Will the AEC help Vietnam’s GNP expand?

There has been much fanfare, particularly in the Vietnamese media, about prospects for the gross domestic product (GDP) but that is in reality a ruse they say as the GDP includes revenues of FDI companies.

The profits earned by FDI companies will eventually flow back to the foreign owners of those companies. The real measure of success of the Vietnamese economy over the long run is how well domestic businesses fare as measured by the GNP post AEC.

At a recent conference in Hanoi discussing the domestic economy’s viability following AEC formation, Nguyen Duy Loi from the Institute of World Economics and Politics suggested that the AEC formation will ultimately be very positive.

“It’s good because it forces businesses to become competitive,” said Loi. 

“Domestic businesses will have to get serious about accelerating reforms, innovate and learn how to compete with their counterparts from other countries in the region or go by the wayside.”

Loi said the Vietnam private sector will most likely lose the domestic market in the short term to foreigners but they are resilient and will rebound over the long term and find their niche in both the domestic and regional marketplaces.

“The negative impact of the AEC on the nation’s businesses is likely to be immediate,” said Loi, with many domestic business failures next year.

Citing a recent survey conducted by the Central Institute for Economic Management (CIEM), Loi said the impact of the AEC is already being felt throughout the nation’s economy.

Out of 2,571 businesses surveyed, 25% of them faced critical working capital shortages, 22% are already experiencing declines in the backlog of sales orders and another 17% report feeling the competitive pressure mounting.

The AEC ascending pressures are only going to heighten for businesses in the private sector come the beginning of the year when the AEC really starts revving up and comes into full force.

He also acknowledged that in the short term, the AEC would spur more foreign businesses to move production of some goods to Vietnam to take advantage of lower labour costs.

However, he said there will also be many success stories for domestic businesses as the AEC’s creation brings about more opportunity for the more talented and entrepreneurial to expand abroad by making it easier to ship goods within the bloc.

As well, he said the new rules create more standardization of customs procedures, which will greatly benefit the nation’s businesses access foreign markets within the AEC free trade zone.

The AEC will also result in more cross-border movement of services and investment, leading to the expansion of financial products and services in the region. It could also further consolidate Vietnam’s position as a financial hub.

“Most importantly, the AEC is good for the consumer,” said Ho Tan Tuyen from Duy Tan University in Danang as it forces the nonperforming businesses out of the market leaving only those businesses that provide quality services.

Nguyen Van Minh from the Foreign Trade University said far too many businesses have been lackadaisical about preparing for the launch of the AEC and had they been more proactive they would be in a much better position.

“According to statistics from the Kenan Institute Asia,” Minh said just 18% of businesses paid attention to developments of the AEC as they unfolded over the past few years.

More strikingly, he said only a mere 13% of them paid attention to raising competitiveness through building brand names, developing their work forces or by creating alliances with regional businesses.

The bottom line consensus was pretty much that the AEC formation is going to hurt Vietnam’s GNP in the short term, be a tremendous boon for the consumer and the long term prospects are tilted heavily in favour of success.