Khanh Hoa: Position, aspirations and prospects

. Associate Professor, Dr. Tran Dinh Thien, Vietnam Economic Institute

The sudden acceleration of GRDP and the turning point in investment attraction in 2022 marked an unusually strong transformation of Khanh Hoa: overcoming the most difficult period of the Covid pandemic (2020-2021) in the province's development process, moving to a new development pace, with a new vision, position and action strategy imbued with the spirit of breakthrough - advancement.

That is the new development momentum of Khanh Hoa that 2022 creates to welcome 2023 - the year of the 370th anniversary of the province's founding.

At this great turning point, re-examining the potential and development advantages of Khanh Hoa, re-analyzing the lessons learned from the past period, clearly identifying the global context and future development trends is a serious and urgent requirement - so that the Province has a basis to reposition its role and position, shape its vision and build a new development strategy within the overall national strategy.

I. Re-examining development potential and advantages.

Khanh Hoa has not only great potential and advantages for development but also special and unusual ones. Considering the overall potential, the “advantage” aspect of Khanh Hoa is much more prominent than the “disadvantage” aspect. Khanh Hoa ’s advantages have many differences compared to many other localities – not only in scale and scope but more importantly, in uniqueness and “class”.

This assessment rarely meets with opposition. Many opinions assess that Khanh Hoa’s tourism potential and advantages are “world-class”, even at the highest level, especially when considered in the modern context.

However, the question that has been raised has been “tormenting” for many people, at least up to now: why, with so much potential and advantage, Khanh Hoa has not yet developed “to its full potential”, far below expectations, not reaching the “national average” level and is still basically a “difficult to develop” locality?

This practical and serious question is not only for Khanh Hoa but also for all provinces and cities, for the whole of Vietnam. It has become the guiding idea for the construction of the "National Master Plan for Development", "Regional Development Plan", "Provincial and Municipal Development Plan for the period 2021-2030, with a vision to 2050" which is being vigorously implemented simultaneously. This work sends a message about innovating Vietnam's development approach in the new period, starting from the most fundamental aspect: re-evaluating the development capacity and reviewing the country's development methods in a comprehensive manner, according to a modern perspective.

For Khanh Hoa, this opportunity has been taken advantage of with maximum effort and a spirit of profound innovation: In the 2021-2022 period, Khanh Hoa has not only completed the Integrated Provincial Development Plan but also built a series of sectional Plans, of which the most prominent is the Van Phong Economic Zone Development Plan. The Plans, or more specifically, the Development Programs and Projects, and Investment Projects all thoroughly reflect the spirit of reviewing the history and development methods of the past period, re-evaluating what constitutes "development potential - advantages", which have long been considered "natural and obvious" strengths, from a modern perspective.

Are the potentials and advantages that are being recognized of Khanh Hoa real advantages? Are there any illusions or paranoia in the assessments of Khanh Hoa's development strengths?

If they are real advantages, why have they not been promoted and transformed into real development benefits after more than 35 years of innovation?

Or does Khanh Hoa lack some fundamental factors and conditions so that the transformation of potential advantages into actual development achievements can actually take place?

Or does Khanh Hoa's development have some fundamental weaknesses that have not been identified?

These are truly responsible and serious questions. They do not imply denial. Answering them is to move towards a future that is in line with the right stature and position of Khanh Hoa.

First of all, it must be affirmed that there is no doubt about the assessments of Khanh Hoa’s potential and development advantages that have been counted. These are real, unusual and valuable advantages.

Overall, the natural conditions for the modern development of Khanh Hoa are particularly favorable. They form a rare combination of advantages.

Khanh Hoa has a 385km coastline, the longest of the 28 coastal provinces of Vietnam.

Khanh Hoa sea contains many valuable resources - under the sea (seafood, minerals, especially hot ocean currents), on the sea surface (sun, wind, shipping routes), not to mention under the sea and a vast space above the sea.

Khanh Hoa has many first-class bays, lagoons and seaports:

Bays: Cam Ranh, Nha Trang, Nha Phu, Ninh Van, Van Phong;

Lagoons: Thuy Tieu, Nha Phu, Dam Mon;

Ports: Cam Ranh, Nha Trang, North Van Phong – South Van Phong.

Attached to the Bays and Lagoons are beautiful beaches - Nha Trang, Van Phong, Bai Dai.

