Vietnam paying the price for shallow development

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  Workers at a Piaggio scooter and motorcycle factory in Vietnam's northern province of Vinh Phuc. Photo: Reuters

Vietnam's global competitiveness has slipped significantly this year because its development has not been deep, and it has failed to tackle problems like corruption effectively, economist Nguyen Minh Phong tells Vietweek.

Vietweek: Vietnam has dropped in the competitiveness ranking this year, switching positions with the Philippines. Over the last two competition reports released by the World Economic Forum, Vietnam has dropped 16 places and is now the second-lowest ranked among eight members of the Association of Southeast Asian Nations (ASEAN) covered in the report. Why has this happened?

Nguyen Minh Phong: Last year, Vietnam was ranked 65th among 136 economies and is now 75th among 144 economies. This is because our country is in a tough economic situation. More local enterprises face the risk of bankruptcy, and their partners overseas are also struggling. There is even less investment in business reforms now. This is a reason for the lower ranking.

Furthermore, we have used many administrative measures to manage the economy a move that has not helped. For example, banks are asked to offer more credit incentives and loan payment extensions to state-owned enterprises despite their inefficient performance.

Is the latest fall cause for concern?

Obviously, it is worrisome. The macroeconomic environment has worsened mainly because business is stagnant. The number of companies shutting down their business has increased, and a higher number of people are unemployed and bad debt is rising. This is the biggest concern of foreign investors when considering investing in Vietnam.

The state, amidst the tough economic situation, uses more administrative measures in order to gain its development goals. Thus, goods' prices and interest rates are not decided by market principles, a big concern for foreign investors.

Vietnam has poured large investments in infrastructure, but quality is still poor. Roads are narrow and seaports are yet to meet the country's demand.

Investment in renovation as well as research and development has fallen. According to a recent survey, 70 percent of more than 220 surveyed firms have suffered losses, and do not have enough funds for development. Thus, it is a matter of serious concern.

What are the main reasons for the shortcomings?

There are objective and subjective reasons. The objective one is the world economic slowdown. Although all countries are affected by the slowdown, they are in different situations relative to the rest of the world.

Now, Vietnam's economy has not developed in depth unlike many others, which have done so a long time ago. Vietnam has not yet fully developed the market economy, while other countries have.

But the shortcomings are also rooted in subjective reasons like big monopolies, serious corruption and lack of cooperation among local enterprises.

Why has our competitiveness dropped even as we focus on restructuring the economy?

In fact, we have not yet restructured the economy. We are only preparing a plan for it, and are yet to see results. In some fields, we have used administrative measures to force firms to restructure, instead of restructuring them under market mechanisms. This is a temporary measure, and not real restructuring. For example, the restructuring taking place in the banking sector is in reality a bunch of measures taken to prevent the collapse of the whole system.

If restructuring happened under market mechanisms, large firms would gobble up smaller ones, and a firm's value would be determined by the market.

Now, our restructuring means that large firms save smaller ones and the state uses its money to support firms aiming to avoid collapse. It is, once again, not real restructuring.

Once restructuring is carried out, it will take time before it can be assessed. For example, private firms could implement restructuring by developing new products when the market recovers, capital is more ample, and their technological base has developed strongly. So, I think the real restructuring would take at least three to five years to start.

How will the lower ranking affect our FDI attraction in the coming time?

Obviously, the lower ranking will affect our FDI inflow, and Vietnam's access to overseas loans. Overseas loans would have higher interest rates and foreign investors will lack confidence.

Vietnam has recently seen lower FDI in terms of registered as well as disbursed capital. Our FDI attraction is worse compared to other ASEAN countries.

Some huge projects that were initiated when we joined the WTO have since ceased operations. In some cases the investors quit because they were speculators who were disappointed because their expectations were not met. In fact, this is a blessing in disguise, because we can eliminate projects based on speculation.

We have also not implemented many reforms, so investors have not seen new investment opportunities. And corruption has assumed more and more serious proportions.

However, if the Vietnamese market can demonstrate well its strong points, foreign investors would still invest in the country.

For Vietnam to improve its competitiveness, we have to change the way we assess values, improve our legal framework, increase penalties for violations of state regulations in economic management and increase transparency. It is very important that our anti-corruption efforts are seen as effective.


Economist Le Dang Doanh says foreign investors use the ranking when considering their investment in Vietnam. This should worry the Vietnamese government and prompt serious remedial action. The global economic slowdown is not the only reason for our low competitive capacity. Macroeconomic instability, poor infrastructure and a less attractive business environment are due to weak management and policy shortcomings.

Vietnam is only planning to restructure its economy and is yet to implement it seriously, so its situation has not improved, Doanh said.

The challenges in the coming time are numerous and significant, and will require decisive policy action in order to put the country's growth performance on a more stable footing, he added.

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