Government, Businesses Join Forces to Last through Hard Times

6:08:57 AM | 2/7/2022

In 2021, the prolonged COVID-19 pandemic disrupted many activities but with the strong leadership of the Government and the joint efforts of the political system, the business community and the people, Vietnam still obtained many remarkable social-economic achievements in 2021, creating momentum for stronger growth in 2022.

Mountains of difficulties

The fourth COVID-19 pandemic outbreak, which started in July 2021, has quickly stained the business picture. Hard-hit companies have struggled with more difficulties than ever. Reserve resources are running out while the market is recovering very slowly. This pandemic has infiltrated and negatively affected industrial zones and export processing zones that accommodate a large number of workers, especially in southern provinces and cities, resulting in risks of supply chain disruption, labor chain and large-scale production that have taken a toll on the local and national economy.

Freight transportation is difficult as a result of inconsistent local regulations on social distancing measures and mobility restrictions, causing localized disruption and stagnation of supply, production, consumption and export. Rising input costs and transportation costs are leading to input shortages and production costs.

Worse, cash flow shortages faced by enterprises resulted in difficulty to cover expenses for continued production and business activities, difficult work and entry for experts, and difficult access to government support policies. This makes it impossible for businesses to immediately revive their production capacity in the wake of social distancing because of worker shortages, especially skilled personnel. Facing these difficulties, according to the Asian Development Bank (ADB)’s Asian Development Outlook (ADO) 2021, Vietnam's GDP was expected to grow 6.5% in 2022.

Mr. Jacques Morisset, World Bank's chief economist in Vietnam, said, Vietnam's economy will rebound to 6-6.5% in 2022 if the country can control the pandemic well and improve supply and demand balance.

Efforts to brighten the picture

Despite numerous difficulties, the Vietnamese business community actively strived to deal with obstacles to brighten the economic picture.

According to statistics, in 2021, the country had 116,800 new enterprises and witnessed more than 40,500 enterprises resume operations. According to the General Statistics Office (GSO), this result shows business recovery after more than a month of carrying out Resolution 128/NQ-CP of the Government.

The business sector actively searched for product consumption markets. In 2021, the industrial production index was estimated to rebound 4.48% year on year with strong growth in key industries and key industrial products.

Particularly, foreign investment in Vietnam was a prominent highlight of the economy. Although the economy "wobbled" in the third quarter of 2021 because of the pandemic, foreign direct investment (FDI) still reached US$31.15 billion in 2021. Foreign investors had 1,738 new projects licensed, with total registered capital of over US$15.2 billion, down 31.1% in number of projects but up 4.1% in level of capital. The firms also added more than US$9 billion of capital to 985 operating projects, up 40.5% in value and down 13.6% in volume.

A remainder of nearly US$6.9 billion was used by foreign businesses for capital contribution and share purchases in a total of 3,797 transactions, marking yearly decreases of 7.7% in value and 38.2% in volume.

Meanwhile, disbursement of foreign direct investment (FDI) also saw a slight decline of 1.2%, to an estimated US$19.74 billion.

Given supply chain disruptions caused by the pandemic, many exporters found it difficult to seek input sources and consumption markets due to high transportation and logistics charges, but in 2021, Vietnam’s total import-export value reached a record high of US$668.5 billion, surging 22.6% year-on-year. Of the sum, the country earned about US$336 billion from exports, up 22.6% year-on-year while its imports hit over US$332 billion, a yearly hike of 26.5%.

Recovery opportunities

According to the five-year socio-economic development plan 2021-2025, Vietnam will strive for higher economic growth than in 2016-2020, become a modern industrialized developed country by 2025 and surpass the low-middle income level. Specifically, the average GDP growth is expected at 6.5-7% annually in five years. The share of the processing and manufacturing sector to GDP will be over 25% and the digital economy will make up for 20% of GDP. The total factor productivity (TFP) to growth is about 45%.

National Assembly Chairman Vuong Dinh Hue said, in the past two years, to respond to the pandemic to support the economy and society, Vietnam has adopted consistent fiscal, monetary and macro policies. Vietnam's monetary and fiscal support packages, according to experts' calculations, were estimated at 4% of GDP in 2020 and 2021, with the fiscal package accounting for 2.9% and the monetary package, 1.1%.

The National Assembly issued a resolution on the policy framework and plans for socio-economic development, finance, budget, public borrowing and debt repayment, public investment and economic restructuring in 2021-2025. This is also the term in which all decision frameworks for the 5-year socio-economic development, even with a longer-term vision, were advocated by the Party Central Committee, and the National Assembly issued all resolutions on this framework.

