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Economic Forum: delegates on Viet Nam’s development
18 | 06 | 2007
Delegates at the Viet Nam Economic Forum on April 23 voiced their opinions about Viet Nam’s integration and development. While praising the country’s economic growth which transformed a poor and war-torn nation into a success story, they also spoke of challenges ahead.
Ayumi Konishi, Country Director, ADB President Mission, Viet Nam, said: A further integration of Viet Nam's economy into the global and regional economy will help stimulate structural reforms, open access to markets, access to capital and technology, resulting in higher productivity of the economy. Globalisation and regional integration brings opportunities but also challenges. Competitiveness is the biggest challenge for the leaders of Viet Nam and of Vietnamese enterprises, particularly as 95 percent of the domestic private sector are SMEs and many of them have limited technological capacity and competitiveness. The shortage of skilled labour, inadequate infrastructure - e.g. a shortage of energy, a bottleneck of ports, roads - if not addressed properly will create constraints in realising the benefits of integration, hindering the development in the future. Viet Nam's development path is rosy but not without thorns.

Reflecting our optimism with caution, therefore, we often note that Viet Nam should dream with its eyes wide open.

To maximise the benefits from integration and minimise the risks, the Government needs to maintain sound macro-economic management, strengthen the financial systems and the corporate sector, and improve economic efficiency and competitiveness, while in parallel also strengthening social protection for vulnerable people and ensuring the access of people to basic public services.

ADB has been actively supporting Viet Nam in its development process and is very proud to be a development partner of Viet Nam, particularly at this critical stage of its development.

Former Deputy Prime Minister Vu Khoan said: The Government has regarded institutional and administrative procedure reforms as the major break-throughs of its administrative reforms.

As a result, the key things to be done in the coming time are as follows:

Firstly, further completing the legal system to build complete market institutions and fulfill international commitments, especially WTO commitments.

Secondly, reviewing and removing troublesome procedures hampering people and businesses. Notifying the public of all processes, durations and persons in charge.

Thirdly, it is expected that the State apparatus will be further improved after the XII National Assembly Election in May, moving towards a multi-disciplinary and multi-sector function, removing the "ministry in charge" system to concentrate more on state management while continuing to delegate management authority to and strengthening the capacity and responsibility of local governments at different levels.

Fourthly, further stressing the education and training of a more professional and committed civil servant force to better serve the people and businesses; boosting the fight against corruption as regulated by the law. At the same time, the Government will formulate a unambiguous, transparent system of official business to encourage civil servants.

Fifthly, speeding up the reorganisation and equitisation of state-owned enterprises, including a number of large corporations in the manufacturing and service industries, while improving their effectiveness. The State only holds dominant stakes in certain areas related to public services for the sake of socio-economic stability.

Shozo Sakata, Institute of Developing Economies, Japan External Trade Organisation, said:

"To become an industrial country by 2020" officially became one of Viet Nam's most important development tasks during the 8th Party Congress held in 1996.

One may suppose this task is feasible for the country where over-8 percent GDP growth was achieved in 2005 and 2006. However, to maintain high growth for another 10 years or more will be a big challenge.

We should look carefully at the substance of Viet Nam's economic development.

Data on Viet Nam's export structure suggests that Viet Nam is still a raw material and agriculture-based economy. Viet Nam has increase export value by more than 20 percent annually during the last few years, which has contributed much to its economic development. However, Viet Nam's export still relies dominantly on natural resources and raw materials which are prone to international price fluctuations, and also on low value-added light industry products which face tough competition with other developing countries.

Development of the manufacturing sector is beneficial for a country's economy, since it can generate employment and produce more value (at least more than agriculture). The manufacturing sector is a fast growing area in Viet Nam, but still accounts for as small as 20 percent of the GDP. According to the author's very simplified calculation, Viet Nam's manufacturing sector will need to grow by more than 11.5 percent annually for another 13 years, until the share reaches 30 percent of the GDP (around same share as Thailand of 1995).

For the "late-comer" of economic development like Viet Nam, an effective way to develop the manufacturing sector is to attract FDI. FDI can fill the gap of low investment capital, generate employment, and bring advanced technology to the local industries.

However, [we] suggest that high expectations of FDI, which Viet Nam is presently enjoying, might not last long unless some bottle-necks and problems are removed. It is obvious that Viet Nam needs something more attractive than inexpensive labour for its future growth. One answer is high quality labour to serve the FDI sector. High quality labour can attract more FDI because they produce higher value-added products, which offset increasing labour costs. "High quality" does not simply mean speed and accuracy in their work. It also includes the capacity to take on more functions, such as R&D. Another possibility is the creation of a more preferable business environment for FDI. As noted above, infrastructure and the legal environment are the two big concerns for Japanese investors and these are the areas the Vietnamese authorities are presently tackling hard for improvement.

Moreover, business would be more profitable for foreign manufacturers if they could create an effective relationship with local entities. If part of their production can be localised, it could be a big cost-cut. They usually seek reliable parts and material suppliers at the local level because it is cheaper than importing. FDI enterprises are willing to cooperate with local partners if it can reduce their production costs and business risks.

Jeremy Amias, Citi's head of Asia-Pacific Fixed Income, Currencies and Commodities Department, spoke of international bond issuance from Vietnamese companies and the outlook for Viet Nam: Macro-economic conditions in Viet Nam continue to remain highly favourable. In line with Citi's expectations, Moody's raised the country's credit rating to a positive outlook in March and WTO entry boosted an already strong FDI.

Citi is seeing more international investors interested in buying Vietnamese assets and the yield for the US dollar Viet Nam government bond is now at close to a record low. Domestic companies can take advantage of this demand and raise cost-effective debt capital.

The government blazed a trial by issuing a highly successful debt offshore issue in 2005. Citi was honoured to play a role and follow-up issues from the government would be just as successful and help in the establishment of an offshore credit curve for Viet Nam.

This would help other state-owned companies who will be looking to raise debt financing offshore to increase their competitiveness. We at Citi are hopeful that we can play a key role in this as we are a leading debt underwriter and we are determined to play a pivotal role in the internationalisation of Vietnamese companies.

The local capital markets are also developing at a rapid pace. Citi is already a leading market maker in the local government bond market and we look forward to assisting in the further development of Viet Nam's local bond market

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