Yearender: Vietnam's economy grows at highest rate in 10 years, yet still faces headwinds

by Tao Jun, Le Yanna

HANOI, Dec. 22 (Xinhua) -- Vietnam is poised to achieve its economic growth target of 6.7 percent in 2017, the highest rate in nearly 10 years, after the government implemented many action plans to facilitate business development, investment and business environment.

The Vietnamese economy in 2017 boasted 3 brightest spots, namely high gross domestic product (GDP) growth, stable macroeconomy, and improved investment and business climate, foreign and Vietnamese experts told Xinhua in mid-December.

For the first time in many years, Vietnam is poised, in 2017, to realize all 13 socioeconomic development targets set by its top legislature, including eight targets already achieved and five others having already surpassed their goals.

After growing 5.15 percent in the first quarter of this year, 6.17 percent in the second quarter, and 7.46 percent in the third quarter, the country's economy is most likely to grow 6.7 percent for the whole year, with estimated GDP reaching some 5,000 trillion Vietnamese dong (221 billion U.S. dollars), or GDP per capita of around 2,400 U.S. dollars.

Driven by buoyant tourism and strong banking activity, services growth rose to 7.3 percent from 6.7 percent in the corresponding period in 2016. With growth expected to strengthen further in the fourth quarter, the the Asian Development Bank (ADB) has lifted the growth forecasts for Vietnam to 6.7 percent in both 2017 and 2018.

Vietnam is also set to keep its consumer price index (CPI) at 4 percent, and core inflation rate at around 1.6 percent in 2017.

The country's foreign reserves hit an all-time record high of 46 billion U.S. dollars as of mid-November, rising by 4 billion dollars from late June this year and by 5 billion dollars from late last year, according to the State Bank of Vietnam, the country's central bank.

In the first 11 months of this year, Vietnam reaped export turnovers of 193.8 billion U.S. dollars, up 21.2 percent on-year, and enjoyed a trade surplus of 2.8 billion U.S. dollars, said the country's General Statistics Office.

Meanwhile, Vietnam secured foreign investment of roughly 33.1 billion U.S. dollars, up 82.8 percent, and hosted more than 11.6 million foreign visitors, up 27.8 percent on-year.

According to the ADB, Vietnam's manufacturing output grew robustly, expanding by 12.8 percent in the first three quarters of 2017, marking the highest rate of growth in the sector since 2011, and it is likely to be surpassed in the fourth quarter.

The statistics, experts said, boded very well for Vietnam and its rising success, amid the global economy's sluggish recovery which faces a rising wave of anti-globalization and protectionism.

The success was born from the Vietnamese economy's gradual shift from a reliance on resources to, processing, manufacturing and hi-tech agriculture.

"The GDP growth we have achieved so far this year has come from growth in production and service, not in credit or mining," head of the Vietnamese Government Office, Mai Tien Dung, told reporters in October.

Vietnam's high economic growth, macroeconomic stability and sharpened competitive edge are mainly attributed to the timely adoption of proper resolutions of the Communist Party of Vietnam, the National Assembly and the government, including many effective plans of action and solutions.

"Notably, the government has set far-reaching targets to improve the investment and business environment, including slashing 30-50 percent of administrative procedures and conditions, not criminalizing civil and economic relations, and not conducting overlapped inspections," stated Vu Tien Loc, President of the Vietnam Chamber of Commerce and Industry.

Vietnam is also striving to advance to become one of the top three ASEAN economies in terms of institutional quality and favorable business environment, and meeting standards set by the Organization for Economic Cooperation and Development (OECD), Loc added.

"The number of enterprises established this year is poised to surpass 120,000 and this figure proves the better investment and business climate," he noted.

Up to 116,045 enterprises with a total registered capital of nearly 1,132 billion Vietnamese dong (over 50 billion U.S. dollars) were set up in Vietnam in the first 11 months of this year, seeing respective year-on-year rises of 14.1 percent and 41.9 percent, according to the country's Business Registration Management Agency.

However, Vietnamese firms are still facing many difficulties, with nearly 60 percent of enterprises yet to become profitable, and up to 65,000 businesses being dissolved or ceasing operations temporarily in the first 11 months of this year, Loc said, adding that private firms are smaller than state-owned enterprises and foreign-invested enterprises, and are disadvantaged when it comes to acquiring land and credit.

"The gap in institutional quality and business environment between Vietnam and the three biggest economies in the ASEAN region (Indonesia, Thailand, the Philippines) is still wide. Vietnam has sizable exports and imports, but its logistics costs are high and less competitive than many other countries," Loc stated.

Foreign experts, including those from the ADB and the World Bank (WB), shared similar views and put forth some recommendations for Vietnam to achieve high and sustainable economic growth in 2018 and the following years.

ADB senior country economist for Vietnam, Aaron Batten, stated that Vietnam is changing rapidly, propelled by major reforms which have liberalized the economy and taken advantage of its comparative advantages. Increased foreign direct investment and closer integration with the global economy have been a result of this, along with massive growth in private domestic enterprises.

According to Batten, as Vietnam's young, growing labor force begins to grow older and the transition of workers from agriculture to manufacturing and services begins to slow, the country now needs new sources of growth to replace them.

"To achieve this, Vietnam will need to work to establish a better enabling environment at the level of individual industries and sectors by enhancing domestic competition and helping industries move up the value chain. This will allow Vietnamese firms to foster greater benefits from foreign investment and help industries like manufacturing and services to step-up their contributions to productivity growth," the ADB economist recommended.

According to the WB, continuing reforms to improve regulatory quality and to ensure consistent, efficient, and fair enforcement is crucial for Vietnam to create an enabling environment for private sector investment, economic growth, and job creation.

A slow-down in structural reforms could also impact the ongoing recovery, especially given the weaker growth in investment. Enhancing macroeconomic resilience and structural reforms could lift Vietnam's growth potential over the medium term.

"Vietnam can further lift productivity growth through investments in required infrastructure and skills, as well as deeper reforms of the business environment, state-owned enterprises and banking sector," said WB lead economist for Vietnam Sebastian Eckardt.

In November, Vietnam's top legislature targeted GDP growth of 6.5-6.7 percent in 2018, up from 6.21 percent in 2016.

It also eyed an export turnover increase of 7-8 percent, and total investment for social development representing 33-34 percent of GDP next year. Enditem