Vietnam Announces New Index of Industrial Production

The government’s General Statistics Office (GSO) announced last weekend it has completed a new method to calculate the industrial development index, called the Index of Industrial Production (IIP).

 

The Japan International Cooperation Agency and Japan’s Ministry of Economy, Trade and Industry have helped Vietnam’s GSO complete the new IIP via technical assistances over the past five years.

 

The new method will be more accurate and updated than the old system which has been applied since 1994 and used constant prices from that year as the basis for its calculations, said Pham Dinh Thuy, director of the GSO’s Industry and Construction Statistics Department.

 

The index is not suitable to the current context particularly considering the country’s shift to a globally integrated market economy.

 

However, Thuy said, the government will continue to apply the old method, in parallel with the IIP, until the former is officially removed in 2011. (Urban & Economy)

Vietnam Economy in First Half 2009: Preventing Trade Deficit, Increasing FDI (Homepage \ Bai Nguon von FDI 02MMM)

According to statistics of the first half of 2009, Vietnam economy shows some signs of recovery in spite of the continued world economic crisis. One of the bright spots is stable FDI inflow ensuring stable economic development.

 

Initial statistics show that GDP growth rate in the second quarter of 2009 is 4.5 percent and 3.9 percent in the first half of 2009. It is much lower than the same period of 2008 (6.5 percent), 2007 (7.87 percent) and 2006 (7.4 percent), but higher than the first quarter of 2009 (3.1 percent). The growth rate of 4.5 percent in the second quarter can be considered as a sign that the worst economic situation might be over. Discussing with the press on the issue, Dr. Nguyen Minh Phong (Hanoi Institute of Socio-Economic Study) believes that the growth rate is most encouraging especially when World Bank forecasts a further recession this year with most of the world economies suffering minus growth rates. Dr. Phong also thinks that if the growth rate continues, Vietnam can possibly attain the target of 5 percent set by the National Assembly recently, with 3.48 percent in industry-construction, 5.5 percent in service and 1.25 percent in agriculture. Moreover, the industrial value in the second quarter increased 7.4 percent (1.25 percent in first quarter and 4.8 percent in the first six months). Meanwhile, in the construction sector with the stimulus package the growth increased 16 percent in the second quarter, 3 percent more than the first quarter.

 

According to the Ministry of Trade and Industry, though the growth rate in the first half of 2009 was lower than that of the same period in 2008 (16.5 percent), the industrial growth is stable in spite of the smaller market.   Regardless of natural calamities, diseases and unstable prices of materials, the agriculture-forestry-fisheries value in the first half of 2009 increased to VND96,800 billion, 2.5 percent more than the same period last year with agriculture of VND70,800 billion and fisheries of VND22,700 billion increasing respectively 1.8 and 4.3 percent.

 

With its economic growth, Vietnam continues to attract FDI. In the first six months, FDI increased by US$8.87 billion. Though the increase was only 22.6 percent of the same period of 2008, it remains high in the context of the current world economic crisis. It is expected that by the end of 2009, Vietnam will attract US$20 billion in FDI with disbursement of US$8 billion.

 

Although there have been bright spots, there are still several hurdles ahead especially in industrial production and export. The export target might not be attained even it has been readjusted from 13 percent to 3 percent. It means over US$37 billion must be achieved in the second half of 2009 or US$6.2 billion a month, a high target. Dr. Phong also pointed out that several export items of “US$1billion club” have been decreased by 10-15 percent while export prices also reduced especially in crude oil, rubber, pepper, coffee, cashew nut, rice, coal, tea. Vietnamese export growth depends much on the world market.

 

Another problem is the export value in the first half was worth only US$40.64 billion or 31.6 percent less than the same period last year but with trade deficit 7.6 percent of the export value. In June alone, the trade deficit was nearly US$1 billion for the third month in a row. According to the Ministry of Trade and Industry, the trade deficit in 2009 must be in the range of US$10-12 billion, or two thirds of 2008. However with the inflow of foreign exchanges decreasing, the trade deficit by the end of the year will affect the exchange rate between Vietnamese Dong and US dollar.

