Vietnam in search of new growth drivers

It is necessary to increase the speed, scale and quality of restructuring programmes

Vietnam is halfway through its economic restructuring plan for the 2016-2020 period, with such bright spots as macroeconomic stability, a recovery to high growth and improved growth quality.

The period has also witnessed a positive trend as Vietnam’s GDP growth no longer relies primarily on credit growth or the mining of natural resources. But overall, the economic restructuring process remains sluggish and many targets might not be met.

Preliminary data released by the Central Institute of Economic Management (CIEM) shows that among the 120 tasks outlined in the government’s Resolution 27/2017/NQ-CP, only 25.8% have produced visible results, while 57.5% have been carried out without any visible results and the remaining 16.7% have yet to produce any results.

At this pace, the CIEM stated that 41% of the tasks face the risk of being unfulfilled, while the ratio of tasks that could be completed is only 24%.

Restructuring the economy is an urgent demand as Vietnam has maintained an unproductive growth model, which is effectively an unfair resource allocation system, for a prolonged period.

However, after finishing the first period of restructuring (2011-2015) and entering the second restructuring period, the allocation of resources has seen little changes and resources have not been re-allocated in a more effective way. The Vietnamese economy has experienced a slow transition from agriculture to industry and services, from the informal to the formal sectors and from rural to urban areas.

The worry is that the current growth drivers have run their course and are becoming less effectual in propping up growth. Take industrial production for an example. A number of sectors have reached their peak and are unlikely to grow further because the growth drivers based on oil and coal mining or the contributions of the Samsung and Formosa projects and remittances have been maximised without any room left for strong growth as in previous years.

If no changes are made to the mind-set, institutional reforms and the allocation of state resources, maintaining high and sustainable growth will be the greatest challenge to the Vietnamese economy.

In order to look for new growth drivers in the years ahead, ministries, agencies and research organisations, both at home and abroad, have proposed many solutions, which put a particular emphasis on increasing the speed, scale and quality of restructuring programmes, as well as pushing through state-owned enterprise reforms to re-allocate resources and move resources from ineffective to more efficient users.

In the medium and long term, the Vietnamese economy will grow on the two dynamics of the market and digital economies. This is a once-in-a-lifetime for Vietnam to take advantage of the fourth industrial revolution in order to catch up with the other regional countries. Therefore it is necessary to formulate new proposals for the 2021-2030 period and beyond in order to ride the fourth industrial revolution in a substantive manner.