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The Hanoitimes – In the most optimistic scenario, Vietnam’s economy is predicted to expand 2.6% year-on-year, lower than the International Monetary Fund (IMF)’s forecast at 2.7%.

Data released until June may not fully reflect the true scale of the severe consequences of the Covid-19 pandemic for both global and Vietnamese economies, according to the Hanoi-based Central Institute for Economic Management (CIEM).

Overview of the conferece. Photo: Ngoc Thuy.

“Early measures from countries, including Vietnam, to prevent the spread of Covid-19, or the fact that the pandemic has just been going for a short-period of time, cause difficulties in evaluating the Covid-19 impacts comprehensively,” said Nguyen Anh Duong, head of CIEM’s Macroeconomic Policy Department at a workshop on July 10.

The CIEM has set up two growth scenarios for Vietnam’s economy in 2020. In the most optimistic one, Vietnam’s GDP could grow 2.6% year-on-year, lower than the International Monetary Fund (IMF)’s forecast at 2.7% and 3 – 4% prediction by the National Advisory Council on Financial and Monetary Policies.

Additionally, exports could contract 1.9% with a trade surplus of US$2.1 billion, while inflation is predicted at 4.5%, higher than the 4% target set by the National Assembly.

In a worse case, Vietnam’s economic growth is estimated at only 2.1%. For this scenario, exports would shrink by 3.1%, the country could have a trade surplus of US$1.7 billion, and inflation would come at 4.5%.

Vietnam’s GDP growth in the first quarter stood at 3.82% year-on-year, and slowed to 0.36% in the second quarter. Overall, the country’s GDP expanded 1.81% in the first half of the year, the lowest six-month growth rate in the past 10 years but is still a spotlight in Asia.

In the January – June period, the agriculture sector expanded by 1.19%, contributing 11.89% to the overall growth; the industry and construction sector rose by 2.98%, contributing 73.14%; and the services sector climbed by 0.57%, contributing 14.97%.

As the business community has been severely hit by the Covid-19 crisis, over 5 million workers are affected as of April, causing the unemployment rate to rise by 2.73 percentage points in the second quarter.

A slowdown in economic activities has subsequently affected growth in investment activities. In the first six months, total social investment stood at VND850.3 trillion (US$36.57 billion), or 33% of GDP and up 3.4% year-on-year.

Foreign direct investment (FDI) commitments to Vietnam during the period stood at US$15.67 billion, down 15.1% year-on-year,

For the final six months of the year, Duong expected the economy to continue suffering from the negative impacts of global uncertainties, particularly the risk of a Covid-19 resurgence.

According to Duong, the lack of global coordination in implementing large scale stimulus packages could lead to financial risks and raise global debts, not to mention the ongoing tensions among major economies.

While the EU – Vietnam Free Trade Agreement (EVFTA) would be a big boost for economic recovery, capabilities of local firms to meet strict requirements from European markets remain questionable, Duong stated, adding trade probes against Vietnamese goods continue to be a major issue.

The Hanoitimes – Empirical data in Vietnam proved institutional reform have direct impacts on economic growth.

Vietnamese enterprises with higher law compliance cost than their Thai peers make less competitive products despite equaling them in productivity, according to Phan Duc Hieu, vice director of the Central Institute for Economic Management (CIEM).

“A good legal environment is key for competitiveness,” said Hieu at a workshop discussing market entry regulations in Vietnam on February 28.

There remain inefficient and unreasonable regulations restricting market entry for newcomers, Hieu stated, adding they are creating five types of costs for enterprises, including unofficial costs during the process of realizing administrative procedures; opportunity costs due to prolonged administrative process; investment costs to meet legal requirements; different taxes; and time.

“Even a small reform could make a significant impact on large scale,” Hieu asserted.

For example, a reduction of one hour for enterprises in realizing administrative procedures means a large amount of resources saved, given over 700,000 enterprises operating in the country.

The introduction of Law on Enterprises in 2000 led to a sharp increase in the number of enterprises. Data: CIEM Chart: Nguyen Tung.

