Unlike many economists at the workshop on Vietnam Business Outlook 2019 recently held in Ho Chi Minh City, PhD. Vu Thanh Tu Anh, a member of the Prime Minister’s Economic Advisory Group, director of Fulbright School of Public Policy and Management, forecasted not-so-bright economic prospects for Vietnam from 2019 onwards and warned business people to be more cautious.
Sharing with nearly 300 business people at the workshop, PhD. Tu Anh has given his candid view on the "new norm" and the effects of the declining global economy, the decrease in trade, investment and capital flows as well as the China-US trade war on the bleak outlook of Vietnam's macroeconomy.
The world economy showing signs of decline
PhD. Vu Thanh Tu Anh acknowledged that compared with other major economies, Vietnam is among the most open economies. Hence, any changes in the world will immediately and immensely affect Vietnam.
After the 2009 crisis, the global economic growth decreased and met difficulty in restoring its growth rate as in 10 to 15 years ago. This "new norm" is applied for all nations, including Asia and Vietnam, said Tu Anh.
About 20 years ago, Vietnam’s economy grew at 9.6 - 9.7 per cent, but now it is difficult to see the rate go beyond 7 per cent. In 2018, Vietnam has witnessed a very high growth rate but only around 6.8 - 6.9 per cent.
Besides, the potential risks from some countries having a close economic relationship with Vietnam, such as China, are also very high. Currently, China has a very high debt ratio and many of its debts are not regulated, so they are just like loose cannons to Vietnam.
China has recently devalued the Yuan, which has fallen by 9 per cent compared with four months ago. If China cannot efficiently manage its exchange rate, capital inflows from China will be lost abroad, making China's financial economy unstable.
One of the reasons for the global GDP decline is the increase in global value chains, which reduces import and export.
Even major financial and economic institutions like the International Monetary Fund and the World Trade Organisation cannot predict the coming changes in the global economy, so businesses should always be alert.
The US-China trade war has even affected the manufacturing industry, in particular, regarding financial rates and capital flows.
Central banks around the world are raising interest rates. As a result, consumer demand will decrease and exports will be more difficult.
Global capital inflows in 2018 are estimated to decline by about 23 per cent from 2017, a plummeting drop. New FDI projects or cross-border M&A deals have also decreased. Vietnam's investment this year has also shown a decline.
"What can Vietnam gain from the US-China trade war?"
First of all, with or without Trump, this trade war would still break out as it has a consensus from both Democrats and Republicans. Moreover, in essence, this is a war to reorganise the world order and for America to regain its dominance over the world.
In 2014, Xi said, “China has done hiding itself to wait for the right time". Since then, China has followed a different path: exercising empowerment and confronting the West.
Facing such a rising and ambitious China, Trump is forced to act. Looking back on the US-led trade wars in the past, the US often provided countermeasures when the opponent's GDP was approximately 60 per cent of its GDP. Its first opponent was Japan in the 1990s and now, China.
This war will prolong; it is the war of the 21st century that shapes the world history.
The question of what Vietnam benefits from this trade war is not valid. Our gain in some industries such as footwear and agricultural products are nothing compared with the much larger risks that we have to face.
With tariffs imposed on US$200 billion valued items and more, China’s imports into the US comprise of: 20 per cent is machinery and equipment, 25 per cent is electronics, and 17 per cent is wooden furniture. If any, Vietnam will be more advantaged in these areas only because our goods will be cheaper compared with China.
However, if calculated more carefully, the kinds of goods that Vietnam benefits are only worth US$13 billion, a negligible part in Vietnam’s export turnover. Even more, textiles and footwear, Vietnam’s two most exported goods to the US, do not make it in this list.
A murky economic outlook for Vietnam
The total budget revenues of Vietnam are currently not enough to cover expenditures and debt repayments. This situation has prolonged for the last six years, so we have had to issue new debts to maintain this deficit. This move puts a tremendous pressure on Vietnam’s economy.
This year, the Ministry of Finance has come up with numerous "initiatives" to raise many kinds of taxes such as VAT, gasoline tax, and a lot more. Overlapping taxes and fees are making people extremely frustrated!
Localities managing their own budget have to increase the part returned to the State. Typically, Ho Chi Minh City pays 82 per cent of their revenue back to the State and keeps only 18 per cent for itself. Since the State is short of money, it will ask more from the more successful cities.
To fulfil its growth objectives, Vietnam is heavily dependent on credit and FDI enterprises like Samsung. This situation has been going on for years.
The bottlenecks of the Vietnamese economy remain, which are the policy, the infrastructure and now, a giant one, a bottleneck of technology. This is ridiculously shown in the battle between Grab and Vinasun, with the win on Vinasun, unfortunately.
This is a very dangerous way of thinking, as technology cannot flourish. Many recent laws that I have observed also do not support technology advancement.
Regarding a boost for Vietnam's growth in the future, the most important is institutional reform. It is necessary to change the mindset so that Vietnam will not fall into the middle-income trap, which the media have long mentioned.
Furthermore, the State must develop the private sector. 15 years ago, Vietnam's private sector accounted for about 9 per cent of GDP and this figure remains the same until today. Things have not changed even though there are nearly 600,000 businesses across Vietnam now. Obviously, we have to reconsider the measures to help Vietnam’s private enterprises.
Regarding trade agreements, we always have the trade deficit with our counterparts. The reason is that our limited capacity. In the integration process, we have to maintain our competitiveness while taking chances.
Lastly, it is the urban matter. 10 years ago, the total contribution of five centrally-run cities took up 36 per cent of Vietnam’s GDP, but that figure has not changed much so far. The reason is that the growth rate of these cities does not exceed one of the whole country.
We need to focus more resources on these cities to create a driving force for the whole economy, because in the 21st century, basically, the competition is between large cities. The technology revolution will take place in urban cities, as they have the infrastructure, financial flows, and high-quality human resources. However, our current urban infrastructure is flooded, polluted, overloaded, and many other problems that are waiting for a proper solution.