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*Vo Tri Thanh
Viet Nam has delivered its economic data in the first quarter. The overall picture is still optimistic with the gross domestic product (GDP) expanding nearly 4.5 per cent – among the best performers in the world. However, is this result good enough for the Southeast Asian country to securely triumph over its target set for the whole year?
The first quarter growth, though in the same range as the last quarter of 2020 which also stood at 4.48 per cent, was up from the 3.68 per cent recorded in the first quarter of last year.
The renewed outbreak of COVID-19 in some parts of the country, including the capital city of Ha Noi, adversely affected the first-quarter’s performance which fell below the Government’s expectation of 5.12 per cent and was lower than the 5.7 per cent expected by Bloomberg’s economists.
Despite that, Viet Nam has been widely praised for its economic achievements given all the uncertainty about the prolonged pandemic and uneven recovery globally. Viet Nam is still set to outperform most of the region.
Key indicators in the first three months have partly reflected Viet Nam’s good recovery.
Exports remained the country’s key economic growth driver with a value of US$77.4 billion during January-March, a rise of 22 per cent year-on-year. Viet Nam ran a trade surplus of more than $2 billion in the first quarter.
Pledged foreign direct investment (FDI) surged by 18.5 per cent year-on-year to $10.3 billion while disbursed FDI increased by 6.5 per cent to $4.1 billion.
Industrial production was expected to expand 6.5 per cent during the period, especially the main drivermanufacturing – electronic equipment, phones and accessories – climbing 9.5 per cent. The number of new businesses fell by 1.4 per cent and their total registered capital rose by 27.5 per cent.
Other sectors including agro-forestry-fishery, services sector, disbursement of public investment and State revenue improved significantly. Meanwhile, inflation was kept at a low level, rising by just 0.29 per cent in the first three months.
Both domestic and worldwide economists have maintained a positive forecast for Viet Nam’s economy since the end of last year. Many international organisations delivered a GDP forecast of around 7 per cent for Viet Nam in 2021. Meanwhile, Vietnamese Government has set the yearly growth target of 6.5 per cent, higher than the official target of 6 per cent set by the Parliament.
This optimism is based on Viet Nam’s performance in 2020 with impressive accomplishments in implementing the dual goals of combating the pandemic and maintaining economic growth. Viet Nam was among very few countries with positive growth in 2020. Adverse impacts on the economy and society were also minimised during the pandemic.
The year 2020 was seen a turbulent year when every country had to brave unprecedented challenges arising from COVID-19 to save people’s lives and diminish the impact on the economy. This year, economists have agreed the world is on track to recover, with strong growth in major economies which plummeted last year due to the disease and restriction measures.
In its March report, Fitch ratings expect global GDP to expand by 6.1 per cent, revised up from 5.3 per cent in its December forecast thanks to robust fiscal support in major economies. GDP outturns are projected at 6.2 per cent in the United States, 8.4 per cent in China and 4.7 per cent in the eurozone.
However, the recovery is also perceived with a conservative stance as it depends largely on the readiness and effectiveness of vaccines, as well as countries’ resilience to financial and inflation risks. The recovery in the current context is also associated with sustainable and green development, restructuring the economy and promoting innovation and digital transformation.
In Viet Nam, a period of three months is not long enough to fully reflect the challenges facing the country. Viet Nam has been doing very well in controlling the pandemic but the risk of fresh outbreaks is still high which could be seen in the resurgence of the virus in some northern provinces early this year. Besides, the vaccination process cannot be fast and as the Government has said, the prevalence of vaccination must wait until next year.
Strong recovery in some key sectors such as tourism and aviation is still a challenge as it depends heavily on the disease control in both home and foreign markets.
Although inflation in the first quarter was low at 0.29 per cent – the lowest for Q1 within 20 years, there is still inflation risk when oil prices climbed by more than 30 per cent compared to the end of last year and commodity prices are on the rise in global markets. Such a possibility may put pressure on monetary policy which must both support economic recovery (through low interest rates) and ensure macroeconomic stability, especially volatility in the stock market and real estate market.
In this context, consumption growth somewhat slowed and uncertainty in the global supply chain are also unrevealed problems in the long term. (The Suez Canal shutdown exposes another weak link in the global supply chain.)
The resurgence of the virus in some provinces early this year weighed on national Q1 GDP growth (below the Government’s expected rate of 5.12 per cent). Thus, to reach the year-end target of 6.5 per cent, GDP in the next quarters must increase by more than 7 per cent on average, which is a big challenge.
After the Q1 economic data, some international organisations have revised down their forecast for Viet Nam’s growth. The United Oversea Bank (UOB) lowered Viet Nam’s GDP growth to 6.7 per cent in 2021 from 7.1 per cent. Meanwhile, economists at Singapore’s Maybank Kim Eng revised Viet Nam’s economic growth from 6.8 per cent to 6.5 per cent.
However, most forecasts agreed with the latest virus wave being quashed and most restrictions now being lifted, Viet Nam’s economy should bounce back strongly over the coming quarters.