On the sea and in the bays, there are hundreds of islands – diverse and beautiful.

Khanh Hoa is a land of mountains and rocks. The harmony of the Central Highlands volcanoes with the Sea crystallizes into Agarwood – considered the spiritual energy of Heaven and Earth. This is a “unique” symbol, famous worldwide, turning Khanh Hoa into the land of Agarwood.

The special and unusual feature of Khanh Hoa's marine resources: all are first-class resources, converging in one province, becoming a rare address not only in Vietnam, creating an almost "absolute" development advantage for Khanh Hoa.

But Khanh Hoa does not only have natural potentials and advantages. It is also a land of cultural exchange and convergence – Sea culture and Central Highlands culture, religions and beliefs. Ponagar Tower – a special spiritual symbol – can become a convergence point of Cham culture, a “globally rare” asset of the entire South Central Coast region.

There is no need to list more factors that make up the conditions and advantages of Khanh Hoa's development to confirm an obvious truth. The great size of advantages and the international class of the development resources that Khanh Hoa possesses are beyond doubt.

But to answer the questions raised above, it is necessary to affirm a valuable distinction that guides strategic action: The development conditions that Khanh Hoa has, although very good, are basically potential; Khanh Hoa's first-class development advantages so far have been mainly identified at the level of "comparative advantage", not yet transformed into "competitive advantage", therefore, not yet creating development benefits and real wealth for Khanh Hoa as possible.

Those potentials and advantages, in the current development state of the country and of Khanh Hoa - a land that has not yet escaped the traditional agricultural - rural production method and the "ask - give" mechanism, when Khanh Hoa people are still poor, the province still lacks the prerequisites to turn potentials and comparative advantages into development drivers and real competitiveness, therefore, have not been transformed into real development drivers.

Analyzing and re-evaluating the "reality" of Khanh Hoa's development in recent times helps to deepen the above assessment.

II. Development status: Correctly identify the present to overcome yourself.

With the Vinpearl Nha Trang Project launched in 2006, Khanh Hoa began to discover itself in a practical way, with great potential and development advantages. That created the basis for Khanh Hoa to determine a development model in a modern direction: open market, based on tourism, oriented "different and classy", taking Vietnamese enterprises as the foundation, with the pillars being strong economic groups, focusing on building growth poles to create breakthroughs.

With that model, Khanh Hoa joined the modern development orbit and made strong progress. A thriving Nha Trang, spreading rapid development along the Bai Dai - Cam Ranh airport route, signaled a Khanh Hoa with a new level and position.

However, in the following period (2011-2021), especially since 2016, Khanh Hoa's development process has somewhat slowed down due to problems arising related to the apparatus, staff and especially due to the impact of the Covid epidemic (2020-2021). Growth slowed down, structural and institutional problems arose with increasing severity. Growth limits became increasingly apparent.

That situation is generally reflected in the comparative data tables below.

Figure 1: GRDP scale in 2020 and GRDP growth rate

2016-2020 period of the South Central provinces

The South Central region includes 8 provinces, which also have great potential and advantages for development, with a structure similar to Khanh Hoa. Up to now, most of the provinces are still poor, not strong, not self-sufficient in budget and still "difficult to develop".

Figure 1 clearly shows Khanh Hoa's modest ranking in the region, which is still "modest" in terms of development ranking: GRDP scale in 2020 ranked 6/8 (province), GRDP growth rate in the period 2016-2020 ranked 7/8.

Khanh Hoa's population is about 1.3 million people, the third largest in the South Central region, with low per capita income (Figure 2).

Figure 2 shows that the average income per capita of Khanh Hoa people is only approximately equal to the average of the South Central region and is quite low compared to the national average.

2020 marked a "turning point": Khanh Hoa's per capita income fell far below the regional average (86.8%) and far below the national average (74.5%).

Low per capita income, leading to small provincial economic scale, is the direct cause explaining the limited level of domestic investment capital.

The attraction of foreign investment in the Province is not high, mainly due to the small economic scale. The small GRDP scale means a “weak” market and lack of “internal” resources, so that the Province can proactively handle development “bottlenecks”, especially “urban infrastructure” and “transportation connection” bottlenecks.

