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Economic Sector

Last updated: Wednesday, May 23, 2018


New Challenges Identified

Posted: Saturday, April 22, 2017

Many economists say the 6.7 percent target for 2017 set by the National Assembly is unlikely to be achieved due to the unstable economy. The Vietnam Institute for Economic and Policy Research (VEPR), Vietnam National University, forecasts the growth for the whole year to reach about 6.1 percent and the annual inflation rate may be lower than 5 percent.
First quarter 2017 economy short of expectations
At the workshop on the Quarterly report (Q1) of quarter 1 of 2017, Dr Nguyen Duc Thanh, Director of VEPR, said that the target for the whole year's growth set by the National Assembly for 2017 is not as expected, due to the little positive growth situation in Q1. Specifically, VEPR said that most industries decline abnormally. VEPR pointed out that Vietnam's gross domestic product (GDP) was increasingly reliant on foreign-invested sector production, especially by some big players such as Samsung. Similarly, trade growth is high but exports have yet to really recover in volume.
Meanwhile, the share of exports of the domestic economy decreased to 28 percent. This shows the weak ability of business management and competitiveness of the domestic businesses compared with foreign enterprises. Especially in the context of economic integration as deep as today, it is cautious that the industry growth index and the consumption index became the lowest in the last five years, while the inventory increased significantly.
Dr Nguyen Duc Thanh also commented that the slowdown of Vietnam's economy is partly due to seasonal factors (after Lunar New Year holidays). But the main reason is the dependence of the economy on a number of multinational economic groups, typically the big investment of Samsung. Samsung Group has invested in six projects in Vietnam with total registered capital of US$11.3 billion, becoming the largest foreign investor in Vietnam, accounting for 18 percent of total export turnover of the country.
Another reason is that the Transpacific Partnership Agreement (TPP) has been "abandoned", as well as the unfavourable effects of the establishment of the ASEAN Economic Community (AEC) partly affect the competitiveness and growth of Vietnam’s economy recently, Dr Nguyen Duc Thanh said.
Identifying new challenges
Mr Truong Dinh Tuyen, former Minister of Trade, warned that Vietnam is the backyard of the giant China, but is consuming backward technologies and inventory of this country. If there is no correction in regulating import and export activities, the economy may suffer serious consequences. Specifically, some Chinese goods labelled “Made in Vietnam” for export are negatively affecting the quality and prestige of Vietnamese goods.
Meanwhile, economist Pham Chi Lan said that if Vietnam still follows the practice of importing raw materials and assembled goods from China to package in Vietnam, this is only beneficial to China. We only have the reputation of exporting for China, as a pedal for them. While Chinese scrap machinery equipment is massively imported, it will have serious consequences for the human environment, Ms Pham Chi Lan warned.
In terms of domestic factors, Mr Truong Dinh Tuyen said that the topic for raising medical prices, electricity prices is also one of the causes for economic instability. Mr Tuyen said that the government's suppression of electricity prices in the past two years has lost the attractiveness of foreign investors in the field of renewable energy. And if Vietnam continues this model, it will not have the capital to invest in the clean energy sector, which is forecast by experts to be in dire need of capital. If it continues to maintain the old way of electricity generation, such as thermal power and hydropower, it will only pollute the environment, have low efficiency and endure long term impact on economic growth.
Concerned about this issue, Dr Can Van Luc, a banking expert, argued that raising electricity prices is unavoidably affecting the inflation index. In 2016, we had low inflation thanks to subsidised goods by the State. However, in the first quarter of this year, the State increased the prices of public services (traffic, health care), causing the inflation index to return to rising; the increased cost of business and people living expenses is reality. The problem of policy makers needing to regulate the increase in electricity prices to have the lowest impact on commodity prices and inflation is worth discussing in the future, Dr Can Van Luc recommended.
Anh Phuong

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