The economy has shown symptoms of ‘depression’ disease: Inflation fell to below 7 percent a year and lending interest rates plunged steeply from 21 percent per annum to 11 percent, but credit growth slid to only 9 percent a year and even a much lower rate if inflationary factors were taken into account. The economy was hungry for capital but capital could not be digested. Capital turnover reduced from 2.5 cycles a year previously to only one cycle at present – a herald of economic stagnation.
Integration is always an opportunity
Despite continued financial and monetary volatility (e.g., reduced cash flows after the US Federal Reserve trimmed the scale of quantitative easing (QE) from US$85 billion to US$75 billion a month), international financial institutions agree that the world economy is forecast to have continued slow recovery where East Asia remains a locomotive, driven by China’s economy which was expected to expand over 7 percent. The US economy will maintain economic recovery momentums and the European Union economy will gradually solve its debt crisis. If the Bali Agreement concluded on December 7, 2013 by the World Trade Organisation (WTO) is approved by its member nations and exports are more favourable, global GDP may grow by US$1,000 billion and 21 million new jobs will be created worldwide. Foreign investment and financial investment will be increased and the competition for capital will be further intense.
Scientific and technological innovation will be the key factor to enhance the national and corporate competitiveness. Economies with strong scientific resources and innovations will continue to achieve growth.
From now to the end of 2015 is the race stage for the establishment of the ASEAN Economic Community (AEC) with a common commodity market, an opening services market, free financial capital flows and free skilled labour mobility across member countries.
The prospect of concluding the Trans-Pacific Partnership Agreement (TPP) has also strongly stimulated foreign investment flows into Vietnam, expressed by a total registered capital value of US$20.2 billion in 2013.
All these important integration steps will open up great opportunities and unprecedented enormous challenges to the economy and businesses of our country.
Crisis bottoms out, but future economic performance remains unknown
Vietnam’s economy was deemed to bottom out in 2013 as its GDP growth (estimated at 5.4 – 5.5 percent) was higher than in 2012 amid lower inflation growth, lower interest rates, stable exchange rates, foreign reserves that set a record high of 3.2 months of imports, and high export growth (15.6 percent) that peaked US$132.2 billion – a relatively high rate in the ASEAN region. With this foundation, the Government expects to maintain macroeconomic stability policies plus economic restructuring efforts.
Paradoxically, despite remarkable achievements 2013, local enterprises continued to face acute difficulties. Even farmers suffered huge failures in product consumption. Growers in 22 out of 63 provinces and cities abandoned farming land because incomes are disproportionate to their efforts and investments. Economic growth in 2013 was mainly driven by exports and foreign enterprises while the number of domestic enterprises filing for bankruptcy or operational terminations increased 8.4 percent over 2012 and up to 65 percent of companies operated without profit. The most active and biggest job-creating private sector – an important element of the doi moi process – suffered huge losses and the time of recovery remains unknown. In 2013, the Government issued a lot of measures and policies to support small and medium enterprises (SMEs) like tax break and credit guarantee fund but not many were able to access these because of many obstacles.
Especially, banking and real estate labourers have their salaries cut or even faced layoffs. Prospects remain very gloomy in 2014.
However, some businesses continued to stage strong and steady growth like Vinamilk, Viettel, Minh Long Ceramics or Rangdong Light Source and Vacuum Flask Joint Stock Company. These successful companies focused on core businesses, used modern technologies, and introduced new high-quality products. Other companies should to learn the experience of these successful firms.
Moreover, the economy has shown symptoms of ‘depression’: Inflation fell to below 7 percent a year and lending interest rates steeply plunged from 21 percent per annum to 11 percent, but credit growth slid to only 9 percent a year and even a much lower rate if inflationary factors were taken into account. Worrisomely, the credit growth of Hanoi was just 4.56 percent and if inflationary factors were taken into account, it had to be a negative growth. In other words, the economy was hungry for capital but capital could not be digested. Capital turnover reduced from 2.5 cycles a year previously to only one cycle at present – a herald of economic stagnation.
Moreover, inflation slowed down but public consumption did not increase:
Vietnam’s household spending rose only 5.1 percent in the 2009-2012 period, compared with 8.9 percent in the 2004-2008 phase. If inflationary factors are taken into consideration, actual spending did not increase, some groups even saw a decline. Public purchasing power has fallen to a very low level, evidenced by the very poor sales of many goods and increased inventories, estimated to increase about 9.4 percent over 2012.
The market demand during public holidays like Christmas and New Year also seriously declined. Public faith in economic growth prospects has yet to be restored.
Another paradox is that while economic growth was higher and many macroeconomic indicators progressed, the State Budget confronted unseen difficulties in the past 30 years: Budgetary revenue plunged and fell short of estimations. In the meantime, corporate income tax taken from State-owned enterprises (SOEs) slid 20 percent since many reported losses. Exports soared but export taxes were modest as 65 percent of exports were contributed by foreign-invested enterprises which were granted a lot of incentives, including tax cuts. Budgetary difficulties forced the Government to surrender on many fronts. It could not boost public investment or launch a stimulus package to spur economic growth.
Public debt worryingly increased. If debts incurred by SOEs like Vinashin and Vinalines are counted, the debt rate was out of the safety range.
Bad debt, which is compared to a blood clot of the circulatory system, continues to discourage credit growth and remains an unknown concern. It is very hard to imagine the size of the bad debt problem if we look at the actual quality of bad debts of seven banks, lending to Truong Ngan Company with security assets being a falsified coffee store! It is also extremely difficult to know how much as worse security asset as Truong Ngan’s is in the banking system. And, how will Vietnam Asset Management Company (VAMC) address this type of assets?
Similarly, how much capital is being trapped in real estate market? It is said that the amount must be VND1,000,000 billion, while the value reported by localities far exceeds it. Hence, dealing with this property stockpile will need much time.
Our economy is clearly underperforming. Robust institutional and policy restructuring and reform will promote the entrepreneurial spirit of nationalistic business community. That is also hope of the business community in 2014.
Le Dang Doanh
Đăng ký: VietNam News