Raymond Mallon, senior economic advisor to the Australia-Vietnam Economic Reform Programme, analyse these achievements and discusses priority actions needed for Vietnam to become a more prosperous nation in the coming decades.
Vietnam’s growth of 7.0 per cent in 2019 was led by 11.3 per cent growth in the manufacturing sector. Total industrial sector output grew by 8.9 per cent, services by 7.3 per cent, and agriculture by 2 per cent.
Growth has been achieved with macro-economic stability, including an inflation rate below 3 per cent and increased foreign reserves. Vietnam's ratios of trade and foreign investment are amongst the highest in the world and continue to grow,
Vietnam's economic performance last year was especially Impressive, given global uncertainties and the slowdown in world trade and economic growth, but it has been the transformation in the sources of growth in Vietnam that is truly remarkable.
Whereas earlier decades of economic growth were driven by large inflows of foreign investment and public expenditure, recent growth has been increasingly driven by domestic consumption and private investment.
Global experience suggests that a strong domestic private sector competing and innovating in a globally integrated and competitive economy, together wilh an effective system 01 public administration, provide a strong foundation for sustained economic growth.
Private domestic investment increased by more than 17 per cent in 2019, with 2.6 per cent growth in state investment and 7.9 per cent growth in foreign direct investment (FDI).
Growth in exports by domestic firms also increased sharply (17.7 per cent) in 2019, while growth in exports by foreign-invested enterprises (FIEs) was a more modest 4.2 per cent. Nevertheless, FIEs still contributed 69 per cent of Vietnam's total exports in 2019, while domestic businesses accounted for 31 per cent
Further sector developments
Another striking trend in 2019 was the rapid growth in IT-based services and the knowledge economy, Use of cashless payments systems jumped sharply. Most customs and tax payments are now being conducted through bank account transfers, and most formal businesses have registered for electronic lax payment systems, Rapidly growing numbers of people are paying power, telecoms, and water bills using non-cash systems. This promotes efficiency and transparency, and reduces opportunities for corruption and tax avoidance.
The economy has recorded sharp increases in the amounts of investment capital raised for digital startups and expansion, including for agriculture, e-commerce, and financial technology. The National Digital Transformation Plan targets Vietnam to be among the top-four ASEAN digitalized economies by 2025,
Tourism is another increasingly important sector. After several decades of sustained growth, tourism is now a major contributor to national employment and income growth, Importantly, the economic benefits of tourism arc reaching people in rural areas that tend to benefit less from the development of industry and other services.
Farmers had a more difficult year because of the impacts of the African swine fever, climate change, saltwater intrusion in the Mekong Delta, and droughts in some regions. Nevertheless, there have also been some positive signs in agriculture with the development of new domestic and export markets for some higher value-added agriculture products with improved packaging and quality standards.
Rural workers also have increasing access to higher income earning opportunities in non-agriculture sectors and the share of the agriculture sector in total GOP and employment continues to decline in line with the ongoing restructuring of the economy. Urbanization rates are expected to continue to increase. This should help reduce rural-urban gaps in labour productivity, but there will be social costs during this transition.
Recent years have also been a turning point in terms of the more substantive actions taken to address the adverse impacts of pollution and climate change on people's lives in Vietnam.
While still much more needs to be done, accelerated growth in renewable energy is encouraging, Vietnamese people appear to be increasingly prepared to take action against environmental degradation in their communities.
Recent domestic private sector performance provides a strong foundation for future success. The key now is to learn from and build on recent successes. The government should continue to work with business and other stakeholders to identify remaining bottlenecks to productive business investment and to take actions to address these bottlenecks.
Recent efforts to target ASEAN-4 levels in the Doing Business Index and World Competitiveness Index under Resolution No,02!NQ-CP on the continued implementation of key tasks and solutions to improving the domestic business climate and national competitiveness in 2020 has helped ensure that government agencies are held accountable for delivering on reforms agreed between business and the government.
Plans to establish a special working group to boost reforms and further simplify business procedures during 2020-2025 has a potentially important role to play in future success.
Vietnam also needs to focus more on the remaining institutional barriers to a competitive market economy. It is encouraging to see that land law reform is again on the national reform agenda.
Current complexity and lack of transparency in markets for land use rights (especially agriculture land use rights) create inefficiencies and opportunities for corruption. There is a need for stronger and more transparent systems for property rights protection, including contract enforcement and economic courts.
Stronger regulators that are independent of commercial interests are needed to enforce competition policy, to ensure standards (for example for health, education, and safety), and to oversee network industries (transport, power, and communications).
Sustained efforts are also needed to accelerate human resource development and infrastructure development to better meet the changing demands of society and Vietnam's increasingly knowledge-based market economy. Efficient public sector institutions are needed to ensure the provision of more relevant education and health services and to build the infrastructure needed to encourage increased investment in the emerging businesses that will generate more productive and higher-income employment.