Restructuring Vietnam Economy: An Urgent Task

A seven-proposal draft of the economic restructuring has been prepared by the Central Institute for Economic Management (CIEM) since late 2009 and is expected to be submitted to the National Assembly for discussion. Until now, according to economic experts, the Vietnam’s economy needs to do away with the development mainly depending on exploitation of natural resources and low paid labour. Intead, it needs to approach a more sustainable development.

Realities

Since 2000, Vietnam’s economy has been highly appreciated by the international community for its outstanding efforts. However, with the current development pace, the economy has exposed its internal weaknesses. The Vietnamese economy heavily relies on natural resource and low-cost labour advantages. Amongst 112 national economic sectors, 26 sectors make up more than 1 % of GDP and contributed 21 sectors contribute from 0.5 to less than 1 % of GDP, mainly simple raw material processing.

According to analyses in the draft scheme on economic restructuring prepared by CIEM, the economic structure is sluggishly changed and the proportion of agriculture, forestry, fisheries and mining sectors slowly decreased from 34.18 % of GDP in 2000 to 31 % in 2008 while the proportion of high added-value services like education, finance, insurance and health has not increased, even decreased, in comparison with the region. According to CIEM analysts, the contribution of processing industry only reached over 24 % of GDP, much lower than that in regional countries. Based on the proportion of average all-sector value-added, the contribution to GDP dropped from over 45 % in 1999 to 41 % in 2007. The ratio in the industry slid from 40 % in 2000 to 30 % in 2008.

Besides, extensive growth always creates added pressure on the amount of investment capital, but not sustainable though. Savings are not enough to offset investments, the budget deficit is always at high level, and balance of current payments derails.

In the draft, CIEM analyses imbalances in economic sector structure. The state-owned sector contributes 34 % to the country’s GDP and holds a third of total social investments but it uses only 9 % of the workforce. Meanwhile, the non-state sector makes up for 47 % of the GDP and 32 % of total social investments and employs 87 % of the labour forces. Although the domestic private sector contributes 10 % to the GDP and uses 7 % of the workforce, its operating efficiency is much higher than other sectors, with net revenues 3 times higher than the State-owned enterprises and over 2.5 times higher than foreign-invested sector.

Capital structure is increasingly irrational. In the period from 2000 to 2008, as much as 72 % of total social investment capital was channelled into 20 industries like coal mining, oil and gas, electricity, real estate, hotel, road traffic and State management. However, key industries like rice, tea, coffee, fertiliser, medicine, electronics and household goods were improperly cared.

CIEM said in its report that “Changing the way of growth, restructuring economy towards improving quality, productivity and efficient use of resources, especially capital, has become an urgent task.”

Increasing domestic demand, reducing foreign reliance

According to CIEM, economic reform and restructuring will be continued in the period until 2020 to increase domestic demand and reduce foreign dependence. CIEM proposes seven major issues to reach the goals. Firstly, the government must continue maintaining macroeconomic stability and reforming administrative procedures, where at least 30 % of current procedures will be cut off. Secondly, it needs to heighten the quality of lawmaking and policymaking and enactment, especially separating three main functions that the government is implementing: State administrative management, market regulation and State ownership. Thirdly, it must review to improve the investment management capacity in State-funded projects. Fourthly, it needs to renovate governance and improve operating efficiency of State-owned enterprises, complete transforming all State-owned enterprises into joint stock companies or limited liability companies to abolish privileges of State-owned enterprises. Fifthly, it needs to renovate social investment encouragement, balance investments for export and domestic consumption, and give a boost to foreign direct investment. Particularly, it should introduce quality criteria for foreign investors and foreign-funded projects to reduce natural resources and low-cost labour while increasing the content of science and technology. Sixthly, it needs to mobilise agriculture and rural areas. Finally, it needs to continue supporting the development of small and medium enterprises.

Mr Nguyen Dinh Cung, Vice Director of CIEM and member of the “economic restructuring scheme” project, said: “In our project goals, Vietnam must reach the second phase of development in the next 10 years. In this new phase, growth must be associated with quality and quantity. Modern processing industries will replace industries using natural resources and low-cost labour. In that process, there will be participation of private enterprises, foreign investors and State-owned enterprises.”

By 2020, Vietnam will enter the orbit of sustainable development, enhance economic productivity and competitiveness and narrow development divide with regional countries. Vietnam needs to actively restructure its economy with more modern infrastructure and market regime and more balance of current payments and budget collection and expenditure. The country will strive for a per capita GDP of US$3,000-3,200 in the period.

VCCI

Tags: Vietnam economic, Vietnam economy