The Vietnamese economy shines in 2019, but concerns exist for 2020

The global economy has been slowing steadily in 2019. According to the International Monetary Fund (IMF) estimations for October 2019, growth was just 3.0 percent compared to 3.6 percent in 2018, 0.2 percentage point lower than expectations in July and April, respectively. Trade and foreign direct investment have both dropped.

Despite expanding strategic rivalry in the area and throughout the world, Vietnam's GDP increased by 7.02 percent in 2019. This is the second year in a row that the government has met all 12 National Assembly benchmarks, including a record trade surplus of $9.94 billion USD, total registered foreign direct investment (FDI) capital of 38.02 billion USD – a 10-year high, low budget expenditures, and inflation of less than 3%. This is also the fourth year in a row that inflation has been kept below 4%.

Many scholars also predicted that the world economy will likely enter a recession, if not a catastrophe, in the near future. The reason for this was the potential of stock "bubbles," swelling underground banks, and excessive debt ratios in some places, while many countries did not have enough time to return to "normal" monetary policy.

Despite this, the global economy has seen a strategic shift in many nations in order to adjust to irreversible trends such as increased urbanization, the development of the middle class, the consumer revolution, the Fourth Industrial Revolution (Industry 4.0), and digital transformation.

Uncertainty and high risks hampered development momentum as a result of geopolitical clashes and a clash between investment liberalization and protectionism, not to mention climate change.

According to a poll done by the Pacific Economic Cooperation Council (PECC), the top five dangers to Asia-Pacific economic growth are as follows:An increase in protectionism and trade disputes; global trade growth is slowing; the Chinese economy is slowing; a slowing US economy; lack of political leadership.

After nine years of talks, Vietnam has signed free trade and investment treaties with the EU.

The EU-Vietnam Free Trade Agreement (EVFTA) and Investment Protection Agreement (EVIPA) were signed in Hanoi on June 30. The new generation of agreements between Vietnam and the EU commit to the highest standards. The EVFTA commits the two parties to eliminate nearly 100 percent of import duties, the most significant reduction among the FTAs Vietnam has signed. Meanwhile, the EVIPA also holds significance as it helps ensure an open and better investment and business climate for investors from around the globe.

Vietnam advances ten positions in the 2019 Global Competitiveness Report

The World Economic Forum (WEF) issued a study on October 9 showing that Vietnam has jumped 10 places on the Global Competitiveness Index from 77th in 2018 to 67th in 2019, making it the country with the greatest improvement in the rankings. This is the first time Vietnam has risen to the top half of the ranking of 141 economies. This outcome was ascribed to the Vietnamese government's ongoing reform efforts in the face of global uncertainty created by geopolitical and trade conflicts.

African swine flu is spreading across the country

The Ministry of Agriculture and Rural Development officially declared the first case of African swine disease in Vietnam on February 19. This is a deadly disease for which there is presently no vaccination or cure. According to the ministry, there has never been an outbreak that has caused such extensive devastation and difficulty. To combat this disease, the whole political system has taken extreme steps. By mid-December, approximately 6 million pigs weighing over 342,800 tones had been slaughtered, accounting for around 9% of the total herd. The outbreak has resulted in a pig scarcity, which has driven up pork prices in the closing months of the year.

Commercial banks are racing to enhance their charter capital.

In 2019, a number of commercial banks moved to increase their charter capital to ensure that their capital adequacy ratio (CAR) meets the requirements set by the State Bank in Circular 41/2016/TT-NHNN, which states that the CAR of commercial banks and foreign bank branches must meet Basel II standards by January 1, 2020. So far, eighteen banks have met Basel II criteria, comprising sixteen local and two international institutions.

Basel II is the most stringent capital-related regulation, and it is used in many nations to reduce business risks for banks and integrate financial institutions. They assist commercial banks in ensuring that their capital indices, liquidity, and risk management meet international requirements, therefore contributing to the strengthening of the financial – credit system.

Private airline expansion

Bamboo Airways made its formal debut in the Vietnamese aviation sector on January 16 with its first commercial flight between Ho Chi Minh City and Hanoi. It has been eight years since a new airline entered the Vietnamese market, sparking rivalry for domestic market share among airlines. Vinpearl Air JSC, Vietravel Airlines Co. Ltd, Vietstar JSC, and Thien Minh Aviation JSC (Kite Airlines) are also preparing to start operations.