“Empirical data in Vietnam proved institutional reforms have direct impacts on economic growth,” said Hieu.

According to Hieu, since the introduction of the first version of the Law on Enterprises in 2000, the number of business formations in the 2000 – 2005 period increased 4-fold compared to that of in 1990 – 1999, while the amount of registered capital added to the economy in 2000 – 2005 was 13 times higher than in 1990 – 1999.

Hieu expected the new Law on Enterprises, which is scheduled to come into force on January 1, 2021, would spur the development of the business community, thanks to a strong focus on lowering market entry regulations and creating greater freedom for enterprises to do businesses.

Data: Report evaluating corporate governance of Vietnamese public enterprises in 2019. Chart: Nguyen Tung.

To comply with the new legal framework, Hieu noted enterprises should pay more attention to corporate governance.

Hieu referred to a study on corporate governance of Vietnamese public companies in 2019 pointing out that those with higher score in this aspect would have high return on assets (ROA) and return on equity (ROE).

Dau Anh Tuan, director of the Legal Department under Vietnam Chamber of Commerce and Industry (VCCI), said there have not been significant improvements in corporate governance of Vietnamese businesses since the Law on Enterprises in 2014.

“This is the key aspect that would help Vietnamese enterprises to grow, which, unfortunately, leaves much to be desired,” Tuan said.

The Hanoitimes – Experts have said that Vietnam should further focus on administrative reform and improve the existing legislation framework to boost economic growth this year.

Many experts have expressed their confidence that Vietnam would be able to realize or even surpass the growth target of 6-6.5% in 2021.

Production at Garment 10 Company. Photo: Thanh Hai.

Vice Chairman of the European Chamber of Commerce in Vietnam (Eurocham) Nguyen Hai Minh in an interview with the World & Vietnam Report said the country’s GPD growth target of 6% in 2021 is both “ambitious and feasible.”

According to Mr. Minh, such a high growth remains challenging given the severe consequences of the Covid-19 pandemic to the world’s economy.

“However, for Vietnam, it is not impossible as the country has   successfully contained the pandemic in the past,” he said.

Mr. Minh also referred to the high optimism of the European business community towards Vietnam’s business and investment environment by giving it a score of 63.6 in Eurocham’s Business Climate Index (BCI) that was conducted in the fourth quarter of last year, the highest score since the first Covid-19 outbreak.

For Vietnam to continue pushing for high economic growth this year, Mr. Minh expected Vietnam to further press on administrative reform and improve the existing legislation framework.

Mr. Minh expected the EU – Vietnam Free Trade Agreement (EVFTA) that was signed last year could open up a new wave of investment capital and knowledge transfer from Europe to Vietnam.

For the time being, Mr. Minh expected Vietnamese companies to grasp opportunities from the ongoing diversification of global supply chains as a result of the Covid-19 pandemic.

“Local firms should take on innovation and adopt new technologies to further integrate into supply chains and enhance their linkages with multinationals,” he noted.

On the outlook of Vietnam’s economy, former Director of the Central Institute for Economic Management (CIEM) Nguyen Dinh Cung said the Vietnamese government has taken a cautious approach in setting a growth target of 6.5% for 2021.

“Vietnam could reach the target of 7-7.5% for this year,” Mr. Cung asserted.

Nguyen Van Toan, vice chairman of Vietnam’s Association of Foreign Invested Enterprises (VAFIE) said a 6.5% growth target is “ attainable when taking into consideration what Vietnam had achieved last year.”

“A strong and resilient agricultural sector that is well-adapted to the current pandemic environment and high risks of natural disaster would be key for high economic growth in 2021,” said Mr. Toan.

“Meanwhile, exports should further improve in 2021 following the recent signing of major trade deals last year, including the EVFTA, Regional Comprehensive Economic Partnership (RCEP) and the UK-Vietnam Free Trade Agreement (UKVFTA).”

