The past five years had been a transitional period between two economic cycles, so the economy will most certainly see changes after this Party Congress, said Dr. Nguyen Khac Quoc Bao, Director of the Institute of Financial Technology under the University of Economics Ho Chi Minh City.
The 13th Party Congress opened on Tuesday and will spend eight days to select new leadership for the Party, State and National Assembly for the next five years.
Bao told VnExpress that there is no longer much room for an economic growth model that relies on exploitation of labor and natural resources, or FDI inflows, as these will yield benefits only up to a certain point. Meanwhile, scientific and technological advances, specifically Industry 4.0, will require Vietnam’s economic model to change, he said.
“Since the early 90s, at the start of Vietnam’s application of the “doi moi” reforms (from a planned to socialist-oriented market economy), the main growth driver of the economy had been demand. People’s demand for food, clothing, housing, travel education, and entertainment was exploding, and the only thing to do was to meet the demand. Hence, economic growth was very high those years,” he said.
After domestic demand waned, from the early 2000s onwards, the main growth driver had come from labor and resources. Vietnam began making and exporting goods at low prices, taking advantage of its abundant labor and natural resources.
“This created a myth that our products were price competitive, but really this was the result of us primarily engaging in labor- and resource-intensive production,” Bao said.
Then, the country began to see benefits of the financial sector, and encouraged banking and similar services, with some labor force gradually flowing into the sector. However, growth depending on capital had its consequences, with cross-ownership, bad debt, and malpractice creating macroeconomic instability, especially after the 2008 global financial crisis.
In the last five years, moving out of this economic cycle, Vietnam has maintained macroeconomic stability and high growth while managing to restructure the economy, handling violations and enhancing enforcement of the law, Bao said.
“Now, people have become much more familiar with the Internet, digital services, and non-cash payments. We need to find a model to direct, manage and put the new economic activities into legal frameworks.”
The draft documents of the 13th Party Congress has mentioned a lot about innovation, science and technology based growth. While previous congresses have touched on renovating the old growth model and increasing labor productivity, there have not been as many drastic solutions as seen in the current one, Bao said.
“The latest draft documents have a lot of content on innovation and digital economy, which will depend a lot on the private sector, and not coincidentally, in the last term, the government greatly encouraged the start-up movement,” he said.
2020 was a very special year in that Vietnam’s new economic cycle began with a pandemic.
“But thanks to Covid-19, we have seen great potential in the economy. Vietnam’s economy is among the top, globally, and stable. People are saying that if we continue to make timely, drastic steps as we did with the recent anti-epidemic efforts, economic achievements going forward will be even greater.”
Private sector breakthrough
According to economist Pham Chi Lan, in order to achieve further economic growth, Vietnam will need to initiate fundamental institutional breakthroughs, especially in allocating more resources for the private sector.
“Clearly, a market economy institution has not fully formed in Vietnam. The legal system and policies claim to support free and equal competition among economic sectors, but in practice, we allocate far too much for the public sector.”
Meanwhile, the private sector, which comprises small and medium enterprises and farmers that make up the vast majority of the economy, still has difficulties accessing resources and capital, she said.
Concurring, Bao said Vietnam currently has many state-run companies heading industries. “These ‘state-owned alpha wolves’ ideally should be leading for enterprises following behind them, but if policies are not applied to create a fair playing field, they can get so big as to discourage or push out private sector competitors.”
Focusing on the private sector but continuing many privileges for state-owned enterprises is not advisable, Bao said. The private sector, unlike the sheltered public firms, is forced to manage and innovate, and this will be the main driving force for the economy going forward.
Two other bottlenecks, which had been mentioned in detail at the 11th Party Congress 10 years ago, and were included in the 2010-2020 strategy but have not been fully implemented, need to be addressed, Lan said.
“Human resources is a major bottleneck causing the country to be held back by decades. Thirty-five years after ‘doi moi’, Vietnam still produces the lowest level of added value and lowest income, although nominal gains have been high.”
According to General Statistics Office, based on purchasing power parity (PPP) at 2011 constant prices, Vietnam’s overall labor productivity was estimated at $11,142 in 2018, 7.3 percent of Singapore, 19 percent of Malaysia, 37 percent of Thailand, 44.8 percent of Indonesia and 55.9 percent of the Philippines.
The other area that needs improvement is infrastructure. In the past few years, infrastructure has seen the highest financial investments among the three bottleneck areas, with the Ministry of Planning and Investment estimating that about 85 percent of government spending is on infrastructure.
“However, Vietnam’s infrastructure network still has many shortcomings. It is not synchronous and uniform among regions, and it has not created the desired level of connectivity. In places most urbanized, infrastructure is most congested, while localities with little development have little infrastructure, or investment has not been efficient,” she added. This bottleneck needs to be removed if Vietnam is to integrate globally.
Vietnam’s economy grew at 2.91 percent last year, down from 7.02 percent last year, as a result of the Covid-19 pandemic. The nation targets a GDP growth of 6.5 percent this year.
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