Activate internal strength, supplement growth momentum

Facing difficulties and challenges that are considered unprecedented, Vietnam needs to promote and strengthen the internal competitiveness of the domestic private enterprise system.

Việt Nam được xếp vào nhóm 20 nền kinh tế có quy mô thương mại lớn nhất thế giới. (Nguồn: Getty Images)

Vietnam is ranked among the 20 economies with the largest trade scale in the world. (Source: Getty Images)

Vietnam's economy in 2023 has gone more than half way with ups and downs. In the first half of this year, the Vietnamese economy and business community were strongly affected by negative factors of the Covid-19 pandemic, the wave of high interest rates and unpredictable political fluctuations from 2022. These factors affect the production and business activities of enterprises and the country's growth drivers.

Unprecedented challenge

The growth rate of Gross Domestic Product (GDP) in the first six months of 2023 reached only 3.72% (3.28% in the first quarter and 4.14% in the second quarter), almost the lowest compared to the same period in the past 11 years. This figure is only higher than the same period in 2020 - a year heavily affected by the Covid-19 pandemic and 2.48 percentage points lower than the plan.

The corporate bond market, stock market, and real estate market are still very weak and have not recovered. Some negative areas have increased even more: Bad debt in banks increased by about 3.7% - much higher than in 2022; bad debt of enterprises increased rapidly, to date it is about more than one million billion VND in bond debt, of which nearly 40,000 billion VND is overdue.

In the first seven months of 2023, the number of newly registered and resuming businesses decreased; the number of businesses temporarily suspending business, suspending operations pending dissolution procedures, and completing dissolution procedures increased; on average, 16.2 thousand businesses withdrew from the market per month...

In addition, challenges from the transformation of the post-Covid-19 economic model, trends in trade and investment shifts, and increasing global competitive pressure have made Vietnam's foreign economic competitiveness, especially in exporting key, traditional products, difficult.

The foreign economic sector has made important contributions to growth before and during Covid-19, raising many questions about the quality of growth. Vietnam's contribution and participation in the production value chain is still limited. Meanwhile, the country's export turnover has grown positively in recent times, but the foreign direct investment (FDI) sector is still the main force, contributing more than 70% to export results.

In addition, Vietnam's competitive advantage in production and international trade is still based on prices, preferential policies, and tax exemptions. The traditional advantage in labor costs in the manufacturing and assembly sector remains low.

Dr. Nguyen Quoc Viet.

Bright spot attracting FDI

Entering the second half of 2023, economic signs signal a slight recovery. Industrial production indexes, purchasing managers' indexes, and exports of some key commodities have increased slightly compared to the first months of the year. Asset markets have been relatively stable, the stock market has been positive in recent months and is expected to continue to improve.

In parallel, the tourism sector has shown the most impressive growth among the growth drivers of the economy. Figures from the General Statistics Office (Ministry of Planning and Investment) show that in the first eight months of the year, Vietnam welcomed over 7.8 million international visitors, reaching nearly 98% of the annual target. The number of domestic tourists is estimated at 9.5 million. Total revenue from tourists is estimated at VND482 trillion.

In particular, in the context of complex, unpredictable and hard-to-forecast developments in the world and regional economy, Vietnam is still considered a bright spot on the FDI attraction map. The country is ranked in the group of 20 economies with the largest trade scale in the world, with the presence of investors from 143 countries and territories with nearly 38,000 projects, total registered capital of more than 452 billion USD.

As of August 20, total FDI capital reached nearly 18.15 billion USD, up 8.2% over the same period last year. Of which, new investment capital reached 8.87 billion USD, up 39.7% over the same period; investment capital through capital contribution and share purchase reached 4.47 billion USD, up 62.8%.

The government intervenes to "solve the problem"

In recent times, the Government’s economic management policies have demonstrated its determination to promote domestic economic growth and resolve difficulties in production and business of the business community. Continuously decreasing interest rates and increasing credit limits at some banks are expected to contribute to resolving difficulties in the production and business sector.

The Government continues to make efforts to accelerate public investment disbursement in 2023. The increase in public investment in general and efforts to disburse public investment capital in particular are important moves to stimulate domestic demand and promote Vietnam's economic growth in the coming time.

In addition, institutional reform, perfecting support policies, and promoting the efficiency of production and business activities of the private economic sector play a huge role in overcoming current economic difficulties.

Experience from the Covid-19 pandemic shows that measures to remove obstacles, difficulties and barriers to production and business activities are very important in restoring people and businesses' confidence in economic recovery and development, contributing to promoting healthy capital flows back to production and business activities. Thereby, contributing to restoring production, restoring the market, stabilizing prices, curbing inflation, ensuring macroeconomic stability as well as ensuring social security and welfare.

Vietnam is ranked among the 20 economies with the largest trade scale in the world, with the presence of investors from 143 countries and territories with nearly 38,000 projects and a total registered capital of more than 452 billion USD.

Leveraging growth momentum from within

In danger there is opportunity, the difficulties and challenges of the world economy will create opportunities for Vietnam to re-evaluate its internal growth drivers, especially the drivers to ensure economic autonomy and improve its capacity to withstand global economic shocks and risks.

In the remainder of 2023, to revive economic growth, Vietnam needs to promote and strengthen the internal competitiveness of the domestic private enterprise system. It is necessary to activate the synchronous internal economic engine so that the entire population and the entire country can enter into effective production. The authorities should strengthen their cooperation with local governments and accompany businesses to remove barriers and create breakthroughs.

With over 97% of enterprises being small and medium-sized, the competitiveness of this sector is still very limited. The total factor productivity (TFP) index - reflecting the productivity and production efficiency of the domestic private sector - is much lower than that of the FDI sector.

Businesses need to improve their connectivity. The business mentality is still largely focused on individual interests, limiting the ability of domestic businesses to participate in the supply chains of multinational corporations.

(*) Deputy Director of the Vietnam Institute for Economic and Policy Research (VEPR), School of Economics, Vietnam National University, Hanoi

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