Impressive economic outcomes
Following a high economic growth rate of 6.68% in the fourth quarter of 2016, the Vietnamese economy unexpectedly plunged in the first quarter of 2017 with a growth rate of just 5.15%. Although the economy bounced back to a relatively high growth rate in the second quarter of 2017 at 6.28%, many domestic and international experts and economic organisations believed that 2017 would be a difficult year for the Vietnamese economy.
However, the spectacular boom of the economy in the remaining months of the year relieved the aforementioned concerns. The economic growth rates of 7.46% in the third quarter and 7.65% in the fourth quarter resulted in a GDP growth of 6.81% for the entire year, exceeding the target of 6.7% and also setting the highest growth rate since 2011.
According to Duong Manh Hung, deputy director of the National Account System Department under the General Statistics Office (GSO), the strong economic growth was due to the impressive performance of many sectors, particularly, the spectacular growth of the manufacturing and processing industry in the remaining months of the year which contributed to the sector's 14.4% annual increase, the highest rate in the past seven years.
In addition, the total import-export revenue reached a record high of over US$400 billion in 2017 including US$213.77 billion worth of export revenue, up 21.1% over 2016, contributing to creating a trade surplus of US$2.7 billion.
Last year also witnessed new records in the number, scale and registered capital of newly established enterprises in addition to increasing foreign direct investment (FDI) in both newly registered capital (US$21.3 billion) and FDI disbursement (US$17.5 billion).
Vietnam also welcomed a large number of foreign visitors at 12.9 million which not only made significant contributions to the tourism sector but also to transport, trade, banking, catering and accommodation services.
The economic structure also saw a positive transfer with the reduction of the proportion of the agricultural sector and the increase of the proportion of industry and service sectors. The contribution of total-factor productivity (TFP) to growth was estimated at 45.19% in 2017 which was much higher than the rates of 40.68% in 2016 and 33.58% in the 2011-2015 period.
However, the economy in 2017 revealed several shortcomings including the slow allocation and disbursement of Government bond-sourced investment, high trade deficit in the service sector, negative impacts of climate change, increasing and extraordinary natural disasters, among others.
Actively braving challenges
Economic experts state that the high economic growth rate in 2017 will be an important driving force for production in 2018. In addition, the GDP growth in 2018 will be promoted by other favourable factors including the beginning of operations of large projects approved in 2017; the increase of registered investment capital anticipated at 11% to 13%; the rise of outstanding loans estimated at 18 to 19%; the growth of international visitors at 25-30%; and the expansion of total retail sales of goods and services at 9.5% - 10.3%, among others.
However, the economy is also projected to run into a number of difficulties in 2018 such as the decline of the mining sector and the reduction of import tariffs on some items from ASEAN. In addition, if the Government and the Ministry of Finance raise the value added tax (VAT), it will help to reduce the GDP while increasing the consumer price index (CPI), creating negative impacts on economic growth.
According to GSO Director General Nguyen Bich Lam, Vietnam is facing at least six of the top 10 economic risks presented by the World Economic Forum. Moreover, the Industry 4.0 with the new trend of automation and data exchange in production technology will pose a big challenge on Vietnam, creating a risk of the country lagging behind. The most serious problem is that Vietnam's labour productivity remains lower than that of many countries in the region despite the improvement over the past few years.
Therefore, to fulfil the economic targets set for 2018, including the GDP growth from 6.5% - 6.7%, the Government, sectors and localities must be fully aware of the anticipated challenges to draw timely solutions in order to overcome the difficulties from the first months of 2018.
The most important solution is to enhance labour productivity to contribute to improving competitiveness and sustainable economic development. In addition, it is necessary to improve institutional reform, State governance capacity, the business environment, infrastructure, and administrative reform, among others. Furthermore, Vietnam should thoroughly study the Industry 4.0 to apply actions in specific areas in order to catch up with the industrial revolution in the rest of the world.
Director of Vietnam Institute of Economics Tran Dinh Thien said that Vietnam's annual GDP growth seems good, but long-term growth shows inadequacies as there is a downward trend in growth. Despite the GDP growth, the GDP structure has changed little, resulting in the slow maturity of the economy and difficulties to the growth of enterprises.
Thien wondered if the problem is due to the exhaustion of old motivation for growth while Vietnam is slow in adopting new motivation for growth. Thien also noted that some new motivation began to emerge in 2017 including the strong development of the private sector which contributed about 39% to the economy a few years ago rising to more than 42% in 2017.
FDI will continue to be an important driving force for the economy and it is time for Vietnam to outline a new strategy for attracting FDI with the focus on technological elements and the global value chain, while applying stricter standards for FDI enterprises at operating at a low technology level.
In addition, the process of restructuring and reforming of the growth model in the past few years has not paid off as it only concentrated on revising and upgrading the old model while delaying the transition to a normal market mechanism.
Therefore, it is essential to conduct the second economic reform to move to the real market mechanism. In particular, it is advisable to appreciate the concept of "a facilitating State and a government of action", restructure ministries and sectors based on their functions and responsibilities and remove business conditions and mechanisms that hinder enterprises.
