Vietnam Has Long-term Growth Potential

According to the Asia-Pacific Trade and Investment Report 2011: Post-crisis Trade and Investment, Vietnam’s export growth may slow down to 1.4 percent in 2011 and rise back to 8.9 percent in 2012 while its imports are forecast to climb 4.9 percent in 2011 and 7.4 percent in 2012. “While the region as a whole is expected to return to a historical trade growth rate of about 10 percent in 2011 and 2012, Vietnam’s trade growth is expected to be slower,” read the report.

 

Vietnam currently ranks fifth in importing goods and sixth in importing services in the ASEAN region. With such rankings, Vietnam presently accounts for about 7 percent of exports and 9 percent of imports in the ASEAN region while its trade and service market share is just 3 percent. On a broader scope of the Asia - Pacific region, Vietnam ranked 14th in merchandise exports, accounting for only 1.3 percent, and ranked 16th in commercial services exports with a market share of below 1 percent. The export to GDP ratio was 61.3 percent in 2009.

 

Vietnam depends less on exports than Malaysia and Singapore but its export reliance is greater than Indonesia, the Philippines and Thailand. The report forecasts that Vietnam's export growth will be 8.9 percent in 2012.

 

The report says during the past decade Vietnam has made impressive progress in export diversification. Although previously fuelled by exports to the United States (US) and the European Union (EU), countries in the Asia - Pacific region are increasingly turning to the region itself as a source of demand for their goods and services. A considerable proportion of Vietnamese trade is intraregional. In 2009, 48 percent of all Vietnamese exports went to countries in the Asia - Pacific region while 74.5 percent of the country's imports came from the region. Compared with other Southeast Asian nations, Vietnam's share of intraregional imports is higher.

Based on trade partners in 2008, Vietnam's exports are well-matched with import demands of India, South Korea, Singapore, Japan and Thailand. However, exports by Vietnam would expand even further if the country could diversify its capability to meet intraregional demands.

 

To date, Vietnam has eight regional trade agreements in force. In addition to being a member of ASEAN, Vietnam is a part of the trade agreements between ASEAN and Australia, China, India, Japan, New Zealand, and South Korea. Vietnam also has a bilateral trade agreement with Japan. Since 2005, the time needed to complete trade procedures has been reduced by 8.5 percent, from 24 days in 2005 to 22 days in 2010. In the same period, the trade cost decreased by up to 30 percent.

 

During the past five years, Vietnam has attracted a significant inflow of foreign direct investment (FDI), which has been growing at an average of 22 percent per year. The country is ranked fourth in the ASEAN region in terms of FDI inflows.

 

The report said the macroeconomic instability is a near-term risk that may curtail economic growth and adversely affect the confidence of foreign investors. However, Vietnam's economy remains an attractive destination for foreign investors and has a long-term growth potential.

 

Dr. Witada Anukoonwattaka from the Trade and Investment Division, UNESCAP said at the launching ceremony that the high rate of inflation may deter private consumption, increase production costs and hurt the export competitiveness of Vietnam. This may adversely affect the confidence of foreign investors.

 

The report says that the Asia - Pacific region needs to reduce reliance on exports to major economies and increase reliance on intraregional demand, regional economies will maintain its current new role as an important driving force for global economic growth. Export recovery has led Asia and the Pacific out of the global financial crisis, allowing the region to emerge as an important stabilizing force and an engine of global economic growth. However, it is challenging for Asian economies to maintain the growth momentum, given that the traditional developed economies of the Group of Three (G3: the European Union, Japan and the United States) will all face economic slowdown in the medium-to-long term. The developing economies of Asia and the Pacific, normally the champions of export-led growth, may see their export growth almost halved, to 9 percent in 2011 from 17.3 percent in 2010. Hence, it is expected that Asian and the Pacific economies will have to rely less on G3 consumers for final demand, and more on domestic and regional demand.