Furthermore, with the development of the Bamboo Airways Aviation Training Institute, VinAviation High-tech Human Resources Training School, and Vietjet Aviation Academy, numerous firms have invested in aviation workforce training.

Both joy and agony

The Vietnamese economy shone in 2019, and that delight was multiplied by the global economic crisis, which made it difficult for an open and fully linked economy like Vietnam to escape many negative consequences. It was the second year in a row that the country met or surpassed all of the primary benchmarks established by the National Assembly.

GDP climbed by more than 7.0 percent in 2019. Goods exports totaled more than US$263 billion, up 8.1% from the previous year, with the domestic sector's exports increasing by 17.7%, well outpacing the FDI sector's growth rate (4.2 per cent). The trade surplus hit $9.9 billion, its largest level in four years.

In the fourth quarter alone, the GDP rose 6.97 percent from the same period last year, including 1.62 percent in the agro-forestry-fishery sector, 7.92 percent in the industrial – construction sector, and 8.09 percent in the service sector

Lam also emphasized the improved growth quality and economic effectiveness, elaborating that the contribution of total factor productivity to this year’s GDP growth reached 46.11 percent, compared to the average of 44.46 percent during 2016-2019 and 33.58 percent during 2011-2015.

Macroeconomic stability was accompanied by rapid GDP growth. Inflation surged by only 2.79 percent, foreign exchange reserves increased to about $80 billion, and the public debt ratio declined dramatically to 55% of GDP.

The most important outcome was that people's earnings continued to climb, reaching about $2,800 per capita per year, and the number of impoverished families reduced to 1.45%, which UNDP recognized as a notable success in poverty reduction. According to the organization, Vietnam's Human Development Index (HDI) grew at one of the fastest rates in the world. With an HDI of 0.63 in 2019, Vietnam ranks 118th out of 189 countries, close to the average HDI level and only 0.007 points below the group of nations designated as having a high HDI.

Behind these great numbers and accomplishments, there were still worries about sustainable growth, innovation promotion, and market attitude.

As a result of economic activity and urbanization, understanding and lifestyles have not kept up with new criteria for sustainable development and environmental preservation, particularly in major cities such as Hà Ni and HCM City. Serious environmental incidents occurred, revealing several flaws in dealing with such issues, both in terms of strategy, policy, and actions.

The quality of growth has also been difficult to improve, despite a 6.2% gain in labor productivity in 2019. Overall investment efficiency remained poor and did not change much. From 2016 to 2019, the average Incremental Capital-Output Ratio (ICOR) was 6.14, only slightly lower than the 6.25 reported from 2011 to 2015.

Vietnam is rated as "nascent" in terms of preparation for Industry 4.0. The World Economic Forum classifies preparedness into four categories: leading, high potential, legacy, and nascent. Indeed, Vietnam still has a long way to go in terms of fostering and enhancing its creative potential. The reason for this is that, for a long time, Vietnam did not see firms associated with R&D as the foundation of the National Innovation System (NIS).

According to statistics, 76% of Vietnamese businesses have not begun to digitalize, which is 1.5 times higher than the world average. According to experts, the most challenging aspect of digital transformation for Vietnamese firms is a lack of understanding and resources.

From the end of 2018 to the end of 2019, the stock market attitude shifted from "excitement" in 2017 to "caution." Not only did liquidity fall dramatically, but projections became more cautious as well.

Few people disagree that Vietnam's real estate sector has enormous potential. However, the market remained mostly calm in 2019, with a decline in both supply and the number of completed transactions. This year was especially difficult for market confidence because of rising disagreements between project owners and clients, as well as land fever in some areas accompanied by "ghost" projects and a lack of remedies from the government.

By Hanh Tran

References

1. VNA, december 20, 2019.Vietnam+. Vietnam’s economic milestone in 2019. Retrieved from: https://en.vietnamplus.vn/economic-milestones-of-vietnam-in-2019/166338.vnp

2. Vo Tri Thanh, January 7,2020. Vietnam News. Viet Nam's economy shines in 2019 but concerns exist for 2020. Retrieved from: https://vietnamnews.vn/economy/570785/viet-nams-economy-shines-in-2019-but-concerns-exist-for-2020.html

3. VNA, December 27, 2019. Vietnam+. Vietnam’s GDP expands 7.02 percent in 2019. Retrieve from: https://en.vietnamplus.vn/vietnams-gdp-expands-702-percent-in-2019/166249.vnp