Which Prospect for Vietnam Economy in 2009-2010 Period?

How is the Vietnam economy in the 2009-2010 period? What are the economy’s impacts on local firms? These were questions discussed at a conference entitled “Prospect of Vietnamese economy and challenges faced by local businesses between 2009 and 2010” recently held by Business Forum Newspaper under the Vietnam Chamber of Commerce and Industry (VCCI) and the Vietnam Institute of Economics in Hanoi.

 

Dr. Dang Xuan Thanh from the Institute of World Economics and Politics, said the world economic crisis have lasted 18 months and seriously influenced Vietnamese economy in medium and long term. The country has seen a sharp fall in economic growth, export turnover, foreign direct investment, tourist number and revenues and labor export.

 

He added that, in the long run, Vietnam may cope with high risks of inflation, a low FDI inflow, slow recovery of global trade tiers and more fierce trade competition.

 

According to Dr. Vo Tri Thanh, Deputy Head of Central Institute for Economic Management (CIEM), currently 50 per cent of Vietnamese economy depends on exports, meanwhile the World Bank has mentioned a bad scenario for the world economy. Vietnam now sees both positive and negative factors and it must take from three for stabilization. Thanh highlighted that the world economic situation will remain difficult if the US and the EU maintain their solutions.

 

“The stimulus packages are simply announcement, but have not yet proved effective. Many economists forecast that the world economy will possibly encounter another crisis, which, however, is not as serious as last one. Japan and China have launched their stimulus packages in construction and investment sectors, but merely in the regional scale. All of these factors will result in difficulties for the Vietnamese economy”.

 

Thanh said the government’s measures have helped bring macro-economic stabilisation and GDP growth. However, the global imbalance is forecast to last long, if Vietnam does not have proper policies, it will cope with social pressures and a more serious gap between the rich and the poor. In terms of infrastructure sector, the world needs just 5-7 years to make a great stride, but it may take Vietnam more than 10 years to do this.

Additionally, regarding results of Vietnam’s administrative reform remain limited and it still see budget deficit.

Dr. Le Duy Hieu from the Vietnam Institute of Economics said the world economic downturn has brought positive impacts on Vietnam besides negative impacts. Vietnam have gained more the positive impacts than the negative ones. “Local firms should not worried due to warnings but find opportunities for their development”, Hieu noted.

 

The expert said the global economic slow down has directly attacked speculation and corner, making the market competitive and boosting the economic restructure. The global financial crisis has caused pressures in economic restructure in one side but on the other hand, it has restructured the economy to meet the community and the society. The crisis helps us understand that the government and the market are two sides of the market economy.

Dr. Nguyen Dai Lai, a financial analyst, said Vietnam’s average GDP growth in the first half of this year will be 4 per cent (with the first quarter posting 3.1 per cent). The inflation rate was reported at 2.13 per cent in the first five months and at 2.2 per cent in the first six months, which showed the initial recovery of the national economy. However, results of the government’s stimulus packages remain limited. It is forecast that this year’s economic growth must not be not less than 5.5 per cent to control inflation and stabilise the economy. Four indexes including interest rates M2, exchange rate and CPI must be well controlled to create a favourable business for businesses.

“It is often thought that investing in finance, banking, real estate and hi-tech in Vietnam will make more profits. This is only true in Vietnam in the past, not the current situation. It is completely wrong to say that these areas are still profitable like before”, Hieu analysed.

 

He said businesses should invest in profitable areas such as agriculture, stock market and company merging and acquiring. Up to 80 per cent of Vietnamese population work in agriculture sector which is mainly based on self-supply production. Therefore, the world food changes have not much affected Vietnamese agriculture sector. This means that the Vietnamese agriculture sector is still stable in the global economic downturn.

 

For investment in the stock market, Hieu said, companies should consider the market as a good opportunity to earn money. Speculators holing a great number of shares previously have lost the majority of their assets due to the sharp fall of shares by 70 per cent.

 

Besides, enterprises should invest in company merge and acquire. At present, at least 20 per cent of Vietnamese businesses have targeted business strategies, which means that they will operate will based on banking and financial system, not speculation. Thus, they are in need of capital and suffer from high interest rate loans. This also shows new opportunities for business merge and acquire. Education, healthcare services and real estate are also lucrative areas for investors.

 

Dr. Pham Thi Thu Hang, Director of. Enterprise Development Institute under the Vietnam Chamber of Commerce and Industry, said companies need sharpen their competitiveness. Enterprises must produce new products, focus on technology improvement investment and cooperation with partners, and build development strategy based on value and supply chain. They must also use the capital source from the government’s stimulus package effectively and join hands with the government to facilitate the business environment and development the business community.

 

She suggested that the government should give more support to enterprises to help them improve technology and quickly complete policies for small and medium-sized enterprise (SME) assistance. The policies concentrate on human resource development, capital mobilisation and administrative reform. They also encourage enterprises to start business by offering corporate income tax exemption within 2-3 years. The government needs to provide information about economic forecast and pour more investment into infrastructure, particularly sea port and road, as well as boost trade promotion in both local and export markets.

 

 

Mr Bui Quang Tuan, Deputy Head of the Vietnam Institute of Economics  

The government’s first stimulus package has gained positive results, helping enterprises recover in the context of the global economic slow down. However, the second package has not yet brought goods outcomes as expected. It has not just been kicked off, therefore, it needs to be closely controlled to prevent the inflation return. The government should have timely assessment on this package, paying attention to its medium and long term impacts in the social security.

 

In my opinion, the Vietnamese economy will recover late this year and next year. The country’s GDP growth will reach 6-6.5 per cent if the world economy is well again. This will be feasible because developed economies like the US, Germany, France, Italy, Japan and China has rallied. The figure of 6-6.5 per cent also depends of the local government’s monetary and economic management polices. In short, by the end of this year and in 2010, the Vietnamese economy will witness two scenarios: gradual recovery if no inflation relapse and slow down if inflation returns and increase of jobless people.

The world in general and the Vietnamese financial market in particular should be cautious about the US’s weak currency policy. Vietnam should encourage use of Vietnam dong and reduce gradually and stop using foreign currency credit. The country should implement flexible foreign currency policies along with bold measures to prevent dollarisation and cut foreign currency interest rate and take advantages of the nation’s current low inflation rate of 2.13 per cent in the first five months of this year. The country should also take drastic measures to deal with USD speculation.