Vietnam resetting the economic dials

FDI was up 12.5% to US$22.76 billion in 2015 and the drought has broken, allowing the Government to plan future growth . . .

Ron  Corben
ATI Correspondent

HO CHI MINH — Vietnam’s economy is heading back to solid growth, buoyed by foreign investment and a domestic recovery as it throws off the impact of severe drought.
Analysts say the rebound into 2017 comes after target growth rates were missed in 2016 as drought in the Mekong Delta — the rice basket of the nation — undermined the economic outlook.
Vietnam’s new Prime Minister, Nguyen Xuan Phuc, has acknowledged that growth targets of close to 6.5% will be missed, as final quarter expansion of 7.2% is not possible.
“The target is high and challenging, but it is not attainable,” Phuc told local media. The Prime Minister came to power at the 12th Party Congress earlier this year, taking office amid one of the most severe droughts in decades.
Capital Economics senior economist, Gareth Leather, says the economic outlook is positive, with weather patterns “returning to normal”, while other sectors “should continue at a decent pace.” The economy grew by 5.9% year-on-year over the first three quarters of 2016, up from 5.5% in the first six months.
“Looking ahead, we think Vietnam will quickly regain its position as one of the fastest-growing economies in the region,” Leather told a September 29 briefing.
Vietnam’s General Statistics Office says that, for the nine months to end-September, exports rose by 6.7% despite September exports falling 6.8% to about US$15 billion compared to August because of declines in areas such as telephones and components, footwear, and garments. The manufacturing sector is reporting growth, with the Nikkei Vietnam Manufacturing Purchasing Managers’ Index (PMI) rising to a 16-month high of 52.9 in September — above the average of 50.5.
Foreign direct investment was up by 12.5% in 2015 to reach US$22.76 billion, adding weight to the momentum as investors see rising costs in China. In 2015, investors from South Korea led the way with US$2.68 billion,
followed by Malaysia (US$2.45 billion) and Japan (US$1.28 billion). Other lead investors include the UK and Taiwan.
But a key pillar of investor interest, the 12-nation U.S.-led Trans Pacific Partnership (TPP), has been left in doubt as debate swirls in the U.S. Presidential election. The TPP agreement was not forwarded for ratification during October’s Communist Party plenary session.
“The U.S. is the largest economy among the 12 TPP member countries. Without the approval of the U.S. Congress, the trade accord won’t come into effect even if it is ratified by all the other countries,” Deputy Minister of Industry and Trade, Tran Quoc Khanh, told local media.
Jonathan London, a lecturer in Global Political Economy at Leiden University in the Netherlands, says Vietnam’s economy is “plodding along”.
London says Party Secretary General, Nguyen Phu Trong, has made a bid to launch an anti-corruption campaign, but with little support from within the Party. “He’s not getting any support, even within the Politburo — at least not open support, so he’s sort of a voice in the wilderness,” he told ATI.

Of Vietnam’s economy generally, London says there “are concerns about, for example, levels of bad debt, which, of course, are not unrelated to the corruption issue. But nonetheless, the economy will continue to grow”.
Vietnam’s Ministry of Finance said public Debt stood at US$110 billion at the end of 2015, equivalent to 62.2% of the country’s GDP, with Government-borrowed loans accounting for 80.8% of the total.
But London says Vietnam will continue to have moderate to reasonably rapid economic growth because of its specific and enduring advantages.
“The country should be doing better, but the institutional reforms needed to put it in a higher growth trajectory aren’t happening yet, and it’s uncertain whether they will materialise any time soon,” he said.
The World Bank, in an assessment, called on the Government to press ahead with an “economic modernisation and structural transformation agenda”.
The Bank noted other challenges: “Poverty gains are fragile, as a significant share of the population is still vulnerable, living close to the poverty line.” At least one third of the population — around 30 million people — fall into the ‘poor’ or ‘near poor’ groups.
Vietnam’s Socio-Economic Development Strategy (SEDS) for 2011-2020 set down goals in structural reform, environmental sustainability, social equity and emerging issues of macro-economic stability. The Government has now acknowledged a need to “accelerate these reforms over the next SEDP period, 2016-2020, to achieve targets set out in the 10-year strategy”.
The Party’s Socio-Economic report aims to reduce public debt levels, promoting growth of around 7.0% of GDP, as well as “proactive integration,” as key objectives.
World Bank lead economist in Vietnam, Sebastian Eckardt, noted concerns over Vietnam’s total outstanding public debt. He says the Government needs to make commitments “to ensure public debt sustainability and rebuild fiscal buffers”. It is “important that this commitment is now followed through with concrete actions to balance the budget over the medium term”, he said.
Vietnam’s former Prime Minister, Nguyen Tan Dung, who failed to in a bid to remain party leader at this year’s National Congress, had faced criticism over his “freewheeling, high stakes” allegedly corrupt model of economic governance. Leiden University’s London said Dung’s policy of development raised issues on efficiency grounds, fairness and environmental protection.

Concerns over the environment were highlighted by a scandal over a chemical spill at a Taiwanese-owned steel plant that triggered protests and lawsuits. The Government has also acknowledged poor air quality in Hanoi, Ho Chi Minh City and Halong due to rapid development.
Indo China Research (Vietnam) general manager, Xavier Depouilly, told ATI the environment is a key concern for many people, despite rapid economic growth.
“Up to now, it’s all OK — people have food to eat, something to drink, but other issues, such as pollution — this is making the population very concerned and anxious,” Depouilly said.
“To some extent, the Government has much more to improve on that level.”