At the launch of World Bank’s report for Vietnam titled “Taking Stock” last December, the bank’s lead economist Jacques Morisset said Vietnam’s economy is on track to rebound to 6.8% this year and stays among world’s fastest growing economies.

Despite growing global uncertainties, the introduction of effective Covid-19 vaccines and resumption of trading activities would benefit Vietnam’s further growth, he noted.

The Hanoitimes – The reform for the business environment is required to bring benefits for local businesses and people in the coming time.

Economist Nguyen Dinh Cung has proposed the Government to set up a task force to consel the Prime Minister on reforming and enhancing business environment.

He made the proposal at the workshop on “Reform for an Enabling Business Environment Better Competitiveness: Achievements, Lessons and Orientations for 2021-25” held in Hanoi recently.

An overview of the workshop on January 21 in Hanoi. Photo: Phi Nhat

“We lack a pioneer unit to promote reform, quality researches to support reform solutions, and resources and aids from donors,” Mr. Cung, who is a member of the Economic Advisory Group to Prime Minister Nguyen Xuan Phuc, said.

He said it is needed to create the best favorable conditions for private sector with all barriers removed, supporting them modernizing technologies, developing human resources and improving labor productivity.

“We must encourage the formation and development of large private economic groups, which have strong potentials and regional and international competitiveness. We will strive to have at least two millions of businesses contributing 60%-65% into GDP by 2030,” Mr. Cung said.

Speaking at the workshop, Ms. Nguyen Minh Thao, Head of the Department of Business Environment and Competitiveness Research under the CIEM said that Vietnam has achieved significant  results from reforming the business environment and enhancing national competitiveness in the 2014-2020 period. Specifically, more than 30 documents stipulating business conditions were issued and more than 50% of business conditions were adjusted by the end of 2019.

Being of the same mind, Mr. Cung said Vietnam had many experiences and lessons to map out effective policies and solutions on reforming institutions and improving the business environment .

Dr. Cung noted that the reform’s achievements could be reversed if the government, ministries, branches and relevant units fail to maintain determination and efforts in the  reform.

So far, there are still many unnecessary and unreasonable business conditions that may lead to the harassment and red tape of state management agencies, Ms. Thao said. Therefore, the government has issued Resolution No. 02 on improving the business environment and enhancing national competitiveness with four key solutions to overcome the issues.

The solutions emphasize enhancing coordination among government agencies and bodies. Strengthening the application of information technology and building a digital government towards digital transformation in state management is another measure; The solutions  include realizing sustainable development goals, which include investment in sustainable business, environmental protection, climate change adaptation and job creation for vulnerable groups.

The solutions also contemplate supporting businesses to restore their operations, overcome the negative impacts of the pandemic.

Vietnam should boost the completion of  e-government building to avoid physical contact in the  handling of administrative procedures as well as create the synchronization of the entire system that will effectively improve the business environment, according to Ms. Nguyen Thi Viet Anh, Deputy Director General of Business Registration Management Agency under the Ministry of Investment and Planning.

Mr. Dau Anh Tuan, Head of the Legal Department under the Vietnam Chamber of Commerce and Industry told Hanoitimes about Vietnam’s efforts to reform the business investment environment in the past and his recommendations in the coming time. Mr. Dau Anh Tuan, Head of the Legal Department How would you comment on Vietnam’s results from reforming the business investment environment in the past? Vietnam has recorded significant changes in reforming the business environment in the 2015-2020 period. Vietnam’s business environment has been upgraded through the issuance of Resolutions 19 and 02 on business environment reform in terms of tax and customs procedures, specialized inspection, access to electricity which is deemed as the highlight in the past five years of administrative reform. However, streamlining a number of business conditions is still not strong and drastic. Specialized inspections are still rampant. Judicial reform still faces many difficulties. Implementation of the Resolution No.02 in localities is still confused. The market entry index improved but need a breakthrough in the coming time. Vietnam’s goal is to be among the top four ASEAN countries in terms of business environment, but it has not been fulfilled so far. What is the reason for which Vietnam has not become one of the top four ASEAN countries in terms of business environment? Through reviewing and learning from experience, Vietnam has made strong changes in recent years, but still needs further improvement in comparison with other countries. The process of reform requires persistence and should be conducted in phases with a synchronous process. In recent years, some ministries have been very active in promoting the reform of administrative procedures. However, some others are still not interested in this process. How could Vietnam reach its goal in the coming time? The country needs a new approach, not only to remove difficulties but to create a favorable business environment. Institutional reform is the foundation for the development of businesses in the coming period. In the process of integration and fair competition, the advantage of administrative procedures should be in the interest of businesses so that they could compete with other countries. Experiences from reforming the business environment showed the need for innovation from the lowest level as well as the role of the local government should be enhanced. The dynamism of the localities play a very important role. A number of new models suitable to practical needs are suggested such as centralized public administration center; the café business programs, and government-business dialogues. Thank you for your time.

