Vietnam’s economy has never been sustainable

VietNamNet Bridge – The General Statistics Office (GSO) on Monday convened a press conference to announce the country’s socio-economic development in 2013. On the sidelines of the meeting, Ha Quang Tuyen, head of the System of National Accounts Department under the GSO, talked on major issues relating to the country’s economic growth. Excerpts follow.

Vietnam’s economy, FDI enterprises, WTO

Could you please explain why the economy still grows although the number of enterprises going bust or shutting down is on the rise?

Vietnam’s economy this year grows by 5.42% owing to strong contribution from the foreign direct investment (FDI) sector as well as export performance and non-profit activities such as healthcare and education.

The number of new business start-ups totals nearly 77,000, a rise of 10.1% year on year, while the number of enterprises shutting down business is 61,000. Therefore, new start-ups still outnumber those going bust.

In 2013, the business environment is tougher, but the FDI sector has fared quite well, accounting for some 20% of the gross domestic product. The FDI sector has also obtained an export revenue increase of 22.4%, and accounted for 33% of the country’s total.

Processing and manufacturing as a whole also grows by 7.44% compared to the rate of 5.8% last year, and accounts for 25.9% of the country’s GDP, while the service sector accounts for 52.5% of GDP.

In previous years, there were remarks that the economic growth would be higher in 2013, but this year has witnessed uncertainties and there are concerns that the economic development is not sustainable. What are comments from GSO given all such economic uncertainties?

The remarks that the economy would fare better in 2013 were based on the then socio-economic situation of the country, solutions adopted by the Government to spur development, as well as expectations that the economy would bounce back after several years of economic challenges.

The Vietnamese economy has never attained sustainable development. The slowdown in GDP or in certain industries over the past couple of years is due to imbalances in various aspects of the economy that have lingered since several years ago coupled with the impact of the global crisis as the country is further integrated into the world’s economy. However, from the overall perspective, the country’s goal of macroeconomic stabilization is correct, and the entire economy is moving towards that goal.

The overall investment as a percentage of the GDP seems to rise compared to last year. How do you comment on this change?

Prior to 2010, the ratio of investment to GDP had always been above 40%, while the ratio of overall savings to GDP had been around 30%. The respective figures for this year are 30.44% and 29.26%. Therefore, investment and savings are almost the same this year, while in previous years, we had to borrow around 10% (of GDP) for investment. Although the ratio of investment to GDP is pretty high, the economic growth is not corresponding, which points out that the overall investment is not cost-effective. Therefore, if we continue to boost investment to maintain a high economic growth, we will be increasingly reliant on external funds. In our economy, the demand is weak, but the supply is even weaker. Therefore, stimulating growth by increasing investment will not be efficient, which will result in bigger debts, higher inflation and trade deficit.

Therefore, in my opinions, Vietnam should maintain a rational economic growth. We should reduce public investment while encouraging investment from other non-State sectors alongside economic restructuring to improve investment efficiency.

Since the country joined the World Trade Organization, it has been seen that big trade deficits have accompanied strong growth in imports and exports. Does that situation bring efficiency for Vietnam’s GDP growth and local production?

Joining the WTO has brought about greater benefits for the FDI sector. In the local economy, subcontracting and outsourcing for foreign firms accounts for a major part, while domestic players have not prepared themselves well for WTO. The added value of the FDI sector accounts for some 20% of GDP. The big question is what the economy will become of once FDI enterprises withdraw and when domestic resources have become exhausted. This issue must be prudently considered during the process of restructuring the economy in terms of institutional mechanism and ownership.

Source: SGT

Vietnam’s economy, FDI enterprises, WTO