Quality growth increases
The highlight of the economic picture of Vietnam in 2018 was the quality of growth. If in previous years, the economy grew mainly thanks to credit expansion, the exploitation of crude oil and minerals, 2018 had a clear change when the GDP increased by 7.08% - a record level since 2008, while credit growth and crude oil and mineral exploitation are at the lowest level.
According to data from the National Financial Supervisory Commission, the credit growth rate in 2018 was below 15%, sharply lower than the growth rate of more than 18% in 2017. Credit capital flow invested more into production, business, and creating motivation for economic growth. "Analysts have expressed concern when the high growth rate of Vietnam in the previous years was associated with credit intensity. But in 2018, without high credit growth, Vietnam's GDP continues to rise and has even had its highest increase. This is a positive signal, because it would be unsustainable if the credit growth rate continued to be maintained from 17 to 18% until 2020”, Nguyen Xuan Thanh, Development Director at Fulbright University Vietnam, analysed. According to the General Statistics Office (GSO), Vietnam's economy has escaped its dependence on crude oil and mineral exploitation. In 2018, crude oil export turnover reached US$ 2.3 billion, down 21.2% in turnover and 39.5% in volume over the previous year. In general, this is the third consecutive year in which the mining industry has seen negative growth. The quality of growth has improved, also reflected in the contribution of total factor productivity (TFP) to GDP growth of 43.5%, much higher than the average of 33.58% of the period 2011-2015. The ICOR coefficient (Incremental Capital Output Ratio) decreased from 6.42 in 2016 to 6.11 in 2017 and 5.97 in 2018. In order to make VND 1 of growth, only VND 5.97 needed to be invested instead of VND 6.42.
GSO General Director Nguyen Bich Lam said that the economy continued to prosper in all three sectors (agriculture, forestry and fisheries; industry and construction; and services). In particular, the motivation for growth in the past year was the processing, manufacturing and service sector. A breakdown of sectors shows that agriculture grew by 3.76% and contributed 8.7% to GDP growth, while industry and construction expanded by 8.85% and made a 48.6% contribution to the overall growth. The services sector grew by 7.03% and contributed 42.7%, the GSO General Director said. But the difference in 2018 was the export of the domestic economic sector was higher than the foreign invested enterprises sector for the first time, corresponding to the export growth figures of the two regions, 15.9% and 12.9%, respectively. "If in 2017, Vietnam depends on phones and electronic devices with the growth rate of 20-30%, in 2018 only increases from 10.5% to 13.4%. The motivation for growth instead came from industries benefiting from the policy of replacing imported goods such as automobile production and pharmaceuticals", said Development Director Nguyen Xuan Thanh.
2018 was also the year of high registration of enterprises. The whole country had 131,275 new enterprises with a total registered capital of more than VND 1.47 million, up 3.5% in the number of enterprises and 14.1% in registered capital. If additional registered capital is included, it is estimated that in 2018 more than VND3.88 million was added to the economy through the establishment of enterprises. However, GSO General Director Nguyen Bich Lam also noted that the number of enterprises suspending their operations was quite high, up to 90,651 businesses, up 49.7% compared to 2017. The number of enterprises completing dissolution procedures in 2018 also increased by 34.7%.
Many new impetuses for 2019
According to economic experts, sharp growth in 2018 has created fundamental drivers for growth in 2019 as well as the following years. It is crucial to the success of the socio-economic development plan for the period 2016-2020. The successful implementation of the double goal by the Government is to both maintain macroeconomic stability and promote economic growth, creating good conditions to better implement the tasks of ensuring social security and creating employment, improve people's income and life, and stabilise social order and safety in the following years. On the basis of statistical data, Duong Manh Hung, director of the National Account System Department under the General Statistics Office (GSO), clarified these motivations. Accordingly, in 2019, the country will complete nearly 3million m² of houses and apartment buildings. Three thermal power plants and processing and manufacturing industries will be completed and put into use, helping to add new production capacities, including Nghi Son refineries, Formosa steel plant and Ca Mau Fertiliser. In addition, a series of highway projects and more than ten food processing factories are expected to come into operation, scheduled to become an important driving force to promote the economy and ensure social security. The growth momentum for 2019 also comes from institutional reforms, taking advantage of the signed Free Trade Agreements (FTAs) and resources from the private sector. In particular, the strong development of the private sector by benefiting from many results in reforming the business environment through cutting down on business investment conditions and start-up support policies brings the most expectations. According to calculations, private investment in 2019 and 2020 must reach about 15% of the GDP to meet the target of economic growth.
However, the economy of 2019 will also face many risks and challenges, including the pressure on US$ interest rates, crude oil prices and world commodity prices; and tensions due to trade wars between major economies may be prolonged. The trend of trade protection continues to increase, putting great pressure on operating monetary policy, exchange rates, interest rates and domestic inflation. This fact requires that Vietnam has proactive solutions. The Prime Minister's Economic Advisory Group proposes that the Government should give priority to directing the implementation of policies and solutions to remove four basic bottlenecks: obstacles to large project implementation; obstacles in breaking through the private sector; difficulties of enterprises investing in agriculture and bottlenecks in social resource clearance, considering these as key focal points in the direction of management in 2019. According to GSO General Director Nguyen Bich Lam, it is necessary to promote the process of reforming a stronger and more realistic business environment, arousing the development motivation of the private economic sector, encouraging individual business households convert to businesses; proactive and flexible in operating monetary policy, interest rate, exchange rate in line with domestic and international market movements to support production, business and growth.