 

According to the National Centre of Socio-Economic Forecast, the economy can be with a growth rate of 4.5 percent with CPI of 7.51 percent or with better scenario of 5 percent and 9 per cent respectively but with inflation of 9 percent. However, the second scenario requires the improvement of the US, Japanese and EU economies in the fourth quarter and the efficiency of stimulus package of the government.        

The report released by the Ministry of Planning and Investment showed that total foreign direct investment (FDI) capital reached US$64 billion in 2008. In 2009, FDI inflows are predicted to drop as a result of global economic crisis. However, many believe that the inflows will surge after global economies revive. According to economic specialists, Vietnam may draw as much as US$600 billion of FDI in the next 10 years. Many market economy researchers recommend Vietnam to set up investment funds to mobilise foreign-sourced capital to serve its economic development.

 

Vietnam’s gross domestic product (GDP) was estimated to reach US$91 billion in 2008 and investments equalled 44.5 per cent of GDP, or US$41 billion (both private and State investments). Presumably, FDI growth is 5 per cent, the domestic total investment value will reach US$500 billion within the next 10 years, including US$250 from private economies.

 

To implement industrialisation and modernisation policies and integrate more deeply into world economies, Vietnam will equitise more than 1,000 State-owned enterprises from now till 2010. Proceeds from share offerings may amount to US$100 billion. At present, Vietnam has more than 300,000 non-state enterprises. By 2020, the country is expected to have 500,000 enterprises and share offering value may reach US$100 billion. Thus, total proceeds from selling State-owned enterprises may hit US$200 billion. According to the current regulations, foreign investors are allowed to keep 49 per cent of joint stock companies. Thus, total FDI capital is estimated at US$600 billion in the next 10 years.

 

Vietnam is expected to need US$1,000 billion in the next 10 years to develop its economy. Domestic investment is estimated to account for 30-40 per cent and the remainders of 60-70 per cent will come from foreign sources. In fact, Vietnam usually lends up to 70-80 per cent of total investment capital for an investment project while its budgets only account for 20-30 per cent. Thus, Vietnam’s own funds will take up US$150 billion out of US$600 billion of FDI capital forecast for the next 10 years. If Vietnam can mobilise US$50-100 billion and invest its own projects, the reliance on foreign-sourced capital will reduce to a considerably safe level. This is within reach of Vietnam.

 

Mr. Bui Kien Thanh, a senior economic and financial specialist, said Vietnam needs to establish investment funds to raise foreign capital for domestic investment which is preferably managed by Vietnam. Foreign investors do not need to implement their projects on their own. Investment funds are the vehicle to satisfy the “passive” investment need of most international investors. However, Vietnam’s legal framework is not enough to protect the rights and interests of investors. Therefore, the investment funds should be established in foreign nations where international laws are accepted. The implementation can be conducted in two phases: Establishing one or more fund management companies in foreign nations, and contracting with foreign professional partners to be consulted and cooperated to set up investment funds, mobilise capital and support management activities. The role of foreign investors is the key. We needs to attract senior financial managers and experienced financiers to push up our plans. Capital contributing investors will base on the reliability, competency, experience and history of managers to decide their investments. At the same time, they also look at advisory boards. Thus, Vietnam needs to gather well-reputed specialists in Vietnam and in the world. For instance, we can invite former presidents of the World Bank and finance Nobel Award winners. To be effectively operated, our fund management companies should coordinate with world-leading fund management companies and investment banks. For Vietnam, it is a hard job to mobilise US$5-10 billion of investment capital a year but the figure is not big in the world financial market. For example, Morgan Stanley or Goldman Sachs can mobilise US$600-700 billion each year. As of the end of 2008, investment funds in the world managed over US$74 trillion. If risk funds, big private asset management funds and independent management funds are included, the figure would reach US$110 trillion. Thus, it is within our each to mobilise US$5-10 billion a year from now to 2020.