NA deputy gives insight into Vietnam’s economic growth

Could you highlight some facilitators of Vietnam’s GDP growth in 2018?

2018 threw up a number of disadvantages for the Vietnamese economy. The country’s public investment disbursement remained lower in 2018 than it has in previous years. Meanwhile, the US-China trade war began midway through 2018, resulting in consecutive tariff retaliations with a wider impact being felt in other economies, including Vietnam, which has direct economic relations with both countries.

In particular, the depreciation of the yuan and the impact of the trade war had a considerable impact on trade between Vietnam and China. However, the Vietnamese Government kept exchange rates stable and flexible to be on par with China’s monetary policies.

Agricultural production emerged as the highlight of Vietnam’s economic growth in 2018. Not repeating the abundant supply of farm produce that has occurred in previous years, the agricultural sector this year made headlines after producing record levels of export. This achievement was partly aided by the efforts of the National Assembly, Government leaders and officials in accelerating export deals.

Meanwhile, the foreign direct investment (FDI) sector, representing about 25 percent of the total investment capital, also made a significant contribution to the 2018 GDP growth.

Vietnam is expected to lure an inflow of new-generation FDI thanks to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the EU Vietnam Free Trade Agreement (EVFTA). So, what are your expectations from the new FDI inflows?

The nation should mull over the real efficiency of the FDI sector. FDI firms account for 25 percent of total investment capital, but they contribute some 20 percent to GDP and only 15 percent to the State budget.

This illustrates the point that the added value the FDI sector could bring is lower than expected. Most FDI firms have stuck to their plans of processing and outsourcing – this phase simply yields a low added value to the supply chains.

Reports released during the first decade of the 21^st century showed that the average monthly wage of FDI sector employees were multiple times higher than that found in the public and private sectors.

However, the average monthly wage of public and private sector workers has soared in recent years, inching towards that of FDI sector employees.

Hence, the FDI attraction strategy must be diverted to a more favorable investment climate and transparent investment rules instead of relying on cheap labor as a leading competitive edge. Higher priority should be given to attracting FDI projects with advanced technology and high added value.

The CPTPP and the EVFTA could bring about huge opportunities for foreign investors to make long-term investments in Vietnam and benefit from abroad access to the signatory countries.

The CPTPP in particular prescribes binding rules on the origin of goods exported to the signatory countries. Foreign investors who have a desire to ship goods from Vietnam to the signatory countries must make adequate investment in building up complete value chains instead of sticking to singular phases like processing and outsourcing.

As such, it helps to bolster alliance between foreign firms and domestic entities in building perfect supply and value chains with quality products and higher added value.