Regarding Investment Capital: In the 10-year period of 2011-2020, the total investment capital in Khanh Hoa reached about 15 billion USD, of which capital from the Vietnamese private enterprise sector accounted for 45%, and FDI capital accounted for 3.4%.

Figure 3: Investment capital implemented in Khanh Hoa in the period 2011-2020

Source: Khanh Hoa Statistical Yearbook of the years

Compared to most of the South Central provinces, the amount of investment capital in Khanh Hoa is not inferior. However, compared to the potential and advantages, including the advantage of "sub-regional development integration center" and the advantage of Van Phong Economic Zone which was once selected as a pilot "Administrative - Economic Special Zone" (but there is no implementation mechanism yet). And the current investment amount cannot be said to be commensurate.

The modest level of FDI capital attracted (3.4% of the province's total investment capital) is convincing evidence of the province's low investment attractiveness.

In this connection, it should be noted that the PCI (provincial competitiveness) ranking is not too low, although it has "fluctuated" but in a clear improvement trend (ranked 40/63 in 2010, up to 26/63 in 2020). The "out of sync" situation between the PCI trend (improved) and the investment trend (fluctuating) implies that in the past 10 years, the abnormal, hindered and limited investment capital flow into Khanh Hoa is not entirely due to the weakness in the province's development management and operation, but partly due to factors "beyond reach".

In essence, those “out of reach” factors are the limitations and constraints of institutions and mechanisms that are common to all localities. However, they have a stronger impact on localities that are breaking out and rising, needing more open conditions, mechanisms and policies, and have a stronger need for a wider operating space and higher autonomy. Those “obstructive” and “blocking” factors, if detected early, will help “pave the way” in time for the new development process.

This is one of the “sufficient conditions” that is missing in the process of Khanh Hoa’s development. Correctly identifying that missing factor helps to correctly position the priority strategic coordinates for Khanh Hoa to “surpass” itself when entering a new stage.

The ICOR (investment capital efficiency) movement , shown in Figure 4 below, provides additional data to clarify the picture of Khanh Hoa's development status in the recent period.

Figure 4: ICOR of the South Central provinces in the period 2016-2019 and 2016-2020

Source: calculated from statistical data of the South Central provinces

Figure 4 shows that Khanh Hoa's ICOR index in the period 2016-2019 is quite high compared to other provinces in the South Central region. In particular, in 2020 - the year of the Covid pandemic, when the province's GRDP growth rate was "negative", Khanh Hoa's ICOR index increased dramatically, winning the "championship" of the region.

The sudden jump in ICOR in 2020 indicates the high risk level of the province's long-term biased development orientation. The bias in exploiting "absolute advantage" combined with the "extroversion" bias leads to bias in industry investment (tourism) and bias in "growth pole" (Nha Trang), making the provincial economy dependent on a number of development variables beyond "control" and causing development risks.

This is a valuable lesson that Khanh Hoa has learned in the recent development period.

Figure 5: Economic restructuring of Khanh Hoa province in the period 2010-2020

Figure 5 contributes to explaining the above statement. It shows the slow structural shift trend of Khanh Hoa in the period 2011-2020. The unusually strong decline in the proportion of the service sector in 2020, with tourism being the key industry, is explained by the "force majeure - short-term" impact of the Covid epidemic. However, the slow increase in the proportion of industry - construction and the unusual ups and downs of the service sector over the 10-year period show that the province's industry structure has not yet formed a truly solid trend.

The “heavily” negative GRDP growth trend in 2020 (-10.5%) and 2021 (-5.6%), although unusual and short-term, has confirmed the “problematic” nature of the province’s economic structure. The Covid pandemic and the disruption of the world economy in 2020-2021 are just “opportunities” for the economy to clearly reveal its weaknesses, thereby helping the province to accurately identify the nature and severity of the problem at hand.

III. Turning point 2022: Establishing a new vision and approach to development.

Faced with such a “problematic” situation, Khanh Hoa’s economic performance in 2022 did not emerge as a “sudden flash of light”. This is truly a sign of “changing lanes”, or more accurately, a trend of “changing rhythm” in the province’s development.

In 2022, Khanh Hoa's GRDP will grow by 20.7% - the highest growth rate in the country and the highest in the province's economic growth history.

