Promoting Institutional Reforms and Supporting Industries

“At the Indo-Pacific Business Forum, hosted by VCCI with the participation of over 2,000 delegates from 50 countries and territories, Vietnamese and U.S. businesses signed cooperation agreements in investment projects worth over US$11 billion, mainly in infrastructure development and renewable energy. There will be big opportunities to attract investment capital into Vietnam in the coming time,” said VCCI President Vu Tien Loc in reporting to the National Assembly in the Plenary Session on the socio-economic situation of the 10th Session of the 14th National Assembly in early November.

Shifting wave of supporting industries

According to Dr. Loc, to receive the new wave of FDI investment, Vietnam must correctly identify the nature of this investment wave as the shifting wave of supporting industries. Therefore, VCCI President asked the National Assembly to assign the Government to soon develop a bill on the supporting industry to submit to the National Assembly for promulgation to promote this important industry.

In his speech, Dr. Vu Tien Loc said the Ambassador of Japan to Vietnam told him that 15 out of 30 Japanese enterprises applying for support from the Japanese Government to shift their investment chose Vietnam as their preferred destination. The General Director of Samsung Complex in Vietnam also said that the largest research and development center in Southeast Asia is being built by Samsung in Hanoi.

Dr. Loc affirmed that if Vietnam could not develop supporting industries and gradually rise to higher segments in the supply chains, even if Vietnam could attract tens or hundreds of billions of USD in FDI in the coming time, the economy would not be able to get away from dependence on cheap labor and the country would not escape the middle income trap.

Assessing the development achievements of the 2016-2020 period, VCCI President said that although some targets did not meet the plan, the results of socio-economic development had been achieved, especially five bright spots in the picture of socio-economic development in Vietnam in the past term.

It includes the anti-corruption work that initially has clear results, making a breakthrough in this term, contributing to creating a fair and low-cost business environment with integrity for businesses and strengthening the confidence of people in the determination to reform the political system of the Party and State.

In addition, during the past years, Vietnam has focused more on institutional reform; the Government has successfully launched three waves of administrative procedure reform, removing thousands of sub-licenses; cutting and simplifying 50% -60% of business conditions and specialized inspections.

In particular, Vietnam has intensively integrated with the world through two agreements: CPTPP and EVFTA, contributing to expanding markets and promoting institutional reform according to the highest international standards.

Notably, during the Covid-19 pandemic, the preeminence of the Vietnamese political institutions and the core competitiveness of the Vietnamese socio-economic system once again shone. Vietnam is becoming a safe destination for the international business community on its journey to build safer and more responsible global supply chains.

However, Dr. Loc also frankly admitted that the economic picture of Vietnam still had many dark points. While macroeconomic policies such as fiscal, monetary and development policies in agriculture and export are planned relatively well, the Covid-19 pandemic is also a test which shows that Vietnam's social security still has many gaps. Although the number of people participating in social insurance has increased by 1.3 times over the past five years, it accounts for only one third of the workforce. It is partly because the informal sector in the Vietnamese economy is too large, and the majority of workers will not receive the necessary support at the right time. In addition, the design and implementation of the VND62 trillion emergency support package for workers and disadvantaged people is still confusing and ineffective.

Institutional reform is needed

Regarding the development orientation for the next five years, although he agreed with the economic growth target proposed by the Government, Dr. Vu Tien Loc said that this was a challenging goal if looking at the real growth throughout over a decade.

“From 2010 to 2019, Vietnam's GDP only increased by an average of 6.3%/year. If including both 2009 and 2020, the number is even lower. Therefore, an average growth target of 6.5-7% over the next five years is, in my opinion, a very arduous goal. Similarly, the target of GDP per capita of US$4,700 - 5,000 by 2025 will also require a lot of effort,” said Dr. Loc.

In his opinion, having aspirations is necessary and setting high goals will boost the system to make more effort, but it will also put pressure on fiscal and monetary policies, and possibly push the economy into macro instability as happened in the past.

"This goal needs thoughtful consideration and I suggest the Government give priority to stability goals, considering the macro-economic stability goal as the foundation for all development plans," said Dr. Loc.

He also said that to promote high growth while ensuring macroeconomic stability, the very first solution was to continue institutional reforms to promote business development and investment capital sources. We need to be determined to achieve the goal of bringing Vietnam into the group of top 3-4 economies with the best business environment and competitiveness in ASEAN in this term.

VCCI President suggested that the program of reviewing and removing overlapping regulations and inadequacies in the legal system of business started by the government should be implemented urgently and drastically. He also proposed the Government have a business development program for the whole term aiming to have at least 1.5 million enterprises operating effectively by 2025. In addition, there should be a legal framework and policies to promote 5.4 million household businesses so that this sector will not be left behind.

By Lan Anh, Vietnam Business Forum