Việt Nam needs to ensure a self-dependent economy

Dr. Nguyễn Bích Lâm

Disruption of the global supply chains due to the prolonged COVID-19 pandemic and the Russia-Ukraine crisis has slowed down Việt Nam’s economy. Besides introducing supportive policies and solutions, the effectiveness of the policy execution is also extremely important to put the economy back on track and develop in line with global recovery. Vietnam News Agency talks to Dr. Nguyễn Bích Lâm, former general director of the General Statistics Office (GSO), about this issue.

How have the disrupted global supply chains affected Việt Nam’s economy?

The pandemic has caused a drastic change in the world's economic order and activities. Along with that, severer strategic competition among major economies in many fields, challenges in restoring the values of economic freedom, and weakening rules-based global governance have negatively impacted the process of globalisation and international economic integration.

The disrupted global and regional supply chains are causing supply shortages and high inflation. Meanwhile, the Russia-Ukraine conflict is an 'additional blow' that deepens the difficulties of the world economy and each country.

Currently, the world economy is facing dilemmas without solutions yet, including high energy prices and inflation which weaken the efficiency of the economic recovery and development programmes of the countries; serious disruption of supply chains and rising costs; shortages of essential industrial metals; financial system turmoil; and global growth decline.

Việt Nam has joined many multilateral and bilateral trade agreements and imported a lot of raw materials. With the large openness of the economy, when the world economy declines and inflation is high, especially in our major trading partners, it will have a direct and strong impact on the recovery and economic development of our country.

The production output and export market share of some raw materials and fuels such as petroleum, gas, wheat, aluminum, nickel, and corn in Russia and Ukraine are very large. Therefore, when the crisis prolongs, it will hinder the supply of these raw materials and drive up inflationary pressure.

In Việt Nam, the average domestic petroleum products alone increased by over 48.8 per cent year-on-year in the first four months of this year, contributing 1.8 percentage points to the inflation rate of 2.1 per cent in the January-April period. Meanwhile, the gas price rose by 24.6 per cent year-on-year during the same period, lifting the overall CPI to 0.36 percentage points.

Besides fuel, prices of agricultural products such as food, cotton, animal feed, fertiliser, industrial metals, and construction steel also went up. The import price of iron and steel in the first quarter of 2022 increased by 43.9 per cent year-on-year while prices of animal feed and raw materials increased by 27.7 per cent.

Supply factors, especially geopolitical tensions, have posed risks of higher inflation. In its recent report, the International Monetary Fund (IMF) forecast Việt Nam's inflation in 2022 will increase by 3.9 per cent, very close to the Government’s target of 4 per cent for the whole year. Meanwhile, Standard Chartered Bank projected Việt Nam’s inflation will exceed 4 per cent this year and may rise to 5.5 per cent in 2023.

The high prices of steel and construction materials are not only slowing down the progress of public investment projects but also pushing up the total cost of the projects. The prices in the bidding documents are no longer matching with market prices and this affects the implementation of the Government’s economic recovery plan.

Geopolitical instability, especially the Russia-Ukraine crisis, also slows the recovery of international tourism to Việt Nam, disturbing the recovery of the service sector.

In 2019, before the pandemic, Việt Nam welcomed about 4.5 million Russian tourists, accounting for 25 per cent of the total number of international visitors to the country. On average, a Russian tourist spent about US$1,600 for a visit, higher than the average of $900 for a general foreign tourist. Currently, the Russian economy is facing a serious crisis due to sanctions from the western countries and this will affect Russians’ travel plans.

How do you assess the adaptation of Vietnamese businesses to the impacts of the supply chain disruption?

In 2020, when the pandemic caused a supply chain disruption, affecting production and business activities, Vietnamese businesses raised the spirit of self-reliance, perseverance, and adaptation to maintain production and jobs for workers.

At the times when the pandemic impact was not severe, businesses quickly found many solutions to stabilise production and business, urgently applied digital technology in trade to secure raw materials supply for production and expand the consumption market. Especially, enterprises have focused on exploring the domestic market, quickly catching new business opportunities.

The business community also gathered and overcome obstacles together in many forms such as sharing orders, lending to each other, allowing deferred payment, and barter exchange. According to a GSO survey, 47.3 per cent of businesses have created linkages with other businesses to share difficulties.

The impact of the COVID-19 pandemic is not over yet, along with geopolitical instability, while Việt Nam's economy depends heavily on raw material imports. What should Việt Nam do to ensure the independence of raw materials and fuel supply for production and business activities?

Amid existing supply strains, sanctions of the US and EU against Russia exacerbated the supply shortages. The government, relevant ministries, and sectors, especially businesses, need to persify supply sources to ensure the source of each group of materials does not depend on one market or one region. The Ministry of Industry and Trade (MoIT) in collaboration with relevant ministries and branches shall promote activities of searching for supply and consumption markets.

In the context of fast-changing volatility in the world, the Government needs to have a strategy to build economic institutions, and improve the resilience and self-reliance of the economy. MoIT together with relevant ministries, branches, and localities will quickly develop and implement the development strategy for domestic raw materials to gradually replace raw materials and fuel imports.

Special attention should be paid to the formulation and execution of the National Energy Security Strategy with the view of developing and using renewable, environment-friendly energy, gradually eliminating fossil energy, and coal in accordance with Việt Nam's commitments at COP26.

The authority, corporations and localities shall review, consolidate and improve the country's capacity to preserve strategic raw materials, fuels, and supplies, to meet the need of the economy, regardless of short-term fluctuations in the world and the region.

Along with that, ministries and branches need to improve their forecasting capacity, and proactively and flexibly develop policies and solutions to promptly respond to unusual volatility in the world.

In addition to the immediate impact, such as rising prices of fuel and many essential commodities, MoIT and relevant ministries and sectors need to come up with policies and solutions to deal with the long-term consequences caused by the sanctions against Russia.

Policy-making also needs to be quicker and flexibly adjusted according to the speed of recovery. However, good policies are not enough, it is extremely important to urgently implement and bring policies and solutions to life to enhance policy efficiency. — VNS