In terms of structure, GRDP by economic sector increased by 22.1%, of which the agriculture, forestry and fishery sector increased by 2.5%; the industry - construction sector increased by 24.6%; the service sector increased by 25.5%. Tourism recovered explosively, with revenue for the whole year of 2022 reaching more than 13,843 billion VND, 5.8 times higher than in 2021.

The average GRDP/person of the Province in 2022 reached 76.54 million VND, equal to 80% of the national average, significantly narrowing compared to the level in 2021 (74.5%).

Those are truly impressive achievements.

The high growth rate that Khanh Hoa achieved in 2022 is partly due to the strong recovery of tourism. However, at this point, Khanh Hoa's prominence is in the general trend of the whole economy and is similar to many other localities.

The difference in Khanh Hoa's growth in 2022 is explained by the sudden increase in investment attraction with a growth rate of 15.1%, compared to the increase of 6% in 2021 and 8-9% in the previous 3 years.

The investment growth rate of 15.1%, under normal conditions, is not an outstanding achievement. However, it should be noted that 2022 is the year the economy has just escaped the Covid epidemic, businesses still face many difficulties, especially in terms of investment capital. Meanwhile, Khanh Hoa is not yet an attractive destination for FDI.

It should be emphasized that the investment growth rate in 2022, although not really high, is the result of efforts to attract investors to Khanh Hoa with a new approach.

In 2021-2022, many “Vietnamese eagles” came to Khanh Hoa to learn, propose and implement new investment projects. Basically, these are all new and large projects, which will help shape the future development portrait of the Province.

The list of investors coming to Khanh Hoa includes SunGroup, Hoa Phat Steel, Novaland, Trung Nam, not to mention VinGroup, Hung Thinh and many other famous investors who have been present before. These Vietnamese “eagles” are the main force, “transforming” Khanh Hoa into the most attractive investment coordinate.

But what factors help Khanh Hoa "change the rhythm", creating strong attraction for large economic groups - after several years of "problems" in the management apparatus, economic difficulties, declining growth performance, even falling into a serious "negative" state?

It is possible to outline a number of "breakthrough" factors, associated with breakthrough solutions, actively proposed by provincial leaders and quickly implemented with strong support from the Central Government in all aspects.

Firstly, “re”planning the development of the Province on all routes and levels, re-identifying the potential and development advantages of the province, clearly defining the “necessary and sufficient conditions” to ensure the transformation of “comparative advantages” into “competitive advantages”, so that on that basis, realizing potentials and advantages into development benefits.

Re-planning Van Phong Economic Zone - a development coordinate with world-class advantages but until 2022, there has been no corresponding change - is a typical experiment of this change. The experiment has been confirmed as successful by the most important partners: the Government (early approval of the Planning Report) and large Vietnamese investors (coming to and returning to Van Phong Economic Zone with many large investment projects).

The success of the Planning, although initial, stems from a new approach to the potential - development advantages of Van Phong in modern conditions, which in turn leads to strong breakthrough proposals on the structure and function of the Economic Zone.

Following the same logic, 2022 will also witness the emergence of many other strategic development projects in Khanh Hoa - Dam Thuy Trieu Urban Area Project, Nha Trang City Development Project, Night-time Economy Development Project,...

There is reason to predict that together with the Van Phong Economic Zone Project, these projects will create an unusually strong development momentum for Khanh Hoa province in the coming period.

Second, strengthen links and create synergy.

Reality shows that Khanh Hoa itself cannot have enough resources to exceed the minimum development threshold. Therefore, promoting development linkages to create synergy becomes the most important guiding ideology in Khanh Hoa's new development thinking.

This idea was demonstrated early and most clearly in the effort to develop Cam Ranh airport as an important integration and development coordinate of the Province.

In the new period, this approach is more deeply and comprehensively implemented in the Development Plans.

According to the planning spirit, there is a basis to determine Nha Trang - Van Phong as a special development convergence route - the expressways connecting Khanh Hoa with the provinces of Phu Yen, Dak Lak, Ninh Thuan, Lam Dong and Dak Nong, with 4 existing airports surrounding Cam Ranh, Tuy Hoa, Buon Me Thuot and Lien Khuong.

Van Phong Economic Zone will be a high-level international connection coordinate, with a modern international transit seaport – both a tourist seaport and an industrial seaport. The idea of building a tourist airport in Van Phong has also been raised and received positive support.