The new Government will take office this month and the transition will result in a certain delay in implementing policies. Hopefully, the new Government will quickly start working and take more drastic measures to improve the investment and business environment, push reform and economic restructuring, promote innovation and speed up disbursement of public investment. Public investment still plays important role in boosting growth amid the pandemic and has large room for development.
If Viet Nam can take advantage of the global economy’s recovery momentum and existing free trade agreements with other countries, the GDP target of 6.5 per cent is feasible.
*Vo Tri Thanh is a senior economist at the Central Institute for Economic Management (CIEM) and a member of the National Financial and Monetary Policy Advisory Council. The holder of a doctorate in economics from the Australian National University, Thanh mainly undertakes research and provides consultation on issues related to macroeconomic policies, trade liberalisation and international economic integration. Other areas of interest include institutional reforms and financial systems.
TRAN DE, Vietnam — For years, Ta Thi Thanh Thuy toiled on a sliver of land sandwiched between the Mekong River and the East Vietnam Sea, a region widely known as Vietnam’s rice bowl, to grow the prized grain.
But Thuy, along with many of her neighbours, has over the past decade completed a production swap – to shrimp – a previously unlikely shift that was spurred by the effects of climate change.
As rising seawaters bring significantly increased salination levels in the Mekong Delta region, the trend toward cultivating shrimp ponds is expected to supercharge the country’s seafood industry.
The government has set an ambitious target to more than double shrimp exports from current levels to $10 billion by 2025 and Delta farmers have benefited from local authority training sessions and other measures, including some soft loans.
“Life was very hard for us until we began to farm shrimp,” Thuy, 52, said.
“Many shrimp farmers around here have been able to build nice houses and open saving accounts at banks.”
The seawater increase in the delta region has been compounded by the construction of several hyodropower dams upstream, further reducing fresh water flow.
“We planted rice but we harvested no rice,” said fellow shrimp farmer Ta Thanh Long.
“There was a time the rice could still grow when the water was still fresh. But then the water became more and more salty each year.”
At least one third of the rice farming area along Soc Trang province’s 72-kilometre coastline has been affected by salination over the past few years, said Duong Minh Hoang, former director of the province’s Agriculture Promotion Centre.
“We have urged local people to switch to crops that are suitable with salination,” Hoang said.
“Climate change is impacting everyone here. We have to try to adapt to survive.”
Vietnam is the world’s third largest exporter of rice, but revenue generated from shrimp exports has exceeded earnings from rice since 2013 and is growing quickly.
“Seafood processors around here come to buy up all the shrimp we farm,” said Ta Thanh Tung, 44, one of Thuy’s five siblings who have all switched from rice to shrimp farming.
“We heard they’re exporting the shrimp to Europe, China and the United States”.
Industry analysts expect exports to rise by 5-10% annually over the next decade as the country’s total shrimp farming lands – mostly in the Delta – increase by 3-5% each year.
Vietnam’s largest seafood exporter, Minh Phu Seafood Corp, has an even more ambitious target to turn the country into the world’s largest shrimp exporter. Minh Phu expects more than a dozen recently agreed bilateral and multilateral trade agreements to help boost exports to $20 billion, or a quarter of global exports, by 2045.
That could help ease some of the economic pressure the Southeast Asian country faces in the years ahead. The World Bank estimates that climate change alone is poised to reduce Vietnam’s national income by as much as 3.5% by 2050.
The switch to shrimp from rice, however, comes with its own host of environmental problems.
Switzerland-based NGO, the International Union for Conservation of Nature (IUCN), estimates more than half of the country’s natural mangrove forests, which protect against coastal erosion and storm surges, have been cleared to make way for shrimp ponds.
Aquaculture experts have highlighted a lack of regulatory oversight of the explosion in small shrimp farms, with questions about everything from the raw material used in feed to the way they manage their effluent or waste.
There are particular concerns about the use of antibiotics to treat disease in shrimp stocks. Antibiotics can seep into effluent, which is usually dumped, untreated or inadequately treated, back into the surrounding waterways, raising the risk of chemical pollution in the immediate environment and detrimental knock-on effects down the food chain.
“Whilst overfishing and dams are discussed … the insidious nature of invisible pollutants is not being considered,” said Matt Landos, an Australia-based veterinarian scientist specializing in aquatic animal health.
“Yet it’s clear they are present, and levels are negative for fishery productivity.”
Further, the increasing salination and rising seawater levels that prompted the switch in the first place could end up devastating the Delta.
A rise of 0.7 to 1.0 meters would put about 40% of the region underwater, according to Le Anh Tuan, a professor at the College of Environment and Natural Resources at Can Tho University.
“The shrinking trend will continue over the coming years and parts of the rice fields will have to be converted into aquaculture farms, fruit farms and other crops,” Tuan added.
Shrimp farmers say they are already dealing with worrying signs of accelerating salinity levels.
“We have to dig the wells deeper for freshwater now,” added Thuy.
“We are very concerned that because of rising seawater levels our farms will one day be submerged.”