The Hanoitimes – The quality of state management and administrative procedures are the top concerns of the business community, not only the progress of cutting red tape, said an expert.

In addition to removing obsolete administrative procedures, Vietnam should issue specific sets of criteria to ensure greater efficiency in attracting foreign direct investment (FDI) into priority areas, according to Nguyen Anh Duong, head of the Macroeconomic Policy Department under the Central Institute for Economic Management (CIEM).

Overview of the CIEM’s conference on June 1. Photo: Nguyen Tung.

“Low quality of institutional framework, digital infrastructure and productivity are three bottlenecks hindering Vietnam’s development in the post-Covid-19 period,” Duong said at a conference on June 1.

Regarding this issue, economist Vo Tri Thanh, CIEM’s former vice director, said the Covid-19 pandemic has triggered the trend of politicization of economic activities, which was best demonstrated by the US – China tensions and protectionism.

Thanh said in a world of growing uncertainties, countries like Vietnam should adopt flexible policies and act fast to grasp a new wave of investment capital as foreign investors are looking to diversify their global value chains away from China.

“It is not a coincidence that Prime Minister Nguyen Xuan Phuc has set up a task force to promote investments in the country,” Thanh added.

“Instead of waiting for others to come, we have to be active in approaching potential investors and addresses bottlenecks in attracting FDI,” Thanh asserted.

Thanh, however, noted that while Vietnam is pursuing higher quality FDI, it is essential to continue to support the private sector, saying this would help make a strong and independent economy.

Dau Anh Tuan, director of the Legal Department at the Vietnam Chamber of Commerce and Industry (VCCI), said the initial success in tackling Covid-19 proved the country’s stable business environment and efficient state governance.

Tuan noted as the EU – Vietnam Free Trade Agreement (EVFTA), the EU’s only second trade agreement to date in the Southeast Asian region, is set to come into play, Vietnam is holding major advantages to attract investors compared to regional peers.

However, as the Covid-19 pandemic is transforming the world, Vietnam has to move fast, he stated.

“Vietnam should shift its focus from addressing business concerns to creating a favorable environment for growth,” Tuan added.

Improving the quality of state management and smoothing administrative procedures are highly demanded by the business community, not only the progress of cutting red tape, Tuan continued.

Data: GSO. Chart: Nguyen Tung.

Disbursement of FDI in Vietnam in May is estimated at US$1.55 billion, the highest monthly figure since February, a report of the Foreign Investment Agency (FIA) under the Ministry of Planning and Investment has shown.

The data indicates a positive sign that foreign investors are accelerating their projects’ progress as the Covid-19 pandemic has been initially contained in Vietnam.

Overall, disbursement of FDI projects in Vietnam totaled US$6.7 billion in the first five months of 2020, representing a decline of 8.2% year-on-year.

Meanwhile, FDI approvals in the January – May period fell 17% year-on-year to US$13.9 billion. The figure, however, is higher than that of the same five-month period from 2016 to 2018, posting increases of 37.6%, 14.8% and 40.4% compared to the corresponding period of 2016, 2017 and 2018, respectively.

By Professor Dang Hung Vo – Translated by Gia Bao

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