Over the past years, Vietnam’s economy has grown widely rather than deeply. The high growth was attributed to the increase of investment capital and labourer numbers, plus the exploitation of natural resources. These are considered factors of unsustainable development.
Existing issues
According to Associated Professor, Dr Nguyen Van Lich of the Diplomacy Academy, Vietnam’s rapid growth in recent years included a quite high investment rate (counting for 33.5 per cent of GDP) that means the economy’s incremental capital output ratio (ICOR) was 4.4, higher than those of other East Asian economies like China (4) or Taiwan (2.7). Vietnam’s ICOR is increasing rapidly. The country’s major exports, including crude oil, coal, iron ore, coffee, rubber, rice and seafood, all are raw materials or from natural resources, which have low added value. Other processing goods like textile and garment products, footwear also brought in low value.
After doi moi (reform), Vietnam’s economic structure has made positive changes. The agriculture proportion of GDP reduced from 38.1 per cent in 1990 to 20.91 per cent in 2009, while the industry proportion increased from 22.7 per cent to 40.42 per cent in the same period. However in the country’s current economic structure, the agricultural sector remains high, compared to the world average of 3.17 per cent. The proportion of service to GDP is 38 per cent, much lower than the world’s 69 per cent level. This showed stagnancy in moving Vietnam’s economic structure as well as weak development of Vietnam’s industry and service sectors. This makes it a challenge for Vietnam to ensure sustainable development, because service, in fact, brings in a large source of revenue for the budget.
In Vietnam, the state-owned sector still occupies a high proportion in the economic structure (nearly 40 per cent of GDP) but recruits only 9 per cent of total labourers. State-owned firms often get political advantages and state subsidies, but their efficiency and profits are less than private enterprises. The state firms also operate mainly in sectors which need more capital. The stagnancy in moving ownership, as a result, is hindering Vietnam’s growth.
The huge trade gap over the past years is leading to a deficit in Vietnam’s balance of trade. The import structure also has a lot of issues, causing difficulties for the economy.
Vietnam’s exports are said to continue suffering bigger challenges as trade barriers are becoming more and more complicated, particularly in the country’s major export markets.
In addition, Vietnam’s budget has been overspending in recent years and tends to increase. In this situation, if the budget is supplemented from mainly domestic capital, it will cause pressure to increase interest rates and firms will have difficulties in business activities.
Since the end of 2008, the increasing inflation has been gradually settled, but the situation is implicit to recur. According to the General Statistics Office, the country’s CPI in April increased by 3.32 per cent. Since early this year, the CPI has gone up 9.64 per cent, exceeding the permitted level. Compared to last April, the price flat was 17.6 per cent higher. Obviously, curbing inflation is difficult for Vietnam. Besides, because the country principally depends on foreign markets, so the domestic price will increase if that of the world goes up.
The FDI flow into Vietnam has continuously increased, particularly after Vietnam became a WTO member. However the disbursal rate in fact is very low. Meanwhile, the mechanisms of attracting and distributing FDI sources are weakly managed, leading to low efficiency in using the sources. FDI competition in the world is also becoming fiercer.
Lich added that poverty elimination in Vietnam has been unsustainable. There exist some groups with high poverty rates (for example ethnic minority people account for 14.5 per cent of population but the poverty rate among them is 52 percent). A majority of households just out of poverty remain near the poverty line (up to 70-80 per cent). In the case of a natural disaster or sudden impact from policy change or integration, these people will be at high risk of falling into poverty again.
Environmental pollution is becoming serious and directly threatening the life and development of current and future generations. A number of industrial parks have built waste water treatment systems, but many of them have not yet been put into operation. The pollution in urban areas and of water sources caused by untreated industrial waste is threatening the life and health of Vietnamese people.
These issues show that Vietnam’s economic development is unsustainable and the country has failed to combine economic growth with social security and environmental protection.
Need to build a self-control economy
Dr Lich said the thought and model of growth which Vietnam is following has not been suitable. Vietnam needs to be aware that in order to have sustainable development, it is necessary to build a self-control economy, which benefits the people, first labourers. Lich said central and local authorities should further learn about the role of farmers and advantages of Vietnam’s agriculture. This will not only help develop the country’s economy, but also guarantee food security and social order.
Many economists said that for sustainable development, Vietnam needs to push reform, particularly of management mechanism. First, Vietnam should build and complete its system of laws to create a comprehensive legal framework for the national development strategy. The country should raise the quality of draft laws which must be consistent and scientific.
Second, Vietnam should encourage more people to join the law-making process. Collecting opinions needs to start right in the period of outlining policies.
Third, Vietnam must promptly and absolutely cut overlapped administrative procedures; and improve the quality of planning, providing and managing business information.
Foreign experts also said that the improvement of education quality and efficiency is a prerequisite condition to have a team of skilled labourers. In parallel, it is vital to invest in the country’s science and technology.
“Vietnam needs to settle the shortage of energy by investing in new energy sources rather than hydropower and improve the distribution system; while encouraging private and foreign firms to take part in power generation,” Lich said.
According to Cao Sy Kiem, Chairman of the Vietnam Association of Small and Medium Enterprises, most Vietnamese firms are small ones. Thus, associating together will help them share experiences as well as limit risks. However, he also emphasized that enterprises should not consider the association as a temporary solution to cope with difficulties, but be aware of its huge advantage to help them penetrate and occupy markets, contributing to raising the economy’s competitive capacity.
Vietnamese