However, according to experts, the economic recovery in 2022 will be challenging due to a lot of bottlenecks to be resolved. Vietnam will continue to face increasing inflationary pressure, public debt ceiling and banks’ bad debts, shortages of health personnel, equipment and infrastructure at grassroots facilities.  Production and business recovery may be hindered by financial problems and the consumption market. The ratio of credit to GDP is still high, while medium and long-term capital in the economy still mainly relies on the banking system.

According to many experts, to achieve the planned socioeconomic development, completing vaccinations by the end of 2021 or at the latest by early 2022 is one of the prerequisites to restore economic recovery and development.

At the same time, it is necessary to harmoniously combine fiscal and monetary policies, with focus given to fiscal policies to support enterprises and individual business households to overcome difficulties, enhance disbursement capacity and efficient use of investment capital: Strongly investing in key industries and fields, driving regions, growth engines, large and important national projects, inter-regional connectivity projects.

Specifically, it is necessary to quickly and effectively restructure the economy; reshuffle industries to boost comparative advantages and join global value chains; concentrate internal resources to make products with comparative and competitive advantages and high added value; and actively prepare conditions to expand production and business, ensure commodity supply and distribution and reduce inflationary pressures.

Furthermore, it is important to accelerate digital transformation in institutional reform and administrative procedures; and make consistent policies to connect supply chains of goods and services, supported by local governments to deal with localized disparities that hinder development.

Mr. Alain Cany, Chairman of EuroCham Vietnam

While 2022 economic growth forecast will remain driven by large in Vietnam as much as globally, by the evolution of the pandemic, there is a consensus that 2022 GDP growth could bounce back in Vietnam to pre-Covid levels, should the appropriate economic, fiscal and monetary policies are implemented. In the short term, full speed on vaccination, roll-out of the booster jab, with vaccines effective against the new Omicron variant is key, as much as certain pragmatism and consistency on the management on Covide-19 positive cases and contact tracing.

Vietnam benefits from key advantages: Global demand post pandemic given the strong export-oriented economy of the country, effective execution of the vaccination rollout, and real GDP growth will be driven by the gradual recovery in domestic demand and further expansion and rise in the value chain of the export-oriented / foreign-invested manufacturing sector. Vietnam continues to be very well positioned to be a key alternative to China for export-oriented manufacturing production.

However, among various challenges facing the economy, labor shortage/ supply chain disruption, continued FDI inflows and competitiveness, and energy transition, rank high in the list.

While labor shortage / supply chain disruption are short term hurdles, the EVFTA, promulgated in 2020 is expected to bring its first positive effect, in increasing sharply trade flows from 2022. Energy transition is a major mid and long term challenges that the country is facing requiring urgent and drastic changes in the policy making process. The Eurocham is fully confident in the country capacity and political will to meet with its COP 21 (Paris agreement) objectives and the measures announced at the COP 26 in Glasgow.

Mr. Adam Sitkoff, Executive Director of Amcham Hanoi

As we approach the end of a complicated and challenging year, there is much to be grateful for, including the close partnership between Vietnam and the United States. Our countries have a strong friendship anchored in mutual respect and we work closely in many areas including regional security, education, food and energy security, disaster response, and mitigating the impact of the pandemic that has upended lives, jeopardized employment for millions, and disrupted the global trading system on which both nations depend. Even in this challenging time of uncertainty and anxiety, US companies in Vietnam stepped up to help address society’s needs.

AmCham and our member companies are optimistic about prospects for reopening, recovery, and rebound. Trade and investment between our two countries continues to grow rapidly. US exports to Vietnam have more than quadrupled in the last decade, and the United States remains the largest export market for Vietnam, even during this terrible pandemic. We have seen many unusual things in the global economy over the past two years. This year also looks to be anything but normal. We know, however, that US companies and investors are looking at expanding investments in Vietnam so we are excited about increased US investment during the Year of the Tiger. That is good news and as we look towards the future, we hope both governments can begin efforts towards a bilateral Free Trade Agreement. This would improve investment and trade flows, would assist sustainable supply chains, and would improve business conditions that strengthen the private sector, ensure sustainable economic and social development, and promote prosperity here.

As major investors here, American companies have an interest in Vietnam’s continued success and we are looking towards a bright future here. We believe improvements in the investment climate will support Vietnam’s aspirations to propel itself to the next sphere of economic competitiveness. There are many reforms that can make it easier to do business here. The most important factor for a favorable investment climate is to ensure a fair, transparent, predictable, and streamlined regulatory environment that values innovation - not only to attract new investment, but also to maintain and grow the investment already here. To boost economic recovery in 2022, AmCham will continue to work on lowering barriers to trade, to help the Vietnamese government make it easier to do business, and to promote an innovative and sustainable business environment so that all investors have fair access to the great opportunity here.

By Quynh Chi, Vietnam Business Forum