Such a development association allows us to clearly visualize the "position" and "scope" of Khanh Hoa's development: the association's driving force is especially strong, allowing us to combine the great and unique development advantages of not only the South Central Coast provinces but also the distinct Central Highlands.

Third, determine a new position, with active and effective support from the Central Government.

The strong rise of Khanh Hoa in 2022 – and in the coming period – would not be possible without the positive and effective multifaceted support from the Central Government. That support is implemented on 3 main routes.

One is that the Government should soon re-approve the Van Phong Economic Zone Development Plan, in the spirit of encouraging proactive creativity.

Second, the National Assembly passed the Resolution on "Special mechanism for Khanh Hoa development" as quickly as possible.

Third, the Government actively promotes the implementation of the Coastal Expressway Project, Buon Ma Thuot - Nha Trang Expressway, etc., thereby shaping a special development space including the South Central and Central Highlands provinces, in which Khanh Hoa - Nha Trang is identified as the Development Integration Center of the "Sub-region".

The active support from the Central Government has cleared some “longstanding” bottlenecks in Khanh Hoa that Khanh Hoa itself could not resolve. At the same time, they sent a message - a commitment to the future development of Khanh Hoa, of the “special” Van Phong Economic Zone. That certainly has a particularly positive impact on the decision of businesses to choose an investment location.

In the context of the fierce competition for development and investment attraction between localities, that message is understood as the confirmation of the position of Khanh Hoa and Van Phong in the country's development strategy in the new period. With that message, the potential and advantages of Khanh Hoa are considered national resources and strengths, Van Phong Economic Zone is the new driving force for development of the Region, the modern international competitive coordinate of the economy.

That message is not a “development bias” reserved for Khanh Hoa. On the contrary, it defines the national position and responsibility of Khanh Hoa’s development. It implies that such a heavy responsibility can and must only be resolved at the national level, by national cooperation, with Khanh Hoa taking the leading role.

Of course, Khanh Hoa's remarkable development achievements in 2022 cannot be attributed to just those three changes. However, they are the factors that play a decisive role in turning around the development situation of the Province. Please note that Khanh Hoa is turning around the development situation, not simply creating remarkable growth in quantity.

These are the three elements that make up the new development approach and are the foundation on which to shape the Province's modern development vision.

IV. Prospects of success

The growth performance of 2022, however brilliant, is still not enough to ensure a bright future for Khanh Hoa.

However, from another perspective, with the starting foundations established for the new development stage mentioned above, there is enough basis to establish confidence in the breakthrough, advancement and sustainability prospects of Khanh Hoa.

In the future national development formation, Khanh Hoa is identified as the Center of the South Central Coast Sub-region, including the four provinces of Phu Yen, Khanh Hoa, Ninh Thuan and Binh Thuan. On a broader scale, Khanh Hoa is the Center for Linking the Development of provinces on both the South Central Coast and the Central Highlands (provinces of Dak Lak, Dak Nong and Lam Dong).

In that lineup, Van Phong Special Economic Zone – the “treasure” of national and world development – is implementing the “Great” Development Project with two “wings” South and North Van Phong, following the “different and classy” orientation, and will become an address expected to have global appeal, a leading international competitive center of Vietnam.

Together with Van Phong are Ninh Hoa, Nha Trang, Cam Lam, Cam Ranh, forming a chain of first-class coastal urban areas, which plays the role of the core axis of Khanh Hoa City (the whole province) directly under the Central Government in the coming time.

To achieve this ambitious goal, Khanh Hoa has chosen the 2021-2030 development scenario with an expected average GRDP growth rate of 7.9% per year. Besides this scenario, there is still another development scenario that is “open” with an even higher level of ambition – an average GRDP growth of 11.6%.

The goal implementation is based on pillars, shown in the figure below.

Entering a new phase, Khanh Hoa has had a promising start in 2022. Of course, we cannot be too optimistic too soon and too much. The experience of Khanh Hoa itself and many other provinces shows that the risk of paying the price for early and quick successes due to impulsiveness and excessive excitement is often not small.

Khanh Hoa still has much work to do. The toughest challenges may lie ahead.

But Khanh Hoa, with its current mind, vision and position, is truly worthy of those challenges.

Worthy of the challenge – means that belief in Khanh Hoa's prospects for success is established.

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