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It is necessary to focus on promoting the driving force for big projects that have been and had been put into operation. (Nghi Son Refinery and Petrochemical Project). Photo: ST

Growth motivation is saturated

Although Vietnam's economy in the first half of 2019 increased slowly compared to the same period last year, according to forecasts of many organizations, Vietnam's economy in 2019 still has the ability to complete and exceed the set plan.

According to the Ministry of Planning and Investment (MPI), GDP growth in the first six months of the year reached 6.76%, which is very positive compared to the general growth of the world and the region. However, this growth rate has not reached the target of the high scenario set and has not yet shown the breakthrough in general growth as well as in each industry and field, so growth motivation is not really clear. The MPI also noted the economy still faces difficulties and challenges in the last six months of the year, especially as the world demand reduces and impacts exports, production and business in the country.

Commenting on motivation of 2019’s economic growth, Minister of Planning and Investment Nguyen Chi Dung also emphasized that growth motivation is reaching the threshold, showing signs of decline, such as: industrial production increasing slowly, investment disbursement low, exports to China declining, especially agricultural exports, the impact of prolonged heat to the farming industry, influence of African swine flu to the livestock sector, and the number of international visitors to Vietnam growing slowly.

The restrictions affecting economic growth in the last months of the year have also been pointed out by organizations and economic experts. First of all, industrial production has been growing slowly. The report by the General Statistics Office also stated that the industry in the first six months of 2019 maintained a good growth rate with the increase in value of 9.13%, lower than the increase in 2018 of 10.5%.

In particular, processing and manufacturing industries play a key role leading the overall growth of industry and the economy. The report by the National Center for Socio-Economic Forecasting also stated that some capital sectors that create growth motivation for the economy such as telephones and electronics no longer maintain impressive growth rates like in the previous period, accompanied by a deceleration according to the roadmap of the mining industry.

Samsung's growth motivation is also an unknown given concerns about the reduction in production scale of this enterprise over the same period. The competitive challenge that Samsung faces in the global market can cause decline in growth of this business, making the processing industry still in the trend to continue to improve, but the level will slow compared with the same period last year.

According to NCIF, in fact, Samsung's decline in business started at the end of 2017 and throughout the year 2018. The reports from firms of market research IDC and Strategy Analytics all pointed to a drop in Samsung smartphone sales by about 13% in the third quarter of 2018, after reducing 10% in the second quarter, 2% in the first quarter and 4% in the fourth quarter of 2017.

Besides the slow growth of the industry, another challenge is that the business environment has not improved drastically, causing barriers for production and business sectors. For example, a recent report from the Ministry of Planning and Investment mentioned the reform of specialized management and inspection. In general, in the second quarter of 2019, specialized management and inspection of export and import goods have not changed and there isn’t any significant reform.

Resolution No. 02 emphasized before June 2019, the ministries and branches completed reviewing and reducing 50% of the goods under the specialized management and inspection list. However, this task had been slow, mainly shifting from pre-clearance inspection to post-clearance audit stage, not cutting the number of specialized inspection items as the Government required.

Domestic and foreign resistance

In recent years, a major limitation of 2019’s economic development mentioned is that the speed of disbursement of public investment capital is still slow. Although at the beginning of the year, the Government urged the disbursement of public investment capital, by the end of the second quarter of 2019, the disbursement of capital was only estimated at VND 119 trillion, equal to 32.41% of the capital plan assigned by the Prime Minister. This figure is lower than the same period in 2018 (33.85%). The latest information from the National Investment Portal shows that at this time, there are units disbursing less than 1% of the capital plan, and there are some units with disbursement at 0%.

ODA capital in the first half of the year allocates about 50% of the 60 trillion dong allocated by the National Assembly. The slow disbursement of public investment capital will delay the implemention of important infrastructure works. This is not only a bottleneck for socio-economic development in the first six months but also affects economic growth rate in the last six months as well.

The inflation in 2019 is forecast to be controlled under the National Assembly's targets, however, according to experts from the National Center for Socio-Economic Forecasting, in the future, the pressure of high inflation is due to the impact of many factors, including the world oil price tending to increase, poor weather and diseases can increase the price of food and foodstuff.

In this regard, Associate Prof. Dr. Nguyen Duc Thanh, Director of the Institute of Economic and Policy Research, also emphasized that inflation in the first six months increased by 2.64%, the lowest level in the last three years, but it is potential risk when it increases gradually towards the end of the year. The food and foodstuff prices increase due to epidemics, prices of commodity and education rise, and energy price fluctuates.

“Inflation in the first 6 months was controlled at a low level, but there are many potential risks in the future. The main reason for the increase in the price of educational items; the price of food and foodstuff increased due to instability of the African cholera epidemic along with the volatile fuel price,” said Associate Prof. Dr. Nguyen Duc Thanh.

Besides the limitations of internal economic problems, according to experts, in the last months of the year, the biggest influence from external fluctuations on the Vietnamese economy is still the trade war. In addition, risks from oil prices due to geopolitical instability in the Middle East as well as China's depreciation of the yuan may also affect the growth rate of Vietnam's economy by the end of the year.

China's devaluation of the yuan will have a two-way impact on imports and exports. Imported Chinese goods will be cheaper and will compete with Vietnamese products, especially consumer goods, which increases the trade deficit and may increase smuggling. In particular, the devaluation of the yuan will make export goods, especially agricultural and aquatic products of Vietnam, become less competitive in the Chinese market.

This is a big disadvantage for Vietnamese goods because it is difficult to move the market without exporting to China. In case the Government and the State Bank take the initiative in lowering the VND price, Vietnam will increase the competitive advantage compared to China and other emerging countries, but Vietnam will face the risk of being labelled as a currency manipulator by the US then the US can impose a tax on goods imported from Vietnam similar to China.

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According to the Minister of MPI, in order to promote growth, processing and manufacturing industries still play the main driving force, we still need to focus on promoting the dynamic momentum for big projects that have been operated and have just come in operation such as Nghi Son Oil Refinery, Formosa Ha Tinh, Hoa Phat Dung Quat Iron and Steel Complex, VinFast automobile factory and speeding up the progress of newly registered FDI projects in the field of processing and manufacturing accounting for 73.4% of total registered FDI in the first six months.