Vietnam achieved an economic growth rate of 8.44 percent in 2007, higher than previous years. It’s worth noting that the country attracted a total foreign direct investment (FDI) of more than US$20 billion, nearly doubling last year’s figure and higher than the set target for 2008. The export turnover reached US$48 billion, up 22 percent compared to 2006 – the first year Vietnam became an official member of the World Trade Organisation (WTO). At the annual Consultative Group Meeting in December, donors committed US$5.42 billion in official development assistance (ODA) capital for Vietnam, demonstrating their trust in the effective use of this valuable capital source. The financial monetary market was busy with the rapid development of the stock market, which made up 39 percent of GDP by the end of this year.

However, the consumer price index (CPI) in 2007 hit a ten-year record high of 12.63 percent over last year, surpassing the goal of maintaining the CPI below the economic growth rate. A World Bank (WB) expert described Vietnam’s economy as a motorbike running at a speed of 200kph. With such a high speed, the local economy may face huge risks and may need to wear a helmet.

Pros and cons

Vietnam’s WTO admission on January 11, 2007 created new conditions for the economy with several major challenges ahead. While Vietnam has just left the starting line, many of its rivals are already far ahead. Competition in this new situation has posed challenges to the local economy, imposing new requirements for the Government, localities, people and business community.

It’s undeniable that WTO accession has opened up many opportunities, but it has also created tough competition. Economic growth has brought into play these new factors. For example, the increase in GDP will contribute more to the State budget, but will raise expenditure. The number of rich people has been increasing, while the poverty rate has been dropping. Nevertheless, a rapid economic development also has disadvantages that need to be overcome quickly, particularly the use of production materials, increased investment, export promotion, domestic consumption, economic restructuring, establishment of distribution channels and further impact on banking and the stock market.

One year after joining the WTO, a series of commitments has been implemented and the country is now entering a new arena. Foreign banks were allowed to set up 100 percent foreign-owned branches in Vietnam from April 1, 2007. Many kinds of taxes, including import tax, have been slashed from January 1, 2007 in line with Vietnam’s WTO commitments. The domestic market was flooded with both imported and domestically-made goods. Vietnamese products have penetrated foreign markets with many prestigious brand names. This implies that Vietnamese businesses are capable of competing against foreign rivals on the WTO arena.

Vietnamese products on a par with foreign ones

Vietnam earned US$1.5 billion from coffee exports, much higher than the target set by producers, thanks to rising prices of coffee in the international market. Vietnam surpassed India to become the world’s leading coffee exporter. The quality and output of Vietnamese coffee can have an impact on supply and demand, as well as price of the product in the global market.

Meanwhile, the country will hold the presidency of the World Pepper Association in 2008. This will affirm the position and prestige of Vietnamese pepper in the international market. In addition, after years ranking behind Thailand, the price of Vietnam's export rice paralleled that of Thailand's in the international market. Vietnam’s 25-percent broken rice was sold at higher price than Thai product of the same kind.

Vietnamese garments and textiles achieved a total export turnover of US$7.8 billion in 2007, while tra and basa catfish reaped US$1 billion.

Price stabilization does not mean price reductions

2007 marked the increase in the price of many products due to soaring prices of material and fuel products such as petrol, gold, chemicals, cotton, plastics and cattle-feed.

To stabilize prices in the domestic market, the Government has reduced import tariffs on a number of material products, food and consumer goods.Such move aims to  prevent price hikes on the domestic market, but not to reduce prices of goods. Furthermore, supervisory work on business operations was not strong enough so market prices were not controlled as expected.

This year, a large volume of foreign currency flowed into the domestic market, including foreign investment sources, ODA capital, overseas remittances and expenditure by foreign tourists. In 2007, the State Bank of Vietnam spent about VND145,000 billion buying US$9 billion for foreign currency reserves in an effort to stabilise the exchange rate between the domestic and foreign currencies.  However, it failed to control prices due to the surging costs of materials and fuels in the international market such as petrol and steel. This factor has had a strong impact on the rising inflation rate in the local market. The CPI surged by 2.91 percent in December 2007 compared to the same period last year.

Grasping new opportunities

Many economic sectors reported rapid growth, but improvements to the infrastructure lagged behind growth. While there are many seaports, their effectiveness is still limited. The export volume increased but the number of violations of food hygiene and safety have also been on the rise. FDI capital is huge but the disbursement progress is slow. Many capital construction projects were suspended due to complicated administrative procedures.

The economy is speeding up the integration process and implementing WTO and bilateral and multi-lateral commitments regarding tariff and non-tariff measures. The Government has set an ambitious target of achieving an economic growth rate of 9 percent in 2008, while controlling the inflation rate below the economic growth rate and improving people’s living conditions. The matter is how to grasp new opportunities to boost the common growth of the economy.