behaviour which will be more widely adopted after the pandemic for foods and medical goods.
