Restructuring the national economy

Restructuring the national economy will play a decisive role in helping Vietnam achieve steady and sustainable growth, says Prime Minister Nguyen Tan Dung.

According to economists, restructuring the product categories should focus on giving priority to core products and avoiding failures made by other sectors, such as the automobile industry. The lack of viable support industries has led to a low percentage of domestic inputs. Vietnam does not yet have good support industries for its key export items, such as garments and textiles. The country needs to develop support industries for core products in the future.

Currently, the industrial sector does not have close links with the agricultural sector. Vietnam has to import most inputs for the agricultural sector, such as agricultural materials and machines. This is a huge loss for the industrial sector as it cannot build large rural areas into its domestic consumption market.

Regarding the agricultural sector’s outputs, Dr. Dang Kim Son, Head of the Institute of Strategy and Policy for Agriculture and Rural Development, says that half of Vietnam’s annual agricultural produce is exported but about 90 percent of them are raw products without trademarks. If the country applies new technology for processing coffee, rice and rubber, it will create a modern processing industry and agricultural outputs will become a positive factor in boosting the local industrial sector, he says.

For many years, Vietnam has made full use of its human resources to achieve a high economic growth rate but its Incremental Capital Output Ratio (ICOR) remains low in comparison with other developing countries in the region.

Dr. Nguyen Duc Thanh, Director of the Vietnam Centre for Economics and Policy Research (VEPR) under the University of Economics – Vietnam National University, says it is essential to mobilise different kinds of local resources to full advantage. However, if the country does not have strict mangement and inspection mechanisms, its national resourses will be wasted.

Mr. Thanh cites the link between industrial zones in Hanoi and those in Bac Ninh as a case in ppint. While Bac Ninh province has spent a lot of money on upgrading infrastructure, Hanoi is still reluctant to invest in major infrastructure projects for fear that investors will move to Bac Ninh on account of lower input costs there. Long An province and Ho Chi Minh City also face a similar situation. Other typical examples of wasting national resources could be seen in a number of provinces and cities which focus on building seaports and airports, as well as in the steel and cement sectors.

Vu Thanh Tu Anh, Director of the Fulbright Economics Teaching Programme, argues the inappropriate distribution of resources in different sectors in recent years has resulted in an unbalanced economy.

According to latest statistic figures the state owned economic sector contributes 34 percent of the GDP and makes up more than 33 percent of the total capital for social investment while using only 9 percent of the country’s total workforce. In the private sector these figures are 47 percent of the GDP, 32 percent of the total capital for social investment and 87 percent of the workforce.

The state-owned economic sector has enjoyed preferential treatment in terms of capital and real estate but its performance is remarkably inefficient by comparision with the private sector. Therefore, latter should be paid more attention.

In recent years, foreign direct investment (FDI) has been a major factor behind Vietnam’s economic development, however, the country should work out a suitable strategy to attract more FDI and make full use of it.

According to Nguyen Mai, Chairman of the Foreign Invested Business Association, Vietnam has so far disbursed US$60 billion of its FDI capital but the country only receives about US$1.5 billion from these businesses. The figure is too small in comparision with the priorities of land and natural resources that the FDI businesses receive. Another thing to be considered is that the FDI investors concentrate too much on land and real estate.

Former Deputy Prime Minister Vu Khoan stresses that the country’s economy is facing 3 inter-connected objectives. In the short run, Vietnam has cope with the impact of the global financial crisis and economic recession. In the middle-term, the country should catch up with new opportunities and deal with the challenges of the post-crisis period, while in the long run Vietnam should prepare for a 10-year socio-economic development strategy for 2011-2020.

The country needs to clarify the details of economic restructuring and focus on the quality of development. To support economic restructuring through renovating of development models, Vietnam should adjust its strategy to attract foreign investment giving priority to manufacturing, support industries, and high value added products as well as promoting cooperation between domestic businesses and foreign investors.

The Head of the Vietnam Economic Institution, Tran Dinh Thien, says that the country should basically change its domestic production structure to focus on higher added value industries. There should be a long term strategy of 5-10 years to form a national economic structure with such industries as its backbone. There should also be a transition period (2011-2013) before changing to the new development model. The renovation should occur in every aspect of the economy.

The premises for economic restructuring should also be considered, including forming a comprehensive mechanism for the market economy in line with administrative reform; developing the technology market; creating a fair competitive environment for all economic sectors; abolishing monopolies and developing high quality human resources.

The country’s future development should create a breakthrough in its productivity supported by skills and technology. Restructuring must be undertaken systematically and receive the support of the whole society. – VOV

Tags: Vietnam economic, Vietnam economy